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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,
    2002                                            
|[  ]       |  | 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.  o

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 28, 2002
(based on the closing price of $16.20 per share as quoted on The
Nasdaq Stock Market as of such date) was $287,591,221. As of
March 19, 2003, there were 18,746,075 shares of the
registrants Common Stock outstanding.

Documents Incorporated by Reference

|                                    |  |                             
|----------------------------------- |  | ----------------------------
|Document of the Company             |  | Form 10-K Reference Location
|                                    |  |                             
|2003 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, 2002

TABLE OF CONTENTS

|               |  |                                                                                                    |  |   
|-------------- |  | -------------------------------------------------------------------------------------------------- |  | --
|PART I        
|Item 1.        |  | Business                                                                                           |  | 2 
|Item 2.        |  | Properties                                                                                         |  | 20
|Item 3.        |  | Legal Proceedings                                                                                  |  | 21
|Item 4.        |  | Submission of Matters to a Vote of Security
    Holders                                            |  | 21
|PART II       
|Item 5.        |  | Market for the Registrants Common Equity
    and Related Shareholder Matters                      |  | 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                                     |  | 34
|Item 8.        |  | Financial Statements and Supplementary Data                                                        |  | 35
|Item 9.        |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |  | 35
|PART III      
|Item 10.       |  | Directors and Executive Officers of the Company                                                    |  | 35
|Item 11.       |  | Executive Compensation                                                                             |  | 35
|Item 12.       |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Shareholder Matters |  | 35
|Item 13.       |  | Certain Relationships and Related Transactions                                                     |  | 36
|Item 14.       |  | Controls and Procedures                                                                            |  | 36
|PART IV       
|Item 15.       |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                                |  | 37
|Signatures     |  | 39                                                                                                
|Certifications |  | 41                                                                                                





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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 integrated
telecommunications services to residential and business
customers located primarily in North Carolina. We offer a
comprehensive package of telecommunications services, including
local and long distance telephone, Internet and data services
and digital wireless 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 1997, 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 2000, we have pursued our Greenfield
business in high growth communities, including those in the
Charlotte and Raleigh, North Carolina markets. We are working
with developers and builders to become the preferred
telecommunications provider for their developments. Under
these agreements, 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, Greenfield, and other business and residential customers.
These services include dial-up and high speed dedicated Internet
access, Web hosting, electronic commerce applications 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, Inc.
(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.

On February 24, 2000, the Board of Directors
declared a two-for-one stock dividend payable on April 5,
2000 to shareholders of record on March 15, 2000.

Effective January 28, 1999, our Voting
Common Stock and Class B Nonvoting Common Stock were
converted into a single class of Common Stock (the
Recapitalization). Pursuant to the Recapitalization,
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 Nonvoting Common Stock into 4.0 shares of
Common Stock. Cash was paid in lieu of issuing any fractional
shares.

All share and per share amounts in this Annual
Report on Form 10-K have been adjusted to reflect the
two-for-one stock dividend and Recapitalization.

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
nearly 120,000 access lines in Cabarrus, Stanly and Rowan
counties in North Carolina. Our ILEC network facilities include
nearly 17,000 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 64%, 70% and 83% of our operating revenue in the
years 2002, 2001 and 2000, respectively. This percentage has
decreased over the past three years as we have grown our other
products and services into significant operations. Nevertheless,
we continue to expect Concord Telephone to account for a
significant portion of our revenue and earnings in 2003.

Concord Telephone ended 2002 with 119,745 access
lines in service, a 1.6% decrease from year-end 2001. Of those
lines, 84,591 selected us as their long distance provider, as
compared with 83,820 lines at year-end 2001. The Company
recently performed a review of reported line counts across all
business units to ensure consistent and uniform line reporting.
As a result, the Company reduced previously reported
December 31, 2001 total ILEC access lines by 1,952 lines,
representing a less than 2% reduction. This line adjustment does
not affect reported revenues or expenses.

The continued economic slowdown experienced in
2002, as well as the impact of wireless and other substitute
services had an adverse effect on the ILEC line count.
Throughout the three-year period ending in 2001, the ILEC was
experiencing access line growth, with growth in the business
market outpacing that of the residential market. In 2002, the
ILEC showed a net line loss of both business and residential
lines at approximately the same rate.

Continued high customer satisfaction remains a
top priority, and our efforts are directed accordingly. We have
implemented a number of performance and satisfaction measures in
our operations and continue

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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.


We will be focusing our sales efforts in 2003 on
increasing our revenue per customer through continued emphasis
on incremental calling features. Eligible access lines with at
least one calling feature increased from 44.4% in 2001 to 46.2%
in 2002. The average number of calling features per line
increased from 2.6 in 2001 to 2.7 in 2002.

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 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. In 1996, we began conversion
to a Nortel DMS 100/200 network switching platform. 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. At the
heart of our network is 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, we experience a risk that the
difficult financial conditions may affect these companies
ability to provide enhancements to the services that this
equipment provides.

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. 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 Federal Communications Commission (FCC) and
North Carolina Utilities Commission (NCUC) continue
to modify various rules surrounding local competition.

The FCC governs our ILECs rates for
interstate access services. The FCC acted on the petition of the
Multi-Association Group Plan by issuing an order in November
2001. The first result of this order was a rebalancing of rates
between interexchange carriers and end users. Wholesale rates
charged to interexchange carriers were lowered and the
subscriber line charge to end users was increased dramatically.
In 2002, the rebalancing resulted in an increase of the
residential subscriber line charge to $6.00 and a reduction of
the carrier common line charge. The rebalancing is expected to
be complete in 2003. The rebalancing is expected to be revenue
neutral overall to our ILEC.

The FCC has also acted on the Rural Task Force
proposal by the Federal-State Joint Board on Universal Service
that would create a new explicit universal service High Cost
Fund III subsidy, which in

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addition to existing universal service subsidies,
would be portable to competing carriers. We currently only
receive Long Term Support. In 2002 we received approximately
$1.2 million in Long Term Support.


The FCC concluded its Triennial Review of
unbundled network elements platform (UNE-P) in early
2003. Based on the FCCs press release they partially
deregulated ILEC broadband facilities and allowed states to
determine the availability of UNE-Ps to CLECs. The FCCs
order has not been released and is likely to be contested in
court. Our ILEC has not had a request from a CLEC for UNE-P.

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 charges 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 is also subject to adjustment for certain
external events outside of our control, such as jurisdictional
cost shifts or legislative mandates. In both September 2002 and
September 2001, we were allowed to rebalance our 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 and
a decrease in access charges paid by interexchange carriers and
a decrease in rates paid by end users for an expanded local
calling scope. The price regulation plan was scheduled for
review by the NCUC prior to the fifth anniversary in September
2002, but did not occur in 2002.

We believe the plan will likely be reviewed
during the second half of 2003, or the first half of 2004. Based
on the results of this anticipated review, the plan may be
subject to modification by the NCUC.

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 services,                                              
|
| |  | technological advances in transmitting voice,
    data, video, and cable telephony services,                                                
|
| |  | development of fiber optics and digital
    electronic technology,                                                                          
|
| |  | the advent of competitors in the yellow pages
    market,                                                                                   
|
| |  | a decline in the level of access charges paid by
    interexchange carriers to local telephone companies to access
    their local networks,
|
| |  | legislation and regulations designed to promote
    competition and                                                                         
|
| |  | wireless substitution.                                                                                                                      

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 are the wireless service providers
serving our traditional service area.

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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 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) and Alltel Corporation
(Alltel).

At December 31, 2002, we were providing
competitive local access to customers served by more than 27,000
access lines in select markets in North Carolina. In order to
position ourselves to achieve our business objectives, we will
focus our efforts in 2003 on achieving increased market
penetration and higher revenue per customer in the markets where
we currently provide service. The CLEC accounted for
approximately 10%, 8% and 4% of our operating revenue in the
years 2002, 2001 and 2000, respectively.

Our CLEC business group employs the same sales
strategy as our ILEC business group, using locally-based account
executives who 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 our 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 groups.

We deploy a facilities-based network in our
expansion markets, collocating our own remote concentrating
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 copper and 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 and may
build our own outside plant network in those locations where a
significant concentration of customers exist which 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
network facilities. In 1996, we installed a Nortel DMS 500
switch in Charlotte that permits us to switch the local traffic
from our CLEC and all of our long distance traffic.

Regulation.In
general, our CLEC establishes its own rates and charges for
local services and is subject to less extensive regulation as
compared to our ILEC. However, like our ILEC, our CLEC must
comply with various rules of the NCUC and the South Carolina
Public Service Commission 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. Although the switched access rates
do decline, there is an expected certainty of payment by
interexchange carriers. The FCC also adopted rules in 2001 that
impact the amount of reciprocal compensation due for Internet
Service Provider dial-up traffic terminated by CLECs. This may
reduce the overall percentage of revenue received from
reciprocal compensation. In late 2001, the FCC began a triennial
review of its policies on unbundled network elements
(UNE). The FCC concluded its Triennial Review of
unbundled network elements in early 2003. Based on the
FCCs press release they partially deregulated ILEC
broadband facilities and allowed states to determine the
availability of UNE-Ps to CLECs. The FCCs order has
not been released and is likely to be contested in court. Our
CLEC does utilize UNE-Ps; however they constitute a
relatively small percentage of total lines.

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

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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.


Competition.Our
CLEC competes primarily with local incumbent telephone companies
and, to a lesser extent, with other CLECs. Due to the financial
difficulties experienced by other CLECs in the current
telecommunications market, we expect the competition to be even
stronger as the remaining companies fight to survive. We also
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
wire line telecommunications services to commercial and
residential developments outside of our ILEC service area. While
most of these developments are located in North Carolina, we
also provide competitive local access in Georgia. At
December 31, 2002, we were providing service to more than
6,500 access lines in select markets in North Carolina and
Georgia.

Our Greenfield business develops relationships
with builders and developers to gain the opportunity of
providing integrated telecommunications service in their new
developments. We enter into preferred telecommunications
provider agreements with those developers and builders prior to
construction in order to offer local service, long distance and
enhanced voice services, and Internet and data services to the
businesses and residents who will populate the development. As
of December 31, 2002, we had signed more than 70 agreements
that are expected to provide more than 40,000 access lines 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 deploy our own remote
concentrating equipment, as well as build a distribution system,
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 gain capital and operating efficiencies that will
contribute to increased profitability. In 2001, we began
providing service to customers at Discover Mills Mall in
Georgia. In 2002, we initiated service to Triangle Town Center
Mall in Raleigh, North Carolina. Due to the high density of
customers associated with the malls and surrounding areas, we
believe these projects will quickly have a positive effect on
our revenue.

Regulation.In
general, the Greenfield business establishes its own rates and
charges for local services and is subject to less extensive
regulation as compared to our ILEC. However, like the ILEC, our
Greenfield business must comply with various rules of the NCUC
and Georgia Public Service Commission governing quality of
service, consumer protection and similar matters. The FCC has
jurisdiction over our Greenfield interstate services, such as
access service.

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 (they contain a preferred provider arrangement
instead), 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.

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

7



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Digital
Wireless Services

We offer digital wireless services in Cabarrus,
Stanly, Rowan and Iredell counties in North Carolina. We now
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
20 indirect retail outlets in North Carolina. We have company
owned retail stores in Concord (3), 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, 2002, we served
over 33,000 digital wireless customers. Our digital wireless
business accounted for approximately 17%, 13% and 7% of our
operating revenue in the years 2002, 2001 and 2000, respectively.

In June 2001, we partitioned our area of the
Cingular digital network by paying approximately
$23 million to Cingular. 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, which is approximately twice the
size of our ILEC territory, contains a population of
approximately 440,000 people. 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 requirements, offering partnership service
plans and adherence 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 other wireline products and services and can customize
pricing plans based on our customers needs. Additionally,
our agreement with Cingular allows us to benefit from a
nationally recognized brand, provides us access to favorable
manufacturing discounts for cellsite electronics, handsets, and
equipment, and enables us to participate in shared market
advertising.

Until September 2000, we owned a limited
partnership interest in BellSouth Carolinas PCS, L.P. (the
DCS Partnership), which included BellSouth, a
subsidiary of Duke Energy Company, a subsidiary of Progress
Energy and approximately 30 other independent telephone
companies. In 2000, BellSouth purchased the partners
interest in the DCS Partnership, which owned a 100% digital
communications network in North Carolina and South Carolina,
covering an area with approximately 12 million people.

Cingular was formed by the combination of most of
the former domestic wireless operations of BellSouth and SBC.
BellSouth has an approximate 40 percent economic interest
in Cingular, and SBC Communications has an approximate
60 percent economic interest. Cingulars digital
wireless network in the Carolinas is based on Global System for
Mobile Communications (GSM) wireless technology,
which offers advanced services and functionality, secure
communications, digital voice quality and national and
international roaming. GSM technology is proven technology used
by more than 690 service providers in over
193 countries and by more than 824 million customers
worldwide. GSM provides our customers with extensive roaming
capabilities both nationally and internationally. Cingular is
deploying high-speed General Packet Radio Service or
GPRS, throughout its cellular and PCS networks and
has recently introduced this service in its North and South
Carolina markets. In 2002, Cingular increased the capacity,
speed and functionality of its cellular and PCS networks by
overlaying GSM voice and GPRS data technology on its existing
Time Division Multiple Access (TDMA) network,
thereby adopting the GSM standard for all of their wireless
markets. This overlay should further enhance the service and
roaming opportunities for our customers. Additionally, Cingular
has indicated an intent to upgrade its GPRS markets to a next
generation, or 2.5G, technology known as Enhanced
Data Rates for Global Evolution, or EDGE, beginning
in 2003, when software is expected to be available. Completion
of the deployment of this technology is anticipated to take
place in early 2004.

In 2002, we completed the construction of 21
additional cell sites. We expect to add an additional eight
locations in 2003. These additional cell sites should increase
coverage and capacity throughout our serving area.

8



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##### 



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, they assume 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 is
requiring wireless carriers to implement local number
portability in late 2003. Local number portability could
increase customer churn.

Competition.Many
wireless carriers compete in the Charlotte metropolitan area,
including AT&T, Nextel, Sprint PCS, Alltel, Verizon, Cricket
Wireless and Cingular. This competition has led to intense
pressure on the pricing of 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 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 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 elimination of our web design services but
continue to offer all other products. At December 31, 2002, we
had over 19,000 Internet customers.

Internet Access
Service.We offer a variety of dial-up
and dedicated access 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 full range of Internet
    applications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | 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 service is available at speeds up to
    768 Kbps and ADSL service is available at speeds 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 3,200 in 2001 to 6,664 in 2002.
|
| |  | 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
    11% in both 2002 and 2001 as customers continue to demand higher
    speed broadband products.                                                                                                                                                                                                                                                                                                                                                                                                       

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

9



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##### 



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.In
general, Internet and data services are not regulated at the
federal level. However, in 2001 the FCC decided that Internet
traffic will be classified as Information Access and could
therefore be subject to a lower rate of reciprocal compensation
than local traffic. This determination had no impact on our
Internet and data services business.

Another significant issue facing Internet service
providers is whether they will be given access to broadband
systems operated by cable television companies. Internet service
providers generally believe that such mandatory access is
appropriate and would allow them to provide competitive
high-speed broadband service to more customers. For example,
AOL, as the worlds largest Internet service provider,
strongly advocates open access, although it is not
currently supporting the need for government intervention to
mandate open access. Time Warner and AOL agreed, as part of
their merger, to open Time Warners cable systems to
competing Internet service providers. AT&T and Mindspring
Enterprise, Inc. (Mindspring) reached a similar
agreement. The issue continues to be debated and legislation has
been introduced in Congress to mandate access to broadband cable
networks. In early 2002, the FCC decided that cable modem
service should be classified as an interstate information
service and is therefore subject to FCC jurisdiction.

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 AOL/Time
    Warner, the Microsoft Network and Prodigy Communications L.P.,                         
|
| |  | local, regional and national Internet service
    providers, such as EarthLink, Inc. (EarthLink),                                       
|
| |  | the Internet services of regional, national and
    international telecommunications companies, such as AT&T,
    BellSouth, and WorldCom,
|
| |  | 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 84,600 access lines within our ILEC, approximately
14,000 access lines within our CLEC, and more than 2,500 lines
within our Greenfield markets. In our ILEC service area, over
70% of the total lines are subscribed to 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 reduce
our cost through 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,
WorldCom, Inc. and BellSouth.

10



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##### 



Strong competition in the market forced
significant price plan changes during 2000 and 2001 that
resulted in lower prices to customers. In 2002, we began to see
stabilization in our price plans.

Internet telephony is increasingly becoming a
potential competitor for low cost telephone service and could
adversely affect long distance revenues as well as ILEC and CLEC
access revenues. Wireless substitution has also developed into 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 early 1998, we combined our cellular telephone investments
with Palmetto MobileNet, L.P. (Palmetto MobileNet).
We own 19.8% of 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. The partnerships have faced and
will continue to face heavy competition due to the network
expansion of digital wireless competitors in their serving
areas, causing erosion of roaming revenues. We saw a reduction
in income in 2001, followed by a leveling off of earnings in
2002. We may continue to see additional pressure on earnings in
2003.

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 and had approximately 125,000
access lines at December 31, 2002.

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. Our remaining investment in Maxcom at
December 31, 2002 is $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 holds the majority of the Multichannel Multipoint
Distribution Service (MMDS) and Instructional
Television Fixed Service

11



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##### 



(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. On
March 13, 2003 the FCC suspended those build out
requirements pending completion of an examination of the rules
surrounding use of the MMDS and ITFS spectrum.


On September 14, 2001, we entered into a
Limited Liability Company Interest Purchase Agreement (the
Agreement) with Wireless One, Inc., a subsidiary of
WorldCom, Inc., WONC, and WorldCom Broadband Solutions, Inc.
Under the Agreement, WONC purchased the entire fifty percent
(50%) interest of Wireless One, Inc. in WONC. We currently own,
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 payable to Wireless One,
Inc. for the remainder. The promissory note is payable over the
10-year period following the closing, with a $7.0 million
payment due in year one, which payment may be deferred for up to
an additional two years, and the remainder payable in equal
annual installments beginning after six years. In the event the
$7.0 million payment is not made when due, either we, or
Wireless One, Inc., may 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 is secured by a pledge of WONCs channel
rights.

On July 19, 2002, the Company delivered a
Split-Up Notice to Wireless One, Inc. pursuant to
the Purchase Agreement. This notice sets into motion a process
under the Purchase Agreement pursuant to which WONC will
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. The dates on which these transactions will
be effected have not yet been determined, but are expected to
occur no later than the second quarter of 2003.

DCS Partnership.In
1994, we purchased a limited partnership interest in the DCS
Partnership. In September of 2000, BellSouth purchased our
interest for $39.2 million.

Passive Investments.Our passive investments consist of equity interests in several
private and public companies. We own 4.4% of ITC Holding
Company, which participated in the formation of a number of
telecommunications companies, including ITC DeltaCom, Inc.,
Powertel, Inc., subsequently acquired by Deutsche Telekom
AGs U.S. VoiceStream Wireless unit, and MindSpring,
subsequently acquired by EarthLink.

As a result of the corporate reorganization of
ITC Holding Company in 1997, we received shares of
ITC DeltaCom. During 2000, ITC Holding announced a further
reorganization pursuant to which we received 1.6 million
shares of Knology, Inc. in April 2000, in a tax-free spin-off.

At the end of 2001, we owned approximately
220,000 shares of VeriSign, Inc. (formerly Illuminet Holdings,
Inc.). We fully liquidated our investment in VeriSign, Inc.
during the first half of 2002.

Also, from time to time we may invest in other
public and private securities of companies. The
telecommunications industry slow-down has affected our
investments and the value of many of our investments may be
affected by market conditions. We continually evaluate our
investments and may make changes in our portfolio as we deem
appropriate.

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. One of the most
publicized recent items of federal legislation was
H.R. 1542, commonly referred to as the Tauzin Dingell Bill.
This bill was designed to deregulate Regional

12



---



##### 



Bell Operating Company (RBOCs)
and allow them to offer data and Internet services across Local
Access and Transport Area (LATA) boundaries. The
House of Representatives passed this bill; however, the Senate
did not. With changes in the composition of the House and Senate
in 2003 it is likely that we will see additional legislation
potentially dealing with universal service funding and
deregulatory initiatives. At a state level, we see many states
dealing with significant budget deficits. As a result we may see
increases in certain taxes or surcharges. In addition, we may
also see legislation introduced to deregulate certain
competitive services.


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) is 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 is the task of the FCC, state public
utilities commissions and a federal-state joint board. The
Telecommunications Act makes all state and local barriers to
competitive entry unlawful, whether they are direct or indirect.
The Telecommunications Act directs 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 contains 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,
|
| |  | 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 two years and repeal or modify any that it deems to be no
longer in the public interest.

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.

13



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##### 



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 reexamine 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 Georgia Public Service Commission 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
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 beginning on page 33.

14



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##### 



Our
success depends upon our ability to manage our
expansion.

Our ability to continue to expand 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 qualified 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.

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.

15



---



##### 



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. Other
sources of competition include wireless service providers
serving our traditional serving area and voice over internet
protocol services competing for our wireline voice customers.

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, should it
occur, may 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 revenue 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 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 operations depend
significantly 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 CLEC
networks and degrade the quality of our services to our CLEC
customers. If these events occur, we may experience a material
adverse effect on our CLEC business 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. 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

16



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##### 



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.



| |                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------
| | The success of our Internet and data services
    business depends on maintaining peering and other
    arrangements.

The profitability of our Internet and data
services, such as Internet access, may be adversely affected if
we are unable to maintain peering arrangements with
Internet service providers on favorable terms. In the past,
major Internet service providers routinely exchanged traffic
with other Internet service providers that met technical
criteria on a peering basis. This means that each
Internet service provider accepted traffic routed to Internet
addresses on their system from their peers on a
reciprocal basis. Recently, Internet service providers have been
restricting the use of peering arrangements with other providers
and have been imposing charges for accepting traffic from
providers other than their peers. Although we
currently have peering arrangements with national Internet
backbone providers, we cannot assure you that we will be able to
maintain peer status with these providers, or that
we will be able to terminate traffic on their networks at
favorable prices. A failure to maintain adequate and favorable
peering arrangements may have a material adverse
effect on our Internet and data services business and the price
of our Common Stock.

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

18



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##### 



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, 2002, we had approximately
655 employees. None of our employees are 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 CT
Communications

The following is a list of our executive officers
as of March 1, 2003, 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 56, 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 Access/On Multimedia, 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.

Matthew J.
Dowd,age 40, has been a Senior
Vice President since May 2002 and directs the operations of CTC
Wireless, CLEC, Greenfield, Internet and data services and
Wavetel. He is also in charge of the Marketing organization. He
joined Wavetel as Chief Executive Officer in December 2000. From
1997 to 2000, he was the General Manager of the Mid-Atlantic
region of Omnipoint Communications, Inc., a wireless
telecommunications provider.

19



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##### 



James E.
Hausman,age 46, 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 51, has been a Senior
Vice President since January 1999 and has primary responsibility
for our ILEC, network technology and network operations. He is
Chairman of the board of directors of the Cabarrus Economic
Development Corporation and serves on the board of the Alliance
for Telecommunications Industry Solutions. From 1995 to 1998, he
was a Vice President of Standard Telephone Company. From 1974 to
1995, he was an operations director of BellSouth
Telecommunications, Inc.

Barry R.
Rubens,age 43, serves as Senior
Vice President of Corporate Development and Strategic Planning.
Mr. Rubens resigned effective March 31, 2003. He
previously served as Senior Vice President, Chief Financial
Officer, Secretary and Treasurer since 1995. He was Vice
President-External Affairs from 1992 to 1995. Mr. Rubens
serves as a director of AvidXchange and as an officer and board
member of WONC. Prior to joining us, Mr. Rubens was a
senior manager with Ernst & Youngs telecommunications
practice in Washington, D.C.

Ronald A.
Marino,age 39, 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 IT services company. From 1997 to 2000, he was the
Senior Director of Finance of Omnipoint Communications, Inc., a
wireless telecommunications provider.

Amy M. Justis,age 38, has been Vice President of Administrative
Operations since November 2002. Prior to that she served as the
Vice President of Finance and Chief Accounting Officer.
Ms. Justis also serves as Assistant Secretary and Assistant
Treasurer to the Company. From March 1999 to September 1999, she
was the Director of Finance of the Network and Carrier Services
Division (North Operations) of BellSouth Telecommunications,
Inc. From 1994 to March 1999, she was the Manager of Finance of
the Network and Carrier Services Division of BellSouth
Telecommunications, Inc.

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
between Copperfield Boulevard and Interstate 85 in Concord,
North Carolina. Our principal executive offices are in our
Corporate Center that is 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 24,830 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 general warehouse located in Concord.
This facility was completely renovated in 1991 and has
approximately 12,300 square feet of floor space.

In November 1997, we purchased 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. Additionally, in April 2001, we
purchased eight acres of land on Copperfield Boulevard.

20



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##### 



All of our central office switching equipment is
digital. In mid-1997, we began replacing Concord
Telephones digital switching platform by changing from AG
switches to state-of-the-art Nortel DMS switches.

