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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 September 30, 2005
 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
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART I. Financial InformationItem 1. Financial Statements.Condensed Consolidated Balance Sheets
September 30, 2005 (Unaudited) and December 31, 2004
    
    2Condensed Consolidated Statements of Income (Unaudited)
Three and Nine Months Ended September 30, 2005 and 2004
    
    3Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three and Nine Months Ended September 30, 2005 and 2004
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2005 and 2004
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    6Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations.
    
    17Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    32Item 4. Controls and Procedures.
    
    32PART II. Other InformationItem 1. Legal Proceedings.
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    33Item 3. Defaults Upon Senior Securities.
    
    33Item 4. Submission of Matters to a Vote of Security Holders.
    
    33Item 5. Other Information.
    
    33Item 6. Exhibits.
    
    34Signatures
    
    35Exhibit Index
    
    36
 1




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##### 



Part I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
 CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 (Unaudited)September 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    23,004
    
    
    $
    28,358Marketable securities
    
    
    2,427
    
    
    
    Accounts receivable and unbilled revenue, net
    
    
    17,986
    
    
    
    17,371Wireless spectrum held-for-sale
    
    
    15,507
    
    
    
    Other
    
    
    6,623
    
    
    
    6,244Total current assets
    
    
    65,547
    
    
    
    51,973Investment securities
    
    
    2,615
    
    
    
    5,190Other investments
    
    
    1,666
    
    
    
    1,500Investments in unconsolidated companies
    
    
    17,082
    
    
    
    16,002Property and equipment, net
    
    
    202,573
    
    
    
    207,072Goodwill
    
    
    9,906
    
    
    
    9,906Other intangibles, net
    
    
    19,989
    
    
    
    35,401Other assets
    
    
    4,183
    
    
    
    3,588Total assets
    
    $
    323,561
    
    
    $
    330,632LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    20,000
    
    
    $
    5,000Preferred stock, 5% series  subject to redemption
    
    
    27
    
    
    
    Accounts payable
    
    
    6,834
    
    
    
    6,822Customer deposits and advance billings
    
    
    3,106
    
    
    
    3,307Other accrued liabilities
    
    
    17,233
    
    
    
    18,475Liabilities of discontinued operations
    
    
    270
    
    
    
    604Total current liabilities
    
    
    47,470
    
    
    
    34,208Long-term debt
    
    
    41,250
    
    
    
    65,000Deferred credits and other liabilities:Deferred income taxes
    
    
    27,033
    
    
    
    28,739Post-retirement benefits other than pension
    
    
    10,734
    
    
    
    11,044Other
    
    
    3,743
    
    
    
    3,413Total deferred credits and other liabilities
    
    
    41,510
    
    
    
    43,196Total liabilities
    
    
    130,230
    
    
    
    142,404Stockholders equity:Preferred stock not subject to mandatory redemption:5% series, $100 par value; 3,356 shares outstanding at
December 31, 2004
    
    
    
    
    
    
    3364.5% series, $100 par value; 614 shares outstanding at
September 30, 2005 and December 31, 2004
    
    
    61
    
    
    
    61Common stock, 18,894,352 and 18,883,825 shares outstanding at
September 30, 2005 and December 31, 2004, respectively
    
    
    42,250
    
    
    
    42,222Other capital
    
    
    298
    
    
    
    298Unearned compensation
    
    
    (520
    )
    
    
    (268
    )Other accumulated comprehensive income
    
    
    324
    
    
    
    215Retained earnings
    
    
    150,918
    
    
    
    145,364Total stockholders equity
    
    
    193,331
    
    
    
    188,228Total liabilities and stockholders equity
    
    $
    323,561
    
    
    $
    330,632
  2




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Operating revenue:Telephone
    
    $
    32,485
    
    
    $
    29,985
    
    
    $
    91,734
    
    
    $
    90,409Wireless and internet
    
    
    12,458
    
    
    
    10,863
    
    
    
    35,639
    
    
    
    31,752Total operating revenue
    
    
    44,943
    
    
    
    40,848
    
    
    
    127,373
    
    
    
    122,161Operating expense:Telephone cost of service (excludes depreciation of $5,820,
$5,300, $17,521 and $15,888, respectively)
    
    
    9,585
    
    
    
    9,415
    
    
    
    27,660
    
    
    
    26,705Wireless and internet cost of service (excludes depreciation
of $1,003, $1,996, $2,958 and $3,652, respectively)
    
    
    6,012
    
    
    
    4,418
    
    
    
    17,242
    
    
    
    14,002Selling, general and administrative (excludes depreciation
of $1,086, $954, $3,269 and $3,558, respectively)
    
    
    14,359
    
    
    
    14,235
    
    
    
    42,997
    
    
    
    40,715Depreciation
    
    
    7,909
    
    
    
    8,250
    
    
    
    23,748
    
    
    
    23,098Total operating expense
    
    
    37,865
    
    
    
    36,318
    
    
    
    111,647
    
    
    
    104,520Operating income
    
    
    7,078
    
    
    
    4,530
    
    
    
    15,726
    
    
    
    17,641Other income (expense):Equity in income of unconsolidated companies, net
    
    
    1,434
    
    
    
    1,820
    
    
    
    3,982
    
    
    
    4,549Interest, dividend income and gain (loss) on sales of
investments
    
    
    396
    
    
    
    184
    
    
    
    2,073
    
    
    
    934Impairment of investments
    
    
    
    
    
    
    (1,454
    )
    
    
    (529
    )
    
    
    (1,494
    )Interest expense
    
    
    (1,124
    )
    
    
    (1,357
    )
    
    
    (3,425
    )
    
    
    (3,939
    )Other (expense)/income
    
    
    (38
    )
    
    
    152
    
    
    
    (268
    )
    
    
    282Total other income (expense)
    
    
    668
    
    
    
    (655
    )
    
    
    1,833
    
    
    
    332Income before income taxes
    
    
    7,746
    
    
    
    3,875
    
    
    
    17,559
    
    
    
    17,973Income taxes
    
    
    3,010
    
    
    
    1,631
    
    
    
    6,881
    
    
    
    7,324Net income
    
    
    4,736
    
    
    
    2,244
    
    
    
    10,678
    
    
    
    10,649Dividends on preferred stock
    
    
    1
    
    
    
    5
    
    
    
    11
    
    
    
    15Net income for common stock
    
    $
    4,735
    
    
    $
    2,239
    
    
    $
    10,667
    
    
    $
    10,634Earnings per common share:Basic
    
    $
    0.25
    
    
    $
    0.12
    
    
    $
    0.57
    
    
    $
    0.56Diluted
    
    
    0.25
    
    
    
    0.12
    
    
    
    0.56
    
    
    
    0.56Basic weighted average shares outstanding
    
    
    18,738
    
    
    
    18,877
    
    
    
    18,794
    
    
    
    18,862Diluted weighted average shares outstanding
    
    
    18,975
    
    
    
    19,054
    
    
    
    18,986
    
    
    
    19,010
  3




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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income
    
    $
    4,736
    
    
    $
    2,244
    
    
    $
    10,678
    
    
    $
    10,649Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) on
available-for-sale
securities
    
    
    81
    
    
    
    (176
    )
    
    
    (252
    )
    
    
    (783
    )Less reclassification adjustment for losses
realized in net income
    
    
    
    
    
    
    797
    
    
    
    361
    
    
    
    608Comprehensive income
    
    $
    4,817
    
    
    $
    2,865
    
    
    $
    10,787
    
    
    $
    10,474
  4




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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Nine Months Ended September 30,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    10,678
    
    
    $
    10,649Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation
    
    
    23,748
    
    
    
    23,098Amortization of restricted stock
    
    
    611
    
    
    
    640Stock compensation from acceleration of vesting of
stock options
    
    
    167
    
    
    
    Loss on retirement of equipment
    
    
    247
    
    
    
    Post-retirement benefits
    
    
    (310
    )
    
    
    (158
    )Gain on sale of investment
    
    
    (1,189
    )
    
    
    Loss (gain) on sale of investment securities
    
    
    77
    
    
    
    (300
    )Impairment of investments
    
    
    529
    
    
    
    1,494Equity in income of unconsolidated companies, net
    
    
    (3,982
    )
    
    
    (4,549
    )Undistributed patronage dividends
    
    
    (235
    )
    
    
    (269
    )Preferred stock dividends
    
    
    (85
    )
    
    
    (58
    )Deferred income taxes and tax credits
    
    
    202
    
    
    
