##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 o
    
    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.
  NORTH CAROLINA
    
    
    
    56-1837282(State or other jurisdiction of
    
    
    
    (I.R.S. Employerincorporation or organization)
    
    
    
    Identification No.)1000 Progress Place NEP.O. Box 227, Concord, NC
    
    
    
    28026-0227(Address of principal executive offices)
    
    
    
    (Zip Code)
 
 
 þ o
  o þ o
 o þ




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART I. Financial InformationItem 1. Financial Statements.Condensed Consolidated Balance Sheets  June 30, 2006 (Unaudited) and December 31, 2005
    
    
    2Condensed Consolidated Statements of Income (Unaudited)  Three and Six Months Ended June 30, 2006 and 2005
    
    
    3Condensed Consolidated Statements of Comprehensive Income (Unaudited)  Three and Six Months Ended June 30, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Stockholders Equity (Unaudited)  Three and Six Months Ended June 30, 2006 and 2005
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited)  Six Months Ended June 30, 2006 and 2005
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    36Item 4. Controls and Procedures.
    
    
    36PART II. Other InformationItem 1. Legal Proceedings.
    
    
    37Item1A. Risk Factors.
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    37Item 3. Defaults Upon Senior Securities.
    
    
    37Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    37Item 5. Other Information.
    
    
    38Item 6. Exhibits.
    
    
    38Signatures
    
    
    39Exhibit Index
    
    
    40
 1




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##### 



Part I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
 CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 (Unaudited)June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    16,882
    
    
    $
    23,011Short-term investments
    
    
    94,869
    
    
    
    Accounts receivable and unbilled revenue, net of allowance for doubtful
accounts of $259 and $337 at June 30, 2006 and December 31, 2005, respectively
    
    
    15,563
    
    
    
    16,336Wireless spectrum held-for-sale
    
    
    
    
    
    
    15,646Other
    
    
    8,479
    
    
    
    7,220Total current assets
    
    
    135,793
    
    
    
    62,213Investment securities
    
    
    5,270
    
    
    
    5,845Other investments
    
    
    1,800
    
    
    
    1,690Investments in unconsolidated companies
    
    
    7,145
    
    
    
    15,618Property and equipment, net
    
    
    196,897
    
    
    
    200,179Goodwill
    
    
    9,906
    
    
    
    9,906Other intangibles, net
    
    
    19,989
    
    
    
    19,989Other assets
    
    
    6,670
    
    
    
    5,980Total assets
    
    $
    383,470
    
    
    $
    321,420LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    5,000
    
    
    $
    15,000Accounts payable
    
    
    7,877
    
    
    
    8,482Customer deposits and advance billings
    
    
    2,307
    
    
    
    2,538Income taxes payable
    
    
    15,887
    
    
    
    2,107Other accrued liabilities
    
    
    9,240
    
    
    
    11,814Total current liabilities
    
    
    40,311
    
    
    
    39,941Long-term debt
    
    
    37,500
    
    
    
    40,000Deferred credits and other liabilitiesDeferred income taxes
    
    
    22,552
    
    
    
    25,078Post-retirement and pension benefits
    
    
    16,353
    
    
    
    15,842Other
    
    
    6,150
    
    
    
    4,679Total deferred credits and other liabilities
    
    
    45,055
    
    
    
    45,599Total liabilities
    
    
    122,866
    
    
    
    125,540Stockholders equity:Preferred stock 4.5% series, $100 par value; 614 shares outstanding
at December 31, 2005
    
    
    
    
    
    
    61Common stock, 19,484,311 and 18,930,624 shares outstanding
at June 30, 2006 and December 31, 2005, respectively
    
    
    49,645
    
    
    
    42,648Other capital
    
    
    298
    
    
    
    298Unearned compensation
    
    
    
    
    
    
    (307
    )Accumulated other comprehensive income
    
    
    218
    
    
    
    282Retained earnings
    
    
    210,443
    
    
    
    152,898Total stockholders equity
    
    
    260,604
    
    
    
    195,880Total liabilities and stockholders equity
    
    $
    383,470
    
    
    $
    321,420
  2




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Operating revenue:Telephone
    
    $
    30,880
    
    
    $
    29,144
    
    
    $
    61,608
    
    
    $
    59,249Wireless and internet
    
    
    13,077
    
    
    
    11,889
    
    
    
    25,488
    
    
    
    23,181Total operating revenue
    
    
    43,957
    
    
    
    41,033
    
    
    
    87,096
    
    
    
    82,430Operating expense:Telephone cost of service (excludes depreciation of $6,143,
$5,892, $12,321 and $11,701, respectively)
    
    
    8,719
    
    
    
    9,034
    
    
    
    17,874
    
    
    
    18,075Wireless and internet cost of service (excludes depreciation
of
$947,$1,002, $1,932 and $1,955, respectively)
    
    
    5,954
    
    
    
    5,982
    
    
    
    11,784
    
    
    
    11,230Selling, general and administrative (excludes depreciation of
$883, $1,079, $1,840 and $2,183, respectively)
    
    
    16,547
    
    
    
    14,496
    
    
    
    31,462
    
    
    
    28,638Depreciation
    
    
    7,973
    
    
    
    7,973
    
    
    
    16,093
    
    
    
    15,839Total operating expense
    
    
    39,193
    
    
    
    37,485
    
    
    
    77,213
    
    
    
    73,782Operating income
    
    
    4,764
    
    
    
    3,548
    
    
    
    9,883
    
    
    
    8,648Other income (expense):Equity in income of unconsolidated companies, net
    
    
    263
    
    
    
    1,305
    
    
    
    90,103
    
    
    
    2,548Interest, dividend income and gain on sale of investments
    
    
    1,945
    
    
    
    1,529
    
    
    
    2,758
    
    
    
    1,677Impairment of investments
    
    
    
    
    
    
    (111
    )
    
    
    (876
    )
    
    
    (529
    )Interest expense
    
    
    (869
    )
    
    
    (1,165
    )
    
    
    (1,893
    )
    
    
    (2,301
    )Other income (expense)
    
