##### Table of Contents



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, 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
 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
June 30, 2005 (Unaudited) and December 31, 2004
    
    
    2Condensed Consolidated Statements of Income (Unaudited)
Three and Six Months Ended June 30, 2005 and 2004
    
    
    3Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three and Six Months Ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 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.
    
    
    16Item 3. Quantitative and Qualitative Disclosures About Market Risk.
    
    
    31Item 4. Controls and Procedures.
    
    
    31PART II. Other InformationItem 1. Legal Proceedings.
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
    
    
    32Item 3. Defaults Upon Senior Securities.
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders.
    
    
    32Item 5. Other Information.
    
    
    33Item 6. Exhibits
    
    
    33Signatures
    
    
    34Exhibit Index
    
    
    35Ex-31.1Ex-31.2Ex-32
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##### Table of Contents



Part I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
  (Unaudited)June 30,
    
    December 31,2005
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    21,257
    
    
    $
    28,358Accounts receivable and unbilled revenue, net
    
    
    15,851
    
    
    
    17,371Wireless spectrum held-for-sale
    
    
    15,507
    
    
    
    Other
    
    
    5,583
    
    
    
    6,244Total current assets
    
    
    58,198
    
    
    
    51,973Investment securities
    
    
    4,724
    
    
    
    5,190Other investments
    
    
    1,592
    
    
    
    1,500Investments in unconsolidated companies
    
    
    17,048
    
    
    
    16,002Property and equipment, net
    
    
    204,377
    
    
    
    207,072Goodwill
    
    
    9,906
    
    
    
    9,906Other intangibles, net
    
    
    19,989
    
    
    
    35,401Other assets
    
    
    4,062
    
    
    
    3,588Total assets
    
    $
    319,896
    
    
    $
    330,632LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    20,000
    
    
    $
    5,000Preferred stock, 5% series  subject to redemption
    
    
    336
    
    
    
    Accounts payable
    
    
    5,736
    
    
    
    6,822Customer deposits and advance billings
    
    
    2,952
    
    
    
    3,307Other accrued liabilities
    
    
    17,419
    
    
    
    18,475Liabilities of discontinued operations
    
    
    364
    
    
    
    604Total current liabilities
    
    
    46,807
    
    
    
    34,208Long-term debt
    
    
    42,500
    
    
    
    65,000Deferred credits and other liabilities:Deferred income taxes
    
    
    25,971
    
    
    
    28,739Post-retirement benefits other than pension
    
    
    10,849
    
    
    
    11,044Other
    
    
    3,833
    
    
    
    3,413Total deferred credits and other liabilities
    
    
    40,653
    
    
    
    43,196Total liabilities
    
    
    129,960
    
    
    
    142,404Stockholders equity:Preferred stock not subject to mandatory redemption:5% series, $100 par value; 3,356 shares outstanding at
June 30, 2005 and December 31, 2004
    
    
    
    
    
    
    3364.5% series, $100 par value; 614 shares outstanding at
June 30, 2005 and December 31, 2004
    
    
    61
    
    
    
    61Common stock, 18,881,583 and 18,883,825 shares outstanding at
June 30, 2005 and December 31, 2004, respectively
    
    
    42,002
    
    
    
    42,222Other capital
    
    
    298
    
    
    
    298Unearned compensation
    
    
    (742
    )
    
    
    (268
    )Accumulated other comprehensive income
    
    
    243
    
    
    
    215Retained earnings
    
    
    148,074
    
    
    
    145,364Total stockholders equity
    
    
    189,936
    
    
    
    188,228Total liabilities and stockholders equity
    
    $
    319,896
    
    
    $
    330,632
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Income (Unaudited)
  Three Months Ended June 30,
    
    Six Months Ended June 30,2005
    
    2004
    
    2005
    
    2004Operating revenue:Telephone
    
    $
    29,144
    
    
    $
    29,742
    
    
    $
    59,249
    
    
    $
    60,424Wireless and internet
    
    
    11,889
    
    
    
    11,007
    
    
    
    23,181
    
    
    