    2,503Changes in operating assets and liabilities
    
    
    (5,253
    )
    
    
    4,395Net cash provided by operating activities
    
    
    25,205
    
    
    
    37,445Cash flows from investing activities:Capital expenditures
    
    
    (20,575
    )
    
    
    (17,294
    )Proceeds from sale of property, plant and equipment
    
    
    1,956
    
    
    
    Proceeds from sale of investment securities
    
    
    218
    
    
    
    1,067Proceeds from sale of other investments
    
    
    1,189
    
    
    
    Purchases of investment securities
    
    
    (233
    )
    
    
    (1,208
    )Purchases of other investments
    
    
    (50
    )
    
    
    (131
    )Partnership capital distribution
    
    
    2,870
    
    
    
    1,834Net cash used in investing activities
    
    
    (14,625
    )
    
    
    (15,732
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (8,750
    )
    
    
    (10,000
    )Dividends paid
    
    
    (5,124
    )
    
    
    (3,692
    )Repurchase of common stock
    
    
    (1,945
    )
    
    
    Repurchase of preferred stock
    
    
    (309
    )
    
    
    Proceeds from common stock issuances
    
    
    528
    
    
    
    154Net cash used in financing activities
    
    
    (15,600
    )
    
    
    (13,538
    )Net cash used in discontinued operations
    
    
    (334
    )
    
    
    (390
    )Net (decrease) increase in cash and cash equivalents
    
    
    (5,354
    )
    
    
    7,785Cash and cash equivalents at beginning of period
    
    
    28,358
    
    
    
    16,957Cash and cash equivalents at end of period
    
    $
    23,004
    
    
    $
    24,742
  5




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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1.
    
    In the opinion of management of CT Communications, Inc. (the Company), the
accompanying unaudited financial statements contain all adjustments consisting of only
normal recurring accruals necessary to present fairly the Companys financial position
as of September 30, 2005 and December 31, 2004, the results of its operations for the
three and nine months ended September 30, 2005 and September 30, 2004 and its cash
flows for the nine months ended September 30, 2005 and September 30, 2004. 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/A (Amendment No. 1) for the year ended December 31, 2004.
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 nine
months ended September 30, 2005 are not necessarily indicative of the results
to be expected for the full year.2.
    
    In certain instances, amounts previously reported in the 2004 consolidated
financial statements have been reclassified to conform to the presentation of the 2005
consolidated financial statements. Such reclassifications have no effect on net income
or retained earnings as previously reported.3.
    
    STOCK COMPENSATION PLANSThe 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 stock option plans. 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. Statement of Financial Accounting Standards (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.On August 10, 2005, the Companys Compensation Committee of the Board of Directors
approved the immediate and full acceleration of the vesting of each stock option that
was unvested as of such date. The closing price of the Companys common stock on August
10, 2005 was $10.67 per share. Based on the closing price of the Companys common stock
on August 10, 2005, approximately 77,000 of the accelerated options were in-the-money
(i.e., the option exercise price was less than $10.67 per share) and approximately
952,000 of the accelerated options were out of the money (i.e., the option exercise
price was greater than or equal to $10.67 per share).Each officer, at a level of vice-president or higher, agreed pursuant to a lock-up
agreement to refrain from selling shares of common stock acquired upon the exercise of
accelerated options (other than shares needed to cover the exercise price and satisfy
withholding taxes) until the date on which the exercise would have been permitted under
the options pre-acceleration vesting terms or, if earlier, the officers last day of
service or upon a corporate transaction as defined in the Companys Amended and
Restated 2001 Stock Incentive Plan.The decision to accelerate the vesting of these options was made primarily to reduce
non-cash compensation expense that would have been recorded in future periods as a
result of the Companys application of SFAS No. 123, Share Based Payment (revised
2004) (SFAS 123R). The Company will be required to apply the expense recognition
provisions of SFAS 123R beginning in the first quarter of 2006. The Company believes
that the aggregate future expense that will be eliminated as a result of the
acceleration of the vesting of these options could approximate up to $5.8 million. The
Company believes, based on its consideration of this potential expense savings and the
current intrinsic and perceived value of the accelerated stock options, that the
acceleration is in the best interests of the Company and its shareholders. In addition, beginning in August 2005, the Company has
changed its compensation philosophy and no longer grants stock options.
 6




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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 The Company applies APB Opinion No. 25 and related Interpretations in accounting for
its plans. Accordingly, the Company recognized compensation cost of $0.2 million
during the third quarter related to the acceleration of the vesting of stock options.
Had compensation cost for the Companys stock-based compensation plans been determined
consistent with SFAS No. 123, the Companys net income and earnings per share would
have been reduced to the pro forma amounts indicated below (in thousands except per
share data):
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    4,736
    
    
    $
    2,244
    
    
    $
    10,678
    
    
    $
    10,649Add: Stock-based compensation expense
included in reported net income, net of
income tax
    
    
    102
    
    
    
    
    
    
    
    102
    
    
    
    Deduct: Additional stock-based
compensation expense that would have
been included in net income if the fair
value-based method had been applied,
net
of income tax
    
    
    3,588
    
    
    
    272
    
    
    
    4,098
    
    
    
    815Pro forma net income
    
    $
    1,250
    
    
    $
    1,972
    
    
    $
    6,682
    
    
    $
    9,834Basic earnings per common shareAs reported
    
    $
    0.25
    
    
    $
    0.12
    
    
    $
    0.57
    
    
    $
    0.56Pro forma
    
    
    0.07
    
    
    
    0.10
    
    
    
    0.36
    
    
    
    0.52Diluted earnings per common shareAs reported
    
    $
    0.25
    
    
    $
    0.12
    
    
    $
    0.56
    
    
    $
    0.56Pro forma
    
    
    0.07
    
    
    
    0.10
    
    
    
    0.35
    
    
    
    0.52
 The Companys annual and long-term incentive bonus awards program for its qualifying
employees is administered under the Companys Amended and Restated 2001 Stock Incentive
Plan. On February 8, 2005, the Compensation Committee of the Board of Directors
modified the payment terms pursuant to which the Company would award annual and
long-term incentive bonus awards for the 2005 fiscal year. The changes to these
compensation programs modified the timing of expense recognition, but were designed to
have no effect on the total value of compensation that employees are eligible to
receive under the programs.4.
    
    PROPERTY AND EQUIPMENTProperty and equipment is composed of the following (in thousands):
 September 30,
    
    
    December 31,2005
    
    
    2004Land, buildings and general equipment
    
    $
    91,890
    
    
    $
    91,705Central office equipment
    
    
    184,833
    
    
    
    177,455Poles, wires, cables and conduit
    
    
    159,966
    
    
    
    155,049Construction in progress
    
    
    8,956
    
    
    
    5,559445,645
    
    
    
    429,768Accumulated depreciation
    
    
    (243,072
    )
    
    
    (222,696
    )Property and equipment, net
    
    $
    202,573
    
    
    $
    207,072
 In June 2005, the Company sold land for $1.9 million, which approximated book value.During the nine months ended September 30, 2005, the Company retired equipment
primarily consisting of central office equipment with cost and net book value of $3.7
million and $0.2 million, respectively, and recognized a loss on the retirement of $0.2
million.
 7




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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 5.
    
    DISCONTINUED OPERATIONSOn December 9, 2002, the Company discontinued its wireless broadband commercial trial
operations in Fayetteville, North Carolina. These operations were provided by Wavetel,
L.L.C. (Wavetel), a subsidiary of the Company. The Company ceased Wavetels
operations due to significant operating losses, the limited coverage area provided by
the technology available at the time and the inability to obtain outside investment.
Complete disposal of the business through sale and disposal of assets was completed by
June 30, 2003.In connection with the discontinuance of operations, the Company 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 liabilities of the
discontinued operations at September 30, 2005 and December 31, 2004 consist of the
following (in thousands):
 September 30,
    
    
    December 31,2005
    
    
    2004Liabilities of discontinued operations:Other liabilities, primarily lease obligations
    
    $
    270
    
    
    $
    604Total liabilities of discontinued operations
    
    $
    270
    
    
    $
    604
 A summary of restructuring liability activity related to the discontinued operations
for the nine months ended September 30, 2005 is as follows (in thousands):
 Balance at December 31, 2004
    
    $
    604Lease termination costs
    
    
    (334
    )Balance at September 30, 2005
    
    $
    270
 6.
    