    
    31
    
    
    
    (191
    )
    
    
    21
    
    
    
    (230
    )Total other income
    
    
    1,370
    
    
    
    1,367
    
    
    
    90,113
    
    
    
    1,165Income before income taxes
    
    
    6,134
    
    
    
    4,915
    
    
    
    99,996
    
    
    
    9,813Income taxes
    
    
    2,241
    
    
    
    1,962
    
    
    
    38,614
    
    
    
    3,871Net income
    
    
    3,893
    
    
    
    2,953
    
    
    
    61,382
    
    
    
    5,942Dividends on preferred stock
    
    
    1
    
    
    
    5
    
    
    
    1
    
    
    
    10Net income for common stock
    
    $
    3,892
    
    
    $
    2,948
    
    
    $
    61,381
    
    
    $
    5,932Earnings per common share:Basic
    
    $
    0.20
    
    
    $
    0.16
    
    
    $
    3.22
    
    
    $
    0.32Diluted
    
    
    0.20
    
    
    
    0.15
    
    
    
    3.17
    
    
    
    0.31Basic weighted average shares outstanding
    
    
    19,165
    
    
    
    18,842
    
    
    
    19,034
    
    
    
    18,822Diluted weighted average shares outstanding
    
    
    19,452
    
    
    
    19,090
    
    
    
    19,359
    
    
    
    19,035
  3




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income
    
    $
    3,893
    
    
    $
    2,953
    
    
    $
    61,382
    
    
    $
    5,942Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) on available-for
sale securities
    
    
    409
    
    
    
    68
    
    
    
    404
    
    
    
    (18
    )Reclassification adjustment for (gains) losses
realized in net income
    
    
    (457
    )
    
    
    (3
    )
    
    
    (468
    )
    
    
    46Comprehensive income
    
    $
    3,845
    
    
    $
    3,018
    
    
    $
    61,318
    
    
    $
    5,970
  4




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders Equity (Unaudited)
 Accum. Other
    
    
    
    
    
    
    Total5% Series
    
    
    4.5% Series
    
    
    Common
    
    
    Other
    
    
    Unearned
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersPref Stock
    
    
    Pref Stock
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance at December 31, 2004
    
    $
    336
    
    
    $
    61
    
    
    $
    42,222
    
    
    $
    298
    
    
    $
    (268
    )
    
    $
    215
    
    
    $
    145,364
    
    
    $
    188,228Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,942
    
    
    
    5,942Issuance of 156,718 shares of
common stock
    
    
    
    
    
    
    
    
    
    
    1,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,804Issuance of 2,319 shares for
exercise of stock options
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21Forfeiture, cancellation and repurchase
of 161,279 common shares
    
    
    
    
    
    
    
    
    
    
    (2,045
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,045
    )Preferred stock subject
to redemption
    
    
    (336
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (336
    )Dividends declared:5% preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )4.5% preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,222
    )
    
    
    (3,222
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    28Restricted stock compensation
net of $396 earned in 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (474
    )
    
    
    
    
    
    
    
    
    
    
    (474
    )Balance at June 30, 2005
    
    $
    
    
    
    $
    61
    
    
    $
    42,002
    
    
    $
    298
    
    
    $
    (742
    )
    
    $
    243
    
    
    $
    148,074
    
    
    $
    189,936
 Accum. Other
    
    
    
    
    
    
    Total5% Series
    
    
    4.5% Series
    
    
    Common
    
    
    Other
    
    
    Unearned
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersPref Stock
    
    
    Pref Stock
    
    
    Stock
    
    
    Capital
    
    
    Compensation
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance at December 31, 2005
    
    $
    
    
    
    $
    61
    
    
    $
    42,648
    
    
    $
    298
    
    
    $
    (307
    )
    
    $
    282
    
    
    $
    152,898
    
    
    $
    195,880Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,382
    
    
    
    61,382Issuance of 44,182 shares of
common stock
    
    
    
    
    
    
    
    
    
    
    616
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    616Issuance of 501,159 shares for
exercise of stock options
    
    
    
    
    
    
    
    
    
    
    5,873
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,873Forfeiture and cancellation of
48,556 common shares
    
    
    
    
    
    
    
    
    
    
    (632
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (632
    )Reversal of unamortized unearned
compensation balance
    
    
    
    
    
    
    
    
    
    
    (307
    )
    
    
    
    
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    Tax benefits from exercised
stock options
    
    
    
    
    
    
    
    
    
    
    859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    859Preferred stock subject
to redemption
    
    
    
    
    
    
    (61
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61
    )Dividends declared:4.5% preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,836
    )
    
    
    (3,836
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    (64
    )Restricted stock compensation
net of $385 earned in 2006
    
    
    
    
    
    
    
    
    
    
    588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    588Balance at June 30, 2006
    
    $
    
    
    
    $
    
    
    
    $
    49,645
    
    
    $
    298
    
    
    $
    
    
    
    $
    218
    
    
    $
    210,443
    
    
    $
    260,604
  5




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Six Months Ended June 30,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    61,382
    
    
    $
    5,942Adjustments to reconcile net income to net cash (used in)
provided by operating activities:Depreciation
    
    
    16,093
    
    
    
    15,839Stock compensation expense
    
    
    385
    
    
    
    396Impairment/loss on fixed assets
    
    
    190
    
    
    
    185Post-retirement and pension benefits
    
    
    511
    
    
    
    (195
    )Impairment of investments
    
    
    876
    
    
    
    529Gain on sale of investment
    
    
    
    
    
    
    (1,127
    )(Gain) loss on sale of investment securities
    
    
    (947
    )
    
    
    72Interest income on short-term investments
    
    
    (431
    )
    
    
    Equity in income of unconsolidated companies
    
    
    (90,103
    )
    
    
    (2,548
    )Undistributed patronage dividends
    
    
    (110
    )
    
    
    (161
    )Deferred income taxes and tax credits
    
    
    (2,491
    )
    
    
    (747
    )Change in income taxes payable
    
    
    13,780
    
    
    