    20,889Total operating revenue
    
    
    41,033
    
    
    
    40,749
    
    
    
    82,430
    
    
    
    81,313Operating expense:Telephone cost of service (1)
    
    
    9,034
    
    
    
    8,732
    
    
    
    18,075
    
    
    
    17,290Wireless and internet cost of service (2)
    
    
    5,982
    
    
    
    4,737
    
    
    
    11,230
    
    
    
    9,584Selling, general and administrative (3)
    
    
    14,496
    
    
    
    13,677
    
    
    
    28,638
    
    
    
    26,480Depreciation
    
    
    7,973
    
    
    
    7,423
    
    
    
    15,839
    
    
    
    14,848Total operating expense
    
    
    37,485
    
    
    
    34,569
    
    
    
    73,782
    
    
    
    68,202Operating income
    
    
    3,548
    
    
    
    6,180
    
    
    
    8,648
    
    
    
    13,111Other income (expense):Equity in income of unconsolidated companies, net
    
    
    1,305
    
    
    
    1,338
    
    
    
    2,548
    
    
    
    2,729Interest, dividend income and gain on sales of
investments
    
    
    1,529
    
    
    
    495
    
    
    
    1,677
    
    
    
    750Impairment of investments
    
    
    (111
    )
    
    
    (21
    )
    
    
    (529
    )
    
    
    (40
    )Interest expense
    
    
    (1,165
    )
    
    
    (1,234
    )
    
    
    (2,301
    )
    
    
    (2,582
    )Other (expense)/income
    
    
    (191
    )
    
    
    214
    
    
    
    (230
    )
    
    
    130Total other income
    
    
    1,367
    
    
    
    792
    
    
    
    1,165
    
    
    
    987Income before income taxes
    
    
    4,915
    
    
    
    6,972
    
    
    
    9,813
    
    
    
    14,098Income taxes
    
    
    1,962
    
    
    
    2,807
    
    
    
    3,871
    
    
    
    5,694Net income
    
    
    2,953
    
    
    
    4,165
    
    
    
    5,942
    
    
    
    8,404Dividends on preferred stock
    
    
    5
    
    
    
    5
    
    
    
    10
    
    
    
    10Net income for common stock
    
    $
    2,948
    
    
    $
    4,160
    
    
    $
    5,932
    
    
    $
    8,394Earnings per common share:Basic
    
    $
    0.16
    
    
    $
    0.22
    
    
    $
    0.32
    
    
    $
    0.45Diluted
    
    
    0.15
    
    
    
    0.22
    
    
    
    0.31
    
    
    
    0.44Basic weighted average shares outstanding
    
    
    18,842
    
    
    
    18,876
    
    
    
    18,822
    
    
    
    18,855Diluted weighted average shares outstanding
    
    
    19,090
    
    
    
    19,051
    
    
    
    19,035
    
    
    
    18,999
 
 (1)
    
    Excludes depreciation expense of $5.9 million and $5.3 million
for the three months ended June 30, 2005 and June 30, 2004, respectively,
and $11.7 million and $10.6 million for the six months ended June 30, 2005
and June 30, 2004, respectively.(2)
    
    Excludes depreciation expense of $1.0 million and $0.8 million
for the three months ended June 30, 2005 and June 30, 2004, respectively,
and $1.9 million and $1.6 million for the six months ended June 30, 2005 and
June 30, 2004, respectively.(3)
    
    Excludes depreciation expense of $1.1 million and $1.3 million
for the three months ended June 30, 2005 and June 30, 2004, respectively,
and $2.2 million and $2.6 million for the six months ended June 30, 2005 and
June 30, 2004, respectively.  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 30,2005
    
    2004
    
    2005
    
    2004Net income
    
    $
    2,953
    
    
    $
    4,165
    
    
    $
    5,942
    
    
    $
    8,404Other comprehensive income (loss), net of income tax:Unrealized holding gains (losses) on available-for-sale
securities
    
    
    68
    
    
    
    (315
    )
    
    
    (18
    )
    