    COMMON STOCKThe following is a summary of common stock transactions during the nine months ended
September 30, 2005 (in thousands):
 Shares
    
    
    AmountOutstanding at December 31, 2004
    
    
    18,884
    
    
    $
    42,222Purchases/(forfeitures) of common
stock
    
    
    (190
    )
    
    
    (2,372
    )Issuance of Common Stock
    
    
    200
    
    
    
    2,400Outstanding at September 30, 2005
    
    
    18,894
    
    
    $
    42,250
 On June 24, 2005, the Company repurchased 126,628 shares of the Companys common stock
from The Pension Plan of The Concord Telephone Company, which represented
substantially all of the shares of common stock held by that pension plan, at an
aggregate price of $1.6 million.On April 28, 2005, the Board of Directors approved the continuation of the Companys
stock repurchase program. Under this program, the Company is authorized, subject to
certain conditions, to repurchase up to 1,000,000 shares of its outstanding common
stock during the twelve-month period from April 28, 2005 to April 28, 2006. During
the three months ended September 30, 2005, the Company repurchased 27,600 shares under
this program at an aggregate price of $0.3 million.The remainder of the purchases/forfeitures of common stock shown above consists of
restricted shares forfeited by employees of the Company primarily for payment of
income taxes related to those restricted shares. The holders of the restricted shares
may elect to forfeit the number of shares with a value equivalent to the amount of
income taxes
 8




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 owed and the Company pays the related income taxes on the holders
behalf. During the nine months ended September 30, 2005, the Company issued common
stock, the majority of which is restricted, to employees under the Companys Amended
and Restated 2001 Stock Incentive Plan. The restricted stock issuances are non-cash
and result in an increase in unearned compensation on the Condensed Consolidated
Balance Sheets.The following table provides a reconciliation of the denominator used in computing
basic earnings per share to the denominator used in computing diluted earnings per
share for the three and nine months ended September 30, 2005 and 2004 (in thousands):
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Basic weighted average shares
outstanding
    
    
    18,738
    
    
    
    18,877
    
    
    
    18,794
    
    
    
    18,862Effect of dilutive stock options and
non-vested restricted stock
    
    
    237
    
    
    
    177
    
    
    
    192
    
    
    
    148Total weighted average diluted shares
outstanding
    
    
    18,975
    
    
    
    19,054
    
    
    
    18,986
    
    
    
    19,010
 Outstanding options to purchase approximately 526,000 and 1,046,000 shares of common
stock for the three and nine months ended September 30, 2005 and approximately 543,000
and 490,000 shares of common stock for the three and nine months ended September 30,
2004 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. At
September 30, 2005 and September 30, 2004, the Company had total options outstanding
of 1,774,000 and 1,325,000, respectively.7.
    
    INVESTMENT SECURITIESThe amortized cost, gross unrealized holding gains and losses and fair value for the
Companys available-for-sale investments at September 30, 2005 and December 31, 2004
were as follows (in thousands):
 Gross
    
    GrossUnrealized
    
    UnrealizedEquity Securities
    
    Amortized
    
    Holding
    
    HoldingAvailable-for-Sale
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueSeptember 30, 2005
    
    $
    4,499
    
    
    $
    577
    
    
    $
    (34
    )
    
    $
    5,042December 31, 2004
    
    $
    4,855
    
    
    $
    384
    
    
    $
    (49
    )
    
    $
    5,190
 At September 30, 2005, the Company reclassified $2.4 million of investment securities
as current assets. Subsequently in October of 2005, the Company sold these investment
securities at a gain of approximately $0.4 million.During the nine months ended September 30, 2005, the Company recognized impairment
losses of $0.5 million on investment securities due to declines in the fair value of
those securities that, in the opinion of management, were considered to be other than
temporary. The impairment losses are included in the caption Impairment of
investments on the Condensed Consolidated Statements of Income.
 9




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Certain investments of the Company are, and have been, in continuous unrealized loss
positions. The gross unrealized losses, fair value and length of time the securities
have been in the continuous unrealized loss position at September 30, 2005 are as
follows (in thousands):
 Less than 12 months
    
    
    12 months or more
    
    
    TotalDescription of
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedSecurities
    
    Value
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesCommon stock
    
    $
    220
    
    
    $
    2
    
    
    $
    139
    
    
    $
    32
    
    
    $
    359
    
    
    $
    34Total temporarily
impaired securities
    
    $
    220
    
    
    $
    2
    
    
    $
    139
    
    
    $
    32
    
    
    $
    359
    
    
    $
    34
 The fair value and unrealized losses noted above relate to four different investments.
The Company will continue to evaluate these investments on a quarterly basis to
determine if they are other-than-temporarily impaired, at which time the
impairment loss would be recognized.8.
    
    OTHER INVESTMENTSOther investments consist primarily of the Companys investment in CoBank, ACB
(CoBank). The Company receives patronage dividends from CoBank, which is organized
as a cooperative bank for federal income tax purposes. Patronage dividends represent
cash distributions and share allocations of CoBanks earnings distributed to the
Company. Non-cash share allocations are included in Other investments on the
Companys Condensed Consolidated Balance Sheets, and are recognized as other income in
the period earned.9.
    
    INVESTMENTS IN UNCONSOLIDATED COMPANIESInvestments in unconsolidated companies consist of the following (in thousands):
 September 30,
    
    
    December 31,2005
    
    
    2004Equity Method:Palmetto MobileNet, L.P.
    
    $
    12,118
    
    
    $
    10,933Other
    
    
    36
    
    
    
    40Cost Method:Magnolia Holding Company
    
    
    1,587
    
    
    
    1,680PRE Holdings, Inc. (formerly ITC
Financial Services,
LLC)
    
    
    2,100
    
    
    
    2,100Other
    
    
    1,241
    
    
    
    1,249Total
    
    $
    17,082
    
    
    $
    16,002
 During 2003, the Company sold its 4.4% equity interest in ITC Holding Company and
recognized a gain of $15.2 million. As part of the purchase agreement, certain funds
were held in escrow until certain contingencies were resolved. During the nine months
ended September 30, 2005, the contingencies were resolved and the Company recorded an
additional gain of $1.2 million upon the final distribution of the funds previously
held in escrow.The Company invested $2.1 million to purchase a 4.0% ownership interest in ITC
Financial Services, LLC (ITC Financial). ITC Financial was formed to develop a
prepaid debit card business that uses a nationwide network of automated terminals that
re-charge the debit card for certain transaction fees. In December 2004, ITC
Financial merged with PRE Solutions to form PRE Holdings, Inc. The Companys
ownership interest in the newly formed company is 1.55%.The Company recognized income of $1.4 million and $1.8 million in the three months
ended September 30, 2005 and 2004, and $4.0 million and $4.5 million in the nine months ended September 30, 2005 and 2004, respectively, as
 10




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 its share of earnings from unconsolidated companies accounted for under the equity method. Palmetto MobileNet,
L.P. (Palmetto) is a partnership that holds a 50% interest in 10 cellular rural
service areas (RSAs) in North Carolina and South Carolina. Substantially all of the
income was attributable to the Companys 22.4% interest in Palmetto. Summarized
unaudited interim results of operations for Palmetto for the three and nine months
ended September 30, 2005 and 2004 are as follows (in thousands):
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Equity in earnings
of RSA partnership
interests
    
    $
    6,911
    
    
    $
    7,630
    
    
    $
    18,639
    
    
    $
    21,204Other expenses
    
    
    492
    
    
    
    185
    
    
    
    828
    
    
    
    415Net income
    
    $
    6,419
    
    
    $
    7,445
    
    
    $
    17,811
    
    
    $
    20,789
 10.
    