    (1,609
    )Changes in operating assets and liabilities
    
    
    (1,565
    )
    
    
    (1,330
    )Net cash (used in) provided by operating activities
    
    
    (2,430
    )
    
    
    15,246Cash
flows from investing activities:Capital expenditures
    
    
    (13,051
    )
    
    
    (14,348
    )Proceeds from sale of property, plant and equipment
    
    
    50
    
    
    
    1,896Proceeds from sale of wireless spectrum (net of costs to sell of $353)
    
    
    15,647
    
    
    
    Proceeds from sale of investment
    
    
    
    
    
    
    1,127Proceeds from sale of investment securities
    
    
    1,375
    
    
    
    158Proceeds from sale of short-term investments
    
    
    6,000
    
    
    
    Purchases of short-term investments
    
    
    (100,438
    )
    
    
    Purchases of investment securities and other investments
    
    
    (151
    )
    
    
    (149
    )Payment for wireless spectrum
    
    
    (300
    )
    
    
    Distribution from unconsolidated companies
    
    
    97,899
    
    
    
    1,470Net cash provided by (used in) investing activities
    
    
    7,031
    
    
    
    (9,846
    )Cash
flows from financing activities:Repayment of long-term debt
    
    
    (12,500
    )
    
    
    (7,500
    )Dividends paid
    
    
    (3,837
    )
    
    
    (3,232
    )Tax benefits credited to additional paid-in-capital
    
    
    859
    
    
    
    Repurchase of common stock
    
    
    
    
    
    
    (1,648
    )Proceeds from common stock issuances
    
    
    4,843
    
    
    
    119Net cash used in financing activities
    
    
    (10,635
    )
    
    
    (12,261
    )Net cash used in discontinued operations  operating activities
(revised, see Note 2)
    
    
    (95
    )
    
    
    (240
    )Net decrease in cash and cash equivalents
    
    
    (6,129
    )
    
    
    (7,101
    )Cash and cash equivalents at beginning of period
    
    
    23,011
    
    
    
    28,358Cash and cash equivalents at end of period
    
    $
    16,882
    
    
    $
    21,257Supplemental disclosure of non-cash financing activities:Common and nonvested shares issued under annual incentive plan
    
    $
    714
    
    
    $
    831Receivable due from broker related to stock option exercises
    
    
    1,134
    
    
    
    
  6




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1.
    
    In the opinion of the management of CT Communications, Inc. (the Company), the
accompanying unaudited financial statements contain all adjustments consisting of only
normal recurring accruals necessary to present fairly the Companys financial position
as of June 30, 2006 and December 31, 2005 and the results of its operations for the
three and six months ended June 30, 2006 and June 30, 2005 and its cash flows for the
six months ended June 30, 2006 and June 30, 2005. These unaudited financial statements
do not include all disclosures associated with the Companys annual financial
statements and should be read along with the Companys Annual Report on Form 10-K for
the year ended December 31, 2005. The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and disclosure of contingent liabilities at the date
of the financial statements, as well as the amounts of income and expenses during the
reporting period. Actual results could differ from those estimates. In addition, the
results of operations for the three and six months ended June 30, 2006 are not
necessarily indicative of the results to be expected for the full year.
 2.
    
    In certain instances, amounts previously reported in the 2005 consolidated financial
statements have been reclassified to conform to the presentation of the 2006
consolidated financial statements. Such reclassifications have no effect on net income
or retained earnings as previously reported. The Company disclosed the net cash used in
discontinued operations in the first six months of 2006 and 2005 related to operating
activities, which in prior periods was not specifically identified as related to
operating activities.
      7




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    Comprehensive Stock Option Plan
  Restricted Stock Award Program
  Director Compensation Plan
  Omnibus Stock Compensation Plan
  8




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Amended and Restated 2001 Stock Incentive Plan
     9




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  WeightedAverage
    
    
    IntrinsicNumber
    
    
    Exercise
    
    
    Valueof Options
    
    
    Price
    
    
    (in thousands)Options outstanding and exercisable at December 31, 2005
    
    
    1,704,729
    
    
    $
    13Options exercised
    
    
    501,159
    
    
    
    12Options forfeited
    
    
    18,334
    
    
    
    16Options outstanding and exercisable at June 30, 2006
    
    
    1,185,236
    
    
    $
    14
    
    
    $
    10,276
   WeightedAverageNumber
    
    
    Grant-Dateof Shares
    
    
    ValueNonvested shares at December 31, 2005
    
    
    156,160
    
    
    $
    11Shares granted
    
    
    56,902
    
    
    
    13Shares vested
    
    
    112,457
    
    
    
    11Shares forfeited
    
    
    252
    
    
    
    11Nonvested shares at June 30, 2006
    
    
    100,353
    
    
    $
    12
  10




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Three Months Ended
    
    
    Six Months EndedJune 30, 2005
    
    
    June 30, 2005Net income
    
    $
    2,953
    
    
    $
    5,942Additional stock-based compensation expense that
would have been included in net income if the fair
value method had been applied, net of income tax
    
    
    255
    
    
    
    510Pro forma net income
    
    $
    2,698
    
    
    $
    5,432Basic earnings per common shareAs reported
    
    $
    0.16
    
    
    $
    0.32Pro forma
    
    
    0.14
    
    
    
    0.29Diluted earnings per common shareAs reported
    
    $
    0.15
    
    
    $
    0.31Pro forma
    
    
    0.14
    
    
    
    0.29Assumptions used in Black Scholes pricing model:Expected dividend yield
    
    
    
    
    
    
    2.5
    %Risk-free interest rate
    
    
    
    
    
    
    4.2
    %Weighted average expected life
    
    
    
    
    
    5 yearsExpected volatility
    
    
    
    
    
    
    57
    %Fair value per share of options granted
    
    
    
    
    
    $
    4.73
   June 30,
    
    
    December 31,2006
    
    
    2005Equity Method:Palmetto MobileNet, L.P.
    