    
    (608
    )Reclassification adjustment for losses (gains) realized
in net income
    
    
    (3
    )
    
    
    (198
    )
    
    
    46
    
    
    
    (188
    )Comprehensive income, net of income tax
    
    $
    3,018
    
    
    $
    3,652
    
    
    $
    5,970
    
    
    $
    7,608
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows (Unaudited)
  Six Months Ended June 30,2005
    
    2004Cash flows from operating activities:Net income
    
    $
    5,942
    
    
    $
    8,404Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation
    
    
    15,839
    
    
    
    14,848Amortization of restricted stock
    
    
    396
    
    
    
    423Loss on retirement of equipment
    
    
    185
    
    
    
    Post-retirement benefits
    
    
    (195
    )
    
    
    (154
    )Gain on sale of investment
    
    
    (1,127
    )
    
    
    (Gain) loss on sale of investment securities
    
    
    72
    
    
    
    (294
    )Impairment of investments
    
    
    529
    
    
    
    40Equity in income of unconsolidated companies, net
    
    
    (2,548
    )
    
    
    (2,729
    )Undistributed patronage dividends
    
    
    (161
    )
    
    
    (183
    )Deferred income taxes and tax credits
    
    
    (747
    )
    
    
    2,909Changes in operating assets and liabilities
    
    
    (2,939
    )
    
    
    353Net cash provided by operating activities
    
    
    15,246
    
    
    
    23,617Cash flows from investing activities:Capital expenditures
    
    
    (14,348
    )
    
    
    (9,764
    )Proceeds from sale of land
    
    
    1,896
    
    
    
    Proceeds from sale of investment
    
    
    1,127
    
    
    
    Purchases of investments
    
    
    (149
    )
    
    
    (241
    )Proceeds from sale of investment securities
    
    
    158
    
    
    
    943Partnership capital distribution
    
    
    1,470
    
    
    
    917Net cash used in investing activities
    
    
    (9,846
    )
    
    
    (8,145
    )Cash flows from financing activities:Repayment of long-term debt
    
    
    (7,500
    )
    
    
    (5,000
    )Dividends paid
    
    
    (3,232
    )
    
    
    (2,462
    )Repurchase of common stock
    
    
    (1,648
    )
    
    
    Proceeds from common stock issuances
    
    
    119
    
    
    
    105Net cash used in financing activities
    
    
    (12,261
    )
    
    
    (7,357
    )Net cash used in discontinued operations
    
    
    (240
    )
    
    
    (275
    )Net increase (decrease) in cash and cash equivalents
    
    
    (7,101
    )
    
    
    7,840Cash and cash equivalents at beginning of period
    
    
    28,358
    
    
    
    16,957Cash and cash equivalents at end of period
    
    $
    21,257
    
    
    $
    24,797
  
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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 June 30, 2005 and December 31, 2004, the results of its operations for the three
and six months ended June 30, 2005 and June 30, 2004 and its cash flows for the six
months ended June 30, 2005 and June 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, 2004.2.
    
    The results of operations for the six months ended June 30, 2005 and 2004 are not
necessarily indicative of the results to be expected for the full year.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 options 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.The Company applies APB Opinion No. 25 and related Interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for its fixed stock
option plans and its stock purchase plan. Had compensation cost for the Companys
stock-based compensation plans been determined consistent with SFAS No. 123, the
Companys net income and earnings per share would have been reduced to the pro forma
amounts indicated below (in thousands except per share data):
 Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income, as reported
    
    $
    2,953
    
    
    $
    4,165
    
    
    $
    5,942
    
    
    $
    8,404Additional 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
    
    
    255
    
    
    
    272
    
    
    
    510
    
    
    
    543Pro forma net income
    
    $
    2,698
    
    
    $
    3,893
    
    
    $
    5,432
    
    
    $
    7,861Basic earnings per common shareAs reported
    
    $
    0.16
    
    
    $
    0.22
    
    
    $
    0.32
    
    
    $
    0.45Pro forma
    
    
    0.14
    
    
    
    0.21
    
    
    
    0.29
    
    
    
    0.42Diluted earnings per common shareAs reported
    
    $
    0.15
    
    
    $
    0.22
    
    
    $
    0.31
    
    
    $
    0.44Pro forma
    
    
    0.14
    
    
    
    0.20
    
    
    
    0.29
    
    
    
    0.41
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##### Table of Contents



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 4.
    