    LONG-TERM DEBTLong-term debt consists of the following (in thousands):
 September 30,
    
    
    December 31,2005
    
    
    2004Line of credit with interest at LIBOR
plus 1.25% (5.0% at September 30, 2005
and 3.50% at December 31, 2004)
    
    $
    15,000
    
    
    $
    20,000Term loan with interest at 7.32%
    
    
    46,250
    
    
    
    50,00061,250
    
    
    
    70,000Less: Current portion of long-term debt
    
    
    20,000
    
    
    
    5,000Total long-term debt
    
    $
    41,250
    
    
    $
    65,000
 At September 30, 2005, the Company had a $70.0 million revolving five-year line of
credit with interest at three month LIBOR plus a spread based on various financial
ratios, that is currently 1.25%. The interest rate on September 30, 2005 was 5.0%.
The credit facility provides for quarterly payments of interest until maturity on
March 31, 2006. As of September 30, 2005, $15.0 million was outstanding under the
revolving credit facility. The Company also has a 7.32% fixed rate $50.0 million term
loan that matures on December 31, 2014, of which $46.3 million was outstanding at
September 30, 2005. The term loan requires quarterly payments of interest until
maturity on December 31, 2014. Payments of principal became due beginning March 31,
2005 and will be due quarterly through December 31, 2014, in equal quarterly amounts
of $1.25 million.At September 30, 2005, the Company had one interest rate swap agreement to fix $5.0
million of the amount outstanding under the $70.0 million revolving line of credit at
a rate of 4.53%. The fair value of the swap agreement as of September 30, 2005 was
$(13,000). The swap agreement matures on November 3, 2006.11.
    
    GOODWILL AND OTHER INTANGIBLESOn January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible
Assets. In accordance with SFAS No. 142, the Company discontinued goodwill
amortization and tested goodwill for impairment as of January 1, 2002, determining
that the recognition of an impairment loss was not necessary. The Company has
continued to test goodwill for impairment at least annually. Goodwill was $9.9
million as of September 30, 2005, and was unchanged from December 31, 2004.Other intangible assets 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, based on the determination
that these assets have indefinite lives, the Company does not
 11




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 amortize wireless licenses. In accordance with SFAS No. 142, the Company periodically reviews its determination of indefinite useful lives
for wireless licenses and tests those licenses for impairment at least annually.As described in the Companys Current Report on Form 8-K filed with the Securities and Exchange Commission (SEC) on June 7, 2005,
Wireless One of North Carolina, L.L.C., Wavetel NC License Corporation, Wavetel, L.L.C. and Wavetel TN, L.L.C. (the Affiliate Companies),
which are the Companys subsidiaries that are the holders of the
Companys Educational Broadband Service (EBS), Broadband Radio Service
(BRS), and related rights and obligations, entered into a Purchase Agreement, dated June 6, 2005 (the Purchase Agreement), with Fixed
Wireless Holdings, LLC, an affiliate of Clearwire Corporation (Fixed Wireless), pursuant to which Fixed Wireless agreed to purchase all
of the Affiliate Companies BRS spectrum licenses and EBS spectrum lease rights for aggregate consideration of up to $16 million in cash.
The closing of the sale is subject to the consent of the EBS spectrum licensors, regulatory approvals, and other customary closing
conditions. The Company currently anticipates that the closing of the
acquisition will occur in late 2005 or early 2006. As a result of the
Purchase Agreement, the carrying value of the spectrum lease rights of $15.5 million was reclassified from Intangibles to Wireless spectrum
held-for-sale, a current asset, in accordance with SFAS No. 144, Accounting for the Disposal or Impairment of Long-Lived Assets. Under
SFAS 144, a long-lived asset to be sold shall be classified as held for sale when certain criteria are met, including the expected
completion of sale within a one-year period. At September 30, 2005, the Company had met all criteria for recognition of the spectrum lease
rights as long-lived assets held for sale. The Company performed a test for impairment of the spectrum rights to be sold in the Purchase
Agreement and determined that an impairment charge was not required. In addition, the Company determined that an impairment charge was not
required for the remaining wireless broadband spectrum of $1.1 million that the Company continues to hold.12.
    
    PREFERRED STOCK, 5% SERIES  SUBJECT TO REDEMPTIONIn May 2005, the Company notified the holders of its 5% series, $100 par value Preferred Stock of its intention to redeem the shares on
July 1, 2005. As a result, the Company effectively entered into a forward purchase contract with these shareholders to repurchase a fixed
number of shares in exchange for cash. SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities
and Equity states that certain types of freestanding financial instruments that embody obligations of the issuer must be classified as
liabilities. According to SFAS No. 150, a forward purchase contract that is to be physically settled or net cash settled is an example of
such a financial instrument.During the three months ended September 30, 2005, the Company redeemed 3,089 shares at an aggregate price of $0.3 million, which left 267
shares remaining to be redeemed. At September 30, 2005, the
shares were classified as a liability described as Preferred
stock, 5% series
  subject to redemption on the Companys Condensed Consolidated Balance Sheets to distinguish them from other current liabilities in
accordance with SFAS No. 150.13.
    
    INCOME TAX CONTINGENCYIn June 2005, the Company received a report from the Internal Revenue Service (IRS) proposing certain adjustments to the Companys
federal income tax returns for the years ended December 31, 2000, 2001, 2002, and 2003.  The most significant proposed adjustment relates
to the income tax treatment of receipts from the Universal Service Administration Company (USAC). The USAC payment adjustment matter
involved a temporary difference for which the Company has previously recorded income tax expense. During the second quarter of 2005, the
Company reclassified $2.1 million from deferred tax liability to current income tax payable. The Company continues to dispute the USAC
payment adjustment and has filed a formal protest letter with the IRS Appeals Office.  As of September 30, 2005, the Company has recorded
the expected impact of the proposed adjustments, including the accrual of interest.14.
    
    RECENT ACCOUNTING PRONOUNCEMENTSIn March 2004, the EITF of the FASB reached a consensus on EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments. The consensus addresses how to determine the meaning of other-than-temporary impairment and its application to investments classified
as either available-for-sale
 12




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
     conditional asset retirement obligation,
  13




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 15.
    
    PENSION AND POST-RETIREMENT PLANSComponents of net periodic benefit costs for the three months ended September 30 (in
thousands):
 Pension Benefits
    
    
    Post-Retirement Benefits2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    559
    
    
    $
    503
    
    
    $
    14
    
    
    $
    17Interest cost
    
    
    756
    
    
    
    655
    
    
    
    117
    
    
    
    127Expected return on plan assets
    
    
    (871
    )
    
    
    (842
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    (1
    )
    
    
    1
    
    
    
    (101
    )
    
    
    16Amortization of gain
    
    
    
    
    
    
    
    
    
    
    (30
    )
    
    
    (38
    )Net periodic benefit cost
    
    $
    443
    
    
    $
    317
    
    
    $
    
    
    
    $
    122
 Components of net periodic benefit costs for the nine months ended September 30 (in
thousands):
 Pension Benefits
    
    
    Post-Retirement Benefits2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    1,681
    
    
    $
    1,509
    
    
    $
    43
    
    
    $
    51Interest cost
    
    
    2,118
    
    
    
    1,965
    
    
    
    356
    
    
    
    373Expected return on plan assets
    
    
    (2,671
    )
    
    
    (2,526
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    1
    
    
    
    3
    
    
    
    (273
    )
    
    
    2Amortization of gain
    
    
    
    
    
    
    
    
    
    
    (88
    )
    
    
    (116
    )Net periodic benefit cost
    
    $
    1,129
    
    
    $
    951
    
    
    $
    38
    
    
    $
    310
 The Company previously disclosed in its financial statements for the year ended
December 31, 2004 that it does not expect to contribute to the pension plan in 2005.Components of the net periodic benefit cost for the nine months ended September 30,
2005 reflect adjustments resulting from post-retirement benefit plan changes to be
effective January 1, 2006.In December 2003, the Medicare Act was signed into law. The Medicare Act introduced a
prescription drug benefit under Medicare (Medicare Part D) and a federal subsidy to
sponsors of retirement health care plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. In May 2004, the FASB issued FSP 106-2,
providing final guidance on accounting for the Medicare Act. In accordance with FSP
106-2, the Company determined that the net periodic benefit costs do not reflect any
amount associated with the subsidy since insurance is not provided,
rather the plan provides a reimbursement of premiums paid by the
retiree.16.
    