    $
    3,345
    
    
    $
    10,654Other
    
    
    37
    
    
    
    35Cost Method:Magnolia Holding Company
    
    
    1,239
    
    
    
    1,587InComm (formerly PRE Holdings, Inc)
    
    
    1,304
    
    
    
    2,100Other
    
    
    1,220
    
    
    
    1,242Total
    
    $
    7,145
    
    
    $
    15,618
  11




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Equity in earnings of RSA partnership interests
    
    $
    
    
    
    $
    6,105
    
    
    $
    3,499
    
    
    $
    11,728Other income (expense)
    
    
    1,184
    
    
    
    (253
    )
    
    
    353,675
    
    
    
    (336
    )Net income
    
    $
    1,184
    
    
    $
    5,852
    
    
    $
    357,174
    
    
    $
    11,392
     Equity Securities
    
    Carrying
    
    
    Gross Unrealized
    
    
    Gross UnrealizedAvailable-for-Sale
    
    Value
    
    
    Holding Gains
    
    
    Holding Losses
    
    
    Fair ValueJune 30, 2006
    
    $
    4,903
    
    
    $
    415
    
    
    $
    (48
    )
    
    $
    5,270December 31, 2005
    
    $
    5,379
    
    
    $
    537
    
    
    $
    (71
    )
    
    $
    5,845
  12




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Less than 12 months
    
    
    12 months or more
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesCommon Stock
    
    $
    
    
    
    $
    
    
    
    $
    91
    
    
    $
    48
    
    
    $
    91
    
    
    $
    48Total temporarily
impaired securities
    
    $
    
    
    
    $
    
    
    
    $
    91
    
    
    $
    48
    
    
    $
    91
    
    
    $
    48
       June 30,
    
    
    December 31,2006
    
    
    2005Land, buildings and general equipment
    
    $
    91,911
    
    
    $
    91,496Central office equipment
    
    
    195,779
    
    
    
    190,220Poles, wires, cables and conduit
    
    
    169,103
    
    
    
    163,868Construction in progress
    
    
    5,721
    
    
    
    4,545462,514
    
    
    
    450,129Accumulated depreciation
    
    
    (265,617
    )
    
    
    (249,950
    )Property and equipment, net
    
    $
    196,897
    
    
    $
    200,179
  13




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Basic weighted average shares outstanding
    
    
    19,165
    
    
    
    18,842
    
    
    
    19,034
    
    
    
    18,822Effect of dilutive stock options and non-vested
stock
    
    
    287
    
    
    
    248
    
    
    
    325
    
    
    
    213Total diluted weighted average shares
outstanding
    
    
    19,452
    
    
    
    19,090
    
    
    
    19,359
    
    
    
    19,035
      June 30,
    
    
    December 31,2006
    
    
    2005Line of credit with interest at LIBOR plus a spread (5.56% at
December 31, 2005)
    
    $
    
    
    
    $
    10,000Term loan with interest at 7.32%
    
    
    42,500
    
    
    
    45,00042,500
    
    
    
    55,000Less: Current portion of long-term debt
    
    
    5,000
    
    
    
    15,000Long-term debt
    
    $
    37,500
    
    
    $
    40,000
  14




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
           15




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
    16




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
   Pension Benefits
    
    
    Post-Retirement Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    612
    
    
    $
    561
    
    
    $
    12
    
    
    $
    10Interest cost
    
    
    724
    
    
    
    681
    
    
    
    115
    
    
    
    114Expected return on plan assets
    
    
    (899
    )
    
    
    (900
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    1
    
    
    
    (2
    )
    
    
    (176
    )Amortization of the net gain
    
    
    
    
    
    
    
    
    
    
    (31
    )
    
    
    (29
    )Net periodic benefit cost
    
    $
    437
    
    
    $
    343
    
    
    $
    94
    
    
    $
    (81
    )
  Pension Benefits
    
    
    Post-Retirement Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    1,224
    
    
    $
    1,122
    
    
    $
    24
    
    
    $
    29Interest cost
    
    
    1,448
    
    
    
    1,362
    
    
    
    230
    
    
    
    239Expected return on plan assets
    
    
    (1,799
    )
    
    
    (1,800
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    1
    
    
    
    2
    
    
    
    (4
    )
    
    
    (172
    )Amortization of the net gain
    
    
    
    
    
    
    
    
    
    
    (62
    )
    
    
    (58
    )Net periodic benefit cost
    
    $
    874
    
    
    $
    686
    
    
    $
    188
    
    
    $
    38
      17




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
   Three months ended June 30, 2006
 ILEC
    
    
    Wireless
    
    
    CLEC
    
    
    Greenfield
    
    
    IDS
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    23,558
    
    
    $
    9,645
    
    
    $
    4,763
    
    
    $
    2,559
    
    
    $
    3,432
    
    
    $
    
    
    
    $
    43,957External expense
    
    
    13,876
    
    
    
    8,229
    
    
    
    4,372
    
    
    
    2,355
    
    
    
    2,102
    
    
    
    286
    
    
    
    31,220Depreciation
    
    
    5,105
    
    
    
    641
    
    
    
    677
    
    
    
    996
    
    
    
    329
    
    
    
    225
    
    
    
    7,973Operating income (loss)
    
    $
    4,577
    
    
    $
    775
    
    
    $
    (286
    )
    
    $
    (792
    )
    
    $
    1,001
    
    
    $
    (511
    )
    
    $
    4,764
 Three months ended June 30, 2005
 ILEC
    
    
    Wireless
    
    
    CLEC
    
    
    Greenfield
    
    
    IDS
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    21,996
    
    
    $
    8,963
    
    
    $
    4,721
    
    
    $
    2,427
    
    
    $
    2,926
    
    
    $
    
    
    
    $
    41,033External expense
    
    
    12,765
    
    
    
    7,978
    
    
    
    4,358
    
    
    
    2,174
    
    
    
    2,056
    
    
    
    181
    
    
    
    29,512Depreciation
    
    
    5,129
    
    
    
    576
    
    
    
    634
    
    
    
    840
    
    
    
    455
    
    
    
    339
    
    
    
    7,973Operating income (loss)
    