    PROPERTY AND EQUIPMENTProperty and equipment is composed of the following (in thousands):
 June 30,
    
    December 31,2005
    
    2004Land, buildings and general equipment
    
    $
    89,944
    
    
    $
    91,705Central office equipment
    
    
    182,855
    
    
    
    177,455Poles, wires, cables and conduit
    
    
    157,853
    
    
    
    155,049Construction in progress
    
    
    10,025
    
    
    
    5,559440,677
    
    
    
    429,768Accumulated depreciation
    
    
    (236,300
    )
    
    
    (222,696
    )Property and equipment, net
    
    $
    204,377
    
    
    $
    207,072
 In June 2005, the Company sold land for $1.9 million, which approximated book value.During the three months ended June 30, 2005, the Company retired equipment primarily
consisting of central office equipment with cost and depreciated value of $2.1 million
and $0.2 million, respectively, and recognized a loss on the retirement of $0.2
million.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 June 30, 2005 and December 31, 2004 consist of the following
(in thousands):
 June 30,
    
    December 31,2005
    
    2004Liabilities of discontinued operations:Lease obligations
    
    $
    364
    
    
    $
    604Total liabilities of discontinued operations
    
    $
    364
    
    
    $
    604
  Balance at December 31, 2004
    
    $
    604Lease termination costs
    
    
    (240
    )Balance at June 30, 2005
    
    $
    364
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 6.
    
    COMMON STOCKThe following is a summary of Common Stock transactions during the six months ended
June 30, 2005 (in thousands):
 Shares
    
    AmountOutstanding at December 31, 2004
    
    
    18,884
    
    
    $
    42,222Purchase/forfeitures of Common
Stock
    
    
    (161
    )
    
    
    (2,045
    )Issuance of Common Stock
    
    
    159
    
    
    
    1,825Outstanding at June 30, 2005
    
    
    18,882
    
    
    $
    42,002
    Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Basic weighted average shares
outstanding
    
    
    18,842
    
    
    
    18,876
    
    
    
    18,822
    
    
    
    18,855Effect of dilutive stock options and
non-vested restricted stock
    
    
    248
    
    
    
    175
    
    
    
    213
    
    
    
    144Total weighted average diluted shares
outstanding
    
    
    19,090
    
    
    
    19,051
    
    
    
    19,035
    
    
    
    18,999
   8




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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 7.
    
    INVESTMENT SECURITIESThe amortized cost, gross unrealized holding gains and losses and fair value for the
Companys investments at June 30, 2005 and
December 31, 2004 are as follows (in
thousands):
 Gross
    
    GrossUnrealized
    
    UnrealizedEquity Securities
    
    Amortized
    
    Holding
    
    HoldingAvailable-for-Sale
    
    Cost
    
    Gains
    
    Losses
    
    Fair ValueJune 30, 2005
    
    $
    4,345
    
    
    $
    411
    
    
    $
    (32
    )
    
    $
    4,724December 31, 2004
    
    $
    4,855
    
    
    $
    384
    
    
    $
    (49
    )
    
    $
    5,190
   12 months or more
    
    TotalDescription of
    
    Fair
    
    Unrealized
    
    Fair
    
    UnrealizedSecurities
    
    Value
    
    Losses
    
    Value
    
    LossesCommon stock
    
    $
    106
    
    
    $
    32
    
    
    $
    106
    
    
    $
    32Total temporarily
impaired securities
    
    $
    106
    
    
    $
    32
    
    
    $
    106
    
    
    $
    32
 The fair value and unrealized losses noted above relate to two different investments.
The Company will continue to evaluate these investments on a quarterly basis to
determine if the unrealized loss is other-than-temporarily impaired, at which time the
impairment loss would be 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.
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 9.
    