In connection with our wireless operations, we
have entered into seven real property leases to house our retail
outlets in Concord (Concord Parkway and Waterville Commons),
Concord Mills Mall, Mooresville, Statesville, Albemarle and
Salisbury, North Carolina. An eighth location will be opening at
Northlite Commons in Kannapolis in the summer of 2003. In
addition to our Cabarrus Avenue facility, we maintain business
offices and house switching equipment in Kannapolis, China
Grove, and Albemarle, North Carolina. We also lease office space
on Cabarrus Avenue West, in Concord and on University Executive
Drive and Fairview Plaza in Charlotte, North Carolina. Our lease
in Fairview Plaza will be terminated March 31, 2003. 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.

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 2002.

PART II

Item 5.     Market
for the Registrants Common Equity and Related Shareholder
Matters

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, 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 | 
|Year Ended December 31, 2001 |                |      |   |       |  |           |   |       |  |  |   |      
|                             | First Quarter  |      |   | 18.50 |  |           |   | 11.00 |  |  |   | 0.065 | 
|                             | Second Quarter |      |   | 18.56 |  |           |   | 11.19 |  |  |   | 0.065 | 
|                             | Third Quarter  |      |   | 21.00 |  |           |   | 13.17 |  |  |   | 0.065 | 
|                             | Fourth Quarter |      |   | 18.95 |  |           |   | 13.50 |  |  |   | 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 March 19, 2003, was 2,293. 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,    
|                                    |                                                               |                             
|                                    |                                                               |                              |   | (Restated) |    | (Restated) |   | (Restated) |    | (Restated)
|                                    |                                                               | 2002                         |   | 2001(1)    |    | 2000(1)    |   | 1999(1)    |    | 1998(1)   
|                                    |                                                               |                              |   |            |    |            |   |            |    |           
|Income Statement Data:              |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|                                    | Operating revenue                                             |                              | $ | 148,056    |    |            | $ | 135,802    |    |            | $ | 115,945 |    |  | $ | 105,602 |    |  | $ | 92,706  |   
|                                    | Operating expense                                             |                              |   | 129,655    |    |            |   | 121,222    |    |            |   | 100,521 |    |  |   | 82,776  |    |  |   | 72,096  |   
|                                    |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|                                    | Operating income                                              |                              |   | 18,401     |    |            |   | 14,580     |    |            |   | 15,424  |    |  |   | 22,826  |    |  |   | 20,610  |   
|                                    | Other income (expense)(2)                                     |                              |   | 3,774      |    |            |   | (3,241     | )  |            |   | 54,354  |    |  |   | 16,397  |    |  |   | 856     |   
|                                    | Income taxes                                                  |                              |   | 8,696      |    |            |   | 4,993      |    |            |   | 27,843  |    |  |   | 15,885  |    |  |   | 8,581   |   
|                                    |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|                                    | Income from continuing operations                             |                              |   | 13,479     |    |            |   | 6,346      |    |            |   | 41,935  |    |  |   | 23,338  |    |  |   | 12,885  |   
|                                    | Discontinued operations(3)                                    |                              |   | (5,657     | )  |            |   | (5,880     | )  |            |   | (1,205  | )  |  |   |        |    |  |   |        |   
|                                    |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|                                    | Net income                                                    |                              |   | 7,822      |    |            |   | 466        |    |            |   | 40,730  |    |  |   | 23,338  |    |  |   | 12,885  |   
|                                    |                                                               | Dividends on preferred stock |   |            | 20 |            |   |            | 25 |            |   |         | 26 |  |   |         | 26 |  |   |         | 28 | 
|                                    |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|                                    | Earnings for common stock                                     |                              | $ | 7,802      |    |            | $ | 441        |    |            | $ | 40,704  |    |  | $ | 23,312  |    |  | $ | 12,857  |   
|                                    |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|Basic Per Share Data(4):            |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|                                    | Weighted average common shares outstanding                    |                              |   | 18,710     |    |            |   | 18,816     |    |            |   | 18,834  |    |  |   | 18,706  |    |  |   | 18,454  |   
|                                    | Earnings                                                      |                              | $ | 0.42       |    |            | $ | 0.02       |    |            | $ | 2.16    |    |  | $ | 1.25    |    |  | $ | 0.70    |   
|Diluted Per Share Data(4):          |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|                                    | Weighted average common shares outstanding                    |                              |   | 18,746     |    |            |   | 18,860     |    |            |   | 18,931  |    |  |   | 18,858  |    |  |   | 18,553  |   
|                                    | Earnings                                                      |                              | $ | 0.42       |    |            | $ | 0.02       |    |            | $ | 2.15    |    |  | $ | 1.24    |    |  | $ | 0.69    |   
|                                    | Dividends per share(4)                                        |                              |   | 0.26       |    |            |   | 0.26       |    |            |   | 0.26    |    |  |   | 0.26    |    |  |   | 0.24    |   
|Balance Sheet Data (end of period): |                                                               |                              |   |            |    |            |   |            |    |            |   |         |    |  |   |         |    |  |   |        
|                                    | Book value per share                                          |                              | $ | 8.56       |    |            | $ | 8.71       |    |            | $ | 9.27    |    |  | $ | 9.30    |    |  | $ | 6.38    |   
|                                    | Total assets                                                  |                              |   | 338,764    |    |            |   | 310,048    |    |            |   | 261,882 |    |  |   | 258,844 |    |  |   | 184,960 |   
|                                    | Long-term debt (excluding current maturities)                 |                              |   | 127,697    |    |            |   | 100,000    |    |            |   | 34,000  |    |  |   | 20,000  |    |  |   | 20,000  |   
|                                    | Redeemable preferred stock (excluding current
    maturities) |                              |   |           |    |            |   | 88         |    |            |   | 100     |    |  |   | 113     |    |  |   | 125     |   
|                                    | Shareholders equity                                          |                              |   | 160,201    |    |            |   | 163,575    |    |            |   | 175,091 |    |  |   | 174,939 |    |  |   | 119,086 |   



---



|    |                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | See Note 3  Restatement of
    Previously Issued Financial Statements in the Companys
    Consolidated Financial Statements included in Item 8. The
    impact from the restatement on net income was $270 and ($497) in
    1999 and 1998, respectively.                                                              
|   
|(2) | 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.                                                                                                                              
|   
|(3) | See Note 2  Discontinued
    Operations included in Item 8.                                                                                                                                                                                                                                                             
|   
|(4) | Share data is based on the weighted average
    number of shares outstanding after giving retroactive effect to
    the Recapitalization effective January 28, 1999 and the
    2-for-1 stock dividend effective April 5, 2000. Dividends
    declared have been restated to give retroactive effect to these
    events.

22



---



##### 



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

In the course of the preparation of its financial
statements for the fiscal year 2002, the Company identified
accounting errors in estimating certain revenues and expenses in
prior periods. Specifically, the Company determined that
estimates for certain access revenues and network expenses, as
well as several settlement processes with other telephone
companies, were incorrect.

The cumulative after-tax effect of these errors
resulted in the Company recording additional net income of
$12,000 during the periods from January 1, 2000 through
September 30, 2002. These errors resulted in additions
(reductions) to net income (loss) of ($49,000),
$297,000, and ($236,000) for the years ended December 31,
2000 and 2001, and the nine months ended September 30,
2002, respectively. The accompanying consolidated financial
statements of the Company present restated retained earnings at
January 1, 2000 to reflect a cumulative reduction in
after-tax net income of $227,000.

Accounts receivable and accrued liabilities
increased $2,493,000 and $2,458,000 at December 31, 2001,
respectively, as a result of this restatement.

A summary of the effects of the restatement,
after giving effect to the reclassification of discontinued
operations, on our consolidated financial statements for 2001
and 2000 is as follows (in thousands except per share data):

|                                           |                                                           |                          |   |            |  |         |   |            |  |  |   |         |  |  |   |         | 
|------------------------------------------ | --------------------------------------------------------- | ------------------------ | - | ---------- |  | ------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|                                           |                                                           |                         
|                                           |                                                           | Years Ended December 31,
|                                           |                                                           |                         
|                                           |                                                           |                          |   | (Restated) |  |         |   | (Restated)
|                                           |                                                           | 2001(1)                  |   | 2001       |  | 2000(1) |   | 2000      
|                                           |                                                           |                          |   |            |  |         |   |           
|Consolidated Statements of
    Operations: |                                                           |                          |   |            |  |         |   |            |  |  |   |         |  |  |   |        
|                                           | Operating revenue                                         |                          | $ | 134,589    |  |         | $ | 135,802    |  |  | $ | 115,655 |  |  | $ | 115,945 | 
|                                           | Operating expense                                         |                          |   | 120,512    |  |         |   | 121,222    |  |  |   | 100,148 |  |  |   | 100,521 | 
|                                           | Operating income                                          |                          |   | 14,077     |  |         |   | 14,581     |  |  |   | 15,507  |  |  |   | 15,424  | 
|                                           | Income from continuing operations before income
    taxes |                          |   | 10,835     |  |         |   | 11,339     |  |  |   | 69,862  |  |  |   | 69,778  | 
|                                           | Income taxes                                              |                          |   | 4,786      |  |         |   | 4,993      |  |  |   | 27,877  |  |  |   | 27,843  | 
|                                           | Income from continuing operations                         |                          |   | 6,049      |  |         |   | 6,346      |  |  |   | 41,984  |  |  |   | 41,935  | 
|Income per Share:                          |                                                           |                          |   |            |  |         |   |            |  |  |   |         |  |  |   |        
|                                           | Basic                                                     |                          |   | 0.01       |  |         |   | 0.02       |  |  |   | 2.16    |  |  |   | 2.16    | 
|                                           | Diluted                                                   |                          |   | 0.01       |  |         |   | 0.02       |  |  |   | 2.15    |  |  |   | 2.15    | 

|                             |                       |                 |   |            |  |  |   |         | 
|---------------------------- | --------------------- | --------------- | - | ---------- |  |  | - | ------- | 
|                             |                       |                
|                             |                       | At December 31,
|                             |                       |                
|                             |                       |                 |   | (Restated)
|                             |                       | 2001(1)         |   | 2001      
|                             |                       |                 |   |           
|Consolidated Balance Sheets: |                       |                 |   |            |  |  |   |        
|                             | Accounts receivable   |                 | $ | 21,101     |  |  | $ | 23,594  | 
|                             | Deferred income taxes |                 |   | 293        |  |  |   | 279     | 
|                             | Accrued liabilities   |                 |   | 1,843      |  |  |   | 4,301   | 
|                             | Retained earnings     |                 |   | 117,880    |  |  |   | 117,901 | 



---



|    |                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts as previously reported and adjusted to
    reflect the reclassification of discontinued operations as
    described in note 2 of the consolidated financial
    statements.

23



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##### 



Overview

We are a growing provider of telecommunications
services to residential and business customers located primarily
in North Carolina. We offer an integrated package of
telecommunications services consisting of local and long
distance telephone services, Internet and data services, and
digital wireless products and services.

We have worked to expand our core businesses
through the development of integrated product and service
offerings, investment in growth initiatives that exceed our
return thresholds and targeted marketing efforts to efficiently
identify and obtain customers.

In addition, we have made certain strategic
investments that complement our business units. During 2001, we
expanded our wireless business through the partitioning of our
area of the Cingular digital networks. In March 2002, the FCC
approved the transfer of certain MMDS and ITFS spectrum from
WorldCom to WONC.

We devoted substantial effort in the past three
years to developing business plans, enhancing our management
team and board of directors, and designing and developing our
business support and operating systems. Development of these
areas has required significant investment of capital and
start-up expenses. We believe that through these investments, we
are positioning ourselves to achieve our strategic objectives.

Our primary focus is to maximize our ILEC
business in our current markets by cross-selling integrated
products and packages and growing our customer base through our
CLEC, Greenfield, Internet and data services, and digital
wireless businesses. We will also consider strategic
acquisitions and investments as opportunities arise.

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.



| |                    
| | -------------------
| | 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.

The cost of wireless handsets generally exceeds
the sales price. Costs in excess of revenues for handset sales
are recognized upon delivery of equipment to the customer.
Revenues are deferred and the related cost of sales equal to
revenues are capitalized and amortized over the average life of
customer service contracts.

24



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##### 



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), issued by the SEC in
December 1999.



| |                      
| | ---------------------
| | 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 Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in
Restructuring). 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.



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

We periodically 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.

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. If an impairment review is
triggered, we measure any impairment based on projected cash
flows. Our net goodwill and other intangible assets totaled
$63.0 million and $32.2 million as of
December 31, 2002 and 2001, respectively.

We will no longer amortize goodwill. In lieu of
amortization, we performed an initial review of our goodwill in
2002 and will perform an annual impairment review thereafter. No
impairment charge was required during 2002.



| |            
| | -----------
| | 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.



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

25



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##### 



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, 2002 and 2001 were
$11.9 million and $11.5 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 recorded a valuation allowance of $2.9 million and
$2.4 million at December 31, 2002 and 2001,
respectively.



| |                                     
| | ------------------------------------
| | 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 6.75% in valuing our
December 31, 2002 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 $37.0 million with plan assets
valued at $35.8 million; however, considering the
underlying estimates embedded in the determination of accrual
benefit obligations, the plan is adequately funded. This
compares with a benefit obligation of $35.9 million at
December 31, 2001, with plan assets valued at
$41.4 million. Although difficult to predict because of the
relation to market performance, we do not anticipate any cash
funding needs to meet minimum required funding thresholds in
2003.

The post-retirement benefit obligation at
December 31, 2002 was $11.7 million 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.

26



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##### 



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, and Internet and Data
Services (IDS). All other businesses that do not
meet reporting guidelines and thresholds are reported under
Other Business Units.

Prior to January 1, 2001 the CLEC and
Greenfield business units were treated as a single reportable
segment and their results were combined for reporting purposes.
Subsequent to that date we determined these business units
should be reported as individual reportable segments based on
report thresholds.

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

Consolidated
Operating Results(in thousands except
lines)

|                              |  |      |         |            |  |            |         |  |  |   |         | 
|----------------------------- |  | ---- | ------- | ---------- |  | ---------- | ------- |  |  | - | ------- | 
|                              |  |      |         | (Restated) |  | (Restated)
|                              |  | 2002 |         | 2001       |  | 2000      
|                              |  |      |         |            |  |           
|Total operating revenue       |  | $    | 148,056 |            |  | $          | 135,802 |  |  | $ | 115,945 | 
|Total operating expense       |  |      | 129,655 |            |  |            | 121,221 |  |  |   | 100,521 | 
|Depreciation and amortization |  |      | 27,950  |            |  |            | 23,958  |  |  |   | 18,711  | 
|Operating income              |  |      | 18,401  |            |  |            | 14,581  |  |  |   | 15,424  | 
|Capital expenditures          |  |      | 44,283  |            |  |            | 59,110  |  |  |   | 53,800  | 
|Total assets                  |  |      | 338,764 |            |  |            | 310,048 |  |  |   | 261,882 | 
|Ending wired access lines     |  |      | 153,414 |            |  |            | 145,154 |  |  |   | 131,059 | 

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 6 months in 2001 and the continued
significant growth of our customer base in our CLEC and
Greenfield businesses. Similarly the 17.1% increase in operating
revenue from 2000 to 2001 was related to the wireless
partitioning event and significant customer growth in our CLEC,
Greenfield, Digital Wireless and Internet businesses. See the
following discussions by business unit for more detail.

As a result of this growth in our competitive
businesses we have diversified operating revenues in our company
significantly over the past two years. In 2000, 82.6% of revenue
was related to our ILEC business while our Digital Wireless,
CLEC/Greenfield and Internet businesses represented only between
4.0% and 7.0% each. In 2002, just two years later, the ILEC
represented 63.7% of revenue while Digital Wireless had grown to
16.5% of revenues and the combined CLEC and Greenfield
businesses had grown to 13.2% of revenues.

In 2002, operating expense increased
$8.4 million or 7.0% as compared to 2001. Depreciation and
amortization costs accounted for $4.0 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 $4.4 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. From 2000 to 2001, operating expense increased
$20.7 million or 20.6% as we invested heavily in our new
growth businesses and partitioned our wireless area.
Depreciation and amortization expense increased
$5.2 million from 2000 to 2001 as we completed our wireless
partitioning, accelerated our Greenfield project signings and
invested in the growth of our competitive businesses. Similarly,
other operating expense grew in 2001 as a result of the
increased customer base of our competitive businesses, the
expansion of our CLEC into the Greensboro market and the
mid-year wireless partitioning event, which added over 13,000
new post-pay wireless customers.

27



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##### 



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, from 13.3% in 2000, as a
result of the investment in our newer competitive businesses.

ILEC(in thousands except lines)

|                                |  |      |         |            |  |            |         |  |  |   |         | 
|------------------------------- |  | ---- | ------- | ---------- |  | ---------- | ------- |  |  | - | ------- | 
|                                |  |      |         | (Restated) |  | (Restated)
|                                |  | 2002 |         | 2001       |  | 2000      
|                                |  |      |         |            |  |           
|Total operating revenue         |  | $    | 94,308  |            |  | $          | 95,560  |  |  | $ | 95,783  | 
|Total operating expense         |  |      | 64,046  |            |  |            | 66,485  |  |  |   | 65,684  | 
|Depreciation and amortization   |  |      | 20,197  |            |  |            | 17,995  |  |  |   | 16,062  | 
|Operating income                |  |      | 30,262  |            |  |            | 29,074  |  |  |   | 30,099  | 
|Capital expenditures            |  |      | 16,558  |            |  |            | 20,937  |  |  |   | 25,803  | 
|Total assets                    |  |      | 163,139 |            |  |            | 163,136 |  |  |   | 152,891 | 
|Ending business access lines    |  |      | 31,085  |            |  |            | 31,530  |  |  |   | 30,405  | 
|Ending residential access lines |  |      | 88,660  |            |  |            | 90,137  |  |  |   | 90,141  | 
|Ending total access lines       |  |      | 119,745 |            |  |            | 121,667 |  |  |   | 120,546 | 
|Ending long distance lines      |  |      | 84,591  |            |  |            | 83,820  |  |  |   | N/A     | 

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 cable modem Internet service offered in
our incumbent area by Time Warner and from wireless carriers.
The penetration of our incumbent base by our DSL product more
than doubled in 2002. Operating revenue and access lines were
essentially flat from 2000 to 2001.

Operating expense in the ILEC declined at a
slightly faster rate than operating revenues 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 expenses related to operational efficiencies offset
by a $2.2 million increase in depreciation and amortization
costs related to capital spending on several significant
projects in recent years. 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 in 2002 were 17.5% of ILEC
operating revenues, showing the increased focus on cost
discipline we have placed in this area. ILEC capital
expenditures in 2000 and 2001 were 26.9% of revenues and 21.9%
of revenues, respectively.

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. While long distance minutes of use per landline
customer have seen substantial declines in recent years across
the industry due to wireless substitution, margins have shown
stability in recent quarters and this product continues to
provide us with a significant flow of cash.

28



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##### 



CLEC(in thousands except lines)

|                              |  |      |        |            |  |            |        |   |  |   |         |  
|----------------------------- |  | ---- | ------ | ---------- |  | ---------- | ------ | - |  | - | ------- | -
|                              |  |      |        | (Restated) |  | (Restated)
|                              |  | 2002 |        | 2001       |  | 2000      
|                              |  |      |        |            |  |           
|Total operating revenue       |  | $    | 15,503 |            |  | $          | 10,628 |   |  | $ | 5,139   |  
|Total operating expense       |  |      | 21,370 |            |  |            | 19,435 |   |  |   | 15,944  |  
|Depreciation and amortization |  |      | 2,202  |            |  |            | 1,987  |   |  |   | 1,207   |  
|Operating income (loss)       |  |      | (5,867 | )          |  |            | (8,807 | ) |  |   | (10,806 | )
|Capital expenditures          |  |      | 2,705  |            |  |            | 3,378  |   |  |   | 14,830  |  
|Total assets                  |  |      | 14,492 |            |  |            | 15,640 |   |  |   | 18,429  |  
|Ending access lines           |  |      | 27,157 |            |  |            | 20,234 |   |  |   | 10,513  |  
|Ending long distance lines    |  |      | 14,052 |            |  |            | 10,923 |   |  |   | N/A     |  

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 significant
carrier in most of the area served. Greenfield operations were
included within the CLECs financial results in 2000.

CLEC operating expense was $21.4 million in
2002 compared with $19.4 million during 2001. After growing
by 21.9% from 2000 to 2001 as our CLEC expanded into the
Greensboro market, our operating expense increased 10.0% in
2002, significantly smaller than the 45.9% revenue growth. We
expect margins to continue to be positively impacted as we
leverage existing transport infrastructure with new customers.
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.

We did not enter any new markets in 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.

Greenfield(in thousands except lines)

|                              |  |      |        |            |  |   |        |  
|----------------------------- |  | ---- | ------ | ---------- |  | - | ------ | -
|                              |  |      |        | (Restated)
|                              |  | 2002 |        | 2001      
|                              |  |      |        |           
|Total operating revenue       |  | $    | 4,107  |            |  | $ | 1,874  |  
|Total operating expense       |  |      | 9,294  |            |  |   | 6,087  |  
|Depreciation and amortization |  |      | 2,000  |            |  |   | 1,018  |  
|Operating income (loss)       |  |      | (5,187 | )          |  |   | (4,213 | )
|Capital expenditures          |  |      | 10,099 |            |  |   | 9,995  |  
|Total assets                  |  |      | 22,419 |            |  |   | 14,357 |  
|Ending access lines           |  |      | 6,512  |            |  |   | 3,253  |  
|Ending long distance lines    |  |      | 2,577  |            |  |   | 981    |  
|Total signed agreements       |  |      | 73     |            |  |   | 49     |  

Prior to 2001, our Greenfield business financial
results were reported as part of the CLEC business.

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, filling of 73 developments covered by signed preferred
provider 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 preferred provider agreements in
2002, bringing the total number of signed agreements to 73.
These agreements represent an estimated 40,800 access lines once
these developments have been completely built-out. The expected
residential/business line mix of these 73 projects is expected
to be 90% residential and 10% business.

29



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##### 



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 up front 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. As the residential percentage of Greenfield
access lines increases we have seen our long distance
penetration rates increase.

Digital
Wireless(in thousands except
subscribers)

|                              |  |      |        |            |  |            |        |  |  |   |        |  
|----------------------------- |  | ---- | ------ | ---------- |  | ---------- | ------ |  |  | - | ------ | -
|                              |  |      |        | (Restated) |  | (Restated)
|                              |  | 2002 |        | 2001       |  | 2000      
|                              |  |      |        |            |  |           
|Total operating revenue       |  | $    | 24,443 |            |  | $          | 18,315 |  |  | $ | 7,674  |  
|Total operating expense       |  |      | 21,155 |            |  |            | 16,139 |  |  |   | 9,678  |  
|Depreciation and amortization |  |      | 1,174  |            |  |            | 668    |  |  |   | 56     |  
|Operating income (loss)       |  |      | 3,288  |            |  |            | 2,175  |  |  |   | (2,004 | )
|Capital expenditures          |  |      | 4,289  |            |  |            | 812    |  |  |   | 15     |  
|Total assets                  |  |      | 30,500 |            |  |            | 28,316 |  |  |   | 1,059  |  
|Ending post-pay subscribers   |  |      | 33,293 |            |  |            | 31,120 |  |  |   | 13,856 |  

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 Wireless 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 was the
addition of 21 wireless cell sites in 2002, as we 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.

30



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##### 



Internet
and Data Services(in thousands except
lines)

|                              |  |      |        |            |  |            |        |   |  |   |        |  
|----------------------------- |  | ---- | ------ | ---------- |  | ---------- | ------ | - |  | - | ------ | -
|                              |  |      |        | (Restated) |  | (Restated)
|                              |  | 2002 |        | 2001       |  | 2000      
|                              |  |      |        |            |  |           
|Total operating revenue       |  | $    | 9,695  |            |  | $          | 9,426  |   |  | $ | 6,899  |  
|Total operating expense       |  |      | 11,411 |            |  |            | 12,155 |   |  |   | 8,575  |  
|Depreciation and amortization |  |      | 1,684  |            |  |            | 2,269  |   |  |   | 1,365  |  
|Operating income (loss)       |  |      | (1,716 | )          |  |            | (2,729 | ) |  |   | (1,675 | )
|Capital expenditures          |  |      | 1,908  |            |  |            | 2,420  |   |  |   | 1,386  |  
|Total assets                  |  |      | 14,622 |            |  |            | 15,573 |   |  |   | 8,211  |  
|Ending DSL lines              |  |      | 6,664  |            |  |            | 3,200  |   |  |   | 1,420  |  
|Ending dial-up accounts       |  |      | 12,554 |            |  |            | 14,148 |   |  |   | 15,878 |  
|Ending high-speed accounts    |  |      | 586    |            |  |            | 545    |   |  |   | 403    |  

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 revenues in 2002 was more than
offset by increases in DSL and high-speed revenues.

Operating revenue in 2001 increased 36.6% as we
acquired a local internet service company, WebServe, in December
of 2000, and continued to expand our DSL coverage area and sales
efforts.

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. The $3.6 million or
41.8% increase in expense in 2001 over 2000 was related to the
addition of WebServe and the growth of our DSL and other product
sales efforts.