    SEGMENT INFORMATIONThe Company has six reportable segments, each of which is a strategic business that is
managed separately due to certain fundamental differences such as regulatory
environment, services offered and/or customers served. The segments and a description
of their businesses are as follows: the incumbent local exchange carrier (ILEC),
which provides local telephone services; the wireless business unit (Wireless),
which provides wireless phone services; the competitive local exchange carrier
(CLEC), which provides local telephone services to customers outside the ILECs
operating area; the Greenfield business (Greenfield), which provides
telecommunications services to developments outside the ILECs operating area;
Internet and data services (IDS), which provides DSL, dial-up and high-speed
internet access and other data-related services; and Palmetto MobileNet, L.P.
(Palmetto), which is a limited partnership with interests in wireless operations in
North Carolina and South Carolina in which the Company has an equity interest through
the Companys subsidiary, CT Cellular, Inc. All other business units,
 14




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
   Three months ended September 30, 2005
 ILEC
    
    
    Wireless
    
    
    CLEC
    
    
    Greenfield
    
    
    IDS
    
    
    Other
    
    
    TotalExternal
revenue
    
    $
    25,237
    
    
    $
    9,521
    
    
    $
    4,785
    
    
    $
    2,463
    
    
    $
    2,937
    
    
    $
    
    
    
    $
    44,943External
expense
    
    
    13,154
    
    
    
    7,790
    
    
    
    4,478
    
    
    
    2,207
    
    
    
    2,061
    
    
    
    266
    
    
    
    29,956Depreciation
    
    
    5,040
    
    
    
    601
    
    
    
    635
    
    
    
    868
    
    
    
    431
    
    
    
    334
    
    
    
    7,909Operating
income (loss)
    
    $
    7,043
    
    
    $
    1,130
    
    
    $
    (328
    )
    
    $
    (612
    )
    
    $
    445
    
    
    $
    (600
    )
    
    $
    7,078Segment assets
    
    $
    169,120
    
    
    $
    34,032
    
    
    $
    13,162
    
    
    $
    28,658
    
    
    $
    13,729
    
    
    $
    64,860
    
    
    $
    323,561
 Three months ended September 30, 2004
 ILEC
    
    
    Wireless
    
    
    CLEC
    
    
    Greenfield
    
    
    IDS
    
    
    Other
    
    
    TotalExternal
revenue
    
    $
    23,350
    
    
    $
    8,222
    
    
    $
    4,596
    
    
    $
    2,039
    
    
    $
    2,641
    
    
    $
    
    
    
    $
    40,848External
expense
    
    
    12,631
    
    
    
    6,518
    
    
    
    4,494
    
    
    
    2,177
    
    
    
    1,925
    
    
    
    323
    
    
    
    28,068Depreciation
    
    
    4,487
    
    
    
    488
    
    
    
    629
    
    
    
    774
    
    
    
    1,538
    
    
    
    334
    
    
    
    8,250Operating
income (loss)
    
    $
    6,232
    
    
    $
    1,216
    
    
    $
    (527
    )
    
    $
    (912
    )
    
    $
    (822
    )
    
    $
    (657
    )
    
    $
    4,530Segment assets
    
    $
    170,276
    
    
    $
    33,294
    
    
    $
    14,658
    
    
    $
    25,619
    
    
    $
    14,150
    
    
    $
    66,362
    
    
    $
    324,359
 Nine months ended September 30, 2005
 ILEC
    
    
    Wireless
    
    
    CLEC
    
    
    Greenfield
    
    
    IDS
    
    
    Other
    
    
    TotalExternal
revenue
    
    $
    69,912
    
    
    $
    26,976
    
    
    $
    14,641
    
    
    $
    7,181
    
    
    $
    8,663
    
    
    $
    
    
    
    $
    127,373External
expense
    
    
    38,071
    
    
    
    22,951
    
    
    
    13,458
    
    
    
    6,534
    
    
    
    6,241
    
    
    
    644
    
    
    
    87,899Depreciation
    
    
    15,278
    
    
    
    1,681
    
    
    
    1,898
    
    
    
    2,518
    
    
    
    1,365
    
    
    
    1,008
    
    
    
    23,748Operating
income (loss)
    
    $
    16,563
    
    
    $
    2,344
    
    
    $
    (715
    )
    
    $
    (1,871
    )
    
    $
    1,057
    
    
    $
    (1,652
    )
    
    $
    15,726Segment assets
    
    $
    169,120
    
    
    $
    34,032
    
    
    $
    13,162
    
    
    $
    28,658
    
    
    $
    13,729
    
    
    $
    64,860
    
    
    $
    323,561
 15




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Nine months ended September 30, 2004
 ILEC
    
    
    Wireless
    
    
    CLEC
    
    
    Greenfield
    
    
    IDS
    
    
    Other
    
    
    TotalExternal
revenue
    
    $
    69,955
    
    
    $
    23,591
    
    
    $
    14,585
    
    
    $
    5,869
    
    
    $
    8,161
    
    
    $
    
    
    
    $
    122,161External
expense
    
    
    34,913
    
    
    
    19,376
    
    
    
    13,365
    
    
    
    6,536
    
    
    
    6,443
    
    
    
    789
    
    
    
    81,422Depreciation
    
    
    14,159
    
    
    
    1,436
    
    
    
    1,888
    
    
    
    2,239
    
    
    
    2,337
    
    
    
    1,039
    
    
    
    23,098Operating
income (loss)
    
    $
    20,883
    
    
    $
    2,779
    
    
    $
    (668
    )
    
    $
    (2,906
    )
    
    $
    (619
    )
    
    $
    (1,828
    )
    
    $
    17,641Segment assets
    
    $
    170,276
    
    
    $
    33,294
    
    
    $
    14,658
    
    
    $
    25,619
    
    
    $
    14,150
    
    
    $
    66,362
    
    
    $
    324,359
 The Companys Palmetto segment is not consolidated and is accounted for under the
equity method. The Companys net investment in Palmetto of $12.1 million and $11.6
million as of September 30, 2005 and 2004, respectively, is included as part of the
assets of the Companys Other segment. The Company records its share of earnings
from Palmetto as equity in income of unconsolidated companies on the Condensed
Consolidated Statements of Income. For summarized results of operations for Palmetto
see Note 9.Reconciliation to income before income taxes (in thousands):
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Segment operating income
    
    $
    7,078
    
    
    $
    4,530
    
    
    $
    15,726
    
    
    $
    17,641Total other income
(expense)
    
    
    668
    
    
    
    (655
    )
    
    
    1,833
    
    
    
    332Income before income taxes
    
    $
    7,746
    
    
    $
    3,875
    
    
    $
    17,559
    
    
    $
    17,973
 17.
    
    SUBSEQUENT EVENTSOn October 7, 2005, the Company paid $2.9 million for an approximate
8% interest in the voting
common stock of a rural telecommunications provider headquartered in
the Southeastern United States. The telecommunications provider offers a comprehensive
package of telecommunication services, including local and long distance telephone,
Internet, video and wireless services.
 16




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 IntroductionCT Communications, Inc. and its subsidiaries provide a broad range of telecommunications and
related services to residential and business customers located primarily in North Carolina.
The Companys primary services include local and long distance telephone service, Internet
and data services and wireless products and services.The Company has worked to expand its core businesses through the development of integrated
product and service offerings, investment in certain growth initiatives and targeted
marketing efforts to efficiently identify and obtain customers. In addition, the Company
has made certain strategic investments that complement its business units.The Company believes that it is positioning itself to achieve its strategic objectives by
devoting substantial effort to developing business plans, enhancing its management team and
Board of Directors, and designing and developing its business support and operating systems.
On September 1, 2004, the Company announced a plan to significantly enhance its broadband
capabilities in its ILEC territory. The initiative involves an estimated $9.0 million
capital investment that, upon completion, is expected to allow the Company to offer
broadband service speeds of up to 10 megabits per second throughout much of its ILEC
territory, a significant improvement over current DSL and cable modem speeds. The Company
introduced higher-speed broadband services in selected areas of its network in 2004, with
the initiative planned for completion in late 2005.The Company also continues to focus on maximizing the ILEC business in its current markets
by cross-selling bundled products and packages and growing its customer base through its
CLEC, Greenfield, Internet and data services, and wireless businesses. The Company will also
consider strategic acquisitions and investments as opportunities arise.For the three and nine months ended September 30, 2005, net income for the Company was $4.7
million and $10.7 million, respectively, compared to $2.2 million and $10.6 million for the
three and nine months ended September 30, 2004. Diluted earnings per share were $0.25 and
$0.12 for the three months ended September 30, 2005 and 2004, respectively, and $0.56 for
each of the nine months ended September 30, 2005 and 2004.Industry and Operating TrendsThe telecommunications industry is highly competitive and characterized by increasing price
competition, technological development and regulatory uncertainty. Industry participants are
faced with the challenge of adapting their organizations, services, processes and systems to
this environment.The Companys ILEC is facing more competitive pressure than at any other time in its
history. Wireless providers and CLECs have targeted the Companys customers and will
continue to promote low cost, flexible communications alternatives. Cable telephony and
Voice over Internet Protocol (VoIP) services will likely become more significant threats
to the Companys voice business in the coming years. Service providers utilizing these
technologies are capable of delivering a competitive voice service to the Companys ILEC
customers. These service providers are not subject to certain regulatory constraints that
have shaped the Companys business model and that will become more significant impediments
to its ability to successfully compete in the coming years.The ILEC must provide basic telephone service as well as most tariffed services to all
customers in its regulated service area, regardless of the cost to provide those services.
Although the Company does benefit from certain universal service fund (USF) payments
intended to offset certain costs to provide service, such reimbursements are increasingly at
risk while the service obligations remain unchanged.VoIP and cable telephony are becoming more available to customers and could result in lower
revenues throughout the Companys businesses. Time Warner currently offers cable television
and high-speed Internet service in much of the Companys service territory and cable
telephony service in many of the Companys Greenfield and CLEC areas. Time Warner is
expected to offer cable telephony in the ILEC service area before the end of 2005. Cable
telephony in the ILEC service area could result in a loss of access lines, a reduction in
ILEC revenue including long distance and access revenue and a reduction in Internet revenue.
In addition, wireless substitution is also a trend that is impacting the ILEC business as
well as the Companys long distance revenue. Some customers are choosing to substitute
their landline service with wireless service. The Company believes this has contributed to
the access line
 17