    INVESTMENTS IN UNCONSOLIDATED COMPANIESInvestments in unconsolidated companies consist of the following (in thousands):
 June 30,
    
    December 31,2005
    
    2004Equity Method:Palmetto MobileNet, L.P.
    
    $
    12,082
    
    
    $
    10,933Other
    
    
    37
    
    
    
    40Cost Method:Magnolia Holding Company
    
    
    1,587
    
    
    
    1,680PRE Holdings, Inc (formerly ITC
Financial Services,
LLC)
    
    
    2,100
    
    
    
    2,100Other
    
    
    1,242
    
    
    
    1,249Total
    
    $
    17,048
    
    
    $
    16,002
    Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Equity in earnings
of RSA partnership
interests
    
    $
    6,105
    
    
    $
    6,388
    
    
    $
    11,728
    
    
    $
    11,948Other expenses
    
    
    253
    
    
    
    26
    
    
    
    336
    
    
    
    62Net income
    
    $
    5,852
    
    
    $
    6,362
    
    
    $
    11,392
    
    
    $
    11,886
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 10.
    
    LONG-TERM DEBTLong-term debt consists of the following (in thousands):
 June 30,
    
    December 31,2005
    
    2004Line of credit with interest at LIBOR
plus 1.25% (4.50% at June 30, 2005 and
3.50% at December 31, 2004)
    
    $
    15,000
    
    
    $
    20,000Term loan with interest at 7.32%
    
    
    47,500
    
    
    
    50,00062,500
    
    
    
    70,000Less: Current portion of long-term debt
    
    
    20,000
    
    
    
    5,000Total long-term debt
    
    $
    42,500
    
    
    $
    65,000
 At June 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 at June 30, 2005 was 4.50%. The credit
facility provides for quarterly payments of interest until maturity on March 31, 2006.
As of June 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 $47.5 million was outstanding at June 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 June 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 June 30, 2005 was $(0.1) million.
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 June 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 lives of
its wireless licenses. Therefore, based on the determination that these assets have
indefinite lives, the Company does not amortize wireless licenses. In accordance with
SFAS No. 142, the Company periodically reviews its determination of indefinite useful
lives for wireless licenses and will test those licenses for impairment at least
annually.As described in the Companys Current Report on Form 8-K
filed with the United States 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 Education Broadband Service
(EBS), Broadband Radio Service (BRS), and related rights, have 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 2005. 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,
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 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 June
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.At June 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.
The Company continues to dispute the USAC payment adjustment and has filed a formal
protest letter with the IRS Appeals Office. As of June 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 or held-to-maturity under Statement No. 115
(including individual securities and investments in mutual funds), and investments
accounted for under the cost method or the equity method. EITF Issue No. 03-1
requires additional disclosures for investments accounted for under SFAS No. 115 and
No. 124 effective for fiscal years ended after December 15, 2003. In September 2004,
EITF issued No. 03-1-1 that delayed the effective date for the measurement and
recognition guidance contained in paragraphs 10-20 of Issue No. 03-1. The adoption
of this consensus is not expected to have a material impact on the Companys current
policies.In May 2004, the FASB issued Staff Position (FSP) 106-2, providing final guidance on
accounting for the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the 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
the Company has not yet concluded whether the benefits provided by the plan are
actuarially equivalent to Medicare Part D under the Act.In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment,
revising SFAS No. 123, Accounting for Stock-Based
Compensation and superceding APB
Opinion No. 25, Accounting for Stock Issued to Employees. This statement requires a
public entity to measure the cost of services provided by employees and directors
received in exchange for an award of equity instruments, including stock options, at a
grant-date fair value. The fair value cost is then recognized over the period that
services are provided.
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 In April 2005, the staff of the SEC issued Staff Accounting Bulletin No. 107 (SAB
107) to provide additional guidance regarding the application of SFAS No. 123
(Revised 2004). SAB 107 permits registrants to choose an appropriate valuation
technique or model to estimate the fair value of share options, assuming consistent
application, and provides guidance for the development of assumptions used in the
valuation process. Additionally, SAB 107 discusses disclosures to be made under
Managements Discussion and Analysis of Financial Condition and Results of
Operations in registrants periodic reports. Based upon SEC rules issued in April
2005, SFAS No. 123 (Revised 2004) is effective for fiscal years that begin after June
15, 2005 and will be adopted by the Company in the first quarter of 2006.15.
    