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

Other
Business Units(in thousands)

|                              |  |      |        |            |  |            |        |   |  |   |        |  
|----------------------------- |  | ---- | ------ | ---------- |  | ---------- | ------ | - |  | - | ------ | -
|                              |  |      |        | (Restated) |  | (Restated)
|                              |  | 2002 |        | 2001       |  | 2000      
|                              |  |      |        |            |  |           
|Total operating revenue       |  | $    |       |            |  | $          |       |   |  | $ | 450    |  
|Total operating expense       |  |      | 2,379  |            |  |            | 921    |   |  |   | 640    |  
|Depreciation and amortization |  |      | 693    |            |  |            | 21     |   |  |   | 21     |  
|Operating income (loss)       |  |      | (2,379 | )          |  |            | (921   | ) |  |   | (190   | )
|Capital expenditures          |  |      | 8,724  |            |  |            | 21,567 |   |  |   | 11,766 |  
|Total assets                  |  |      | 80,862 |            |  |            | 50,719 |   |  |   | 42,980 |  

Operating revenue in 2000 was attributable to
service provided to Maxcom. No such services were provided in
2001 or 2002.

Operating expense for the other units increased
$1.5 million in 2002 to $2.4 million. This
$1.5 million increase was related primarily to a
$0.7 million increase in depreciation and amortization 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.

31



---



##### 



Other
Income

Other income (expense) increased
$7.0 million in 2002 when compared to the year ended
December 31, 2001. This increase relates to a decrease of
$13.8 million in investment impairments offset in part by a
$5.9 million reduction in gains on sales of investments and
a $1.6 million increase in interest expense.

We completed the majority of our planned public
equity investment sales by early 2002, and the gain on sales of
investments decreased significantly in the second half of 2002.
This resulted in a $5.9 million decrease in gain on sale of
investments in 2002 versus 2001.

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 has increased over the past several
years 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
$12.1 million to $35.5 million for the year ended
December 31, 2002, and increased $17.5 million during
2001. The increase in 2002 was primarily driven by positive
working capital changes and greater cash generated from
operations attributable to improved margins.

The increase in 2001 related primarily to the
increase in cash provided from the wireless operations that were
acquired from BellSouth, partially offset by a decrease in
working capital.



| |                                          
| | -----------------------------------------
| | Net cash used in investing
    activities

Cash used in investing activities decreased
$28.9 million in 2002 from $67.2 million invested in
2001. Net capital additions declined $14.8 million due
primarily to the completion of the Companys corporate
headquarters center in 2002. Employees were consolidated from
several leased locations into the newly completed corporate
headquarters center. In addition, cash used for acquisitions
decreased $20.0 million in 2002 compared to 2001 when we
completed the purchase of certain wireless spectrum from the
Cingular DCS partnership. These reductions in investing
activities were partially offset by reduced proceeds from sales
of investments due to unfavorable market conditions.



| |                                              
| | ---------------------------------------------
| | Net cash provided by financing
    activities

We significantly reduced our reliance on cash
provided by financing activities in 2002. Proceeds net of
repayments from credit facilities declined to $10.0 million
in 2002 compared to $61.0 million in 2001 and
$19.0 million in 2000.

We have an unsecured revolving credit facility
with CoBank, ACB (CoBank) for $90.0 million, of
which $60.0 million was outstanding on December 31,
2002. 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, 2002, was approximately
1.6% and the applicable spread was 1.25%. The credit facility
provides for quarterly payments of interest until maturity in
April 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% plus a spread, currently 1.25%. In
addition, we have a $10.0 million revolving credit facility
with First Charter Bank that bears interest at the 30 day
LIBOR plus 1.25%. As of December 31, 2002, we have no
amounts outstanding under the First Charter Bank credit facility.

32



---



##### 



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



| |                                          
| | -----------------------------------------
| | 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 $30.0 million under our CoBank
credit facility, $10.0 million under our First Charter
revolving line of credit, and assets including our corporate
office facility or 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 2003 are expected to
be approximately $32.0 million, as follows:

|                                          |  |   |      | 
|----------------------------------------- |  | - | ---- | 
|ILEC network facilities and plant         |  | $ | 13.4 | 
|CLEC network expansion                    |  |   | 1.7  | 
|Greenfield projects                       |  |   | 7.6  | 
|Internet infrastructure                   |  |   | 1.6  | 
|Wireless coverage and capacity cell sites |  |   | 2.0  | 
|Other                                     |  |   | 5.7  | 
|                                          |  |   |      | 
|                                          |  | $ | 32.0 | 
|                                          |  |   |      | 

Other uses of cash in 2003 may include
investments in unconsolidated companies and marketable
securities. We expect to fund these outlays through cash from
operations and sales of investment securities.

The following table discloses aggregate
information about our contractual obligations and the periods in
which payments are due:

|                        |                  |                      |         |           |  |           |       |           |  |               |        |        |  |   |        |        |  |   |        |        | 
|----------------------- | ---------------- | -------------------- | ------- | --------- |  | --------- | ----- | --------- |  | ------------- | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                        |                  |                     
|                        |                  | 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   |                      | $       | 127,697   |  |           | $     |          |  |               | $      | 17,697 |  |   | $      | 60,000 |  |   | $      | 50,000 | 
|                        | Operating leases |                      |         | 6,486     |  |           |       | 2,204     |  |               |        | 3,458  |  |   |        | 777    |  |   |        | 48     | 
|                        | Capital leases   |                      |         | 118       |  |           |       | 94        |  |               |        | 24     |  |   |        |       |  |   |        |       | 
|                        |                  |                      |         |           |  |           |       |           |  |               |        |        |  |   |        |        |  |   |        |       
|                        |                  | $                    | 134,301 |           |  | $         | 2,298 |           |  | $             | 21,179 |        |  | $ | 60,777 |        |  | $ | 50,048 |       
|                        |                  |                      |         |           |  |           |       |           |  |               |        |        |  |   |        |        |  |   |        |       

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

33



---



##### 



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 industry caused by state and federal legislation
    and regulations,                                                                  
|
| |  | the impact of economic conditions related to
    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 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
$60.0 million was outstanding on December 31, 2002 and
an unsecured term loan of $50.0 million. 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 3.2% with the spread on December 31, 2002. We
have entered into three interest rate swap transactions to
establish a fixed rate of interest on $20.0 million of the
outstanding principal as of December 31, 2002. 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 subjects 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.

Additional information regarding the interest
rate swap agreements is contained in Note 8 Debt
Instruments and Note 9 Derivative Financial
Instruments of the Consolidated Financial Statements
included in Part IV Item 15(a)(1) of this annual
report on Form 10-K.

34



---



##### 





|         |                                                
|-------- | -----------------------------------------------
|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-39 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.

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 is set forth in
the Proxy Statement for our 2003 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 CT
Communications of this report.



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

The information called for by Item 11 is set
forth in the Proxy Statement for our 2003 Annual Meeting of
Shareholders under the captions Election of
Directors  Compensation of Directors,
Executive Compensation, and Compensation
Committee Interlocks and Insider Participation,
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 2003
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, 2002:

|                                                           |  |                   |           |                  |  |                  |       |  |  |  |             |  
|---------------------------------------------------------- |  | ----------------- | --------- | ---------------- |  | ---------------- | ----- |  |  |  | ----------- | -
|                                                           |  |                   |           |                  |  | Number of       
|                                                           |  |                   |           |                  |  | Securities      
|                                                           |  |                   |           |                  |  | Remaining       
|                                                           |  |                   |           |                  |  | Available for   
|                                                           |  | Number of         |           | Weighted         |  | Future Issuance 
|                                                           |  | Securities to be  |           | Average Exercise |  | Under Equity    
|                                                           |  | Issued Upon       |           | Price of         |  | Compensation    
|                                                           |  | Exercise of       |           | Outstanding      |  | Plans (Excluding
|                                                           |  | Outstanding       |           | Options,         |  | Securities      
|                                                           |  | Options, Warrants |           | Warrants and     |  | Reflected in    
|Plan Category                                              |  | and Rights(a)     |           | Rights(b)        |  | Column(a))(c)   
|                                                           |  |                   |           |                  |  |                 
|Equity compensation plans approved by security
    holders |  |                   | 738,898(1 | )                |  | $                | 20.78 |  |  |  | 1,084,529(2 | )



---



|    |                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 406,233 options to purchase shares of
    common stock under the Omnibus Stock Compensation Plan, 247,881
    options to purchase shares of common stock under the 2001 Stock

35



---



##### 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | Incentive Plan and 84,784 options to purchase
    shares of common stock under the Comprehensive Stock Option plan.                                                                                                                                                                                                                                                                                                       
|   
|(2) | Includes 204,202 of 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 845,352 of shares authorized under the
    2001 Stock Incentive Plan, 480 shares authorized under the
    Comprehensive Stock Option Plan and 34,495 under the 1996
    Director Compensation Plan.

Item 13.     Certain
Relationships and Related Transactions

The information called for by Item 13 is set
forth in the Proxy Statement for our 2003 Annual Meeting of
Shareholders under the caption Certain Relationships and
Related Transactions and is hereby incorporated by
reference.

Item 14.     Controls
and Procedures

The Company maintains disclosure controls and
procedures that are designed to ensure that information required
to be disclosed by the Company in the reports it files under the
Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms. 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.

Within 90 days of the filing date of this
report, the Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including the Companys chief executive officer
and chief financial officer, of the effectiveness of the design
and operation of the Companys disclosure controls and
procedures as required by SEC rules. The Companys
management, including the chief executive officer and chief
financial officer, does not expect that our disclosure controls
or our internal controls will prevent all error and all fraud. A
control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of
a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered
relative to their costs. Some inherent limitations in all
control systems include the realities that (i) judgments in
decision-making can be faulty; (ii) breakdowns can occur
because of simple error or mistake; (iii) controls can be
circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of
the control; and (iv) the design of any system of controls
is based in part upon certain assumptions about the likelihood
of future events and there can be no assurance that any design
will succeed in achieving its stated goals under all potential
future conditions. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or
fraud may occur and not be detected. Also, the Company has
investments in certain unconsolidated entities, including
Palmetto MobileNet, L.P. As the Company neither controls
nor manages these entities, its disclosure controls and
procedures with respect to these entities are necessarily
substantially more limited than those it maintains with respect
to its consolidated subsidiaries.

We presented the results of our most recent
evaluation to our independent auditors, KPMG LLP, and the
Audit Committee of the Board of Directors. Based upon the
evaluation, the Companys chief executive officer and chief
financial officer concluded that the Companys disclosure
controls and procedures are effective in all material respects
in timely alerting them to material information relating to the
Company, including its consolidated subsidiaries, required to be
included in the Companys Exchange Act reports.

While performing a review of the Companys
disclosure controls and procedures, a number of areas were
identified in which the Companys internal controls could
be strengthened. In that regard, the Company has taken the
following steps with regard to its internal controls:



| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | reviewed the experience and technical accounting
    knowledge of certain key accounting personnel with regard to
    their responsibilities and made appropriate changes; and

36



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##### 





| |   |                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | directed that steps be taken to ensure that
    certain policies, objectives, procedures, roles and
    responsibilities are well defined, understood and followed.

The Company initiated certain improvements during
the fourth quarter of 2002. The Company will continue to
evaluate the effectiveness of its actions as well as the
Companys overall disclosure controls and procedures and
internal controls and may take further actions when appropriate.

In the course of the preparation of its financial
statements for 2002, the Company identified accounting errors in
estimating certain revenues and expenses in prior periods.
Specifically, the Company determined that estimates for certain
access revenues and network expenses, as well as several
settlement processes with other telephone companies, were
incorrect. To specifically address these errors, the Company has
made appropriate modifications to refine its process of
estimating certain revenues and expenses for future reporting
periods. On February 25, 2003 we filed a current report on
Form 8-K, disclosing our intention to present restated
financial information for the fiscal years ended
December 31, 2000 and December 31, 2001 in the Annual
Report on Form 10-K for the year ended December 31,
2002. In addition, we have restated certain previously reported
quarterly results of operations, selected financial data and
segment data presented in this Annual Report on Form 10-K.

Since the date the Company carried out its
evaluation, there have been no significant changes in the
Companys internal controls or in other factors which could
significantly affect internal controls, other than the
Companys plans to make the changes discussed above.

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, 2002 and 2001,                                           
|
| |  | Consolidated statements of income for the years
    ended December 31, 2002, 2001 and 2000,                 
|
| |  | Consolidated statements of cash flows for the
    years ended December 31, 2002, 2001 and 2000,             
|
| |  | Consolidated statements of shareholders
    equity for the years ended December 31, 2002, 2001 and 2000,   
|
| |  | Consolidated statements of comprehensive income
    for the years ended December 31, 2002, 2001 and 2000 and
|
| |  | Notes to consolidated financial statements for
    the years ended December 31, 2002, 2001 and 2000.        



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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-40 through F-69 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 10, 2002, the Company filed a
    Current Report on Form 8-K announcing the Companys
    plans to cease its wireless broadband commercial trial
    operations in Fayetteville,

37



---



##### 



| |                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | North Carolina, effective December 9, 2002.
    The Company also announced that it will downsize its web
    development and programming services operations.                                                                                                                                                                                           
|
| | On February 25, 2003, the Company filed a
    Current Report on Form 8-K announcing that the Company will
    restate previously issued financial statements due to a
    determination that estimates for certain access revenues and
    network expenses, as well as several settlement processes with
    other telephone companies, were incorrect.

(c) Exhibits



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

(d) Financial statement schedules

See (a)(2), above.

38



---



##### 



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 28, 2003                 

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 28, 2003.



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

39



---



##### 





| |     |                       
| | --- | ----------------------
| | By: | /s/ JERRY H. MCCLELLAN

| |                   
| | ------------------
| |                   
| | Jerry H. McClellan
| | Director          



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

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



| |     | 
| | --- | 
| | By: | 

| |                   
| | ------------------
| |                   
| | Phil W. Widenhouse
| | 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)



| |     |                       
| | --- | ----------------------
| | By: | /s/ CHRISTOPHER R. MAY

| |                   
| | ------------------
| |                   
| | Christopher R. May
| | Controller        

40



---



##### 



CERTIFICATION

I, Michael R. Coltrane, President and Chief
Executive Officer of CT Communications, Inc., certify that:

1. I have reviewed this Annual Report on
Form 10-K of CT Communications, Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                          
| | -----------------------------------------
| | /s/ MICHAEL R. COLTRANE                  
| |                                          
| | Michael R. Coltrane                      
| | President and Chief Executive
    Officer
| | (Principal Executive Officer)            

Date: March 28, 2003

41



---



##### 



CERTIFICATION

I, James E. Hausman, Senior Vice President and
Chief Financial Officer of CT Communications, Inc., certify that:

1. I have reviewed this Annual Report on
Form 10-K of CT Communications Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



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

Date: March 28, 2003

42



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
INDEX

December 31, 2002, 2001 and
2000


|    |  |                                                                                                                                    |  |            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|(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, 2002 and 2001                                                                 |  | F-3        
|    |  |  Consolidated statements of income for
    the years ended December 31, 2002, 2001 and 2000                                       |  | F-4        
|    |  |  Consolidated statements of
    comprehensive income (loss) for the years ended
    December 31, 2002, 2001 and 2000              |  | F-5        
|    |  |  Consolidated statements of
    stockholders equity for the years ended December 31,
    2002, 2001 and 2000                     |  | F-6 and F-7
|    |  |  Consolidated statements of cash flows
    for the years ended December 31, 2002, 2001 and 2000                                   |  | F-8        
|    |  |  Notes to consolidated financial
    statements for the years ended December 31, 2002, 2001 and
    2000                          |  | F-9 to F-38
|   
|(2) |  | Consolidated Financial Statement Schedule                                                                                          |  |            
|    |  | The following financial statement schedule is
    included:                                                                        |  |            
|    |  |  Schedule II 
    Valuation and Qualifying Accounts                                                                              |  | F-39       
|    |  | 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, 2002 and 2001, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002, 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.

As discussed in Note 3 to the consolidated
financial statements, the consolidated financial statements as
of December 31, 2001 and for the years ended
December 31, 2001 and 2000 have been restated.

Charlotte, North Carolina

March 14, 2003


F-2



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2002 and 2001


|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |              |         |             |             | 
|--------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------------- | -------------------------------------------- | ------- | ----------- | ----------- | ------------ | ------- | ----------- | ----------- | 
|                                                                                                                      |                                                                                                            |                                                                          |                            | (Restated)                                  
|                                                                                                                      |                                                                                                            | 2002                                                                     |                            | 2001                                        
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                             
|ASSETS                                                                                                               
|Current assets:                                                                                                       |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      | Cash and cash equivalents                                                                                  |                                                                          | $                          | 7,652,280                                    |         |             | $           | 8,396,860    |        
|                                                                                                                      | Accounts receivable, net of allowance for
    doubtful accounts of $1,174,113 at 2002 and $744,682 at 2001 |                                                                          |                            | 24,313,779                                   |         |             |             | 23,594,097   |        
|                                                                                                                      | Other accounts receivable                                                                                  |                                                                          |                            | 40,059                                       |         |             |             | 439,022      |        
|                                                                                                                      | Income taxes receivable                                                                                    |                                                                          |                            | 3,007,395                                    |         |             |             | 2,442,720    |        
|                                                                                                                      | Materials and supplies                                                                                     |                                                                          |                            | 3,788,956                                    |         |             |             | 4,519,718    |        
|                                                                                                                      | Deferred income taxes                                                                                      |                                                                          |                            | 513,033                                      |         |             |             | 278,565      |        
|                                                                                                                      | Prepaid expenses and other assets                                                                          |                                                                          |                            | 1,839,717                                    |         |             |             | 1,880,575    |        
|                                                                                                                      | Current assets of discontinued operations                                                                  |                                                                          |                            | 12,603                                       |         |             |             | 37,876       |        
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          | Total current assets       |                                              |         | 41,167,822  |             |              |         | 41,589,433  |            
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|Investment securities                                                                                                 |                                                                                                            |                                                                          | 6,379,111                  |                                              |         |             | 14,046,861  |             
|Other investments                                                                                                     |                                                                                                            |                                                                          | 797,263                    |                                              |         |             | 184,363     |             
|Investments in unconsolidated companies                                                                               |                                                                                                            |                                                                          | 12,728,572                 |                                              |         |             | 22,308,152  |             
|Property and equipment:                                                                                               |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      | Land, buildings, and general equipment                                                                     |                                                                          |                            | 85,715,849                                   |         |             |             | 55,493,878   |        
|                                                                                                                      | Central office equipment                                                                                   |                                                                          |                            | 148,483,748                                  |         |             |             | 127,374,571  |        
|                                                                                                                      | Poles, wires, cables and conduit                                                                           |                                                                          |                            | 133,644,962                                  |         |             |             | 121,138,173  |        
|                                                                                                                      | Construction in progress                                                                                   |                                                                          |                            | 8,322,681                                    |         |             |             | 26,812,559   |        
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          | 376,167,240                |                                              |         |             | 330,819,181 |             
|                                                                                                                      | Less accumulated depreciation                                                                              |                                                                          |                            | (164,270,283                                 | )       |             |             | (136,900,209 | )      
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          | Net property and equipment |                                              |         | 211,896,957 |             |              |         | 193,918,972 |            
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|Goodwill, net                                                                                                         |                                                                                                            |                                                                          | 9,906,267                  |                                              |         |             | 9,906,267   |             
|Other intangibles, net                                                                                                |                                                                                                            |                                                                          | 53,069,953                 |                                              |         |             | 22,264,535  |             
|Other assets                                                                                                          |                                                                                                            |                                                                          | 1,611,775                  |                                              |         |             | 1,016,161   |             
|Assets of discontinued operations                                                                                     |                                                                                                            |                                                                          | 1,206,530                  |                                              |         |             | 4,813,410   |             
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          | Total assets               |                                              | $       | 338,764,250 |             |              | $       | 310,048,154 |            
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                             
|Current liabilities:                                                                                                  |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      | Current portion of redeemable preferred stock                                                              |                                                                          | $                          |                                             |         |             | $           | 12,500       |        
|                                                                                                                      | Accounts payable                                                                                           |                                                                          |                            | 8,632,144                                    |         |             |             | 9,650,125    |        
|                                                                                                                      | Customer deposits and advance billings                                                                     |                                                                          |                            | 2,592,710                                    |         |             |             | 2,185,338    |        
|                                                                                                                      | Accrued payroll                                                                                            |                                                                          |                            | 3,011,647                                    |         |             |             | 3,068,221    |        
|                                                                                                                      | Accrued pension cost                                                                                       |                                                                          |                            | 2,856,004                                    |         |             |             | 2,446,730    |        
|                                                                                                                      | Other accrued liabilities                                                                                  |                                                                          |                            | 6,494,710                                    |         |             |             | 4,300,871    |        
|                                                                                                                      | Liabilities of discontinued operations                                                                     |                                                                          |                            | 1,645,437                                    |         |             |             | 801,563      |        
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          |                            | Total current liabilities                    |         |             | 25,232,652  |              |         |             | 22,465,348  | 
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|Long-term debt                                                                                                        |                                                                                                            |                                                                          | 127,696,562                |                                              |         |             | 100,000,000 |             
|Deferred credits and other liabilities:                                                                               |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      | Deferred income taxes                                                                                      |                                                                          |                            | 12,433,479                                   |         |             |             | 11,746,554   |        
|                                                                                                                      | Investment tax credits                                                                                     |                                                                          |                            | 344,655                                      |         |             |             | 459,540      |        
|                                                                                                                      | Post-retirement benefits other than pension                                                                |                                                                          |                            | 11,099,564                                   |         |             |             | 10,817,927   |        
|                                                                                                                      | Other                                                                                                      |                                                                          |                            | 1,756,402                                    |         |             |             | 896,388      |        
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          |                            | Total deferred credits and other liabilities |         |             | 25,634,100  |              |         |             | 23,920,409  | 
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|Redeemable preferred stock, 4.8% series;
    authorized 5,000 shares; 1,125 shares issued and outstanding at
    2001 |                                                                                                            |                                                                          |                           |                                              |         |             | 87,500      |             
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          |                            | Total liabilities                            |         |             | 178,563,314 |              |         |             | 146,473,257 | 
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|Stockholders equity:                                                                                                 |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      | Preferred stock not subject to mandatory
    redemption:                                                   |                                                                          |                            |                                              |         |             |             |              |        
|                                                                                                                      |                                                                                                            | 5% series, $100 par value; 3,356 shares
    outstanding at 2002 and 2001 |                            |                                              | 335,600 |             |             |              | 335,600 |            
|                                                                                                                      |                                                                                                            | 4.5% series, $100 par value; 614 shares
    outstanding at 2002 and 2001 |                            |                                              | 61,400  |             |             |              | 61,400  |            
|                                                                                                                      | Common stock, 18,686,740 and 18,733,127 shares
    outstanding at 2002 and 2001, respectively              |                                                                          |                            | 39,962,278                                   |         |             |             | 40,846,672   |        
|                                                                                                                      | Other capital                                                                                              |                                                                          |                            | 298,083                                      |         |             |             | 298,083      |        
|                                                                                                                      | Unearned compensation                                                                                      |                                                                          |                            | (470,376                                     | )       |             |             | (653,693     | )      
|                                                                                                                      | Other accumulated comprehensive income (loss)                                                              |                                                                          |                            | (816,554                                     | )       |             |             | 4,786,104    |        
|                                                                                                                      | Retained earnings                                                                                          |                                                                          |                            | 120,830,505                                  |         |             |             | 117,900,731  |        
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          |                            | Total stockholders equity                   |         |             | 160,200,936 |              |         |             | 163,574,897 | 
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             
|                                                                                                                      |                                                                                                            |                                                                          |                            | Total liabilities and stockholders equity   |         | $           | 338,764,250 |              |         | $           | 310,048,154 | 
|                                                                                                                      |                                                                                                            |                                                                          |                            |                                              |         |             |             |             

See accompanying notes to consolidated financial
statements.