---



##### 



decrease in the ILEC over the past several years.Access line losses over the past several years have also been impacted by the adoption of
DSL and other high-speed Internet services by customers that had traditionally subscribed to
dial-up Internet service. As customers switch to DSL or other high-speed Internet services,
they no longer need a second landline for use with their dial-up Internet service. If such
landline is replaced with a Company DSL line, then the Company can offset, at least
partially, the lost landline revenue through its DSL service to the customer.In the Companys Wireless business, increasing competition, market saturation and an
uncertain economy have caused and will likely continue to cause the wireless industrys
subscriber growth rate to moderate in comparison to historical growth rates. While the
wireless telecommunications industry does continue to grow, a high degree of competition
exists among carriers. This competition will continue to put pressure on pricing and margins
as carriers compete for customers. Future carrier revenue growth is highly dependent upon
the number of net customer additions a carrier can achieve and the average revenue per user
derived from its customers.Regulatory requirements have grown in certain areas of the Companys business and have added
complexity and expense to its business model. The Companys telecommunications services are
regulated by the Federal Communications Commission (FCC) at the federal level, and state
utility commissions, principally the North Carolina Utilities Commission (NCUC), at the
state level.The FCC frequently undertakes matters that could have a significant impact on the Company.
The FCC has the task of evaluating USF to ensure that its funding is adequate and
disbursements are proper. The Companys ILEC currently receives interstate common line
support from the USF. The FCC, and possibly Congress, is expected to devote resources to
the consideration of USF reform in 2005 and future years.The FCC is also considering the appropriate regulatory treatment of VoIP services. Despite
providing voice services similar to those offered by the Company, VoIP providers have to
date avoided many regulatory requirements that currently apply to the Company in the
provision of those services. This disparate regulatory treatment provides VoIP providers
with a competitive advantage. Although several state commissions have attempted to assert
jurisdiction over VoIP services, federal courts in New York and Minnesota have rejected
those efforts as preempted by federal law. On November 12, 2004, the FCC ruled that
Internet-based service provided by Vonage Holdings Corporation (Vonage) should be subject
to federal rather than state jurisdiction. Several state commissions have appealed the
FCCs Vonage decision.On February 12, 2004, the FCC announced a rulemaking to examine whether certain regulatory
requirements, such as 911 services, universal service, disability access and access charges,
should be applicable to VoIP services. On March 10, 2004, the FCC released a notice of
proposed rulemaking seeking comment on the appropriate regulatory treatment of IP-enabled
communications services. On June 3, 2005, the FCC released an order requiring VoIP
providers to provide 911 service to their customers in the fourth quarter of 2005.The Companys ILEC, CLEC and Greenfield businesses receive intercarrier compensation for
the use of their facilities for origination and termination of interexchange and local calls
from other telecommunications providers, including long distance companies, wireless
carriers, and other local exchange carriers, through access and reciprocal compensation
charges established in accordance with state and federal laws. Such intercarrier
compensation constitutes a material portion of the Companys revenues and is increasingly
subject to regulatory uncertainty and carrier efforts to avoid payment through the use of
alternative technologies such as VoIP.At least three companies, AT&T Corp. (AT&T), Pulver.com, and Level 3 Communications, Inc.
(Level 3), filed petitions with the FCC seeking a ruling allowing them to avoid payment of
access charges for VoIP traffic. On February 12, 2004, the FCC, in ruling on Pulver.coms
petition, held that strictly computer-to-computer VoIP service that does not utilize the
public switched telephone network is not a regulated telecommunications service. On April
21, 2004, the FCC denied a waiver petition filed by AT&T requesting that its IP telephony
service be exempt from access charges. The FCC ruled that AT&Ts IP telephony service, which
converted voice calls to IP format for some portion of the routing over the public switched
telephone network prior to converting the calls back to their original format, is a
regulated telecommunications service subject to interstate access charges. Level 3 withdrew
its petition requesting the FCC to forbear from imposing interstate or intrastate access
charges on Internet-based calls that originate or terminate on the public switched telephone
network.
 18




---



##### 



The FCC has had an open docket on intercarrier compensation since 2001. On February 10,
2005, the FCC announced adoption of a Further Notice of Proposed Rule Making for
Intercarrier Compensation Reform and subsequently issued a press release. The text of the
FCCs notice was released on March 3, 2005. Initial comments were filed in May 2005 and
reply comments were filed on July 20, 2005. The Company is currently participating in
industry associations that are working to develop and advocate an industry proposal.On August 5, 2005, the FCC adopted new rules that classify wireline broadband service
(essentially DSL service) as an information service. The FCC established a 270 day
transition period during which it will more fully define the USF funding obligations related
to such information services. Although the FCCs final regulatory approach to such services
is not yet known, the FCCs recent order will allow incumbent local exchange carriers to
permissively detariff DSL services provided to Internet Service Providers. In doing so,
such carriers will no longer be required to offer its DSL services on a wholesale basis to
its competitors, and will no longer be obligated to contribute a percentage of its DSL
revenues to the USF unless its information service competitors, such as cable companies
offering cable modem services, are also required to make such contributions.Since September 1997, the ILECs rates for local exchange services have been established
under a price regulation plan approved by the NCUC. Under the price regulation plan, the
Companys charges are no longer subject to rate-base, rate-of-return regulation. Instead,
rates for most of the Companys local exchange services may be adjusted by the Company,
provided that such rate adjustments would not result in projected revenue changes that would
exceed changes in inflation reduced by a 2% assumed productivity offset. The price
regulation plan has allowed flexibility for adjustments based on certain external events
outside of the Companys control, such as jurisdictional cost shifts or legislative
mandates. In previous years, the Company has rebalanced certain rates under the price
regulation plan. The price rebalancing arrangement allows the Company to continue adjusting
revenues to keep them in line with related costs. The primary result has been an increase
in the monthly basic service charges paid by residential customers, a decrease in access
charges paid by interexchange carriers and a decrease in rates paid by end users for an
expanded local calling scope.In December 2004, the Company filed a petition with the NCUC in which it requested, among
other things, deregulation of certain competitive services, additional pricing flexibility
for regulated services, elimination of the productivity offset and an initial, limited
increase in local calling rates in exchange for providing customers with a larger local
calling scope. The NCUC conducted hearings on the Companys request on August 4, 2005. On
September 9, 2005, the NCUC released an order approving many of the modifications requested
by the Company. The approved modifications eliminate the 2% productivity offset, allow the
Company to increase rates annually for basic local exchange services up to 12% and allow the
Company to increase rates for more competitive services by up to 20% annually. The
Companys new price regulation plan also permits annual, total revenue increases of up to
2.5 times the change in inflation. The plan further allows the Company to increase or
decrease prices on an annual basis, and to make additional price changes in certain
circumstances to meet competitive offerings.As its first step under this new plan, on September 14, 2005 the Company submitted an annual
filing seeking approval for, among other things, local service rate increases in exchange
for providing ILEC customers with a larger local calling scope that does not require the
payment of usage charges. Such rate changes were effective beginning in late October 2005,
and will result in simpler calling plans and billing. The Company believes that the new
plan will permit it to more effectively address increasing competition in its ILEC market,
but otherwise does not anticipate that the changes will have a material impact on its
financial results.The Companys CLEC relies in part on unbundled network elements obtained from the applicable
incumbent local exchange carrier. The FCC has relieved some of the unbundling obligations
on incumbent local exchange carriers that required those carriers to make some of such
elements available at cost-based rates. The FCCs order will result in increases in the
cost of some of the unbundled network elements currently leased by the Company from
incumbent local exchange carriers, including high capacity transport elements and unbundled
network element platform (UNE-P). The Company has identified, and is continuing to
evaluate, opportunities to use alternative transport elements to minimize cost increases
relating to the Companys use of high capacity transport elements. The Company also has
executed commercial agreements with the incumbent local exchange carriers that will continue
to permit the Company to maintain and lease additional UNE-P lines from the applicable
incumbent at higher rates than the previous cost-based rates. In addition, the Company
continues to pursue opportunities to expand its network facilities to bring currently leased
elements on to the Companys network in order to lower
 19