    PENSION AND POST-RETIREMENT PLANSComponents of net periodic benefit cost for the three months ended June 30 (in
thousands):
 Pension Benefits
    
    Post-Retirement Benefits2005
    
    2004
    
    2005
    
    2004Service cost
    
    $
    561
    
    
    $
    503
    
    
    $
    10
    
    
    $
    17Interest cost
    
    
    681
    
    
    
    655
    
    
    
    114
    
    
    
    123Expected return on plan assets
    
    
    (900
    )
    
    
    (842
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    1
    
    
    
    1
    
    
    
    (176
    )
    
    
    (7
    )Amortization of gain
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    (39
    )Net periodic benefit cost
    
    $
    343
    
    
    $
    317
    
    
    $
    (81
    )
    
    $
    94
  Pension Benefits
    
    Post-Retirement Benefits2005
    
    2004
    
    2005
    
    2004Service cost
    
    $
    1,122
    
    
    $
    1,006
    
    
    $
    29
    
    
    $
    34Interest cost
    
    
    1,362
    
    
    
    1,310
    
    
    
    239
    
    
    
    247Expected return on plan assets
    
    
    (1,800
    )
    
    
    (1,684
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    2
    
    
    
    2
    
    
    
    (172
    )
    
    
    (15
    )Amortization of gain
    
    
    
    
    
    
    
    
    
    
    (58
    )
    
    
    (78
    )Net periodic benefit cost
    
    $
    686
    
    
    $
    634
    
    
    $
    38
    
    
    $
    188
 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 three months ended June 30, 2005
reflect adjustments resulting from post-retirement benefit plan changes to be
effective January 1, 2006.In December 2003, the Act was signed into law. The 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 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 the Company has not yet concluded whether the benefits provided
by the plan are actuarially equivalent to Medicare Part D under the Act.
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CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 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 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, investments and operations of
the Company that do not meet reporting guidelines and thresholds are reported under
Other.Accounting policies of the segments are the same as those described in the summary of
significant accounting policies included in the Companys Annual Report on Form 10-K/A
(Amendment No. 1) for the year ended December 31, 2004. The Company evaluates
performance based on operating income. Intersegment transactions have been eliminated
for purposes of calculating operating income. All segments reported below, except
Palmetto, provide services primarily within North Carolina. Palmetto provides
services in North Carolina and South Carolina. Selected data by business segment as
of, and for the three and six months ended June 30, 2005 and 2004, are as follows (in
thousands):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
    )
    
    $
    3,548Segment assets
    
    $
    166,412
    
    
    $
    33,768
    
    
    $
    12,899
    
    
    $
    28,658
    
    
    $
    13,433
    
    
    $
    64,726
    
    
    $
    319,896
 Three months ended June 30, 2004
 ILEC
    
    Wireless
    
    CLEC
    
    Greenfield
    
    IDS
    
    Other
    
    TotalExternal
revenue
    
    $
    22,906
    
    
    $
    8,247
    
    
    $
    4,951
    
    
    $
    1,885
    
    
    $
    2,760
    
    
    $
    
    
    
    $
    40,749External
expense
    
    
    11,541
    
    
    
    6,552
    
    
    
    4,482
    
    
    
    2,140
    
    
    
    2,182
    
    
    
    249
    
    
    
    27,146Depreciation
    
    
    4,958
    
    
    
    479
    
    
    
    624
    
    
    
    745
    
    
    
    283
    
    
    
    334
    
    
    
    7,423Operating
income (loss)
    
    $
    6,407
    
    
    $
    1,216
    
    
    $
    (155
    )
    
    $
    (1,000
    )
    