    $
    4,102
    
    
    $
    409
    
    
    $
    (271
    )
    
    $
    (587
    )
    
    $
    415
    
    
    $
    (520
    )
    
    $
    3,548
 Six months ended June 30, 2006
 ILEC
    
    
    Wireless
    
    
    CLEC
    
    
    Greenfield
    
    
    IDS
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    47,145
    
    
    $
    18,772
    
    
    $
    9,393
    
    
    $
    5,070
    
    
    $
    6,716
    
    
    $
    
    
    
    $
    87,096External expense
    
    
    26,451
    
    
    
    16,200
    
    
    
    8,921
    
    
    
    4,659
    
    
    
    4,197
    
    
    
    692
    
    
    
    61,120Depreciation
    
    
    10,307
    
    
    
    1,276
    
    
    
    1,335
    
    
    
    1,969
    
    
    
    703
    
    
    
    503
    
    
    
    16,093Operating income (loss)
    
    $
    10,387
    
    
    $
    1,296
    
    
    $
    (863
    )
    
    $
    (1,558
    )
    
    $
    1,816
    
    
    $
    (1,195
    )
    
    $
    9,883Segment assets
    
    $
    252,968
    
    
    $
    33,192
    
    
    $
    14,458
    
    
    $
    30,514
    
    
    $
    13,273
    
    
    $
    39,065
    
    
    $
    383,470
 18




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Six months ended June 30, 2005
 ILEC
    
    
    Wireless
    
    
    CLEC
    
    
    Greenfield
    
    
    IDS
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    44,675
    
    
    $
    17,455
    
    
    $
    9,856
    
    
    $
    4,718
    
    
    $
    5,726
    
    
    $
    
    
    
    $
    82,430External expense
    
    
    24,917
    
    
    
    15,161
    
    
    
    8,980
    
    
    
    4,327
    
    
    
    4,180
    
    
    
    378
    
    
    
    57,943Depreciation
    
    
    10,238
    
    
    
    1,080
    
    
    
    1,263
    
    
    
    1,650
    
    
    
    934
    
    
    
    674
    
    
    
    15,839Operating income (loss)
    
    $
    9,520
    
    
    $
    1,214
    
    
    $
    (387
    )
    
    $
    (1,259
    )
    
    $
    612
    
    
    $
    (1,052
    )
    
    $
    8,648Segment assets
    
    $
    166,412
    
    
    $
    33,768
    
    
    $
    12,899
    
    
    $
    28,658
    
    
    $
    13,433
    
    
    $
    64,726
    
    
    $
    319,896
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Segment operating income
    
    $
    4,764
    
    
    $
    3,548
    
    
    $
    9,883
    
    
    $
    8,648Total other income
    
    
    1,370
    
    
    
    1,367
    
    
    
    90,113
    
    
    
    1,165Income before income taxes
    
    $
    6,134
    
    
    $
    4,915
    
    
    $
    99,996
    
    
    $
    9,813
 19




---



##### 



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Introduction
           20




---



##### 



Industry and Operating Trends
       21




---



##### 



22




---



##### 



23




---



##### 



Results of Operations
   24




---



##### 



Consolidated Operating Results
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOperating revenue:Customer recurring
    
    $
    28,100
    
    
    $
    27,291
    
    
    $
    809
    
    
    $
    55,741
    
    
    $
    54,407
    
    
    $
    1,334Universal service
    
    
    1,169
    
    
    
    847
    
    
    
    322
    
    
    
    2,299
    
    
    
    1,844
    
    
    
    455Access & interconnection
    
    
    7,000
    
    
    
    5,940
    
    
    
    1,060
    
    
    
    13,793
    
    
    
    12,234
    
    
    
    1,559Wireless roaming/settlement
    
    
    3,259
    
    
    
    2,876
    
    
    
    383
    
    
    
    6,176
    
    
    
    5,331
    
    
    
    845Other
    
    
    4,429
    
    
    
    4,079
    
    
    
    350
    
    
    
    9,087
    
    
    
    8,614
    
    
    
    473Total operating revenue
    
    
    43,957
    
    
    
    41,033
    
    
    
    2,924
    
    
    
    87,096
    
    
    
    82,430
    
    
    
    4,666Operating expense:Cost of service
    
    
    14,673
    
    
    
    15,016
    
    
    
    (343
    )
    
    
    29,658
    
    
    
    29,305
    
    
    
    353Selling, general & administrative
    
    
    16,547
    
    
    
    14,496
    
    
    
    2,051
    
    
    
    31,462
    
    
    
    28,638
    
    
    
    2,824Depreciation
    
    
    7,973
    
    
    
    7,973
    
    
    
    
    
    
    
    16,093
    
    
    
    15,839
    
    
    
    254Total operating expense
    
    
    39,193
    
    
    
    37,485
    
    
    
    1,708
    
    
    
    77,213
    
    
    
    73,782
    
    
    
    3,431Operating income
    
    
    4,764
    
    
    
    3,548
    
    
    
    1,216
    
    
    
    9,883
    
    
    
    8,648
    
    
    
    1,235Other income
    
    
    1,370
    
    
    
    1,367
    
    
    
    3
    
    
    
    90,113
    
    
    
    1,165
    
    
    
    88,948Income before taxes
    
    
    6,134
    
    
    
    4,915
    
    
    
    1,219
    
    
    
    99,996
    
    
    
    9,813
    
    
    
    90,183Income taxes
    
    
    2,241
    
    
    
    1,962
    
    
    
    279
    
    
    
    38,614
    
    
    
    3,871
    
    
    
    34,743Net income
    
    $
    3,893
    
    
    $
    2,953
    
    
    $
    940
    
    
    $
    61,382
    
    
    $
    5,942
    
    
    $
    55,440Operating margin
    
    
    10.8
    %
    
    
    8.6
    %
    
    
    
    
    
    
    11.3
    %
    
    
    10.5
    %Capital expenditures
    
    $
    6,064
    
    
    $
    6,590
    
    
    $
    (526
    )
    
    $
    13,051
    
    
    $
    14,348
    
    
    $
    (1,297
    )Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    383,470
    