---



##### 



expenses and improve service levels. The Company is also targeting new CLEC customers that
can be served primarily through the use of the Companys own network or co-located
facilities.The Company has licenses and other rights (including lease agreements) to certain wireless
spectrum, including Broadband Radio Service (BRS) and
Educational Broadband Service (EBS).
On July 29, 2004, the FCC issued an order that created a new plan for this band, eliminating
the use of interleaved channels by BRS and EBS licenses and creating distinct band segments
for high power operations and low power operations. The FCCs order also implemented
geographic area licensing for all licenses in the band and adopted a three-year transitional
mechanism for licensees to move to new spectrum assignments. The FCCs transition mechanism
contemplates that a proponent licensee (presumably a commercial operator) will initiate a
transition for an entire Major Economic Area (MEA), and will bear the costs of the
transition for EBS licensees in such MEA.If a MEA is not transitioned within the three-year period, then the affected channels will
be re-licensed through an auction procedure. What consideration, if any, the Company would
receive in such circumstances has not yet been determined by the FCC.As described in the Companys Current Report on Form 8-K filed with the SEC on June 7, 2005,
Wireless One of North Carolina, L.L.C., Wavetel NC License Corporation, Wavetel, L.L.C. and
Wavetel TN, L.L.C. (the Affiliate Companies), which are the Companys subsidiaries that
hold EBS, BRS, and related rights, entered into a Purchase Agreement, dated June 6, 2005,
with Fixed Wireless Holdings, LLC, an affiliate of Clearwire Corporation (Fixed Wireless),
pursuant to which Fixed Wireless agreed to purchase all of the Affiliate Companies BRS
spectrum licenses and EBS spectrum lease rights for aggregate consideration of up to $16
million in cash. The closing of the sale is subject to the consent of the EBS spectrum
licensors, regulatory approvals, and other customary closing conditions. The Company
currently anticipates that the closing of the sale will occur in late 2005 or early 2006.As of September 30, 2005, the Company has a cost basis of approximately $15.5 million in EBS
and BRS spectrum recorded as Wireless spectrum held-for-sale on the Condensed Consolidated
Balance Sheets. The Company tested its intangibles for impairment as of December 31, 2004,
and considered the FCCs Order and other regulatory and business developments and trends
when assessing the value of its intangible assets.Results of OperationsThe Company has six reportable segments, each of which is a strategic business that is
managed separately due to certain fundamental differences such as regulatory environment,
services offered and/or customers served. The identified reportable segments are: ILEC,
CLEC, Greenfield, Wireless, IDS and Palmetto. All other businesses that do not meet
reporting guidelines and thresholds are reported under Other. Summarized results of
operations for Palmetto are included in Note 9 of the Condensed Consolidated Financial
Statements.The following discussion reviews the consolidated results of operations and specific results
within each consolidated reportable segment.
 20




---



##### 



Consolidated Operating Results
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total operating revenue
    
    $
    44,943
    
    
    $
    40,848
    
    
    $
    127,373
    
    
    $
    122,161Total operating expense
    
    
    37,865
    
    
    
    36,318
    
    
    
    111,647
    
    
    
    104,520Operating income
    
    $
    7,078
    
    
    $
    4,530
    
    
    $
    15,726
    
    
    $
    17,641Depreciation
    
    $
    7,909
    
    
    $
    8,250
    
    
    $
    23,748
    
    
    $
    23,098Capital expenditures
    
    
    6,227
    
    
    
    7,530
    
    
    
    20,575
    
    
    
    17,294Total assets
    
    
    
    
    
    
    
    
    
    
    323,561
    
    
    
    324,359Ending wired access lines
    
    
    
    
    
    
    
    
    
    
    157,283
    
    
    
    157,206Ending wireless
subscribers
    
    
    
    
    
    
    
    
    
    
    45,285
    
    
    
    41,229Ending internet and data
customers
    
    
    
    
    
    
    
    
    
    
    25,767
    
    
    
    22,724
 Three months ended September 30
    Nine months ended September 30
   21




---



##### 



ILEC
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total operating revenue
    
    $
    25,237
    
    
    $
    23,350
    
    
    $
    69,912
    
    
    $
    69,955Total operating expense
    
    
    18,194
    
    
    
    17,118
    
    
    
    53,349
    
    
    
    49,072Operating income
    
    $
    7,043
    
    
    $
    6,232
    
    
    $
    16,563
    
    
    $
    20,883Depreciation
    
    $
    5,040
    
    
    $
    4,487
    
    
    $
    15,278
    
    
    $
    14,159Capital expenditures
    
    
    3,921
    
    
    
    4,221
    
    
    
    12,128
    
    
    
    9,773Total assets
    
    
    
    
    
    
    
    
    
    
    169,120
    
    
    
    170,276Business access lines
    
    
    
    
    
    
    
    
    
    
    28,532
    
    
    
    28,912Residential access lines
    
    
    
    
    
    
    
    
    
    
    82,511
    
    
    
    84,816Total access lines
    
    
    
    
    
    
    
    
    
    
    111,043
    
    
    
    113,728Long distance lines
    
    
    
    
    
    
    
    
    
    
    84,723
    
    
    
    84,760
 Three months ended September 30
    Nine months ended September 30
  22




---



##### 



.
   23




---



##### 



CLEC
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total operating revenue
    
    $
    4,785
    
    
    $
    4,596
    
    
    $
    14,641
    
    
    $
    14,585Total operating expense
    
    
    5,113
    
    
    
    5,123
    
    
    
    15,356
    
    
    
    15,253Operating income (loss)
    
    $
    (328
    )
    
    $
    (527
    )
    
    $
    (715
    )
    
    $
    (668
    )Depreciation
    
    $
    635
    
    
    $
    629
    
    
    $
    1,898
    
    
    $
    1,888Capital expenditures
    
    
    348
    
    
    
    144
    
    
    
    1,008
    
    
    
    540Total assets
    
    
    
    
    
    
    
    
    
    
    13,162
    
    
    
    14,658Ending access lines
    
    
    
    
    
    
    
    
    
    
    31,853
    
    
    
    31,194Ending long distance lines
    
    
    
    
    
    
    
    
    
    
    24,723
    
    
    
    22,819
 Three months ended September 30
    Nine months ended September 30
   24




---



##### 



Greenfield
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total operating revenue
    
    $
    2,463
    
    
    $
    2,039
    
    
    $
    7,181
    
    
    $
    5,869Total operating expense
    
    
    3,075
    
    
    
    2,951
    
    
    
    9,052
    
    
    
    8,775Operating income (loss)
    
    $
    (612
    )
    
    $
    (912
    )
    
    $
    (1,871
    )
    
    $
    (2,906
    )Depreciation
    
    $
    868
    
    
    $
    774
    
    
    $
    2,518
    
    
    $
    2,239Capital expenditures
    
    
    1,055
    
    
    
    1,201
    
    
    
    4,058
    
    
    
    3,141Total assets
    
    
    
    
    
    
    
    
    
    
    28,658
    
    
    
    25,619Ending access lines
    
    
    
    
    
    
    
    
    
    
    14,387
    
    
    
    12,284Ending long distance lines
    
    
    
    
    
    
    
    
    
    
    8,080
    
    
    
    6,328Total signed provider
agreements
    
    
    
    
    
    
    
    
    
    
    112
    
    
    
    104
  25




---



##### 



Greenfield Projects
    
    Lines in
    
    
    Potential
    
    
    TotalBy Year Signed
    
    Service
    
    
    Lines
    
    
    ProjectsPrevious Years
    
    
    9,306
    
    
    