    $
    295
    
    
    $
    (583
    )
    
    $
    6,180Segment assets
    
    $
    171,675
    
    
    $
    30,421
    
    
    $
    15,610
    
    
    $
    25,192
    
    
    $
    15,127
    
    
    $
    66,323
    
    
    $
    324,348
 14




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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
 Six months ended June 30, 2004
 ILEC
    
    Wireless
    
    CLEC
    
    Greenfield
    
    IDS
    
    Other
    
    TotalExternal
revenue
    
    $
    46,605
    
    
    $
    15,369
    
    
    $
    9,989
    
    
    $
    3,830
    
    
    $
    5,520
    
    
    $
    
    
    
    $
    81,313External
expense
    
    
    22,282
    
    
    
    12,858
    
    
    
    8,871
    
    
    
    4,359
    
    
    
    4,518
    
    
    
    466
    
    
    
    53,354Depreciation
    
    
    9,672
    
    
    
    948
    
    
    
    1,259
    
    
    
    1,465
    
    
    
    799
    
    
    
    705
    
    
    
    14,848Operating
income (loss)
    
    $
    14,651
    
    
    $
    1,563
    
    
    $
    (141
    )
    
    $
    (1,994
    )
    
    $
    203
    
    
    $
    (1,171
    )
    
    $
    13,111Segment assets
    
    $
    171,675
    
    
    $
    30,421
    
    
    $
    15,610
    
    
    $
    25,192
    
    
    $
    15,127
    
    
    $
    66,323
    
    
    $
    324,348
 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 $10.7
million as of June 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 June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Segment operating income
    
    $
    3,548
    
    
    $
    6,180
    
    
    $
    8,648
    
    
    $
    13,111Total other income
    
    
    1,367
    
    
    
    792
    
    
    
    1,165
    
    
    
    987Income before income taxes
    
    $
    4,915
    
    
    $
    6,972
    
    
    $
    9,813
    
    
    $
    14,098
 15




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Introduction
      Industry and Operating Trends
     16




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Results of Operations
   Consolidated Operating Results
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Total operating revenue
    
    $
    41,033
    
    
    $
    40,749
    
    
    $
    82,430
    
    
    $
    81,313Total operating expense
    
    
    37,485
    
    
    
    34,569
    
    
    
    73,782
    
    
    
    68,202Operating income
    
    $
    3,548
    
    
    $
    6,180
    
    
    $
    8,648
    
    
    $
    13,111Depreciation
    
    $
    7,973
    
    
    $
    7,423
    
    
    $
    15,839
    
    
    $
    14,848Capital expenditures
    
    
    6,590
    
    
    
    5,851
    
    
    
    14,348
    
    
    
    9,764Total assets
    
    
    
    
    
    
    
    
    
    
    319,896
    
    
    
    324,348Wired access lines
    
    
    
    
    
    
    
    
    
    
    157,275
    
    
    
    156,627Wireless subscribers
    
    
    
    
    
    
    
    
    
    
    44,723
    
    
    
    40,358
 Three months ended June 30
  19




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##### Table of Contents



Six months ended June 30
    ILEC
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Total operating revenue
    
    $
    21,996
    
    
    $
    22,906
    
    
    $
    44,675
    
    
    $
    46,605Total operating expense
    
    
    17,894
    
    
    
    16,499
    
    
    
    35,155
    
    
    
    31,954Operating income
    
    $
    4,102
    
    
    $
    6,407
    
    
    $
    9,520
    
    
    $
    14,651Depreciation
    
    $
    5,129
    
    
    $
    4,958
    
    
    $
    10,238
    
    
    $
    9,672Capital expenditures
    
    
    3,748
    
    
    
    3,564
    
    
    
    8,207
    
    
    
    5,552Total assets
    
    
    
    
    
    
    
    
    
    
    166,412
    
    
    
    171,675Business access lines
    
    
    
    
    
    
    
    
    
    
    28,560
    
    
    
    29,068Residential access lines
    
    
    
    
    
    
    
    
    
    
    83,207
    
    
    