F-3



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 2002, 2001 and
2000


|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |             |             | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------- | ---------- | ----------- | ----------- | ---------- | ---------- | ----------- | ----------- | - | ---------- | ----------- | ----------- | 
|                                            |                                                                                                                                                                                                         |                                                           |            | (Restated)  |             | (Restated)
|                                            |                                                                                                                                                                                                         | 2002                                                      |            | 2001        |             | 2000      
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |           
|Operating revenue                           |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            | Telephone                                                                                                                                                                                               |                                                           | $          | 113,917,731 |             |            | $          | 108,061,716 |             |   | $          | 100,921,440 |            
|                                            | Wireless and internet                                                                                                                                                                                   |                                                           |            | 34,138,264  |             |            |            | 27,740,518  |             |   |            | 14,573,190  |            
|                                            | Other                                                                                                                                                                                                   |                                                           |            |            |             |            |            |            |             |   |            | 450,000     |            
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            |                                                                                                                                                                                                         | Total operating revenue                                   |            |             | 148,055,995 |            |            |             | 135,802,234 |   |            |             | 115,944,630 | 
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|Operating expense                           |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            | Operations and support                                                                                                                                                                                  |                                                           |            | 74,721,833  |             |            |            | 70,418,603  |             |   |            | 62,485,334  |            
|                                            | Selling, general, and administrative                                                                                                                                                                    |                                                           |            | 20,749,852  |             |            |            | 18,806,758  |             |   |            | 13,954,994  |            
|                                            | Cost of equipment sales                                                                                                                                                                                 |                                                           |            | 6,232,857   |             |            |            | 6,096,246   |             |   |            | 5,369,906   |            
|                                            | Restructuring costs                                                                                                                                                                                     |                                                           |            |            |             |            |            | 1,942,076   |             |   |            |            |            
|                                            | Depreciation and amortization                                                                                                                                                                           |                                                           |            | 27,950,224  |             |            |            | 23,957,964  |             |   |            | 18,710,700  |            
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            |                                                                                                                                                                                                         | Total operating expense                                   |            |             | 129,654,766 |            |            |             | 121,221,647 |   |            |             | 100,520,934 | 
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            |                                                                                                                                                                                                         | Operating income                                          |            |             | 18,401,229  |            |            |             | 14,580,587  |   |            |             | 15,423,696  | 
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|Other income (expense)                      |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            | Equity in income of unconsolidated companies, net                                                                                                                                                       |                                                           |            | 4,862,078   |             |            |            | 4,204,494   |             |   |            | 5,423,408   |            
|                                            | Interest, dividend income and gain on sale of
    investments                                                                                                                                           |                                                           |            | 6,328,404   |             |            |            | 12,265,766  |             |   |            | 51,668,402  |            
|                                            | Impairment of investments                                                                                                                                                                               |                                                           |            | (1,058,227  | )           |            |            | (14,918,216 | )           |   |            |            |            
|                                            | Other expense, principally interest                                                                                                                                                                     |                                                           |            | (6,358,622  | )           |            |            | (4,793,582  | )           |   |            | (2,737,421  | )          
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            |                                                                                                                                                                                                         | Total other income (expense)                              |            |             | 3,773,633   |            |            |             | (3,241,538  | ) |            |             | 54,354,389  | 
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            |                                                                                                                                                                                                         | Income from continuing operations before income
    taxes |            |             | 22,174,862  |            |            |             | 11,339,049  |   |            |             | 69,778,085  | 
|Income taxes                                |                                                                                                                                                                                                         |                                                           | 8,695,846  |             |             |            | 4,992,643  |             |             |   | 27,843,079 |            
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            |                                                                                                                                                                                                         | Income from continuing operations                         |            |             | 13,479,016  |            |            |             | 6,346,406   |   |            |             | 41,935,006  | 
|Discontinued operations                     |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            | Loss from operations of discontinued business,
    net of income tax benefits of $3,278,155 in 2002, $3,029,151 in
    2001, and $648,800 in 2000, including loss on disposal of
    $4,377,564 in 2002 |                                                           |            | (5,657,274  | )           |            |            | (5,880,118  | )           |   |            | (1,204,914  | )          
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            |                                                                                                                                                                                                         | Net income                                                |            |             | 7,821,742   |            |            |             | 466,288     |   |            |             | 40,730,092  | 
|Dividends on preferred stock                |                                                                                                                                                                                                         |                                                           | 19,543     |             |             |            | 24,918     |             |             |   | 25,518     |            
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|Earnings for common stock                   |                                                                                                                                                                                                         | $                                                         | 7,802,199  |             |             | $          | 441,370    |             |             | $ | 40,704,574 |            
|                                            |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|Basic earnings per common share             |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            | Continuing operations                                                                                                                                                                                   |                                                           | $          | 0.72        |             |            | $          | 0.34        |             |   | $          | 2.23        |            
|                                            | Discontinued operations                                                                                                                                                                                 |                                                           |            | (0.30       | )           |            |            | (0.31       | )           |   |            | (0.06       | )          
|                                            | Net income                                                                                                                                                                                              |                                                           |            | 0.42        |             |            |            | 0.02        |             |   |            | 2.16        |            
|Diluted earnings per common share           |                                                                                                                                                                                                         |                                                           |            |             |             |            |            |             |             |   |            |            
|                                            | Continuing operations                                                                                                                                                                                   |                                                           |            | 0.72        |             |            |            | 0.34        |             |   |            | 2.21        |            
|                                            | Discontinued operations                                                                                                                                                                                 |                                                           |            | (0.30       | )           |            |            | (0.31       | )           |   |            | (0.06       | )          
|                                            | Net income                                                                                                                                                                                              |                                                           |            | 0.42        |             |            |            | 0.02        |             |   |            | 2.15        |            
|                                           
|Basic weighted average shares outstanding   |                                                                                                                                                                                                         |                                                           | 18,710,382 |             |             |            | 18,816,047 |             |             |   | 18,833,807 |            
|Diluted weighted average shares outstanding |                                                                                                                                                                                                         |                                                           | 18,745,642 |             |             |            | 18,860,280 |             |             |   | 18,930,980 |            

See accompanying notes to consolidated financial
statements.

F-4



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (LOSS)

Years ended December 31, 2002, 2001 and
2000


|                            |                                                                                                                                                                                                 |      |           |            |   |            |            |            |   |   |            |             |  
|--------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------- | ---------- | - | ---------- | ---------- | ---------- | - | - | ---------- | ----------- | -
|                            |                                                                                                                                                                                                 |      |           | (Restated) |   | (Restated)
|                            |                                                                                                                                                                                                 | 2002 |           | 2001       |   | 2000      
|                            |                                                                                                                                                                                                 |      |           |            |   |           
|Net income                  |                                                                                                                                                                                                 | $    | 7,821,742 |            |   | $          | 466,288    |            |   | $ | 40,730,092 |            
|Other comprehensive income  |                                                                                                                                                                                                 |      |           |            |   |            |            |            |   |   |            |            
|                            | Unrealized holding gains (losses) on
    available-for-sale securities, net of tax expense
    (benefit) of ($1,616,481), $1,030,066 and $(17,032,514) in
    2002, 2001 and 2000, respectively |      |           | (2,891,274 | ) |            |            | 1,842,399  |   |   |            | (30,464,737 | )
|                            | Net unrealized holding losses on interest rate
    swaps accounted as derivative hedging instruments, net of tax
    benefit of ($273,636) and ($167,524) in 2002 and 2001,
    respectively    |      |           | (419,771   | ) |            |            | (256,748   | ) |   |            |            |  
|                            | Reclassification adjustment for gains realized in
    net income, net of tax benefit of ($1,281,217), ($3,968,622) and
    ($4,067,872) in 2002, 2001 and 2000, respectively                    |      |           | (2,291,613 | ) |            |            | (7,098,367 | ) |   |            | (7,296,332  | )
|                            |                                                                                                                                                                                                 |      |           |            |   |            |            |            |   |   |            |            
|Comprehensive income (loss) |                                                                                                                                                                                                 | $    | 2,219,084 |            |   | $          | (5,046,428 | )          |   | $ | 2,969,023  |            
|                            |                                                                                                                                                                                                 |      |           |            |   |            |            |            |   |   |            |            

See accompanying notes to consolidated financial
statements.

F-5



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

Years ended December 31, 2002, 2001 and
2000


|                                                                            |                         |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |            |   |  |   |             |   |  |   |             |            |   |   |             |            |  
|--------------------------------------------------------------------------- | ----------------------- | --------- | ------- | ----------- |  | ------ | ------ | ------- |  | ------------ | ---------- | ------------- | - | -------- | ------- | ------------- |  | - | ---------- | - |  | - | ----------- | - |  | - | ----------- | ---------- | - | - | ----------- | ---------- | -
|                                                                            |                         | 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, 1999 as previously
    reported                    |                         | $         | 335,600 |             |  | $      | 61,400 |         |  | $            | 40,705,827 |               |   | $        | 298,083 |               |  | $ | (1,074,726 | ) |  | $ | 48,059,889  |   |  | $ | 86,780,029  |            |   | $ | 175,166,102 |           
|Restatement (see Note 3)                                                    |                         |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   |           |   |  |   |            |   |  |   | (226,969    | )          |   |   | (226,969    | )         
|Balances at December 31, 1999 as restated                                   |                         |           | 335,600 |             |  |        | 61,400 |         |  |              | 40,705,827 |               |   |          | 298,083 |               |  |   | (1,074,726 | ) |  |   | 48,059,889  |   |  |   | 86,553,060  |            |   |   | 174,939,133 |           
|Net income (restated)                                                       |                         |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   |           |   |  |   |            |   |  |   | 40,730,092  |            |   |   | 40,730,092  |           
|Issuance of 63,490 shares of common stock                                   |                         |           |        |             |  |        |       |         |  |              | 1,576,013  |               |   |          |        |               |  |   |           |   |  |   |            |   |  |   |            |            |   |   | 1,576,013   |           
|Issuance of 45,998 shares for exercise of stock
    options                 |                         |           |        |             |  |        |       |         |  |              | 491,980    |               |   |          |        |               |  |   |           |   |  |   |            |   |  |   |            |            |   |   | 491,980     |           
|Repurchases of shares:                                                      |                         |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |            |   |  |   |             |   |  |   |             |            |   |   |             |           
|                                                                            | 23,877 shares of common |           |         |            |  |        |        |        |  |              |            | (527,802      | ) |          |         |              |  |   |            |  |  |   |             |  |  |   |             |           |   |   |             | (527,802   | )
|Dividends declared:                                                         |                         |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |            |   |  |   |             |   |  |   |             |            |   |   |             |           
|                                                                            | 5% preferred            |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |            |  |  |   |             |  |  |   |             | (16,780    | ) |   |             | (16,780    | )
|                                                                            | 4.8% preferred          |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |            |  |  |   |             |  |  |   |             | (5,975     | ) |   |             | (5,975     | )
|                                                                            | 4.5% preferred          |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |            |  |  |   |             |  |  |   |             | (2,763     | ) |   |             | (2,763     | )
|                                                                            | Common stock            |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |            |  |  |   |             |  |  |   |             | (4,899,426 | ) |   |             | (4,899,426 | )
|Tax benefit from exercise of stock options                                  |                         |           |        |             |  |        |       |         |  |              | 328,566    |               |   |          |        |               |  |   |           |   |  |   |            |   |  |   |            |            |   |   | 328,566     |           
|Other comprehensive income (loss)                                           |                         |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   |           |   |  |   | (37,761,069 | ) |  |   |            |            |   |   | (37,761,069 | )         
|Restricted stock compensation, net of $1,247,670
    earned during the year |                         |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   | 238,721    |   |  |   |            |   |  |   |            |            |   |   | 238,721     |           
|                                                                            |                         |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |            |   |  |   |             |   |  |   |             |            |   |   |             |           
|Balances at December 31, 2000 as restated                                   |                         | $         | 335,600 |             |  | $      | 61,400 |         |  | $            | 42,574,584 |               |   | $        | 298,083 |               |  | $ | (836,005   | ) |  | $ | 10,298,820  |   |  | $ | 122,358,208 |            |   | $ | 175,090,690 |           
|                                                                            |                         |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |            |   |  |   |             |   |  |   |             |            |   |   |             |           

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       
|                                                                            |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |              
|Net income (restated)                                                       |                          |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   |         |   |  |   |           |   |  |   | 466,288     |            |   |   | 466,288     |           
|Issuance of 57,915 shares of common stock                                   |                          |           |        |             |  |        |       |         |  |              | 881,215    |               |   |          |        |               |  |   |         |   |  |   |           |   |  |   |            |            |   |   | 881,215     |           
|Issuance of 7,544 shares for exercise of stock
    options                  |                          |           |        |             |  |        |       |         |  |              | 67,292     |               |   |          |        |               |  |   |         |   |  |   |           |   |  |   |            |            |   |   | 67,292      |           
|Repurchases of shares:                                                      |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |          |   |  |   |            |   |  |   |             |            |   |   |             |           
|                                                                            | 178,873 shares of common |           |         |            |  |        |        |        |  |              |            | (2,676,419    | ) |          |         |              |  |   |          |  |  |   |            |  |  |   |             |           |   |   |             | (2,676,419 | )
|Dividends declared:                                                         |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |          |   |  |   |            |   |  |   |             |            |   |   |             |           
|                                                                            | 5% preferred             |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |          |  |  |   |            |  |  |   |             | (16,780    | ) |   |             | (16,780    | )
|                                                                            | 4.8% preferred           |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |          |  |  |   |            |  |  |   |             | (5,375     | ) |   |             | (5,375     | )
|                                                                            | 4.5% preferred           |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |          |  |  |   |            |  |  |   |             | (2,763     | ) |   |             | (2,763     | )
|                                                                            | Common stock             |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |          |  |  |   |            |  |  |   |             | (4,898,847 | ) |   |             | (4,898,847 | )
|Other comprehensive income (loss)                                           |                          |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   |         |   |  |   | (5,512,716 | ) |  |   |            |            |   |   | (5,512,716  | )         
|Restricted stock compensation, net of $681,950
    earned during the year   |                          |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   | 182,312  |   |  |   |           |   |  |   |            |            |   |   | 182,312     |           
|                                                                            |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |          |   |  |   |            |   |  |   |             |            |   |   |             |           
|Balances at December 31, 2001 as restated                                   |                          | $         | 335,600 |             |  | $      | 61,400 |         |  | $            | 40,846,672 |               |   | $        | 298,083 |               |  | $ | (653,693 | ) |  | $ | 4,786,104  |   |  | $ | 117,900,731 |            |   | $ | 163,574,897 |           
|                                                                            |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |          |   |  |   |            |   |  |   |             |            |   |   |             |           
|Net income                                                                  |                          | $         |        |             |  | $      |       |         |  | $            |           |               |   | $        |        |               |  | $ |         |   |  | $ |           |   |  | $ | 7,821,742   |            |   | $ | 7,821,742   |           
|Issuance of 118,823 shares of common stock                                  |                          |           |        |             |  |        |       |         |  |              | 1,608,212  |               |   |          |        |               |  |   |         |   |  |   |           |   |  |   |            |            |   |   | 1,608,212   |           
|Issuance of 16,488 shares for exercise of
    stock options                 |                          |           |        |             |  |        |       |         |  |              | 163,897    |               |   |          |        |               |  |   |         |   |  |   |           |   |  |   |            |            |   |   | 163,897     |           
|Repurchases of shares:                                                      |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |          |   |  |   |            |   |  |   |             |            |   |   |             |           
|                                                                            | 182,579 shares of common |           |         |            |  |        |        |        |  |              |            | (2,661,503    | ) |          |         |              |  |   |          |  |  |   |            |  |  |   |             |           |   |   |             | (2,661,503 | )
|Redemption of 4.8% preferred stock                                          |                          |           |        |             |  |        |       |         |  |              | 5,000      |               |   |          |        |               |  |   |         |   |  |   |           |   |  |   |            |            |   |   | 5,000       |           
|Dividends declared:                                                         |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |          |   |  |   |            |   |  |   |             |            |   |   |             |           
|                                                                            | 5% preferred             |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |          |  |  |   |            |  |  |   |             | (16,780    | ) |   |             | (16,780    | )
|                                                                            | 4.8% preferred           |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |          |  |  |   |            |  |  |   |             | (2,617     | ) |   |             | (2,617     | )
|                                                                            | 4.5% preferred           |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |          |  |  |   |            |  |  |   |             | (2,763     | ) |   |             | (2,763     | )
|                                                                            | Common stock             |           |         |            |  |        |        |        |  |              |            |              |   |          |         |              |  |   |          |  |  |   |            |  |  |   |             | (4,869,808 | ) |   |             | (4,869,808 | )
|Other comprehensive income (loss)                                           |                          |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   |         |   |  |   | (5,602,658 | ) |  |   |            |            |   |   | (5,602,658  | )         
|Restricted stock compensation, net of $1,129,466
    earned during the year |                          |           |        |             |  |        |       |         |  |              |           |               |   |          |        |               |  |   | 183,317  |   |  |   |           |   |  |   |            |            |   |   | 183,317     |           
|                                                                            |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |          |   |  |   |            |   |  |   |             |            |   |   |             |           
|Balances at December 31, 2002                                               |                          | $         | 335,600 |             |  | $      | 61,400 |         |  | $            | 39,962,278 |               |   | $        | 298,083 |               |  | $ | (470,376 | ) |  | $ | (816,554   | ) |  | $ | 120,830,505 |            |   | $ | 160,200,936 |           
|                                                                            |                          |           |         |             |  |        |        |         |  |              |            |               |   |          |         |               |  |   |          |   |  |   |            |   |  |   |             |            |   |   |             |           

See accompanying notes to consolidated financial
statements.

F-7



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years ended December 31, 2002, 2001 and
2000


|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |             |             |            |             |  
|--------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | -------------------------------------- | ----------------------------------------- | ---------- | ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | ----------- | ----------- | ---------- | ----------- | -
|                                                                            |                                                                                       |                                                                                  |                                        | (Restated)                                |            | (Restated)
|                                                                            |                                                                                       | 2002                                                                             |                                        | 2001                                      |            | 2000      
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |           
|Cash flows from operating activities:                                       |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|                                                                            | Net income                                                                            |                                                                                  | $                                      | 7,821,742                                 |            |            | $           | 466,288     |             |            | $           | 40,730,092  |            
|                                                                            | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |             |            
|                                                                            |                                                                                       | Loss from discontinued operations                                                |                                        |                                           | 5,657,274  |            |             |             | 5,880,118   |            |             |             | 1,204,914   |           
|                                                                            |                                                                                       | Depreciation and amortization                                                    |                                        |                                           | 27,950,224 |            |             |             | 23,957,964  |            |             |             | 18,710,700  |           
|                                                                            |                                                                                       | Postretirement benefits                                                          |                                        |                                           | 281,637    |            |             |             | 205,573     |            |             |             | 61,243      |           
|                                                                            |                                                                                       | Gain on sale of investment securities                                            |                                        |                                           | (3,572,830 | )          |             |             | (11,066,989 | )          |             |             | (11,364,204 | )         
|                                                                            |                                                                                       | Impairment of investments                                                        |                                        |                                           | 1,058,227  |            |             |             | 14,918,216  |            |             |             |            |           
|                                                                            |                                                                                       | Gain on sale of investment in unconsolidated
    company                         |                                        |                                           | (1,704,199 | )          |             |             |            |            |             |             | (39,214,000 | )         
|                                                                            |                                                                                       | Undistributed income of unconsolidated companies                                 |                                        |                                           | (4,862,078 | )          |             |             | (4,204,494  | )          |             |             | (5,423,408  | )         
|                                                                            |                                                                                       | Undistributed patronage dividends                                                |                                        |                                           | (512,900   | )          |             |             |            |            |             |             |            |           
|                                                                            |                                                                                       | Provision for loss on accounts receivable                                        |                                        |                                           | 1,685,235  |            |             |             | 966,721     |            |             |             | 690,834     |           
|                                                                            |                                                                                       | Deferred income taxes and tax credits                                            |                                        |                                           | 2,512,649  |            |             |             | 465,855     |            |             |             | 80,946      |           
|                                                                            |                                                                                       | Changes in operating assets and liabilities, net
    of effects of acquisitions: |                                        |                                           |            |            |             |             |             |            |             |             |             |           
|                                                                            |                                                                                       |                                                                                  | Accounts receivable                    |                                           |            | (1,728,910 | )           |             |             | (4,847,609 | )           |             |             | (1,236,393 | )          
|                                                                            |                                                                                       |                                                                                  | Materials and supplies                 |                                           |            | 730,762    |             |             |             | (1,043,530 | )           |             |             | (924,464   | )          
|                                                                            |                                                                                       |                                                                                  | Other assets                           |                                           |            | (203,406   | )           |             |             | (1,580,866 | )           |             |             | (920,567   | )          
|                                                                            |                                                                                       |                                                                                  | Accounts payable                       |                                           |            | (1,731,579 | )           |             |             | (1,491,983 | )           |             |             | 3,865,444  |            
|                                                                            |                                                                                       |                                                                                  | Customer deposits and advance billings |                                           |            | 407,372    |             |             |             | (108,826   | )           |             |             | 199,830    |            
|                                                                            |                                                                                       |                                                                                  | Accrued liabilities                    |                                           |            | 1,275,433  |             |             |             | 2,308,965  |             |             |             | 50,971     |            
|                                                                            |                                                                                       |                                                                                  | Income taxes                           |                                           |            | 431,581    |             |             |             | (1,465,243 | )           |             |             | (603,453   | )          
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|                                                                            |                                                                                       |                                                                                  |                                        | Net cash provided by operating activities |            |            | 35,496,234  |             |             |            | 23,360,160  |             |             |            | 5,908,485   |  
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|Cash flows from investing activities:                                       |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|                                                                            | Capital expenditures, net                                                             |                                                                                  |                                        | (44,282,631                               | )          |            |             | (59,110,282 | )           |            |             | (53,800,086 | )          
|                                                                            | Purchases of investments in unconsolidated
    companies                              |                                                                                  |                                        | (750,000                                  | )          |            |             | (95,719     | )           |            |             | (6,682,448  | )          
|                                                                            | Purchases of investment securities                                                    |                                                                                  |                                        | (3,239,887                                | )          |            |             | (2,489,735  | )           |            |             | (8,664,541  | )          
|                                                                            | Proceeds from sale of investment in
    unconsolidated companies                      |                                                                                  |                                        | 2,010,983                                 |            |            |             |            |             |            |             | 39,214,000  |            
|                                                                            | Purchase of wireless spectrum                                                         |                                                                                  |                                        | (238,000                                  | )          |            |             | (3,192,600  | )           |            |             |            |            
|                                                                            | Proceeds from sale of investment securities                                           |                                                                                  |                                        | 5,441,658                                 |            |            |             | 13,897,218  |             |            |             | 19,238,469  |            
|                                                                            | Partnership capital distribution                                                      |                                                                                  |                                        | 5,959,278                                 |            |            |             | 7,002,891   |             |            |             | 4,970,065   |            
|                                                                            | Acquisitions, net of cash                                                             |                                                                                  |                                        | (3,212,503                                | )          |            |             | (23,248,426 | )           |            |             | (6,765,425  | )          
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|                                                                            |                                                                                       |                                                                                  |                                        | Net cash used in investing activities     |            |            | (38,311,102 | )           |             |            | (67,236,653 | )           |             |            | (12,489,966 | )
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|Cash flows from financing activities:                                       |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|                                                                            | Repayment of long-term debt                                                           |                                                                                  |                                        |                                          |            |            |             | (34,000,000 | )           |            |             |            |            
|                                                                            | Repayment of short-term revolving credit facility                                     |                                                                                  |                                        | (7,000,000                                | )          |            |             | (5,000,000  | )           |            |             |            |            
|                                                                            | Proceeds from credit facility                                                         |                                                                                  |                                        | 10,000,000                                |            |            |             | 100,000,000 |             |            |             | 14,000,000  |            
|                                                                            | Proceeds from short-term revolving credit facility                                    |                                                                                  |                                        | 7,000,000                                 |            |            |             |            |             |            |             | 5,000,000   |            
|                                                                            | Redemption of preferred stock                                                         |                                                                                  |                                        | (95,000                                   | )          |            |             | (12,500     | )           |            |             | (12,500     | )          
|                                                                            | Dividends paid                                                                        |                                                                                  |                                        | (4,891,968                                | )          |            |             | (4,862,610  | )           |            |             | (4,924,945  | )          
|                                                                            | Repurchases of common stock                                                           |                                                                                  |                                        | (2,371,238                                | )          |            |             | (2,385,436  | )           |            |             | (34,100     | )          
|                                                                            | Proceeds from common stock issuances                                                  |                                                                                  |                                        | 609,741                                   |            |            |             | 114,290     |             |            |             | 545,612     |            
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|                                                                            |                                                                                       |                                                                                  |                                        | Net cash provided by financing activities |            |            | 3,251,535   |             |             |            | 53,853,744  |             |             |            | 14,574,067  |  
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|Net cash used in discontinued operations                                    |                                                                                       |                                                                                  | (1,181,247                             | )                                         |            |            | (9,640,406  | )           |             |            | (1,494,349  | )          
|Net (decrease) increase in cash and cash
    equivalents                    |                                                                                       |                                                                                  | (744,580                               | )                                         |            |            | 336,845     |             |             |            | 6,498,237   |            
|Cash and cash equivalents  beginning
    of year                           |                                                                                       |                                                                                  | 8,396,860                              |                                           |            |            | 8,060,015   |             |             |            | 1,561,778   |            
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|Cash and cash equivalents  end of year                                     |                                                                                       | $                                                                                | 7,652,280                              |                                           |            | $          | 8,396,860   |             |             | $          | 8,060,015   |            
|                                                                            |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|Supplemental cash flow information:                                         |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|                                                                            | Cash paid for income taxes                                                            |                                                                                  | $                                      | 3,578,930                                 |            |            | $           | 2,855,100   |             |            | $           | 28,253,130  |            
|                                                                            | Cash paid for interest                                                                |                                                                                  |                                        | 6,474,112                                 |            |            |             | 4,462,276   |             |            |             | 1,981,391   |            
|Supplemental disclosure of non-cash investing and
    financing activities: |                                                                                       |                                                                                  |                                        |                                           |            |            |             |             |             |            |             |            
|                                                                            | Issuance of note payable in connection with
    acquisition of wireless spectrum      |                                                                                  | $                                      | 17,696,562                                |            |            | $           |            |             |            | $           |            |            

See accompanying notes to consolidated financial
statements.