    
    
    319,896
    
    
    
    63,574Wired access lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,623
    
    
    
    157,275
    
    
    
    2,348Wireless subscribers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,932
    
    
    
    44,723
    
    
    
    3,209
 Three Months Ended June 30
   25




---



##### 



Six Months Ended June 30
      26




---



##### 



ILEC
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOperating revenue:Customer recurring
    
    $
    13,250
    
    
    $
    13,310
    
    
    $
    (60
    )
    
    $
    26,485
    
    
    $
    26,661
    
    
    $
    (176
    )Universal service
    
    
    1,169
    
    
    
    847
    
    
    
    322
    
    
    
    2,299
    
    
    
    1,844
    
    
    
    455Access & interconnection
    
    
    5,351
    
    
    
    4,454
    
    
    
    897
    
    
    
    10,679
    
    
    
    8,991
    
    
    
    1,688Other
    
    
    3,788
    
    
    
    3,385
    
    
    
    403
    
    
    
    7,682
    
    
    
    7,179
    
    
    
    503Total operating revenue
    
    
    23,558
    
    
    
    21,996
    
    
    
    1,562
    
    
    
    47,145
    
    
    
    44,675
    
    
    
    2,470Operating expense:Cost of service
    
    
    5,021
    
    
    
    5,175
    
    
    
    (154
    )
    
    
    10,091
    
    
    
    10,111
    
    
    
    (20
    )Selling, general & administrative
    
    
    8,855
    
    
    
    7,590
    
    
    
    1,265
    
    
    
    16,360
    
    
    
    14,806
    
    
    
    1,554Depreciation
    
    
    5,105
    
    
    
    5,129
    
    
    
    (24
    )
    
    
    10,307
    
    
    
    10,238
    
    
    
    69Total operating expense
    
    
    18,981
    
    
    
    17,894
    
    
    
    1,087
    
    
    
    36,758
    
    
    
    35,155
    
    
    
    1,603Operating income
    
    $
    4,577
    
    
    $
    4,102
    
    
    $
    475
    
    
    $
    10,387
    
    
    $
    9,520
    
    
    $
    867Operating margin
    
    
    19.4
    %
    
    
    18.6
    %
    
    
    
    
    
    
    22.0
    %
    
    
    21.3
    %Capital expenditures
    
    $
    3,077
    
    
    $
    3,748
    
    
    $
    (671
    )
    
    $
    6,635
    
    
    $
    8,207
    
    
    $
    (1,572
    )Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,968
    
    
    
    166,412
    
    
    
    86,556Business access lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,404
    
    
    
    28,560
    
    
    
    (156
    )Residential access lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,952
    
    
    
    83,207
    
    
    
    (2,255
    )Total access lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,356
    
    
    
    111,767
    
    
    
    (2,411
    )
 Three Months Ended June 30
    27




---



##### 



Six Months Ended June 30
    28




---



##### 



CLEC
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOperating revenue:Customer recurring
    
    $
    3,593
    
    
    $
    3,710
    
    
    $
    (117
    )
    
    $
    7,188
    
    
    $
    7,514
    
    
    $
    (326
    )Access & interconnection
    
    
    1,127
    
    
    
    945
    
    
    
    182
    
    
    
    2,082
    
    
    
    2,204
    
    
    
    (122
    )Other
    
    
    43
    
    
    
    66
    
    
    
    (23
    )
    
    
    123
    
    
    
    138
    
    
    
    (15
    )Total operating revenue
    
    
    4,763
    
    
    
    4,721
    
    
    
    42
    
    
    
    9,393
    
    
    
    9,856
    
    
    
    (463
    )Operating expense:Cost of service
    
    
    2,407
    
    
    
    2,575
    
    
    
    (168
    )
    
    
    5,140
    
    
    
    5,444
    
    
    
    (304
    )Selling, general & administrative
    
    
    1,965
    
    
    
    1,783
    
    
    
    182
    
    
    
    3,781
    
    
    
    3,536
    
    
    
    245Depreciation
    
    
    677
    
    
    
    634
    
    
    
    43
    
    
    
    1,335
    
    
    
    1,263
    
    
    
    72Total operating expense
    
    
    5,049
    
    
    
    4,992
    
    
    
    57
    
    
    
    10,256
    
    
    
    10,243
    
    
    
    13Operating income
    
    $
    (286
    )
    
    $
    (271
    )
    
    $
    (15
    )
    
    $
    (863
    )
    
    $
    (387
    )
    
    $
    (476
    )Operating margin
    
    
    (6.0
    %)
    
    
    (5.7
    %)
    
    
    
    
    
    
    (9.2
    %)
    
    
    (3.9
    %)Capital expenditures
    
    $
    441
    
    
    $
    437
    
    
    $
    4
    
    
    $
    1,683
    
    
    $
    660
    
    
    $
    1,023Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,458
    
    
    
    12,899
    
    
    
    1,559Access lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,372
    
    
    
    31,644
    
    
    
    2,728Long distance lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,605
    
    
    
    24,739
    
    
    
    (1,134
    )
 Three Months Ended June 30
    Six Months Ended June 30
    29




---



##### 



Greenfield
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOperating revenue:Customer recurring
    
    $
    1,973
    
    
    $
    1,814
    
    
    $
    159
    
    
    $
    3,913
    
    
    $
    3,525
    
    
    $
    388Access & interconnection
    
    
    522
    
    
    
    541
    
    
    
    (19
    )
    
    
    1,032
    
    
    
    1,039
    
    
    
    (7
    )Other
    
    
    64
    
    
    
    72
    
    
    
    (8
    )
    
    
    125
    
    
    
    154
    
    
    
    (29
    )Total operating revenue
    
    
    2,559
    
    
    
    2,427
    
    
    
    132
    
    
    
    5,070
    
    
    
    4,718
    
    
    
    352Operating expense:Cost of service
    
    
    1,292
    
    
    
    1,284
    
    
    
    8
    
    
    
    2,644
    
    
    
    2,520
    
    
    