    27,033
    
    
    
    512002
    
    
    3,763
    
    
    
    12,694
    
    
    
    242003
    
    
    869
    
    
    
    4,846
    
    
    
    182004
    
    
    413
    
    
    
    3,864
    
    
    
    122005
    
    
    36
    
    
    
    1,867
    
    
    
    7Total
    
    
    14,387
    
    
    
    50,304
    
    
    
    112
 Three months ended September 30
    Nine months ended September 30
    26




---



##### 



Wireless
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total operating revenue
    
    $
    9,521
    
    
    $
    8,222
    
    
    $
    26,976
    
    
    $
    23,591Total operating expense
    
    
    8,391
    
    
    
    7,006
    
    
    
    24,632
    
    
    
    20,812Operating income
    
    $
    1,130
    
    
    $
    1,216
    
    
    $
    2,344
    
    
    $
    2,779Depreciation
    
    $
    601
    
    
    $
    488
    
    
    $
    1,681
    
    
    $
    1,436Capital expenditures
    
    
    225
    
    
    
    1,286
    
    
    
    1,692
    
    
    
    1,904Total assets
    
    
    
    
    
    
    
    
    
    
    34,032
    
    
    
    33,294Ending subscribers
    
    
    
    
    
    
    
    
    
    
    45,285
    
    
    
    41,229
 Three months ended September 30
   27




---



##### 



Nine months ended September 30
     Internet and Data Services (IDS)
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total operating revenue
    
    $
    2,937
    
    
    $
    2,641
    
    
    $
    8,663
    
    
    $
    8,161Total operating expense
    
    
    2,492
    
    
    
    3,463
    
    
    
    7,606
    
    
    
    8,780Operating income (loss)
    
    $
    445
    
    
    $
    (822
    )
    
    $
    1,057
    
    
    $
    (619
    )Depreciation
    
    $
    431
    
    
    $
    1,538
    
    
    $
    1,365
    
    
    $
    2,337Capital expenditures
    
    
    352
    
    
    
    408
    
    
    
    950
    
    
    
    1,084Total assets
    
    
    
    
    
    
    
    
    
    
    13,729
    
    
    
    14,150Ending DSL lines
    
    
    
    
    
    
    
    
    
    
    17,921
    
    
    
    12,477Ending dial-up accounts
    
    
    
    
    
    
    
    
    
    
    7,197
    
    
    
    9,686Ending high-speed accounts
    
    
    
    
    
    
    
    
    
    
    649
    
    
    
    561
 28




---



##### 



Three months ended September 30
    Nine months ended September 30
     Other
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Total operating expense
    
    $
    600
    
    
    $
    657
    
    
    $
    1,652
    
    
    $
    1,828Operating income (loss)
    
    $
    (600
    )
    
    $
    (657
    )
    
    $
    (1652
    )
    
    $
    (1,828
    )Depreciation
    
    $
    334
    
    
    $
    334
    
    
    $
    1,008
    
    
    $
    1,039Capital expenditures
    
    
    326
    
    
    
    270
    
    
    
    739
    
    
    
    852Total assets
    
    
    
    
    
    
    
    
    
    
    64,860
    
    
    
    66,362
 29




---



##### 



Three months ended September 30
  Nine months ended September 30
  Other Income
 Three months ended September 30
  Nine months ended September 30
  Liquidity and Capital Resources
     30




---



##### 



Payments due by yearLess than
    
    
    
    
    
    
    
    
    
    
    After 5Total
    
    
    one year
    
    
    1-3 years
    
    
    4 -5 years
    
    
    yearsContractual obligations:Revolving credit facility
    
    $
    15,000
    
    
    $
    15,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Term loan
    
    
    46,250
    
    
    
    5,000
    
    
    
    15,000
    
    
    
    10,000
    
    
    
    16,250Variable interest payments
    
    
    375
    
    
    
    375
    
    
    
    
    
    
    
    
    
    
    
    Fixed interest payments
    
    
    16,081
    
    
    
    3,248
    
    
    
    7,549
    
    
    
    3,202
    
    
    
    2,082Operating leases
    
    
    16,519
    
    
    
    2,576
    
    
    
    7,898
    
    
    
    4,108
    
    
    
    1,937Capital leases
    
    
    576
    
    
    
    467
    
    
    
    109
    
    
    
    
    
    
    
    $
    94,801
    
    
    $
    26,666
    
    
    $
    30,556
    
    
    $
    17,310
    
    
    $
    20,269
  Cautionary Note Regarding Forward-Looking Statements
   
    
    the Companys ability to respond effectively to the issues surrounding the
telecommunications industry caused by state and federal legislation and regulations,
    
    the impact of economic conditions related to the financial performance of customers,
business partners, competitors and peers within the telecommunications industry,
    
    the Companys ability to recover the substantial costs incurred over the past few
years in connection with the Companys expansion into new businesses,
    
    the Companys ability to attract and retain key personnel,
    
    the Companys ability to retain its existing customer base against wireless
competition and cable telephony in all areas of the business including local and long
distance and internet and data services,
    
    the Companys ability to control pricing and product offerings in a highly competitive industry,
    
    the performance of the Companys investments,
    
    the Companys ability to effectively manage rapid changes in technology and control
capital expenditures related to those technologies, and
    
    the impact of economic and political events on the Companys business, operating
regions and customers, including terrorist attacks.
  31




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##### 



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 SEC, including those matters summarized under the caption Risk
Factors in the Companys Annual Report on Form 10-K/A (Amendment No. 1) for the year ended
December 31, 2004. 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
  (b) Changes in Internal Control Over Financial Reporting
  32




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##### 



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total Number of
    
    MaximumShares Purchased
    
    Number of SharesThree Months
    
    Total Number
    
    
    
    
    
    as Part of
    
    that May Yet BeEnded
    
    of
    
    
    
    
    
    Publicly
    
    Purchased UnderSeptember 30,
    
    Shares
    
    Average Price
    
    Announced Plans
    
    the Plans or2005
    
    Purchased
    
    Paid per Share
    
    or Programs
    
    ProgramsJuly 1  July 31,
2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Aug 1  Aug 31, 2005
    
    
    27,600
    
    
    $
    11.11
    
    
    
    27,600
    
    
    
    972,400Sept 1  Sept 30,
2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    27,600
    
    
    $
    11.11
    
    
    
    27,600
    
    
    
    972,400
  Item 3. Defaults Upon Senior Securities.
  Item 4. Submission of Matters to a Vote of Security Holders.
  Item 5. Other Information.
  33




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##### 



Item 6. Exhibits.
 Exhibit No.
    
    Description of Exhibit10.1
    
    Amendment to Change in Control Agreement, dated as of August
16, 2005, between CT Communications and David H. Armistead.10.2
    
    Amendment to Change in Control Agreement, dated as of August
17, 2005, between CT Communications and Michael R. Coltrane.10.3
    
    Amendment to Change in Control Agreement, dated as of August
19, 2005, between CT Communications and Matthew J. Dowd.10.4
    
    Amendment to Change in Control Agreement, dated as of
September 8, 2005, between CT Communications and James E. Hausman.10.5
    
    Amendment to Change in Control Agreement, dated as of August
17, 2005, between CT Communications and Ronald A. Marino.10.6
    
    Amendment to Change in Control Agreement, dated as of August
17, 2005, between CT Communications and Michael R. Nash.31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934.32
    
    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.
 34




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##### 



CT COMMUNICATIONS, INC.(Registrant)/s/ Ronald A.Marino

Ronald A. MarinoVice President Finance andChief Accounting OfficerNovember 3, 2005

Date
 35
       EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit10.1
    
    Amendment to Change in Control Agreement, dated as of August 16, 2005, between CT Communications and David H. Armistead.10.2
    
    Amendment to Change in Control Agreement, dated as of August 17, 2005, between CT Communications and Michael R. Coltrane.10.3
    
    Amendment to Change in Control Agreement, dated as of August 19, 2005, between CT Communications and Matthew J. Dowd.10.4
    
    Amendment to Change in Control Agreement, dated as of September 8, 2005, between CT Communications and James E. Hausman.10.5
    
    Amendment to Change in Control Agreement, dated as of August 17, 2005, between CT Communications and Ronald A. Marino.10.6
    
    Amendment to Change in Control Agreement, dated as of August 17, 2005, between CT Communications and Michael R. Nash.31.1
    
    Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.32
    
    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.
 36