F-8



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002, 2001 and
2000


(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 (Video
Services), CT Communications Northeast Wireless Trust
(Wireless Trust), CT Communication Northeast Trust
(NE Trust), CT Communications Northeast, Inc.
(NECO), Progress Place Realty Holding
Company, LLC (Progress Place), CT Global,
LLC (CT Global), Wavetel TN, L.L.C. (Wavetel
TN), 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 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, 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, 2002. Exchange Services provides competitive
local telephone service in North Carolina. CT Global was
formed to build telecommunications networks outside of the
United States. NE Trust and NECO hold the Companys
investment securities and investments in unconsolidated
companies. Internet Services provides internet services to
customers in North Carolina. WebServe provides web hosting,
electronic commerce, collocation, virtual private network or
intranets, remote access and security solutions and video
conferencing 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 2001 and 2000 consolidated financial statements have been
reclassified to conform to the 2002 consolidated financial
statement presentation. Such reclassifications have no effect on
net income or retained earnings as previously reported.

(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

F-9



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2002
and 2001 consist of debt instruments 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.

(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.

F-10



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(h) 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.

The cost of wireless handsets exceeds the sales
price. Costs in excess of revenues for handset sales are
recognized upon delivery of equipment to the customer. Revenues
are deferred and the related cost of sales equal to revenues are
capitalized and amortized over the average life of customer
service contracts.

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

(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, 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.

F-11



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table presents net income on a
comparable basis, after adjustment for goodwill and other
intangibles amortization:

|                           |                             |                          |   |            |  |            |   |           |  |  |   |            | 
|-------------------------- | --------------------------- | ------------------------ | - | ---------- |  | ---------- | - | --------- |  |  | - | ---------- | 
|                           |                             |                         
|                           |                             | Years Ended December 31,
|                           |                             |                         
|                           |                             |                          |   | (Restated) |  | (Restated)
|                           |                             | 2002                     |   | 2001       |  | 2000      
|                           |                             |                          |   |            |  |           
|Net income                 |                             |                          |   |            |  |            |   |           |  |  |   |           
|                           | As reported (see note 3)    |                          | $ | 7,821,742  |  |            | $ | 466,288   |  |  | $ | 40,730,092 | 
|                           | Amortization (net of taxes) |                          |   |           |  |            |   | 1,153,159 |  |  |   | 477,796    | 
|                           |                             |                          |   |            |  |            |   |           |  |  |   |           
|                           | Adjusted net income         |                          | $ | 7,821,742  |  |            | $ | 1,619,447 |  |  | $ | 41,207,888 | 
|                           |                             |                          |   |            |  |            |   |           |  |  |   |           
|Basic earnings per share   |                             |                          |   |            |  |            |   |           |  |  |   |           
|                           | As reported                 |                          | $ | 0.42       |  |            | $ | 0.02      |  |  | $ | 2.16       | 
|                           | As adjusted                 |                          | $ | 0.42       |  |            | $ | 0.09      |  |  | $ | 2.19       | 
|Diluted earnings per share |                             |                          |   |            |  |            |   |           |  |  |   |           
|                           | As reported                 |                          | $ | 0.42       |  |            | $ | 0.02      |  |  | $ | 2.15       | 
|                           | As adjusted                 |                          | $ | 0.42       |  |            | $ | 0.09      |  |  | $ | 2.18       | 

The components of other intangible assets are as
follows:

|                  |  |      |            |      |  |   |            | 
|----------------- |  | ---- | ---------- | ---- |  | - | ---------- | 
|                  |  | 2002 |            | 2001
|                  |  |      |            |     
|Wireless licenses |  | $    | 52,981,832 |      |  | $ | 22,102,489 | 
|Other intangibles |  |      | 88,121     |      |  |   | 162,046    | 
|                  |  |      |            |      |  |   |            | 
|                  |  | $    | 53,069,953 |      |  | $ | 22,264,535 | 
|                  |  |      |            |      |  |   |            | 

(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

SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets 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.

F-12



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 Financial Accounting Standards Board
(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 method of accounting
described above, and has adopted the disclosure requirements of
SFAS No. 123 and SFAS No. 148.

At December 31, 2002, the Company had six
stock-based compensation plans. 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:

|                                         |             |      |   |            |  |            |   |          |   |  |   |            | 
|---------------------------------------- | ----------- | ---- | - | ---------- |  | ---------- | - | -------- | - |  | - | ---------- | 
|                                         |             |      |   | (Restated) |  | (Restated)
|                                         |             | 2002 |   | 2001       |  | 2000      
|                                         |             |      |   |            |  |           
|Net income (loss)                        |             |      |   |            |  |            |   |          |   |  |   |           
|                                         | As reported |      | $ | 7,821,742  |  |            | $ | 466,288  |   |  | $ | 40,730,092 | 
|                                         | As adjusted |      |   | 6,746,907  |  |            |   | (210,004 | ) |  |   | 39,925,423 | 
|Basic earnings (loss) per common share   |             |      |   |            |  |            |   |          |   |  |   |           
|                                         | As reported |      | $ | 0.42       |  |            | $ | 0.02     |   |  | $ | 2.16       | 
|                                         | As adjusted |      |   | 0.36       |  |            |   | (0.01    | ) |  |   | 2.12       | 
|Diluted earnings (loss) per common share |             |      |   |            |  |            |   |          |   |  |   |           
|                                         | As reported |      | $ | 0.42       |  |            | $ | 0.02     |   |  | $ | 2.15       | 
|                                         | As adjusted |      |   | 0.36       |  |            |   | (0.01    | ) |  |   | 2.11       | 

(n) 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.

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.

F-13



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

(o) Recent
Accounting Pronouncements

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. This statement eliminates extraordinary
accounting treatment for a gain or loss reported on the
extinguishment of debt and amends other existing authoritative
pronouncements to make technical corrections, clarify meanings,
or describe their applicability under changed conditions. The
provisions of this statement are effective for the Company with
the beginning of fiscal year 2003. The Company does not believe
the adoption of this statement will have a material impact on
its overall financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires that the fair value
of a liability associated with an exit or disposal activity be
recognized when the liability is incurred. Prior to the adoption
of SFAS No. 146, certain exit costs were recognized when
the Company committed to a restructuring plan, which may have
been before the liability was incurred. The Company will apply
the provisions of SFAS No. 146 for all exit or disposal
activities initiated after December 31, 2002.

In December 2002, the FASB issued Statement
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS
No. 148 presents additional alternatives for transitioning
to the fair value method of accounting for stock-based
compensation, prescribes the format to be used for pro forma
disclosures and requires the inclusion of similar pro forma
disclosures in interim financial statements. SFAS No. 148
is effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for
financial reports containing financial statements for interim
periods beginning after December 15, 2002. The Company does
not believe the adoption of this statement will have a
significant effect on the Companys financial position or
results of operations.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, and interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation
No. 34. This Interpretation elaborates on the
disclosures to be made by a guarantor in its interim and annual
financial statements about it obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability
for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after
December 31, 2002 and are not expected to have a material
effect on the Companys financial statements. The
disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities, (Interpretation 46) to clarify
the conditions under which assets, liabilities and activities of

F-14



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

another entity should be consolidated into the
financial statements of a company. Interpretation 46
requires the consolidation of a variable interest entity
(including a special purpose entity such as that utilized in an
accounts receivable securitization transaction) by a company
that bears the majority of the risk of loss from the variable
interest entitys activities, is entitled to receive a
majority of the variable interest entitys residual returns
or both. The provisions of Interpretation 46 are required
to be adopted by the Company in 2003. The Company does not
believe the adoption of Interpretation 46 will have a
material impact on its overall financial position or results of
operations.

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets
that result from the acquisition, construction, development or
normal use of the asset. The Company is required to adopt SFAS
No. 143 on January 1, 2003 and does not expect the
adoption to have a material impact on the Companys
consolidated financial statements.

(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, limited coverage area provided by the
technology available at the time and inability to obtain outside
investment. Complete disposal of the business through sale and
disposal of assets is expected 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, 2001, and 2000 was $8,935,429,
$8,909,269, and $1,853,714, respectively. There were no revenues
for the year ended December 31, 2000. The Company had no
outstanding indebtedness directly related to the Wavetel
operations; therefore, no interest expense was allocated to
discontinued operations. Amounts reported for 2001 and 2000 have
been reclassified to conform to the 2002 discontinued operations
presentation as shown in note 3.

In connection with the discontinuance of
operations, the Company recognized a pre-tax loss of $4,377,564
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 Emerging Issues Task Force (EITF)
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in
Restructuring). The assets and liabilities of the
discontinued operations are presented separately under the
captions Assets of discontinued operations and
Liabilities of

F-15



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

discontinued operations, respectively, in
the accompanying balance sheets at December 31, 2002 and
December 31, 2001, and consist of the following:

|                                       |                                                |      |   |            |  |  |   |           | 
|-------------------------------------- | ---------------------------------------------- | ---- | - | ---------- |  |  | - | --------- | 
|                                       |                                                |      |   | (Restated)
|                                       |                                                | 2002 |   | 2001      
|                                       |                                                |      |   |           
|Assets of discontinued operations      |                                                |      |   |            |  |  |   |          
|                                       | Accounts receivable                            |      | $ |           |  |  | $ | 1,651     | 
|                                       | Other current assets                           |      |   | 12,603     |  |  |   | 36,225    | 
|                                       | Property and equipment, net                    |      |   | 1,206,530  |  |  |   | 4,767,957 | 
|                                       | Other assets                                   |      |   |           |  |  |   | 45,453    | 
|                                       |                                                |      |   |            |  |  |   |          
|                                       | Total assets                                   |      | $ | 1,219,133  |  |  | $ | 4,851,286 | 
|                                       |                                                |      |   |            |  |  |   |          
|Liabilities of discontinued operations |                                                |      |   |            |  |  |   |          
|                                       | Accounts payable                               |      | $ | 276,061    |  |  | $ | 582,910   | 
|                                       | Accrued liabilities                            |      |   | 124,378    |  |  |   | 218,653   | 
|                                       | Other liabilities, primarily lease obligations |      |   | 1,244,998  |  |  |   |          | 
|                                       |                                                |      |   |            |  |  |   |          
|                                       | Total liabilities                              |      | $ | 1,645,437  |  |  | $ | 801,563   | 
|                                       |                                                |      |   |            |  |  |   |          

(3) Restatement of Previously Issued
Financial Statements

In the course of the preparation of its financial
statements for the year 2002, the Company identified accounting
errors in estimating certain revenues and expenses in prior
periods. Specifically, the Company determined that estimates for
certain access revenues and network expenses, as well as several
settlement processes with other telephone companies, were
incorrect. The cumulative after-tax effect of these errors
resulted in the Company recording additional net income
(loss) of $297,246 and ($49,356) during the years ended
December 31, 2001 and 2000, respectively. Retained earnings
at December 31, 1999 has been restated to reflect an
additional $226,969 in after tax net loss related to earlier
reporting periods. The accompanying financial statements for
2001 and 2000 have been restated to reflect the corrected
calculations.

F-16



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The correction of the above items resulted in the
restatement of certain amounts on the balance sheet as of
December 31, 2001 and the statements of income for the
years ended December 31, 2001 and 2000. These items are as
follows:

|                                           |  |                   |             |              |  |             |            |             |  |   |           |   |  |   |             | 
|------------------------------------------ |  | ----------------- | ----------- | ------------ |  | ----------- | ---------- | ----------- |  | - | --------- | - |  | - | ----------- | 
|                                           |  |                  
|                                           |  | December 31, 2001
|                                           |  |                  
|                                           |  |                   |             | Discontinued |  |            
|                                           |  |                   |             | Operations   |  | Restatement |            |            
|                                           |  | As Reported       |             | (Note 2)     |  | (Note 3)    |            | As Restated
|                                           |  |                   |             |              |  |             |            |            
|Balance Sheet                              |  |                   |             |              |  |             |            |             |  |   |           |   |  |   |             | 
|Accounts receivable                        |  | $                 | 21,102,252  |              |  | $           | (1,651     | )           |  | $ | 2,493,496 |   |  | $ | 23,594,097  | 
|Deferred income taxes                      |  |                   | 293,103     |              |  |             |           |             |  |   | (14,538   | ) |  |   | 278,565     | 
|Prepaid expenses and other assets          |  |                   | 1,916,800   |              |  |             | (36,225    | )           |  |   |          |   |  |   | 1,880,575   | 
|Current assets of discontinued operations  |  |                   |            |              |  |             | 37,876     |             |  |   |          |   |  |   | 37,876      | 
|Total current assets                       |  |                   | 39,110,475  |              |  |             |           |             |  |   | 2,478,958 |   |  |   | 41,589,433  | 
|Property and equipment, net                |  |                   | 198,686,929 |              |  |             | (4,767,957 | )           |  |   |          |   |  |   | 193,918,972 | 
|Other assets                               |  |                   | 1,061,614   |              |  |             | (45,453    | )           |  |   |          |   |  |   | 1,016,161   | 
|Assets of discontinued operations          |  |                   |            |              |  |             | 4,813,410  |             |  |   |          |   |  |   | 4,813,410   | 
|Total assets                               |  |                   | 307,569,196 |              |  |             |           |             |  |   | 2,478,958 |   |  |   | 310,048,154 | 
|Accounts payable                           |  |                   | 10,233,035  |              |  |             | (582,910   | )           |  |   |          |   |  |   | 9,650,125   | 
|Accrued liabilities                        |  |                   | 2,061,487   |              |  |             | (218,653   | )           |  |   | 2,458,037 |   |  |   | 4,300,871   | 
|Liabilities of discontinued operations     |  |                   |            |              |  |             | 801,563    |             |  |   |          |   |  |   | 801,563     | 
|Total current liabilities                  |  |                   | 20,007,311  |              |  |             |           |             |  |   | 2,458,037 |   |  |   | 22,465,348  | 
|Total liabilities                          |  |                   | 144,015,220 |              |  |             |           |             |  |   | 2,458,037 |   |  |   | 146,473,257 | 
|Retained earnings                          |  |                   | 117,879,810 |              |  |             |           |             |  |   | 20,921    |   |  |   | 117,900,731 | 
|Total stockholders equity                 |  |                   | 163,553,976 |              |  |             |           |             |  |   | 20,921    |   |  |   | 163,574,897 | 
|Total liabilities and stockholders equity |  |                   | 307,569,196 |              |  |             |           |             |  |   | 2,478,958 |   |  |   | 310,048,154 | 

F-17



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                          |  |                              |             |              |  |             |            |             |  |   |           |  |  |   |             |  
|--------------------------------------------------------- |  | ---------------------------- | ----------- | ------------ |  | ----------- | ---------- | ----------- |  | - | --------- |  |  | - | ----------- | -
|                                                          |  |                             
|                                                          |  | Year ended December 31, 2001
|                                                          |  |                             
|                                                          |  |                              |             | Discontinued |  |            
|                                                          |  |                              |             | Operations   |  | Restatement |            |            
|                                                          |  | As Reported                  |             | (Note 2)     |  | (Note 3)    |            | As Restated
|                                                          |  |                              |             |              |  |             |            |            
|Income Statement                                          |  |                              |             |              |  |             |            |             |  |   |           |  |  |   |             |  
|Telephone revenue                                         |  | $                            | 107,337,554 |              |  | $           |           |             |  | $ | 724,162   |  |  | $ | 108,061,716 |  
|Wireless and internet revenue                             |  |                              | 27,251,526  |              |  |             |           |             |  |   | 488,992   |  |  |   | 27,740,518  |  
|Other revenue                                             |  |                              | 23,031      |              |  |             | (23,031    | )           |  |   |          |  |  |   |            |  
|Total operating revenue                                   |  |                              | 134,612,111 |              |  |             | (23,031    | )           |  |   | 1,213,154 |  |  |   | 135,802,234 |  
|Operations and support                                    |  |                              | 76,533,364  |              |  |             | (6,824,109 | )           |  |   | 709,348   |  |  |   | 70,418,603  |  
|Restructuring costs                                       |  |                              | 3,463,587   |              |  |             | (1,521,511 | )           |  |   |          |  |  |   | 1,942,076   |  
|Depreciation and amortization                             |  |                              | 24,561,148  |              |  |             | (603,184   | )           |  |   |          |  |  |   | 23,957,964  |  
|Total operating expense                                   |  |                              | 129,461,103 |              |  |             | (8,948,804 | )           |  |   | 709,348   |  |  |   | 121,221,647 |  
|Operating income                                          |  |                              | 5,151,008   |              |  |             | 8,925,773  |             |  |   | 503,806   |  |  |   | 14,580,587  |  
|Other income (expense)                                    |  |                              | (3,225,034  | )            |  |             | (16,504    | )           |  |   |          |  |  |   | (3,241,538  | )
|Income from continuing operations before income
    taxes |  |                              | 1,925,974   |              |  |             | 8,909,269  |             |  |   | 503,806   |  |  |   | 11,339,049  |  
|Income taxes                                              |  |                              | 1,756,932   |              |  |             | 3,029,151  |             |  |   | 206,560   |  |  |   | 4,992,643   |  
|Income from continuing operations                         |  |                              | 169,042     |              |  |             | 5,880,118  |             |  |   | 297,246   |  |  |   | 6,346,406   |  
|                                                         
|Cash Flow Statement                                       |  |                              |             |              |  |             |            |             |  |   |           |  |  |   |             |  
|Net cash provided by operating activities                 |  |                              | 18,801,460  |              |  |             | 4,558,700  |             |  |   |          |  |  |   | 23,360,160  |  
|Net cash used in investing activities                     |  |                              | (72,318,359 | )            |  |             | 5,081,706  |             |  |   |          |  |  |   | (67,236,653 | )
|Net cash used in discontinued operations                  |  |                              |            |              |  |             | (9,640,406 | )           |  |   |          |  |  |   | (9,640,406  | )

|                                                                 |  |                              |             |              |  |             |            |             |  |   |         |   |  |   |             | 
|---------------------------------------------------------------- |  | ---------------------------- | ----------- | ------------ |  | ----------- | ---------- | ----------- |  | - | ------- | - |  | - | ----------- | 
|                                                                 |  |                             
|                                                                 |  | Year ended December 31, 2000
|                                                                 |  |                             
|                                                                 |  |                              |             | Discontinued |  |            
|                                                                 |  |                              |             | Operations   |  | Restatement |            |            
|                                                                 |  | As Reported                  |             | (Note 2)     |  | (Note 3)    |            | As Restated
|                                                                 |  |                              |             |              |  |             |            |            
|Income Statement                                                 |  |                              |             |              |  |             |            |             |  |   |         |   |  |   |             | 
|Telephone revenue                                                |  | $                            | 100,632,143 |              |  | $           |           |             |  | $ | 289,297 |   |  | $ | 100,921,440 | 
|Total operating revenue                                          |  |                              | 115,655,333 |              |  |             |           |             |  |   | 289,297 |   |  |   | 115,944,630 | 
|Operations and support                                           |  |                              | 63,966,096  |              |  |             | (1,853,714 | )           |  |   | 372,952 |   |  |   | 62,485,334  | 
|Total operating expense                                          |  |                              | 102,001,696 |              |  |             | (1,853,714 | )           |  |   | 372,952 |   |  |   | 100,520,934 | 
|Operating income                                                 |  |                              | 13,653,637  |              |  |             | 1,853,714  |             |  |   | (83,655 | ) |  |   | 15,423,696  | 
|Income (loss) from continuing operations before
    income taxes |  |                              | 68,008,026  |              |  |             | 1,853,714  |             |  |   | (83,655 | ) |  |   | 69,778,085  | 
|Income taxes (benefit)                                           |  |                              | 27,228,578  |              |  |             | 648,800    |             |  |   | (34,299 | ) |  |   | 27,843,079  | 
|Income from continuing operations                                |  |                              | 40,779,448  |              |  |             | 1,204,914  |             |  |   | (49,356 | ) |  |   | 41,935,006  | 

F-18



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                          |  |                              |             |              |  |             |            |             |  |   |   |  |  |   |             |  
|----------------------------------------- |  | ---------------------------- | ----------- | ------------ |  | ----------- | ---------- | ----------- |  | - | - |  |  | - | ----------- | -
|                                          |  |                             
|                                          |  | Year ended December 31, 2000
|                                          |  |                             
|                                          |  |                              |             | Discontinued |  |            
|                                          |  |                              |             | Operations   |  | Restatement |            |            
|                                          |  | As Reported                  |             | (Note 2)     |  | (Note 3)    |            | As Restated
|                                          |  |                              |             |              |  |             |            |            
|Cash Flow Statement                       |  |                              |             |              |  |             |            |             |  |   |   |  |  |   |             |  
|Net cash provided by operating activities |  | $                            | 4,703,570   |              |  | $           | 1,204,915  |             |  | $ |  |  |  | $ | 5,908,485   |  
|Net cash used in investing activities     |  |                              | (12,779,401 | )            |  |             | 289,435    |             |  |   |  |  |  |   | (12,489,966 | )
|Net cash used in discontinued operations  |  |                              |            |              |  |             | (1,494,349 | )           |  |   |  |  |  |   | (1,494,349  | )

(4)     Investment
Securities

The amortized cost, gross unrealized holding
gains, gross unrealized holding losses and fair value for the
Companys investments by major security type and class of
security at December 31, 2002 and 2001, were as follows:

|                     |                     |           |   |            |  |            |   |            |  |  |   |          |   |  |   |            | 
|-------------------- | ------------------- | --------- | - | ---------- |  | ---------- | - | ---------- |  |  | - | -------- | - |  | - | ---------- | 
|                     |                     |           |   | Gross      |  | Gross      |   |           
|                     |                     |           |   | Unrealized |  | Unrealized |   |           
|                     |                     | Amortized |   | Holding    |  | Holding    |   |           
|                     |                     | Cost      |   | Gains      |  | Losses     |   | Fair Value
|                     |                     |           |   |            |  |            |   |           
|At December 31, 2002 |                     |           |   |            |  |            |   |            |  |  |   |          |   |  |   |           
|                     | Available-for-sale: |           |   |            |  |            |   |            |  |  |   |          |   |  |   |            | 
|                     | Equity securities   |           | $ | 6,597,439  |  |            | $ | 98,103     |  |  | $ | (316,431 | ) |  | $ | 6,379,111  | 
|                     |                     |           |   |            |  |            |   |            |  |  |   |          |   |  |   |           
|At December 31, 2001 |                     |           |   |            |  |            |   |            |  |  |   |          |   |  |   |           
|                     | Available-for-sale: |           |   |            |  |            |   |            |  |  |   |          |   |  |   |            | 
|                     | Equity securities   |           | $ | 6,184,604  |  |            | $ | 8,236,285  |  |  | $ | (374,028 | ) |  | $ | 14,046,861 | 
|                     |                     |           |   |            |  |            |   |            |  |  |   |          |   |  |   |           

In 2002, 2001 and 2000 proceeds from the sale of
investment securities available for sale were $5,441,658,
$13,897,218, and $19,238,469 and included in income were gross
realized gains of $4,222,686, $11,427,860, and $12,164,249, and
gross realized losses of $649,856, $360,871, and $800,045,
respectively.

During 2002 and 2001, the Company recognized
impairment losses of $1,058,227 and $1,518,216, 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.

F-19



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(5)     Investments
in Unconsolidated Companies

Investments in unconsolidated companies consist
of the following:

|              |                                                 |            |  |         |   |      |            |           |  |   |            |           | 
|------------- | ----------------------------------------------- | ---------- |  | ------- | - | ---- | ---------- | --------- |  | - | ---------- | --------- | 
|              |                                                 | Ownership  |  |         |   |     
|              |                                                 | Percentage |  |         |   |     
|              |                                                 | 2002       |  | 2002    |   | 2001
|              |                                                 |            |  |         |   |     
|Equity Method |                                                 |            |  |         |   |      |            |           |  |   |            |          
|              | Palmetto MobileNet, L.P.                        |            |  | 19.8    | % |      | $          | 8,740,251 |  |   | $          | 9,808,915 | 
|              | Wireless One of North Carolina,
    L.L.C.      |            |  | 100.0   | % |      |            |          |  |   |            | 8,762,090 | 
|              | Other                                           |            |  | Various |   |      |            | 120,374   |  |   |            | 112,418   | 
|Cost Method   |                                                 |            |  |         |   |      |            |           |  |   |            |          
|              | ITC Holding Company                             |            |  | 4.4     | % |      |            | 1,979,471 |  |   |            | 2,215,534 | 
|              | Maxcom Telecomunicaciones, S.A. de C.V.(Maxcom) |            |  | 1.1     | % |      |            | 1,238,476 |  |   |            | 1,238,476 | 
|              | Other                                           |            |  | Various |   |      |            | 650,000   |  |   |            | 170,719   | 
|              |                                                 |            |  |         |   |      |            |           |  |   |            |          
|              |                                                 |            |  |         |   | $    | 12,728,572 |           |  | $ | 22,308,152 |          
|              |                                                 |            |  |         |   |      |            |           |  |   |            |          

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s operating and financial
activities through the Companys ownership interest in the
corporate general partner of Palmetto MobileNet, L.P.

The purpose of WONC is to develop and deploy
wireless services in North Carolina. The Companys
wholly-owned subsidiary, CT Wireless Cable, held 100% of
WONC at December 31, 2002 (see note 6).

ITC Holding Company has participated in the
formation of several telecommunications companies. During 2000,
ITC Holding reorganized and, as a result, the Company received
1,600,000 shares of Knology, Inc. which is included in
investment securities within the financial statements.