    124Selling, general & administrative
    
    
    1,063
    
    
    
    890
    
    
    
    173
    
    
    
    2,015
    
    
    
    1,807
    
    
    
    208Depreciation
    
    
    996
    
    
    
    840
    
    
    
    156
    
    
    
    1,969
    
    
    
    1,650
    
    
    
    319Total operating expense
    
    
    3,351
    
    
    
    3,014
    
    
    
    337
    
    
    
    6,628
    
    
    
    5,977
    
    
    
    651Operating income
    
    $
    (792
    )
    
    $
    (587
    )
    
    $
    (205
    )
    
    $
    (1,558
    )
    
    $
    (1,259
    )
    
    $
    (299
    )Operating margin
    
    
    (30.9
    %)
    
    
    (24.2
    %)
    
    
    
    
    
    
    (30.7
    %)
    
    
    (26.7
    %)Capital expenditures
    
    $
    1,342
    
    
    $
    1,655
    
    
    $
    (313
    )
    
    $
    2,934
    
    
    $
    3,003
    
    
    $
    (69
    )Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,514
    
    
    
    28,658
    
    
    
    1,856Access lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,895
    
    
    
    13,864
    
    
    
    2,031Long distance lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,633
    
    
    
    7,631
    
    
    
    2,002Total projects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    124
    
    
    
    111
    
    
    
    13
  ProjectedLines in
    
    
    Marketable
    
    
    TotalGreenfield Projects By Year
    
    Service
    
    
    Lines
    
    
    ProjectsPrevious years
    
    
    13,918
    
    
    
    40,000
    
    
    
    752003
    
    
    1,070
    
    
    
    5,000
    
    
    
    182004
    
    
    743
    
    
    
    4,000
    
    
    
    122005
    
    
    100
    
    
    
    4,500
    
    
    
    132006
    
    
    64
    
    
    
    1,000
    
    
    
    6Total
    
    
    15,895
    
    
    
    54,500
    
    
    
    124
 Three Months Ended June 30
    30




---



##### 



Six Months Ended June 30, 2006
      31




---



##### 



Wireless
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOperating revenue:Customer recurring
    
    $
    5,892
    
    
    $
    5,601
    
    
    $
    291
    
    
    $
    11,515
    
    
    $
    11,073
    
    
    $
    442Wireless roaming/settlement
    
    
    3,259
    
    
    
    2,876
    
    
    
    383
    
    
    
    6,176
    
    
    
    5,331
    
    
    
    845Other
    
    
    494
    
    
    
    486
    
    
    
    8
    
    
    
    1,081
    
    
    
    1,051
    
    
    
    30Total operating revenue
    
    
    9,645
    
    
    
    8,963
    
    
    
    682
    
    
    
    18,772
    
    
    
    17,455
    
    
    
    1,317Operating expense:Cost of service
    
    
    5,259
    
    
    
    5,298
    
    
    
    (39
    )
    
    
    10,429
    
    
    
    9,729
    
    
    
    700Selling, general & administrative
    
    
    2,970
    
    
    
    2,680
    
    
    
    290
    
    
    
    5,771
    
    
    
    5,432
    
    
    
    339Depreciation
    
    
    641
    
    
    
    576
    
    
    
    65
    
    
    
    1,276
    
    
    
    1,080
    
    
    
    196Total operating expense
    
    
    8,870
    
    
    
    8,554
    
    
    
    316
    
    
    
    17,476
    
    
    
    16,241
    
    
    
    1,235Operating income
    
    $
    775
    
    
    $
    409
    
    
    $
    366
    
    
    $
    1,296
    
    
    $
    1,214
    
    
    $
    82Operating margin
    
    
    8.0
    %
    
    
    4.6
    %
    
    
    
    
    
    
    6.9
    %
    
    
    7.0
    %Capital expenditures
    
    $
    491
    
    
    $
    374
    
    
    $
    117
    
    
    $
    687
    
    
    $
    1,467
    
    
    $
    (780
    )Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,192
    
    
    
    33,768
    
    
    
    (576
    )Wireless subscribers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,932
    
    
    
    44,723
    
    
    
    3,209
 Three Months Ended June 30
    Six Months Ended June 30
   32




---



##### 



Internet
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOperating revenue:Customer recurring
    
    $
    3,392
    
    
    $
    2,856
    
    
    $
    536
    
    
    $
    6,640
    
    
    $
    5,634
    
    
    $
    1,006Other
    
    
    40
    
    
    
    70
    
    
    
    (30
    )
    
    
    76
    
    
    
    92
    
    
    
    (16
    )Total operating revenue
    
    
    3,432
    
    
    
    2,926
    
    
    
    506
    
    
    
    6,716
    
    
    
    5,726
    
    
    
    990Operating expense:Cost of service
    
    
    694
    
    
    
    684
    
    
    
    10
    
    
    
    1,354
    
    
    
    1,501
    
    
    
    (147
    )Selling, general & administrative
    
    
    1,408
    
    
    
    1,372
    
    
    
    36
    
    
    
    2,843
    
    
    
    2,679
    
    
    
    164Depreciation
    
    
    329
    
    
    
    455
    
    
    
    (126
    )
    
    
    703
    
    
    
    934
    
    
    
    (231
    )Total operating expense
    
    
    2,431
    
    
    
    2,511
    
    
    
    (80
    )
    
    
    4,900
    
    
    
    5,114
    
    
    
    (214
    )Operating income
    
    $
    1,001
    
    
    $
    415
    
    
    $
    586
    
    
    $
    1,816
    
    
    $
    612
    
    
    $
    1,204Operating margin
    
    
    29.2
    %
    
    
    14.2
    %
    
    
    
    
    
    
    27.0
    %
    
    
    10.7
    %Capital expenditures
    
    $
    307
    
    
    $
    170
    
    
    $
    137
    
    
    $
    557
    
    
    $
    598
    
    
    $
    (41
    )Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,273
    
    
    
    13,433
    
    
    
    (160
    )DSL lines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,907
    
    
    
    16,334
    
    
    
    6,573Dial-up accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,594
    
    
    