Maxcom is creating a competitive
telecommunications company offering local, long distance, and
network telecommunications services in Mexico. The
Companys investment in Maxcom is through its subsidiary,
CT Global. 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.

The Company recorded total income of $4,862,078
in 2002 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 audited financial position information
for Palmetto MobileNet, L.P. as of December 31, 2002 is as
follows: current assets  $9,739,242; property and
other non-current assets  $85,173,442; current
liabilities  $269,467; partners
capital  $94,643,217. Summarized audited combined
results of operations for this entity for the year ended
December 31, 2002, is as follows: equity in earnings of
cellular partnerships  $24,825,098; operating
income  $24,423,863 and net income 
$24,650,267.

Summarized audited financial position information
for Palmetto MobileNet, L.P. as of December 31, 2001 is as
follows: current assets  $21,006,989; property and
other non-current assets  $83,805,996; current
liabilities  $1,660,780; partners
capital  $100,024,510. Summarized audited combined
results of

F-20



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operations for this entity for the year ended
December 31, 2001, is as follows: equity in earnings of
cellular partnerships  $20,784,846; operating
income  $20,467,370 and net income 
$21,278,770.

(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., a subsidiary of WorldCom, Inc., and Worldcom
Broadband Solutions, 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. At
December 31, 2002 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 $20,696,562. Payment consisted
of $3.0 million in cash and a promissory note of
$17.7 million. (see note 8).

The total purchase price of $20,696,562 was
allocated as follows:

|                       |  |   |            |  
|---------------------- |  | - | ---------- | -
|Current assets         |  | $ | 277,957    |  
|Wireless licenses      |  |   | 20,725,918 |  
|Property and equipment |  |   | 412,367    |  
|Accounts payable       |  |   | (719,680   | )
|                       |  |   |            |  
|Total purchase price   |  | $ | 20,696,562 |  
|                       |  |   |            |  

On July 19, 2002, the Company delivered a
Split-Up Notice to Wireless One, Inc. pursuant to
the Purchase Agreement. This notice sets into motion a process
under the Purchase Agreement pursuant to which WONC will
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. The dates on which these transactions will
be effected have not yet been determined, but are expected to
occur no later than the second quarter of 2003.

On June 1, 2001, the Company effected the
partitioning of 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. This partitioned area
contains a population of approximately 440,000 people. This
transaction has been accounted for under the purchase method of
accounting. The total purchase price of $23,248,426 was
allocated to assets and liabilities as follows:

|                            |  |   |            |  
|--------------------------- |  | - | ---------- | -
|Property and equipment      |  | $ | 4,635,875  |  
|Intangible and other assets |  |   | 18,762,551 |  
|Other liabilities           |  |   | (150,000   | )
|                            |  |   |            |  
|Total purchase price        |  | $ | 23,248,426 |  
|                            |  |   |            |  

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.

F-21



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2002 and 2001 due to the
variability in interest rates of the underlying instruments not
subject to an interest rate swap agreement.

The carrying value of the $50,000,000 fixed rate
term loan approximates the fair value at December 31, 2002
and 2001. 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:

|                                                                                                      |  |      |             |      |  |   |             | 
|----------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- |  | - | ----------- | 
|                                                                                                      |  | 2002 |             | 2001
|                                                                                                      |  |      |             |     
|Line of credit with interest at LIBOR plus 1.25%
    (2.883% at December 31, 2002) due March 31, 2006 |  | $    | 60,000,000  |      |  | $ | 50,000,000  | 
|Term loan with interest at 7.32% due
    December 31, 2014. Interest payments due quarterly           |  |      | 50,000,000  |      |  |   | 50,000,000  | 
|Note payable to Wireless One, Inc. with interest
    at 9% due March 31, 2012                         |  |      | 17,696,562  |      |  |   |            | 
|                                                                                                      |  |      |             |      |  |   |             | 
|Long-term debt                                                                                        |  | $    | 127,696,562 |      |  | $ | 100,000,000 | 
|                                                                                                      |  |      |             |      |  |   |             | 

The Company has an available line of credit
totaling $90,000,000, of which $60,000,000 was outstanding at
December 31, 2002. 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, 2002. The Company has entered into three
interest rate swap agreements as of December 31, 2002 (See
note 9).

In addition, the Company has a $10.0 million
revolving credit facility with First Charter Bank. As of
December 31, 2002, there were no amounts outstanding under
this facility. The First Charter facility bears interest at
30-day LIBOR plus 1.25% (2.632% at December 31, 2002).

F-22



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Wireless One promissory note is payable over
the 10 year period following the closing, with a
$7.0 million payment due by 12 months from the closing
date (which payment may be deferred for up to an additional two
years) and the remainder payable in equal annual installments
beginning after six years. In the event the $7.0 million
payment is not made when due, either CT Wireless Cable or
Wireless One, Inc. may cause WONC to transfer certain of its
licensed frequencies to Wireless One in payment of the
outstanding principal amount of the promissory note. The
promissory note is secured by a pledge of WONCs channel
rights.

Interest expense recognized in 2002, 2001 and
2000 was $6,032,233, $4,291,949, and $2,157,360, respectively.
During 2002, 2001, and 2000, interest capitalized was
$1,372,057, $681,735, and $85,044, respectively.

(9)     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 underlying debt. Under the agreements, the
Company pays interest on $20,000,000 of the line of credit at
fixed rates of 5.9%, 4.53%, and 3.81% plus an applicable spread
(1.25% at December 31, 2002) respectively, in return for
receiving interest at LIBOR plus 1.25%. 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, 2002 are ($554,737), ($359,264), and
($203,678), respectively and are recorded in other long-term
liabilities. At December 31, 2001, the fair values of these
three agreements were ($572,775), $99,668, and $48,835,
respectively. During 2002, $715,903 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 $680,000 against earnings during 2003.

(10)     Redeemable
Preferred Stock

In June 2002, the Company secured approval from
the North Carolina Utilities Commission (NCUC) and
accelerated the redemption of the remaining 1,000 outstanding
shares of 4.8% redeemable preferred stock of Concord Telephone,
a subsidiary of the Company, for $95,000.

(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.

On April 5, 2000 the Company effected a
two-for-one stock dividend to shareholders of record at
March 15, 2000. All share amounts have been retroactively
restated for all years presented.

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 2002, 2001 and 2000.

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

F-23



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(12)     Stock
Compensation Plans

At December 31, 2002, the Company had six
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.

The Company has an Executive Stock Option Plan
(the Option Plan) to allow key employees to increase
their holdings of the Companys common stock. 90,000 shares
of common stock were reserved for issuance under the Option
Plan. At December 31, 2002, all shares reserved for
issuance have been granted. Options are granted at prices
determined by the Board of Directors, generally the most recent
sales price at the date of grant, and must be exercised within
five years of the date of grant. Options are exercisable
immediately when granted. Activity under the Option Plan for the
year ended December 31, 2000, is as follows:

|                                                             |                   |           |       |                  |   |   |   |   | 
|------------------------------------------------------------ | ----------------- | --------- | ----- | ---------------- | - | - | - | - | 
|                                                             |                   | Number of |       | Weighted Average
|                                                             |                   | Options   |       | Exercise Price  
|                                                             |                   |           |       |                 
|Options outstanding and exercisable at
    December 31, 1999 |                   |           | 7,200 |                  |   | $ | 7 |  
|                                                             | Options granted   |           |       |                 |   |   |   |  | 
|                                                             | Options exercised |           |       | (7,200           | ) |   |   | 7 | 
|                                                             |                   |           |       |                  |   |   |   |  
|Options outstanding and exercisable at
    December 31, 2000 |                   |           |      |                  |   | $ |  |  
|                                                             |                   |           |       |                  |   |   |   |  

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, 2002, 480 shares of common stock were reserved
for issuance but 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.

Activity under the Comprehensive Option Plan for
each of the years in the three-year period ended
December 31, 2002 is as follows:

|                                                             |                   |           |         |                  |   |   |   |   | 
|------------------------------------------------------------ | ----------------- | --------- | ------- | ---------------- | - | - | - | - | 
|                                                             |                   | Number of |         | Weighted Average
|                                                             |                   | Options   |         | Exercise Price  
|                                                             |                   |           |         |                 
|Options outstanding and exercisable at
    December 31, 1999 |                   |           | 127,776 |                  |   | $ | 9 |  
|                                                             | Options granted   |           |         |                 |   |   |   |  | 
|                                                             | Options exercised |           |         | (27,632          | ) |   |   | 9 | 
|                                                             | Options forfeited |           |         | (1,768           | ) |   |   | 9 | 
|                                                             |                   |           |         |                  |   |   |   |  
|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 |  
|                                                             |                   |           |         |                  |   |   |   |  

As of December 31, 2002 and 2001, the 84,784
and 90,832 options outstanding have exercise prices between $8
and $9 and a weighted-average remaining contractual life of 3.5
and 4.0 years, respectively.

F-24



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. In 2002, 2001 and 2000, respectively, the
Company granted 77,099, 34,399, and 41,039 shares to
participants with a weighted-average fair value of $15, $14, and
$25. Deferred compensation at December 31, 2002 and 2001,
respectively was $470,376 and $653,693, which is disclosed net
of accumulated amortization of $1,284,035 and $1,929,620, in the
consolidated statements of stockholders equity.

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. The initial grant date is the first day that is six months
and one day following the Directors election. 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, 2001 and 2000, the Company granted
13,378, 10,557, and 6,810 shares, respectively, with an average
fair market value of $14, $15, and $27, respectively.

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 stock appreciation rights outstanding. At
December 31, 2001, the number of shares of common stock
reserved for issuance but ungranted was 204,202 shares. These
shares have been transferred to the 2001 Stock Incentive Plan as
authorized by the approval of 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, 2002 is as follows:

|                                                             |                   |           |         |                  |   |   |    |    | 
|------------------------------------------------------------ | ----------------- | --------- | ------- | ---------------- | - | - | -- | -- | 
|                                                             |                   | Number of |         | Weighted Average
|                                                             |                   | Options   |         | Exercise Price  
|                                                             |                   |           |         |                 
|Options outstanding and exercisable at
    December 31, 1999 |                   |           | 151,430 |                  |   | $ | 19 |   
|                                                             | Options granted   |           |         | 220,703          |   |   |    | 29 | 
|                                                             | Options exercised |           |         | (11,066          | ) |   |    | 18 | 
|                                                             | Options forfeited |           |         | (13,306          | ) |   |    | 27 | 
|                                                             |                   |           |         |                  |   |   |    |   
|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 |   
|                                                             |                   |           |         |                  |   |   |    |   

F-25



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2002 and 2001, the
406,233 and 460,125 options outstanding have exercise prices of
between $10 and $31 and a weighted-average remaining contractual
life of 7.1 and 6.2 years, respectively.

The per share fair value of stock options granted
in 2001 and 2000 was $4 and $12 at the date of grant. The fair
value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions: 2000  dividend yield of
2.0%; expected volatility of 40%; risk-free interest rate of 7%,
and expected lives of 6 years; 2001  dividend
yield of 2.0%; expected volatility of 33%; risk-free interest
rate of 5%, and expected lives of 6 years. Options granted
generally vest over a 5 year period.

During 2001, the 2001 Stock Incentive Plan (the
Stock Incentive Plan) was approved. 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,
2002, the number of shares of common stock reserved for issuance
but ungranted was 1,049,554 shares. 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.

Activity under the Stock Incentive Plan for the
year ended December 31, 2002 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 |   
|                                                             |                   |           |         |                  |   |   |    |   

As of December 31, 2002 the 247,881 options
outstanding have exercise prices of between $14 and $16 and a
weighted-average remaining contractual life of 9.7 years.

The per share fair value of stock options granted
in 2002 was $10 at the date of grant. The fair value of each
option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following
weighted-average assumptions: 2002  dividend yield of
1.5%; expected volatility of 53%; risk-free interest rate of
4.5%, and expected lives of 6 years. Options granted
generally vest over a 5 year period.

Outstanding options to purchase approximately
645,000 shares of common stock for the year ended
December 31, 2002 and approximately 436,000 shares of
common stock for the year ended December 31, 2001 were not
included in the computation of diluted earnings per share and
diluted weighted shares outstanding because the exercise price
of these options was greater than the average market price of
the common stock during the respective periods.

(13)     Restructuring
Costs

In February 2001, the Company recorded
restructuring charges of $1,942,076 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

F-26



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

transport costs, and other costs associated with
the restructuring action. A summary of restructuring liability
activity for the years ended December 31, 2002 and 2001 is
as follows:

|                                     |                                      |   |           |          |  
|------------------------------------ | ------------------------------------ | - | --------- | -------- | -
|Balance at December 31, 2000         |                                      | $ |          |         
|Early retirement and severance costs |                                      |   | 1,178,369 |         
|Lease termination costs              |                                      |   | 241,110   |         
|Raleigh transport costs              |                                      |   | 307,093   |         
|Other costs                          |                                      |   | 215,504   |         
|                                     |                                      |   |           |         
|Restructuring charge incurred        |                                      |   | 1,942,076 |         
|Cash payments                        |                                      |   |           |         
|                                     | Early retirement and severance costs |   |           | (115,369 | )
|                                     | Raleigh transport costs              |   |           | (307,093 | )
|                                     | Raleigh lease payments               |   |           | (93,929  | )
|                                     | Other costs                          |   |           | (215,504 | )
|                                     |                                      |   |           |         
|Balance at December 31, 2001         |                                      |   | 1,210,181 |         
|Cash payments                        |                                      |   |           |         
|                                     | Raleigh lease payments               |   |           | (127,881 | )
|                                     |                                      |   |           |         
|Balance at December 31, 2002         |                                      | $ | 1,082,300 |         
|                                     |                                      |   |           |         

At December 31, 2002 approximately
$1,028,000 was included in the Companys accrued pension
liability to provide for retirement obligations associated with
Raleigh operations.

(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. 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 electing to
participate have their contributions to the Employee Plan made
by payroll deduction. Under the Employee Plan, 11,402 and 3,122
shares were issued at a weighted average purchase price of $13
and $18 per share in 2002 and 2001, respectively.

The 1997 Employee Plan authorized 96,000 shares
of common stock to be offered to all employees eligible to buy
shares. Purchase price of shares is 100% of fair market value
with the option to finance up to 100% of purchase by payroll
deduction over a period of up to 24 months at 6% interest.
Under the Plan, 2,294 and 39,002 shares were issued at a
purchase price of $25 and $22 per share in 2000 and 1999,
respectively. This Employee Plan has been replaced by the
aforementioned 2001 Employee Stock Purchase Plan.

(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. Since the plan is adequately funded, no
contributions were made in 2002 or 2001. Plan assets are
invested primarily in common stocks, long-term bonds and U.S.
treasury notes.

F-27



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2002
and 2001:

|                               |                                                |      |   |             |   |  |   |             |  
|------------------------------ | ---------------------------------------------- | ---- | - | ----------- | - |  | - | ----------- | -
|                               |                                                | 2002 |   | 2001       
|                               |                                                |      |   |            
|Change in Benefit Obligation   |                                                |      |   |             |   |  |   |            
|                               | Benefit obligation at end of prior plan year   |      | $ | (35,887,127 | ) |  | $ | (33,265,972 | )
|                               | Service cost                                   |      |   | (1,533,128  | ) |  |   | (1,304,524  | )
|                               | Interest cost                                  |      |   | (2,354,119  | ) |  |   | (2,405,359  | )
|                               | Actuarial gain/(loss)                          |      |   | 465,513     |   |  |   | 31,614      |  
|                               | Early retirement                               |      |   |            |   |  |   | (1,028,000  | )
|                               | Actual distributions                           |      |   | 2,270,418   |   |  |   | 2,085,114   |  
|                               |                                                |      |   |             |   |  |   |            
|                               | Benefit obligation at end of year              |      | $ | (37,038,443 | ) |  | $ | (35,887,127 | )
|                               |                                                |      |   |             |   |  |   |            
|Change in Plan Assets          |                                                |      |   |             |   |  |   |            
|                               | Plan assets at fair value at beginning of year |      | $ | 41,371,875  |   |  | $ | 42,490,116  |  
|                               | Actual return on plan assets                   |      |   | (3,320,270  | ) |  |   | 966,873     |  
|                               | Actual distributions                           |      |   | (2,270,418  | ) |  |   | (2,085,114  | )
|                               |                                                |      |   |             |   |  |   |            
|                               | Plan Assets at Fair Value at End of Year       |      | $ | 35,781,187  |   |  | $ | 41,371,875  |  
|                               |                                                |      |   |             |   |  |   |            
|(Accrued)/Prepaid Pension Cost |                                                |      |   |             |   |  |   |            
|                               | Funded status                                  |      | $ | (1,257,256  | ) |  | $ | 5,484,748   |  
|                               | Unrecognized net actuarial gain                |      |   | (1,143,131  | ) |  |   | (7,141,712  | )
|                               | Unrecognized prior service                     |      |   | 61,288      |   |  |   | (24,494     | )
|                               | Unrecognized transition asset                  |      |   |            |   |  |   | (66,063     | )
|                               |                                                |      |   |             |   |  |   |            
|                               | Net Amount Recognized                          |      | $ | (2,339,099  | ) |  | $ | (1,747,521  | )
|                               |                                                |      |   |             |   |  |   |            

The Company also has an unqualified defined
benefit Supplemental Executive Retirement Plan. Accrued costs
related to this plan were $481,900 and $449,205 at
December 31, 2002 and 2001, 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 an unqualified 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.

Net pension cost for 2002, 2001 and 2000 included
the following:

|                                                |  |      |            |      |  |      |            |   |  |   |            |  
|----------------------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                                                |  | 2002 |            | 2001 |  | 2000
|                                                |  |      |            |      |  |     
|Service cost, benefits earned during the period |  | $    | 1,533,128  |      |  | $    | 1,304,524  |   |  | $ | 1,154,426  |  
|Interest cost on projected benefit obligation   |  |      | 2,354,119  |      |  |      | 2,405,359  |   |  |   | 2,298,923  |  
|Expected return on plan assets                  |  |      | (2,950,470 | )    |  |      | (3,123,609 | ) |  |   | (3,073,583 | )
|Net amortization and deferral                   |  |      | (345,199   | )    |  |      | (448,188   | ) |  |   | (428,967   | )
|                                                |  |      |            |      |  |      |            |   |  |   |            |  
|Net periodic pension expense (credit)           |  | $    | 591,578    |      |  | $    | 138,086    |   |  | $ | (49,201    | )
|                                                |  |      |            |      |  |      |            |   |  |   |            |  

The weighted average discount rate of 6.75% in
2002, 7.25% in 2001 and 7.5% in 2000 and the rate of increase in
future compensation levels of 3.0%-9.5% in 2002 and 5% in 2001
and 2000 were used in determining the actuarial present value of
the projected benefit obligations at the end of the year. The
assumed long-term rate of return on pension plan assets was 7.5%
in 2002, 2001 and 2000.

F-28



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(b) Employee
Savings Plan

The Company has a 401(k) salary savings plan
which provides that employees may contribute a portion of their
salary to the plan on a tax deferred basis. The Companys
match of a portion of the employees contribution totaled
$830,519, $512,566, and $516,452 in 2002, 2001 and 2000,
respectively.

(c) Employee
Stock Ownership Plan

The Employee Stock Ownership Plan of Concord
Telephone (the Concord Plan) was frozen by the
Company as of January 1, 1987. On May 31, 2002 the
assets of the Concord Plan were merged into the Companys
401(k) Savings Plan. These assets represent 9.1% of total plan
assets at December 31, 2002.

(d) 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.

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.

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, 2002 and 2001:

|                                           |                                              |      |   |             |   |  |   |             |  
|------------------------------------------ | -------------------------------------------- | ---- | - | ----------- | - |  | - | ----------- | -
|                                           |                                              | 2002 |   | 2001       
|                                           |                                              |      |   |            
|Change in Benefit Obligation               |                                              |      |   |             |   |  |   |            
|                                           | Benefit obligation at end of prior plan year |      | $ | (9,469,200  | ) |  | $ | (9,160,600  | )
|                                           | Service cost                                 |      |   | (187,700    | ) |  |   | (161,400    | )
|                                           | Interest cost                                |      |   | (672,700    | ) |  |   | (663,300    | )
|                                           | Actuarial gain/(loss)                        |      |   | (2,080,000  | ) |  |   | (206,400    | )
|                                           | Other                                        |      |   | 686,400     |   |  |   | 722,500     |  
|                                           |                                              |      |   |             |   |  |   |            
|                                           | Benefit Obligation at end of year            |      | $ | (11,723,200 | ) |  | $ | (9,469,200  | )
|                                           |                                              |      |   |             |   |  |   |            
|(Accrued)/Prepaid Post-retirement
    Cost |                                              |      |   |             |   |  |   |            
|                                           | Funded status                                |      | $ | (11,723,200 | ) |  | $ | (9,469,200  | )
|                                           | Unrecognized net actuarial gain              |      |   | (205,964    | ) |  |   | (2,287,327  | )
|                                           | Unrecognized prior service cost              |      |   | (1,005,800  | ) |  |   | (1,508,600  | )
|                                           | Unrecognized transition obligation           |      |   | 1,835,400   |   |  |   | 2,447,200   |  
|                                           |                                              |      |   |             |   |  |   |            
|                                           | Net Amount Recognized                        |      | $ | (11,099,564 | ) |  | $ | (10,817,927 | )
|                                           |                                              |      |   |             |   |  |   |            

F-29



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Net periodic post-retirement benefit cost for
2002, 2001 and 2000 includes the following components:

|                                                        |  |      |          |      |  |      |          |   |  |   |          |  
|------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                                        |  | 2002 |          | 2001 |  | 2000
|                                                        |  |      |          |      |  |     
|Service cost                                            |  | $    | 187,700  |      |  | $    | 161,400  |   |  | $ | 154,217  |  
|Interest cost                                           |  |      | 672,700  |      |  |      | 663,300  |   |  |   | 671,537  |  
|Amortization of transition obligation over
    15 years |  |      | 611,800  |      |  |      | 611,800  |   |  |   | 611,797  |  
|Amortization of gain                                    |  |      | (97,800  | )    |  |      | (126,500 | ) |  |   | (126,924 | )
|Amortization of prior service cost                      |  |      | (502,800 | )    |  |      | (502,800 | ) |  |   | (502,846 | )
|                                                        |  |      |          |      |  |      |          |   |  |   |          |  
|Net periodic post-retirement benefit cost               |  | $    | 871,600  |      |  | $    | 807,200  |   |  | $ | 807,781  |  
|                                                        |  |      |          |      |  |      |          |   |  |   |          |  

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 2002 and the rate
was assumed to decrease annually to 6.0% by the year 2005 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 rates by
one percentage point in each year would increase the accumulated
post-retirement benefit obligation as of December 31, 2002,
to approximately $13,325,600 and the aggregate of the service
and interest cost components of net periodic post-retirement
benefit cost for the year ended December 31, 2002 to
approximately $1,198,000. 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, 2002, to approximately $9,899,600 and the
aggregate of the service and interest cost components of net
periodic post-retirement benefit cost for the year ended
December 31, 2002 to approximately $850,700.

The weighted-average discount rate used in
determining the accumulated post-retirement benefit obligation
was 6.75% in 2002, 7.25% in 2001 and 7.5% in 2000.

(16)     Income
Taxes

Total income tax expense (benefit) for the years
ended December 31, 2002, 2001 and 2000 were allocated as
follows:

|                                                                                                                                                                                                                       |  |      |            |            |  |            |            |   |  |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---------- |  | ---------- | ---------- | - |  | - | ----------- | -
|                                                                                                                                                                                                                       |  |      |            | (Restated) |  | (Restated)
|                                                                                                                                                                                                                       |  | 2002 |            | 2001       |  | 2000      
|                                                                                                                                                                                                                       |  |      |            |            |  |           
|Income from continuing operations                                                                                                                                                                                      |  | $    | 8,695,846  |            |  | $          | 4,992,643  |   |  | $ | 27,843,079  |  
|Discontinued operations                                                                                                                                                                                                |  |      | (3,278,155 | )          |  |            | (3,029,151 | ) |  |   | (648,800    | )
|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 |  |      | (3,171,334 | )          |  |            | (3,106,080 | ) |  |   | (21,428,952 | )

F-30



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Income tax expense (benefit) attributable to
income from continuing operations for the years ended
December 31, 2002, 2001 and 2000, consists of:

|         |                                                    |       |           |            |           |            |           |           |           |  |            |            |            | 
|-------- | -------------------------------------------------- | ----- | --------- | ---------- | --------- | ---------- | --------- | --------- | --------- |  | ---------- | ---------- | ---------- | 
|         |                                                    |       |           | (Restated) |           | (Restated)
|         |                                                    | 2002  |           | 2001       |           | 2000      
|         |                                                    |       |           |            |           |           
|Current  |                                                    |       |           |            |           |            |           |           |           |  |            |           
|         | Federal                                            |       | $         | 1,859,210  |           |            | $         | 3,560,370 |           |  | $          | 22,345,156 |           
|         | State                                              |       |           | 1,584,596  |           |            |           | 1,051,507 |           |  |            | 4,943,018  |           
|         | Foreign                                            |       |           |           |           |            |           | 200,312   |           |  |            | 475,206    |           
|         |                                                    |       |           |            |           |            |           |           |           |  |            |           
|         |                                                    |       | 3,443,806 |            |           |            | 4,812,189 |           |           |  | 27,763,380 |           
|         |                                                    |       |           |            |           |            |           |           |           |  |            |           
|Deferred |                                                    |       |           |            |           |            |           |           |           |  |            |           
|         | Federal, net of investment tax credit amortization |       |           | 4,582,027  |           |            |           | 99,785    |           |  |            | 698,377    |           
|         | State                                              |       |           | 670,013    |           |            |           | 80,669    |           |  |            | (143,472   | )         
|         | Foreign                                            |       |           |           |           |            |           |          |           |  |            | (475,206   | )         
|         |                                                    |       |           |            |           |            |           |           |           |  |            |           
|         |                                                    |       | 5,252,040 |            |           |            | 180,454   |           |           |  | 79,699     |           
|         |                                                    |       |           |            |           |            |           |           |           |  |            |           
|         |                                                    | Total |           | $          | 8,695,846 |            |           | $         | 4,992,643 |  |            | $          | 27,843,079 | 
|         |                                                    |       |           |            |           |            |           |           |           |  |            |           

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 2002, 2001,
and 2000 to pre-tax income from continuing operations as a
result of the following:

|                                              |  |      |           |            |  |            |           |   |  |   |            |  
|--------------------------------------------- |  | ---- | --------- | ---------- |  | ---------- | --------- | - |  | - | ---------- | -
|                                              |  |      |           | (Restated) |  | (Restated)
|                                              |  | 2002 |           | 2001       |  | 2000      
|                                              |  |      |           |            |  |           
|Amount computed at statutory rate             |  | $    | 7,761,202 |            |  | $          | 3,968,667 |   |  | $ | 24,422,330 |  
|State income taxes, net of federal income tax |  |      | 735,870   |            |  |            | (205,557  | ) |  |   | 2,233,351  |  
|Increase in valuation allowance               |  |      | 533,292   |            |  |            | 941,465   |   |  |   | 859,553    |  
|Nontaxable interest income                    |  |      |          |            |  |            | (20,772   | ) |  |   | (17,071    | )
|Amortization of federal investment tax credit |  |      | (114,885  | )          |  |            | (114,885  | ) |  |   | (114,885   | )
|Research and development credits              |  |      | (35,000   | )          |  |            |          |   |  |   |           |  
|Goodwill                                      |  |      |          |            |  |            | 418,528   |   |  |   | 501,074    |  
|Other, net                                    |  |      | (184,633  | )          |  |            | 5,197     |   |  |   | (41,273    | )
|                                              |  |      |           |            |  |            |           |   |  |   |            |  
|Income tax expense from continuing operations |  | $    | 8,695,846 |            |  | $          | 4,992,643 |   |  | $ | 27,843,079 |  
|                                              |  |      |           |            |  |            |           |   |  |   |            |  

F-31



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The tax effects of temporary differences that
give rise to significant portions of deferred tax assets and
deferred tax liabilities as of December 31, 2002 and 2001
were as follows:

|                         |                                                                           |      |   |            |   |  |   |            |  
|------------------------ | ------------------------------------------------------------------------- | ---- | - | ---------- | - |  | - | ---------- | -
|                         |                                                                           |      |   | (Restated)
|                         |                                                                           | 2002 |   | 2001      
|                         |                                                                           |      |   |           
|Deferred tax assets      |                                                                           |      |   |            |   |  |   |           
|                         | Accrued post-retirement and pension benefits                              |      | $ | 5,567,793  |   |  | $ | 4,991,494  |  
|                         | Accrued incentive                                                         |      |   | 425,753    |   |  |   | 385,661    |  
|                         | State net operating loss carryforwards                                    |      |   | 3,724,793  |   |  |   | 2,695,320  |  
|                         | Other accrued expenses and allowances                                     |      |   | 200,369    |   |  |   | 342,688    |  
|                         | Investments                                                               |      |   | 5,343,136  |   |  |   | 4,622,311  |  
|                         |                                                                           |      |   |            |   |  |   |           
|                         | Total gross deferred tax assets                                           |      |   | 15,261,844 |   |  |   | 13,037,474 |  
|                         | Less valuation allowance                                                  |      |   | (2,906,124 | ) |  |   | (2,372,832 | )
|                         |                                                                           |      |   |            |   |  |   |           
|                         | Net deferred tax assets                                                   |      |   | 12,355,720 |   |  |   | 10,664,642 |  
|                         |                                                                           |      |   |            |   |  |   |           
|Deferred tax liabilities |                                                                           |      |   |            |   |  |   |           
|                         | Property and equipment, primarily related to
    depreciation differences |      |   | 24,795,618 |   |  |   | 19,478,607 |  
|                         | Unrealized gain (loss) on securities and
    interest rate swaps          |      |   | (519,452   | ) |  |   | 2,651,881  |  
|                         | Other                                                                     |      |   |           |   |  |   | 2,143      |  
|                         |                                                                           |      |   |            |   |  |   |           
|                         | Total gross deferred tax liabilities                                      |      |   | 24,276,166 |   |  |   | 22,132,631 |  
|                         |                                                                           |      |   |            |   |  |   |           
|                         | Net deferred tax liabilities                                              |      | $ | 11,920,446 |   |  | $ | 11,467,989 |  
|                         |                                                                           |      |   |            |   |  |   |           

The net change in the total valuation allowance
for the years ended December 31, 2002, 2001 and 2000 was an
increase of $533,292, $941,465 and $859,553, 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, 2002.

At December 31, 2002, the Company has net
operating loss carryforwards for state income tax purposes in
certain subsidiaries of approximately $83 million that will
expire in the years 2012-2017.

F-32



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(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:

(a) ILEC

ILEC provides local telephone services,

(b) Wireless

Digital wireless group provides wireless phone
services,

(c) CLEC

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

(d) Greenfield

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

(e) Internet
and Data Services (IDS)

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

(f) Palmetto

Palmetto MobileNet, L.P. is a limited partnership
with interests in wireless phone service in North and South
Carolina. The Company has an equity interest in Palmetto
MobileNet, L.P. through CT Cellular.

(g) Other

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

Effective January 1, 2002, the Company
stopped managing results of the long distance services unit as a
separate business unit and began reporting long distance as a
product offering within the remaining business segments. Results
for previous years have been restated for comparability. Prior
to January 2001, the results of the Greenfield segment were
included within the CLEC. Combining the two segments (Greenfield
and CLEC) for 2002 and 2001 provides comparative results for
2000. Palmetto MobileNet, L.P. is a limited partnership with
interests in wireless phone service 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. Accounting policies of the
segments are the same as those described in the summary of
significant accounting policies. The Company evaluates
performance based on operating 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-33



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                              |            |       |   |             |             |            |   |             |             |  |   |             |             | 
|----------------------------- | ---------- | ----- | - | ----------- | ----------- | ---------- | - | ----------- | ----------- |  | - | ----------- | ----------- | 
|                              |            |       |   | (Restated)  |             | (Restated)
|                              |            | 2002  |   | 2001        |             | 2000      
|                              |            |       |   |             |             |           
|Operating revenue             |            |       |   |             |             |            |   |             |             |  |   |            
|                              | ILEC       |       | $ | 94,307,945  |             |            | $ | 95,559,700  |             |  | $ | 95,782,692  |            
|                              | Wireless   |       |   | 24,443,338  |             |            |   | 18,314,718  |             |  |   | 7,673,754   |            
|                              | CLEC       |       |   | 15,502,951  |             |            |   | 10,627,983  |             |  |   | 5,138,748   |            
|                              | Greenfield |       |   | 4,106,835   |             |            |   | 1,874,033   |             |  |   |            |            
|                              | IDS        |       |   | 9,694,926   |             |            |   | 9,425,800   |             |  |   | 6,899,436   |            
|                              | Palmetto   |       |   | 24,825,098  |             |            |   | 20,784,846  |             |  |   | 30,255,306  |            
|                              | Other      |       |   |            |             |            |   |            |             |  |   | 450,000     |            
|                              |            |       |   |             |             |            |   |             |             |  |   |            
|                              |            | Total |   | $           | 172,881,093 |            |   | $           | 156,587,080 |  |   | $           | 146,199,936 | 
|                              |            |       |   |             |             |            |   |             |             |  |   |            
|Operating income (loss)       |            |       |   |             |             |            |   |             |             |  |   |            
|                              | ILEC       |       | $ | 30,262,254  |             |            | $ | 29,074,214  |             |  | $ | 30,098,582  |            
|                              | Wireless   |       |   | 3,288,326   |             |            |   | 2,175,460   |             |  |   | (2,003,761  | )          
|                              | CLEC       |       |   | (5,867,117  | )           |            |   | (8,806,798  | )           |  |   | (10,805,607 | )          
|                              | Greenfield |       |   | (5,187,218  | )           |            |   | (4,212,824  | )           |  |   |            |            
|                              | IDS        |       |   | (1,715,829  | )           |            |   | (2,728,709  | )           |  |   | (1,675,232  | )          
|                              | Palmetto   |       |   | 24,423,863  |             |            |   | 20,467,370  |             |  |   | 29,999,952  |            
|                              | Other      |       |   | (2,379,187  | )           |            |   | (920,756    | )           |  |   | (190,286    | )          
|                              |            |       |   |             |             |            |   |             |             |  |   |            
|                              |            | Total |   | $           | 42,825,092  |            |   | $           | 35,047,957  |  |   | $           | 45,423,648  | 
|                              |            |       |   |             |             |            |   |             |             |  |   |            
|Depreciation and amortization |            |       |   |             |             |            |   |             |             |  |   |            
|                              | ILEC       |       | $ | 20,197,201  |             |            | $ | 17,994,580  |             |  | $ | 16,062,289  |            
|                              | Wireless   |       |   | 1,174,108   |             |            |   | 668,202     |             |  |   | 55,615      |            
|                              | CLEC       |       |   | 2,201,877   |             |            |   | 1,987,286   |             |  |   | 1,206,500   |            
|                              | Greenfield |       |   | 2,000,326   |             |            |   | 1,017,659   |             |  |   |            |            
|                              | IDS        |       |   | 1,683,965   |             |            |   | 2,269,048   |             |  |   | 1,365,215   |            
|                              | Palmetto   |       |   | 136,999     |             |            |   | 3,376,373   |             |  |   | 3,308,518   |            
|                              | Other      |       |   | 692,747     |             |            |   | 21,189      |             |  |   | 21,081      |            
|                              |            |       |   |             |             |            |   |             |             |  |   |            
|                              |            | Total |   | $           | 28,087,223  |            |   | $           | 27,334,337  |  |   | $           | 22,019,218  | 
|                              |            |       |   |             |             |            |   |             |             |  |   |            
|Assets                        |            |       |   |             |             |            |   |             |             |  |   |            
|                              | ILEC       |       | $ | 163,139,442 |             |            | $ | 163,135,903 |             |  | $ | 152,891,376 |            
|                              | Wireless   |       |   | 30,499,939  |             |            |   | 28,315,777  |             |  |   | 1,059,111   |            
|                              | CLEC       |       |   | 14,492,277  |             |            |   | 15,639,720  |             |  |   | 18,429,275  |            
|                              | Greenfield |       |   | 22,419,110  |             |            |   | 14,356,974  |             |  |   |            |            
|                              | IDS        |       |   | 14,622,435  |             |            |   | 15,572,654  |             |  |   | 8,211,079   |            
|                              | Palmetto   |       |   | 94,912,684  |             |            |   | 104,812,985 |             |  |   | 119,831,722 |            
|                              | Other      |       |   | 80,862,475  |             |            |   | 50,718,974  |             |  |   | 42,980,450  |            
|                              |            |       |   |             |             |            |   |             |             |  |   |            
|                              |            | Total |   | $           | 420,948,362 |            |   | $           | 392,552,987 |  |   | $           | 343,403,013 | 
|                              |            |       |   |             |             |            |   |             |             |  |   |            

F-34



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                     |            |       |   |            |            |            |   |            |            |  |   |            |            | 
|-------------------- | ---------- | ----- | - | ---------- | ---------- | ---------- | - | ---------- | ---------- |  | - | ---------- | ---------- | 
|                     |            |       |   | (Restated) |            | (Restated)
|                     |            | 2002  |   | 2001       |            | 2000      
|                     |            |       |   |            |            |           
|Capital expenditures |            |       |   |            |            |            |   |            |            |  |   |           
|                     | ILEC       |       | $ | 16,557,821 |            |            | $ | 20,937,449 |            |  | $ | 25,802,523 |           
|                     | Wireless   |       |   | 4,289,406  |            |            |   | 812,239    |            |  |   | 15,442     |           
|                     | CLEC       |       |   | 2,705,024  |            |            |   | 3,378,420  |            |  |   | 14,830,214 |           
|                     | Greenfield |       |   | 10,098,685 |            |            |   | 9,995,181  |            |  |   |           |           
|                     | IDS        |       |   | 1,908,064  |            |            |   | 2,419,638  |            |  |   | 1,386,013  |           
|                     | Palmetto   |       |   | 300,719    |            |            |   | 67,518     |            |  |   | 6,047,020  |           
|                     | Other      |       |   | 8,723,631  |            |            |   | 21,567,355 |            |  |   | 11,765,894 |           
|                     |            |       |   |            |            |            |   |            |            |  |   |           
|                     |            | Total |   | $          | 44,583,350 |            |   | $          | 59,177,800 |  |   | $          | 59,847,106 | 
|                     |            |       |   |            |            |            |   |            |            |  |   |           

|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |             | 
|------------------------------------------------------------------------- | -------------------------------------------------- | ---- | ----------- | ----------- |  | ---------- | ----------- | ----------- |  | - | ----------- | ----------- | 
|                                                                          |                                                    |      |             | (Restated)  |  | (Restated)
|                                                                          |                                                    | 2002 |             | 2001        |  | 2000      
|                                                                          |                                                    |      |             |             |  |           
|Reconciliation to net income before tax:                                  |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Segment operating profit                                                  |                                                    | $    | 42,825,092  |             |  | $          | 35,047,957  |             |  | $ | 45,423,648  |            
|Palmetto MobileNet, L.P.                                                  |                                                    |      | (24,423,863 | )           |  |            | (20,467,370 | )           |  |   | (29,999,952 | )          
|Total other income (expense)                                              |                                                    |      | 3,773,633   |             |  |            | (3,241,538  | )           |  |   | 54,354,389  |            
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Income from continuing operations before income
    taxes                 |                                                    | $    | 22,174,862  |             |  | $          | 11,339,049  |             |  | $ | 69,778,085  |            
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Reconciliation to total revenues:                                         |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Segment revenues                                                          |                                                    | $    | 172,881,093 |             |  | $          | 156,587,080 |             |  | $ | 146,199,936 |            
|Palmetto MobileNet, L.P.                                                  |                                                    |      | (24,825,098 | )           |  |            | (20,784,846 | )           |  |   | (30,255,306 | )          
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|                                                                          | Total revenues                                     |      | $           | 148,055,995 |  |            | $           | 135,802,234 |  |   | $           | 115,944,630 | 
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Reconciliation to total depreciation and
    amortization:                |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Segment depreciation & amortization                                       |                                                    | $    | 28,087,223  |             |  | $          | 27,334,337  |             |  | $ | 22,019,218  |            
|Palmetto MobileNet, L.P.                                                  |                                                    |      | (136,999    | )           |  |            | (3,376,373  | )           |  |   | (3,308,518  | )          
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|                                                                          | Total depreciation & amortization                  |      | $           | 27,950,224  |  |            | $           | 23,957,964  |  |   | $           | 18,710,700  | 
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Reconciliation to total equity in income of
    unconsolidated companies: |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Segment equity in income of unconsolidated
    companies                  |                                                    | $    | (28,535     | )           |  | $          | (87,214     | )           |  | $ | (340,319    | )          
|Equity in income of Palmetto MobileNet, L.P.                              |                                                    |      | 4,890,613   |             |  |            | 4,296,708   |             |  |   | 5,763,727   |            
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|                                                                          | Total equity in income of unconsolidated companies |      | $           | 4,862,078   |  |            | $           | 4,209,494   |  |   | $           | 5,423,408   | 
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Reconciliation to total investment in
    unconsolidated companies:       |                                                    |      |             |             |  |            |             |             |  |   |             |            
|Segment investment in unconsolidated companies                            |                                                    | $    | 3,988,321   |             |  | $          | 12,499,237  |             |  | $ | 25,838,280  |            
|Investment in Palmetto MobileNet, L.P.                                    |                                                    |      | 8,740,251   |             |  |            | 9,808,915   |             |  |   | 12,472,551  |            
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            
|                                                                          | Total investment in unconsolidated companies       |      | $           | 12,728,572  |  |            | $           | 22,308,152  |  |   | $           | 38,310,831  | 
|                                                                          |                                                    |      |             |             |  |            |             |             |  |   |             |            

F-35



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                       |              |      |             |             |  |            |              |             |  |   |              |             | 
|-------------------------------------- | ------------ | ---- | ----------- | ----------- |  | ---------- | ------------ | ----------- |  | - | ------------ | ----------- | 
|                                       |              |      |             | (Restated)  |  | (Restated)
|                                       |              | 2002 |             | 2001        |  | 2000      
|                                       |              |      |             |             |  |           
|Reconciliation to total assets:        |              |      |             |             |  |            |              |             |  |   |              |            
|Segment assets                         |              | $    | 420,948,362 |             |  | $          | 392,552,987  |             |  | $ | 343,403,013  |            
|Investment in unconsolidated companies |              |      | 12,728,572  |             |  |            | 22,308,152   |             |  |   | 38,310,831   |            
|Palmetto MobileNet, L.P.               |              |      | (94,912,684 | )           |  |            | (104,812,985 | )           |  |   | (119,831,722 | )          
|                                       |              |      |             |             |  |            |              |             |  |   |              |            
|                                       | Total assets |      | $           | 338,764,250 |  |            | $            | 310,048,154 |  |   | $            | 261,882,122 | 
|                                       |              |      |             |             |  |            |              |             |  |   |              |            

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

|                                            |               |      |            |        |  |      |            |        |  |  |            |        | 
|------------------------------------------- | ------------- | ---- | ---------- | ------ |  | ---- | ---------- | ------ |  |  | ---------- | ------ | 
|                                            |               | 2002 |            | 2001   |  | 2000
|                                            |               |      |            |        |  |     
|Basic weighted average shares outstanding   |               |      | 18,710,382 |        |  |      | 18,816,047 |        |  |  | 18,833,807 |       
|Effect of dilutive securities:              |               |      |            |        |  |      |            |        |  |  |            |       
|                                            | Stock options |      |            | 35,260 |  |      |            | 44,233 |  |  |            | 97,173 | 
|                                            |               |      |            |        |  |      |            |        |  |  |            |       
|Diluted weighted average shares outstanding |               |      | 18,745,642 |        |  |      | 18,860,280 |        |  |  | 18,930,980 |       
|                                            |               |      |            |        |  |      |            |        |  |  |            |       

(19)     Summary of
Income Statement Information (Unaudited)

The following tables reflect the previously filed
quarterly financial data and are restated herein for the
revision more fully described in note 3. The restated
amounts also reflect the reclassifications for discontinued
operations.

A summary of quarterly income statement
information for the years ended December 31, 2002 and 2001,
follows:

|                                    |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  
|----------------------------------- |  | ------------------- | ---------- | ---------- |  | ---------- | ---------- | ------- |  | - | ---------- | - |  | - | ---------- | -
|                                    |  |                    
|                                    |  | 2002 Quarters Ended
|                                    |  |                    
|                                    |  | (Restated)          |            | (Restated) |  | (Restated) |            |        
|                                    |  | March 31            |            | June 30    |  | Sept. 30   |            | Dec. 31
|                                    |  |                     |            |            |  |            |            |        
|Operating revenue                   |  | $                   | 35,655,529 |            |  | $          | 37,125,808 |         |  | $ | 37,076,504 |   |  | $ | 38,198,154 |  
|Operating income                    |  |                     | 4,257,131  |            |  |            | 4,418,172  |         |  |   | 5,354,624  |   |  |   | 4,371,302  |  
|Income from continuing operations   |  |                     | 3,670,049  |            |  |            | 3,432,069  |         |  |   | 3,133,284  |   |  |   | 3,243,614  |  
|Loss from discontinued operations   |  |                     | (931,673   | )          |  |            | (756,062   | )       |  |   | (3,415,544 | ) |  |   | (553,995   | )
|                                    |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                   | 2,738,376  |            |  | $          | 2,676,007  |         |  | $ | (282,260   | ) |  | $ | 2,689,619  |  
|                                    |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  
|Basic earnings per common share:    |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  
|Earnings from continuing operations |  | $                   | 0.20       |            |  | $          | 0.18       |         |  | $ | 0.16       |   |  | $ | 0.18       |  
|Loss from discontinued operations   |  |                     | (0.05      | )          |  |            | (0.04      | )       |  |   | (0.18      | ) |  |   | (0.03      | )
|                                    |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                   | 0.15       |            |  | $          | 0.14       |         |  | $ | (0.02      | ) |  | $ | 0.15       |  
|                                    |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  
|Diluted earnings per common share:  |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  
|Earnings from continuing operations |  | $                   | 0.20       |            |  | $          | 0.18       |         |  | $ | 0.16       |   |  | $ | 0.18       |  
|Loss from discontinued operations   |  |                     | (0.05      | )          |  |            | (0.04      | )       |  |   | (0.18      | ) |  |   | (0.03      | )
|                                    |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                   | 0.15       |            |  | $          | 0.14       |         |  | $ | (0.02      | ) |  | $ | 0.15       |  
|                                    |  |                     |            |            |  |            |            |         |  |   |            |   |  |   |            |  

F-36



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                    |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|----------------------------------- |  | ------------------------------ | ---------- | ------- |  | -------- | ---------- | ------- |  | - | ---------- | - |  | - | ---------- | -
|                                    |  |                               
|                                    |  | 2001 Quarters Ended (Restated)
|                                    |  |                               
|                                    |  | March 31                       |            | June 30 |  | Sept. 30 |            | Dec. 31
|                                    |  |                                |            |         |  |          |            |        
|Operating revenue                   |  | $                              | 31,087,503 |         |  | $        | 32,612,750 |         |  | $ | 35,977,661 |   |  | $ | 36,124,320 |  
|Operating income                    |  |                                | 817,779    |         |  |          | 4,228,126  |         |  |   | 4,954,934  |   |  |   | 4,579,748  |  
|Income from continuing operations   |  |                                | 2,276,503  |         |  |          | 5,493,611  |         |  |   | 4,401,562  |   |  |   | (5,825,270 | )
|Loss from discontinued operations   |  |                                | (984,742   | )       |  |          | (1,291,369 | )       |  |   | (1,594,711 | ) |  |   | (2,009,296 | )
|                                    |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                              | 1,291,761  |         |  | $        | 4,202,242  |         |  | $ | 2,806,851  |   |  | $ | (7,834,566 | )
|                                    |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Basic earnings per common share:    |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Earnings from continuing operations |  | $                              | 0.12       |         |  | $        | 0.29       |         |  | $ | 0.24       |   |  | $ | (0.31      | )
|Loss from discontinued operations   |  |                                | (0.05      | )       |  |          | (0.07      | )       |  |   | (0.08      | ) |  |   | (0.11      | )
|                                    |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                              | 0.07       |         |  | $        | 0.22       |         |  | $ | 0.15       |   |  | $ | (0.42      | )
|                                    |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Diluted earnings per common share:  |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Earnings from continuing operations |  | $                              | 0.12       |         |  | $        | 0.29       |         |  | $ | 0.24       |   |  | $ | (0.31      | )
|Loss from discontinued operations   |  |                                | (0.05      | )       |  |          | (0.07      | )       |  |   | (0.08      | ) |  |   | (0.11      | )
|                                    |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                              | 0.07       |         |  | $        | 0.22       |         |  | $ | 0.15       |   |  | $ | (0.42      | )
|                                    |  |                                |            |         |  |          |            |         |  |   |            |   |  |   |            |  

|                                         |  |                     |            |               |  |               |            |   |  |   |            |  
|---------------------------------------- |  | ------------------- | ---------- | ------------- |  | ------------- | ---------- | - |  | - | ---------- | -
|                                         |  |                    
|                                         |  | 2002 Quarters Ended
|                                         |  |                    
|                                         |  | (As Reported)       |            | (As Reported) |  | (As Reported)
|                                         |  | March 31            |            | June 30       |  | Sept. 30     
|                                         |  |                     |            |               |  |              
|Operating revenue                        |  | $                   | 35,574,907 |               |  | $             | 37,381,194 |   |  | $ | 37,036,111 |  
|Operating income (loss)                  |  |                     | 3,061,967  |               |  |               | 3,413,922  |   |  |   | (455,306   | )
|Income (loss) from continuing operations |  |                     | 2,795,818  |               |  |               | 2,777,391  |   |  |   | (441,086   | )
|Loss from discontinued operations        |  |                     |           |               |  |               |           |   |  |   |           |  
|                                         |  |                     |            |               |  |               |            |   |  |   |            |  
|Net income (loss)                        |  | $                   | 2,795,818  |               |  | $             | 2,777,391  |   |  | $ | (441,086   | )
|                                         |  |                     |            |               |  |               |            |   |  |   |            |  
|Basic earnings per common share:         |  |                     |            |               |  |               |            |   |  |   |            |  
|Earnings from continuing operations      |  | $                   | 0.15       |               |  | $             | 0.15       |   |  | $ | (0.02      | )
|Loss from discontinued operations        |  |                     | (0.00      | )             |  |               | (0.00      | ) |  |   | (0.00      | )
|                                         |  |                     |            |               |  |               |            |   |  |   |            |  
|Net income (loss)                        |  | $                   | 0.15       |               |  | $             | 0.15       |   |  | $ | (0.02      | )
|                                         |  |                     |            |               |  |               |            |   |  |   |            |  
|Diluted earnings per common share:       |  |                     |            |               |  |               |            |   |  |   |            |  
|Earnings from continuing operations      |  | $                   | 0.15       |               |  | $             | 0.15       |   |  | $ | (0.02      | )
|Loss from discontinued operations        |  |                     | (0.00      | )             |  |               | (0.00      | ) |  |   | (0.00      | )
|                                         |  |                     |            |               |  |               |            |   |  |   |            |  
|Net income (loss)                        |  | $                   | 0.15       |               |  | $             | 0.15       |   |  | $ | (0.02      | )
|                                         |  |                     |            |               |  |               |            |   |  |   |            |  