    7,774
    
    
    
    (2,180
    )High-speed accounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    754
    
    
    
    632
    
    
    
    122
 Three months Ended June 30
    Six Months Ended June 30
   33




---



##### 



Other
 Three months ended June 30,
    
    
    Six months ended June 30,2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005
    
    
    ChangeOperating expense:Selling, general & administrative
    
    $
    286
    
    
    $
    181
    
    
    $
    105
    
    
    $
    692
    
    
    $
    378
    
    
    $
    314Depreciation
    
    
    225
    
    
    
    339
    
    
    
    (114
    )
    
    
    503
    
    
    
    674
    
    
    
    (171
    )Total operating expense
    
    $
    511
    
    
    $
    520
    
    
    $
    (9
    )
    
    $
    1,195
    
    
    $
    1,052
    
    
    $
    143Capital expenditures
    
    $
    406
    
    
    $
    206
    
    
    $
    200
    
    
    $
    555
    
    
    $
    413
    
    
    $
    142Total assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,065
    
    
    
    64,726
    
    
    
    (25,661
    )
 Three months Ended June 30
  Six Months Ended June 30
  Liquidity and Capital Resources
     34




---



##### 



Payments Due by YearLess than
    
    
    
    
    
    
    
    
    
    
    After 5Total
    
    
    one Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    YearsContractual obligationsTerm loan
    
    $
    42,500
    
    
    $
    5,000
    
    
    $
    10,000
    
    
    $
    10,000
    
    
    $
    17,500Fixed interest payments
    
    
    13,612
    
    
    
    2,974
    
    
    
    4,850
    
    
    
    3,386
    
    
    
    2,402Operating leases
    
    
    13,329
    
    
    
    2,614
    
    
    
    4,674
    
    
    
    3,597
    
    
    
    2,444Capital leases
    
    
    306
    
    
    
    306
    
    
    
    
    
    
    
    
    
    
    
    Other service contracts
    
    
    2,518
    
    
    
    1,081
    
    
    
    1,351
    
    
    
    86
    
    
    
    $
    72,265
    
    
    $
    11,975
    
    
    $
    20,875
    
    
    $
    17,069
    
    
    $
    22,346
  Cautionary Note Regarding Forward-Looking Statements
   
    
    the Companys ability to respond effectively to the issues surrounding the
telecommunications industry caused by state and federal legislation and regulations,
    
    the impact of economic conditions related to the financial performance of
customers, business partners, competitors and peers within the telecommunications
industry,
    
    the Companys ability to achieve acceptable returns on investments in connection
with the expansion into new businesses,
    
    the Companys ability to attract and retain key personnel,
    
    the Companys ability to retain its existing customer base against wireless,
cable telephone and other competition in all areas of the business including local
and long distance and Internet and data services,
    
    the Companys ability to maintain its margins in a highly competitive industry,
    
    the performance of the Companys investments,
    
    the Companys ability to effectively manage rapid changes in technology and
control capital expenditures related to those technologies, and
 35




---



##### 




    
    the impact of economic and political events on the Companys business, operating
regions and customers, including terrorist attacks.
  In making forward-looking statements, the Company claims the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation Reform Act of
1995. The Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. Readers are
also directed to consider the risks, uncertainties and other factors discussed in documents
filed by us with the Securities and Exchange Commission, including those matters summarized
under the caption Risk Factors in the Companys Annual Report on Form 10-K for the year
ended December 31, 2005. All forward-looking statements should be viewed with caution.
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    Item 4. Controls and Procedures.
 (a) Disclosure Controls and Procedures
     36




---



##### 



(b) Changes in Internal Control Over Financial Reporting
    PART II. OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 1A. Risk Factors.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Item 3. Defaults Upon Senior Securities.
  Item 4. Submission of Matters to a Vote of Security Holders.
 37




---



##### 



(1)
    
    To elect to the Board of Directors for the terms set forth below:
 Three Directors for a three-year term expiring in 2009
 Votes
    
    
    VotesFor
    
    
    WithheldRaymond C. Groth
    
    
    15,216,514
    
    
    
    241,417James L. Moore
    
    
    15,240,114
    
    
    
    217,817Cynthia L. Mynatt
    
    
    15,234,766
    
    
    
    223,165
  (2)
    
    To redeem the Companys Four and One-Half Percent Preferred Stock effective
October 15, 2006.
 Votes
    
    Votes
    
    
    
    
    
    
    BrokerFor
    
    Against
    
    
    Abstentions
    
    
    Non-Votes13,092,202
    
    
    43,614
    
    
    
    60,676
    
    
    
    2,261,439(3) To amend the Companys Bylaws to increase the permissible size of the Board of
Directors to 12 Directors.Votes
    
    Votes
    
    
    
    
    
    
    BrokerFor
    
    Against
    
    
    Abstentions
    
    
    Non-Votes15,239,319
    
    
    186,317
    
    
    
    32,295
    
    
    
    (4) To ratify the appointment of KPMG LLP as independent public accountants of the
Company for the 2006 fiscal year.Votes
    
    Votes
    
    
    
    
    
    
    BrokerFor
    
    Against
    
    
    Abstentions
    
    
    Non-Votes14,825,981
    
    
    627,955
    
    
    
    3,995
    
    
    
    
 Item 5. Other Information.
  Item 6. Exhibits.
  Exhibit No.
    
    Description of Exhibit31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.32
    
    Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934
and 18 U.S.C. 1350.
 38




---



##### 



CT COMMUNICATIONS, INC.

(Registrant)/s/ Ronald A. Marino

Ronald A. MarinoVice President Finance and
Chief Accounting OfficerAugust 4, 2006

Date
  39




---



##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit31.1
    
    Certification of Chief Executive
Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.31.2
    
    Certification of Chief Financial
Officer pursuant to Rule 13a-14(a) under the Securities
Exchange Act of 1934.32
    
    Certification of Chief Executive
Officer and Chief Financial Officer pursuant to Rule 13a-14(b)
under the Securities Exchange Act of 1934 and 18 U.S.C. 1350.
 40