F-37



---



##### 



CT COMMUNICATIONS, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                    |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|----------------------------------- |  | --------------------------------- | ---------- | ------- |  | -------- | ---------- | ------- |  | - | ---------- | - |  | - | ---------- | -
|                                    |  |                                  
|                                    |  | 2001 Quarters Ended (As Reported)
|                                    |  |                                  
|                                    |  | March 31                          |            | June 30 |  | Sept. 30 |            | Dec. 31
|                                    |  |                                   |            |         |  |          |            |        
|Operating revenue                   |  | $                                 | 31,085,558 |         |  | $        | 31,724,387 |         |  | $ | 35,710,089 |   |  | $ | 36,092,077 |  
|Operating income (loss)             |  |                                   | (565,731   | )       |  |          | 1,518,592  |         |  |   | 2,513,066  |   |  |   | 1,685,081  |  
|Income from continuing operations   |  |                                   | 1,355,749  |         |  |          | 3,760,812  |         |  |   | 2,797,185  |   |  |   | (7,744,704 | )
|Loss from discontinued operations   |  |                                   |           |         |  |          |           |         |  |   |           |   |  |   |           |  
|                                    |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                                 | 1,355,749  |         |  | $        | 3,760,812  |         |  | $ | 2,797,185  |   |  | $ | (7,744,704 | )
|                                    |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Basic earnings per common share:    |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Earnings from continuing operations |  | $                                 | 0.07       |         |  | $        | 0.20       |         |  | $ | 0.15       |   |  | $ | (0.41      | )
|Loss from discontinued operations   |  |                                   | (0.00      | )       |  |          | (0.00      | )       |  |   | (0.00      | ) |  |   | (0.00      | )
|                                    |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                                 | 0.07       |         |  | $        | 0.20       |         |  | $ | 0.15       |   |  | $ | (0.41      | )
|                                    |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Diluted earnings per common share:  |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Earnings from continuing operations |  | $                                 | 0.07       |         |  | $        | 0.20       |         |  | $ | 0.15       |   |  | $ | (0.41      | )
|Loss from discontinued operations   |  |                                   | (0.00      | )       |  |          | (0.00      | )       |  |   | (0.00      | ) |  |   | (0.00      | )
|                                    |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  
|Net income (loss)                   |  | $                                 | 0.07       |         |  | $        | 0.20       |         |  | $ | 0.15       |   |  | $ | (0.41      | )
|                                    |  |                                   |            |         |  |          |            |         |  |   |            |   |  |   |            |  

F-38



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##### 



SCHEDULE II

CT COMMUNICATIONS, INC. AND
SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2002, 2001 and
2000


|                                                                                |  |           |         |           |  |            |           |             |  |   |           |  |  |   |           | 
|------------------------------------------------------------------------------- |  | --------- | ------- | --------- |  | ---------- | --------- | ----------- |  | - | --------- |  |  | - | --------- | 
|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, 2002                                                    |  | $         | 744,682 |           |  | $          | 1,685,235 |             |  | $ | 1,255,804 |  |  | $ | 1,174,113 | 
|Year ended December 31, 2001                                                    |  |           | 429,732 |           |  |            | 966,721   |             |  |   | 801,771   |  |  |   | 744,682   | 
|Year ended December 31, 2000                                                    |  |           | 107,500 |           |  |            | 690,834   |             |  |   | 638,602   |  |  |   | 429,732   | 



---

Note: Represents balances written-off as
uncollectible less collections on balances previously written
off of $199,150, $191,274 and $188,399 for 2002, 2001 and 2000,
respectively. Balance at December 31, 2001 includes
$150,000 assumed in the partitioning of our portion of the
Cingular DCS network in June 2001. Balance at December 31,
2000 includes $270,000 assumed in the acquisition of WebServe
accounted for as a purchase in 2000.

F-39



---



##### 



CONSOLIDATED FINANCIAL STATEMENTS

PALMETTO MOBILENET, L.P.

Years Ended December 31, 2002, 2001 and
2000

with Report of Independent Auditors


F-40



---



##### 



PALMETTO MOBILENET, L.P.

CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2002, 2001 and
2000


Contents

|                                                           |  |  |      | 
|---------------------------------------------------------- |  |  | ---- | 
|Report of Independent Auditors                             |  |  | F-42 | 
|Consolidated Financial Statements                          |  |  | F-43 | 
|Consolidated Balance Sheets                                |  |  | F-43 | 
|Consolidated Statements of Income and
    Partners Equity |  |  | F-44 | 
|Consolidated Statements of Cash Flows                      |  |  | F-45 | 
|Notes to Consolidated Financial Statements                 |  |  | F-46 | 

F-41



---



##### 



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, 2002 and 2001, and the related consolidated
statements of income and partners equity, and cash flows
for each of the three years ended December 31, 2002, 2001,
and 2000. 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 $78,709,106 and $77,483,276 as of December 31, 2002
and 2001, respectively, and the equity in their net income was
$24,825,098, $20,784,846, and $30,255,306 for the years 2002,
2001, and 2000, 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, 2002 and 2001, and the results of its
operations and its cash flows for the years ended
December 31, 2002, 2001, and 2000 in conformity with
accounting principles generally accepted in the United States.

February 27, 2003

Columbia, South Carolina


F-42



---



##### 



PALMETTO MOBILENET, L.P.

CONSOLIDATED BALANCE SHEETS

|                                       |                                                                           |              |            |           |  |   |             |            | 
|-------------------------------------- | ------------------------------------------------------------------------- | ------------ | ---------- | --------- |  | - | ----------- | ---------- | 
|                                       |                                                                           |             
|                                       |                                                                           | December 31,
|                                       |                                                                           |             
|                                       |                                                                           | 2002         |            | 2001     
|                                       |                                                                           |              |            |          
|ASSETS                                
|Current assets:                        |                                                                           |              |            |           |  |   |             |           
|                                       | Cash and cash equivalents                                                 |              | $          | 9,739,173 |  |   | $           | 20,973,799 | 
|                                       | Accounts receivable                                                       |              |            | 69        |  |   |             | 33,190     | 
|                                       |                                                                           |              |            |           |  |   |             |           
|Total current assets                   |                                                                           |              | 9,739,242  |           |  |   | 21,006,989  |           
|Land building and improvements, net    |                                                                           |              | 6,075,367  |           |  |   | 5,911,647   |           
|Interests in RSA partnerships          |                                                                           |              | 78,709,106 |           |  |   | 77,483,276  |           
|Other assets:                          |                                                                           |              |            |           |  |   |             |           
|                                       | Rural Telephone Finance Cooperative Subordinated
    Capital Certificates |              |            | 388,969   |  |   |             | 411,073    | 
|                                       |                                                                           |              |            |           |  |   |             |           
|Total assets                           |                                                                           | $            | 94,912,684 |           |  | $ | 104,812,985 |           
|                                       |                                                                           |              |            |           |  |   |             |           
|LIABILITIES AND PARTNERS
    EQUITY  
|Current liabilities:                   |                                                                           |              |            |           |  |   |             |           
|                                       | Accounts payable  PMN, Inc.                                              |              | $          | 162,302   |  |   | $           | 209,456    | 
|                                       | Accounts payable and accrued expenses                                     |              |            | 107,165   |  |   |             | 114,219    | 
|                                       | Accrued interest                                                          |              |            |          |  |   |             | 28,907     | 
|                                       | Current portion of long-term debt                                         |              |            |          |  |   |             | 1,308,198  | 
|                                       |                                                                           |              |            |           |  |   |             |           
|Total current liabilities              |                                                                           |              | 269,467    |           |  |   | 1,660,780   |           
|Long-term debt, net of current portion |                                                                           |              |           |           |  |   | 3,127,695   |           
|Partners equity                       |                                                                           |              | 94,643,217 |           |  |   | 100,024,510 |           
|                                       |                                                                           |              |            |           |  |   |             |           
|Total liabilities and partners equity |                                                                           | $            | 94,912,684 |           |  | $ | 104,812,985 |           
|                                       |                                                                           |              |            |           |  |   |             |           

See accompanying notes.

F-43



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##### 



PALMETTO MOBILENET, L.P.

CONSOLIDATED STATEMENTS OF INCOME AND
PARTNERS EQUITY

|                                                |                   |                          |             |          |   |      |             |          |   |   |             |           |  
|----------------------------------------------- | ----------------- | ------------------------ | ----------- | -------- | - | ---- | ----------- | -------- | - | - | ----------- | --------- | -
|                                                |                   |                         
|                                                |                   | Years Ended December 31,
|                                                |                   |                         
|                                                |                   | 2002                     |             | 2001     |   | 2000
|                                                |                   |                          |             |          |   |     
|Equity in earnings of RSA partnership interests |                   | $                        | 24,825,098  |          |   | $    | 20,784,846  |          |   | $ | 30,255,306  |          
|Management fee                                  |                   |                          | (401,235    | )        |   |      | (317,476    | )        |   |   | (255,354    | )        
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |          
|Income from operations                          |                   |                          | 24,423,863  |          |   |      | 20,467,370  |          |   |   | 29,999,952  |          
|Revenue from real estate rentals                |                   |                          | 974,097     |          |   |      | 1,046,156   |          |   |   | 410,982     |          
|Cost of rental revenues                         |                   |                          | (523,072    | )        |   |      | (507,183    | )        |   |   | (229,420    | )        
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |          
|Income from real estate rentals                 |                   |                          | 451,025     |          |   |      | 538,973     |          |   |   | 181,562     |          
|Other income (expense):                         |                   |                          |             |          |   |      |             |          |   |   |             |          
|                                                | Interest expense  |                          |             | (48,486  | ) |      |             | (319,609 | ) |   |             | (392,850  | )
|                                                | Investment income |                          |             | 331,645  |   |      |             | 638,005  |   |   |             | 1,046,335 |  
|                                                | Other             |                          |             | (507,780 | ) |      |             | (45,969  | ) |   |             | (97,433   | )
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |          
|Net income                                      |                   |                          | 24,650,267  |          |   |      | 21,278,770  |          |   |   | 30,737,566  |          
|Partners equity, beginning of year             |                   |                          | 100,024,510 |          |   |      | 113,782,560 |          |   |   | 108,071,296 |          
|Distributions to partners                       |                   |                          | (30,031,560 | )        |   |      | (35,036,820 | )        |   |   | (25,026,302 | )        
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |          
|Partners equity, end of year                   |                   | $                        | 94,643,217  |          |   | $    | 100,024,510 |          |   | $ | 113,782,560 |          
|                                                |                   |                          |             |          |   |      |             |          |   |   |             |          

See accompanying notes.

F-44



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##### 



PALMETTO MOBILENET, L.P.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                |                                                 |                                       |             |             |         |      |             |             |        |   |             |             |         |  
|----------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------------------------------------- | ----------- | ----------- | ------- | ---- | ----------- | ----------- | ------ | - | ----------- | ----------- | ------- | -
|                                                                                                |                                                 |                                      
|                                                                                                |                                                 | Years Ended December 31,             
|                                                                                                |                                                 |                                      
|                                                                                                |                                                 | 2002                                  |             | 2001        |         | 2000
|                                                                                                |                                                 |                                       |             |             |         |     
|Operating activities                                                                            |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|Net income                                                                                      |                                                 | $                                     | 24,650,267  |             |         | $    | 21,278,770  |             |        | $ | 30,737,566  |            
|Adjustments to reconcile net income to net cash
    provided by (used in) operating activities: |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|                                                                                                | Equity in earnings of RSA partnership interests |                                       |             | (24,825,098 | )       |      |             | (20,784,846 | )      |   |             | (30,255,306 | )      
|                                                                                                | Depreciation                                    |                                       |             | 136,999     |         |      |             | 135,372     |        |   |             | 67,518      |        
|                                                                                                | Changes in operating assets and liabilities:    |                                       |             |             |         |      |             |             |        |   |             |             |        
|                                                                                                |                                                 | Accounts receivable                   |             |             | 33,121  |      |             |             | 7,537  |   |             |             | (40,727 | )
|                                                                                                |                                                 | Accounts payable and accrued expenses |             |             | (83,115 | )    |             |             | 28,310 |   |             |             | 138,899 |  
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|Net cash provided by (used in) operating
    activities                                         |                                                 |                                       | (87,826     | )           |         |      | 665,143     |             |        |   | 647,950     |            
|Investing activities                                                                            |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|Proceeds from RSA partnership distributions                                                     |                                                 |                                       | 23,599,268  |             |         |      | 43,217,653  |             |        |   | 24,904,830  |            
|Purchase of land, building and improvements                                                     |                                                 |                                       | (300,719    | )           |         |      | (67,517     | )           |        |   | (6,047,020  | )          
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|Net cash provided by investing activities                                                       |                                                 |                                       | 23,298,549  |             |         |      | 43,150,136  |             |        |   | 18,857,810  |            
|Financing activities                                                                            |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|Repayments of long-term debt                                                                    |                                                 |                                       | (4,413,789  | )           |         |      | (1,226,508  | )           |        |   | (1,274,753  | )          
|Distributions of partnership capital                                                            |                                                 |                                       | (30,031,560 | )           |         |      | (35,036,820 | )           |        |   | (25,026,302 | )          
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|Net cash used in financing activities                                                           |                                                 |                                       | (34,445,349 | )           |         |      | (36,263,328 | )           |        |   | (26,301,055 | )          
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|Net change in cash and cash equivalents                                                         |                                                 |                                       | (11,234,626 | )           |         |      | 7,551,951   |             |        |   | (6,795,295  | )          
|Cash and cash equivalents, beginning of year                                                    |                                                 |                                       | 20,973,799  |             |         |      | 13,421,848  |             |        |   | 20,217,143  |            
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |        |   |             |            
|Cash and cash equivalents, end of year                                                          |                                                 | $                                     | 9,739,173   |             |         | $    | 20,973,799  |             |        | $ | 13,421,848  |            
|                                                                                                |                                                 |                                       |             |             |         |      |             |             |        |   |             |            

See accompanying notes.

F-45



---



##### 



PALMETTO MOBILENET, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2002, 2001 and
2000


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.

During 2000, the Partnership formed HamptonNet,
LLC, a wholly-owned subsidiary, for the purpose of owning and
operating 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 generally accepted accounting principles
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, 2002 and 2001,
cash equivalents of $9,767,000 and $16,500,000, 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.     Acquisition

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, exceeded the underlying equity in net assets by
approximately $11,116,000 and $37,512,000, respectively.

F-46



---



##### 



PALMETTO MOBILENET, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In 2001 and 2000, 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. Accordingly, the
Partnership no longer amortizes the remaining portion of the
cost in excess of underlying equity in net assets
discussed above. Instead, the Partnership performs an annual
test for impairment of this intangible asset. No write-down for
impairment was recorded in 2002.

Accumulated amortization, which has been recorded
as a reduction in the interest in RSA partnerships and a
reduction in the equity in earnings of RSA partnership
interests, was approximately $12,967,000 at December 31,
2002 and 2001. Amortization expense for the years ended
December 31, 2001 and 2000 was approximately $3,241,000
annually.

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:

|                       |  |      |             |      |  |   |             | 
|---------------------- |  | ---- | ----------- | ---- |  | - | ----------- | 
|                       |  | 2002 |             | 2001
|                       |  |      |             |     
|Current assets         |  | $    | 22,609,548  |      |  | $ | 23,207,831  | 
|Noncurrent assets      |  |      | 107,158,873 |      |  |   | 107,461,904 | 
|Current liabilities    |  |      | 12,603,347  |      |  |   | 13,981,307  | 
|Noncurrent liabilities |  |      | 31,066,661  |      |  |   | 33,041,665  | 
|Partners equity       |  |      | 86,098,414  |      |  |   | 83,646,763  | 

For the years ended December 31:

|           |  |      |             |      |  |      |             |  |  |   |             | 
|---------- |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  | - | ----------- | 
|           |  | 2002 |             | 2001 |  | 2000
|           |  |      |             |      |  |     
|Net sales  |  | $    | 228,425,167 |      |  | $    | 206,447,266 |  |  | $ | 223,082,629 | 
|Net income |  |      | 49,650,154  |      |  |      | 48,053,296  |  |  |   | 66,994,235  | 

The Partnerships equity in the combined net
income of the RSA partnerships was $24,825,098, $24,026,648, and
$33,497,118 for the years ended December 31, 2002, 2001,
and 2000, respectively.

During 2000, the RSA partnerships changed their
method of accounting for revenues. The cumulative effect of
retroactively applying this accounting change to periods prior
to 2000 resulted in a one-time, non-cash charge of approximately
$2.6 million, which was included in net income for the RSA
partnerships for the year ended December 31, 2000.

F-47



---



##### 



PALMETTO MOBILENET, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Market values of these partnership interests are
not readily available.

4.     Land, Building
and Improvements, net

Land, building and improvements consisted of the
following:

|                               |  |      |           |      |  |   |           |  
|------------------------------ |  | ---- | --------- | ---- |  | - | --------- | -
|                               |  | 2002 |           | 2001
|                               |  |      |           |     
|Land                           |  | $    | 1,000,000 |      |  | $ | 1,000,000 |  
|Land improvements              |  |      | 50,000    |      |  |   | 50,000    |  
|Building                       |  |      | 4,997,020 |      |  |   | 4,997,020 |  
|Building improvements          |  |      | 67,518    |      |  |   | 67,518    |  
|Construction in progress       |  |      | 300,719   |      |  |   |          |  
|                               |  |      |           |      |  |   |           |  
|                               |  |      | 6,415,257 |      |  |   | 6,114,538 |  
|Less, accumulated depreciation |  |      | (339,890  | )    |  |   | (202,891  | )
|                               |  |      |           |      |  |   |           |  
|                               |  | $    | 6,075,367 |      |  | $ | 5,911,647 |  
|                               |  |      |           |      |  |   |           |  

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
|           |  |         |           |        |  |      
|2003       |  | $       | 648,444   |        |  | $     | 525,687   |  |  | $ | 1,174,131 | 
|2004       |  |         | 648,444   |        |  |       | 424,517   |  |  |   | 1,072,961 | 
|2005       |  |         | 648,444   |        |  |       | 203,832   |  |  |   | 852,276   | 
|2006       |  |         | 648,444   |        |  |       | 203,832   |  |  |   | 852,276   | 
|2007       |  |         | 648,444   |        |  |       | 203,832   |  |  |   | 852,276   | 
|Thereafter |  |         | 3,416,389 |        |  |       | 543,552   |  |  |   | 3,959,941 | 
|           |  |         |           |        |  |       |           |  |  |   |           | 
|           |  | $       | 6,658,609 |        |  | $     | 2,105,252 |  |  | $ | 8,763,861 | 
|           |  |         |           |        |  |       |           |  |  |   |           | 

5.     Long-Term
Debt

The Partnership has a $3 million working
capital line of credit agreement with the Rural Telephone
Finance Cooperative (the RTFC). The terms of the
agreement require the Partnership to maintain a specified amount
of RTFC Subordinated Capital Certificates
(SCCs). The Partnership had $388,969 and
$411,073 of SCCs at December 31, 2002 and 2001,
respectively.

The terms of the line of credit agreement provide
for interest to be paid quarterly at the RTFCs published
variable interest rate. No funds have been advanced against the
line of credit agreement.

In March 2002, the Partnership extinguished all
of its previously outstanding RTFC term loans.

Cash paid for interest totaled $137,702,
$322,069, and $399,079 for the years ended December 31,
2002, 2001, and 2000, respectively.

F-48



---



##### 



PALMETTO MOBILENET, L.P.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

6.     Related Party
Transactions

The business affairs of Palmetto MobileNet, L.P.
are managed by its 0.8% general partner, PMN, Inc. For the years
ended December 31, 2002, 2001, and 2000, approximately
$401,000, $317,000, and $255,000 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 issued 60-Day Letters
indicating 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.

F-49



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

To the Partners of North Carolina RSA No. 15
Cellular Partnership:

In our opinion, the balance sheet and the related
statements of operations, of cash flows, and of changes in
partners capital of North Carolina RSA No. 15
Cellular Partnership: (the Partnership) (not
presented separately herein) present fairly, in all material
respects, the financial position of the Partnership at
December 31, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then
ended were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-50



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet 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, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then
ended were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-51



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet 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, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then
ended were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-52



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet 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, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then
ended were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-53



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet 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, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then
ended were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-54



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet 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, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then ended
were audited by other independent accountants who have ceased
operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-55



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet 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, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then
ended were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-56



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet 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, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then
ended were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-57



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet and the related
statements of operations, of cash flows, and of changes in
partners capital of North Carolina RSA No. 5 Cellular
Partnership: (the Partnership) (not presented
separately herein) present fairly, in all material respects, the
financial position of the Partnership at December 31, 2002,
and results of its operations and its cash flows for the year
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 audit. We conducted our audit
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
audit provides a reasonable basis for our opinion. The financial
statements of the Partnership as of December 31, 2001 and
for the year then ended were audited by other independent
accountants who have ceased operations. Those independent
accountants expressed an unqualified opinion on those financial
statements in their report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


F-58



---



##### 



REPORT OF INDEPENDENT ACCOUNTANTS

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

In our opinion, the balance sheet 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, 2002, and results of its operations and its
cash flows for the year 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 audit. We
conducted our audit 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 audit provides a reasonable
basis for our opinion. The financial statements of the
Partnership as of December 31, 2001 and for the year then
ended were audited by other independent accountants who have
ceased operations. Those independent accountants expressed an
unqualified opinion on those financial statements in their
report dated February 6, 2002.



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

Little Rock, Arkansas

February 14, 2003


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 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-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 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-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. 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-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 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-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 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-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. 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-65



---



##### 



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-66



---



##### 



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-67



---



##### 



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-68



---



##### 



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-69



---



##### 



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
|            |       |            
|            | 10.10 |             |  | Change in Control Agreement, dated
    October 1, 1997, between CT Communications and Barry R.
    Rubens. (Incorporated by reference to Exhibit 10.13 to CT
    Communications Annual Report on Form 10-K, filed with
    the Securities and Exchange Commission on April 9, 1998.)                                                                                                           
|            | 10.11 |             |  | Change in Control Agreement, dated as of
    June 22, 1998, between CT Communications and Richard L.
    Garner, Jr. (Incorporated by reference to Exhibit 10.14 to
    CT Communications Annual Report on Form 10-K, filed
    with the Securities and Exchange Commission on March 29,
    1999.)                                                                                            
|            | 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.)                                                                                                         
|            | 10.17 |             |  | Change in Control Agreement, dated as of
    July 1, 1999, between CT Communications and John A.
    Goocher. (Incorporated by reference to Exhibit 10.22 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.)



---



##### 



|            |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description
|            |       |            
|            | 10.22 |             |  | CT Communications, Inc. 2001 Employee Stock
    Purchase Plan, dated April 26, 2001. (Incorporated by
    reference to Exhibit 10.2 to CT Communications
    Quarterly Report on Form 10-Q, filed with the Securities
    and Exchange Commission on May 15, 2001)                                                                                                                                             
|            | 10.23 |             |  | Limited Liability Company Interest Purchase
    Agreement, dated September 14, 2001, among Wireless One of
    North Carolina, L.L.C., CT Wireless Cable, Inc., Wireless One,
    Inc., and WorldCom Broadband Solutions, Inc. (Incorporated by
    reference to Exhibit 99.1 to CT Communications
    Current Report on Form 8-K, filed with the Securities and
    Exchange Commission on September 28, 2001)
|            | 10.24 |             |  | Executive Nonqualified Excess Plan, as amended
    dated December 1, 2001                                                                                                                                                                                                                                                                                                                                       
|            | 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.                                                                                                                                                                                                                                                                                                 
|            | 10.29 |             |  | Change in Control Agreement, dated as of
    March 7, 2003, between CT Communications and Ronald A.
    Marino.                                                                                                                                                                                                                                                                                                 
|            | 10.30 |             |  | Severance Agreement, dated as of March 24,
    2003, between CT Communications and Barry R. Rubens.                                                                                                                                                                                                                                                                                                             
|            | 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.                                                                                                                                                                                                                                                                                                                                                    
|            | 99.1  |             |  | Written Statement of Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.