    85,394Total access lines
    
    
    
    
    
    
    
    
    
    
    111,767
    
    
    
    114,462Long distance lines
    
    
    
    
    
    
    
    
    
    
    84,774
    
    
    
    84,763
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Three months ended June 30
    Six months ended June 30
      21




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.
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CLEC
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Total operating revenue
    
    $
    4,721
    
    
    $
    4,951
    
    
    $
    9,856
    
    
    $
    9,989Total operating expense
    
    
    4,992
    
    
    
    5,106
    
    
    
    10,243
    
    
    
    10,130Operating loss
    
    $
    (271
    )
    
    $
    (155
    )
    
    $
    (387
    )
    
    $
    (141
    )Depreciation
    
    $
    634
    
    
    $
    624
    
    
    $
    1,263
    
    
    $
    1,259Capital expenditures
    
    
    437
    
    
    
    185
    
    
    
    660
    
    
    
    396Total assets
    
    
    
    
    
    
    
    
    
    
    12,899
    
    
    
    15,610Access lines
    
    
    
    
    
    
    
    
    
    
    31,644
    
    
    
    30,686Long distance lines
    
    
    
    
    
    
    
    
    
    
    24,739
    
    
    
    22,171
 Three months ended June 30
   Six months ended June 30
     23




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Greenfield
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Total operating revenue
    
    $
    2,427
    
    
    $
    1,885
    
    
    $
    4,718
    
    
    $
    3,830Total operating expense
    
    
    3,014
    
    
    
    2,885
    
    
    
    5,977
    
    
    
    5,824Operating loss
    
    $
    (587
    )
    
    $
    (1,000
    )
    
    $
    (1,259
    )
    
    $
    (1,994
    )Depreciation
    
    $
    840
    
    
    $
    745
    
    
    $
    1,650
    
    
    $
    1,465Capital expenditures
    
    
    1,655
    
    
    
    1,198
    
    
    
    3,003
    
    
    
    1,940Total assets
    
    
    
    
    
    
    
    
    
    
    28,658
    
    
    
    25,192Access lines
    
    
    
    
    
    
    
    
    
    
    13,864
    
    
    
    11,479Long distance lines
    
    
    
    
    
    
    
    
    
    
    7,631
    
    
    
    5,655Preferred provider agreements
    
    
    
    
    
    
    
    
    
    
    111
    
    
    
    99
   24




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##### Table of Contents



Lines in
    
    Potential
    
    TotalGreenfield Projects
    
    Service
    
    Lines
    
    ProjectsBy Year SignedPrevious Years
    
    
    9,220
    
    
    
    27,002
    
    
    
    512002
    
    
    3,532
    
    
    
    12,694
    
    
    
    242003
    
    
    790
    
    
    
    4,846
    
    
    
    182004
    
    
    302
    
    
    
    3,864
    
    
    
    122005
    
    
    20
    
    
    
    1,417
    
    
    
    6Total
    
    
    13,864
    
    
    
    49,823
    
    
    
    111
 Three months ended June 30
    Six months ended June 30
    25




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Wireless
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Total operating revenue
    
    $
    8,963
    
    
    $
    8,247
    
    
    $
    17,455
    
    
    $
    15,369Total operating expense
    
    
    8,554
    
    
    
    7,031
    
    
    
    16,241
    
    
    
    13,806Operating income
    
    $
    409
    
    
    $
    1,216
    
    
    $
    1,214
    
    
    $
    1,563Depreciation
    
    $
    576
    
    
    $
    479
    
    
    $
    1,080
    
    
    $
    948Capital expenditures
    
    
    374
    
    
    
    236
    
    
    
    1,467
    
    
    
    618Total assets
    
    
    
    
    
    
    
    
    
    
    33,768
    
    
    
    30,421Wireless subscribers
    
    
    
    
    
    
    
    
    
    
    44,723
    
    
    
    40,358
 Three months ended June 30
  26




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Six months ended June 30
    Internet and Data Services (IDS)
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Total operating revenue
    
    $
    2,926
    
    
    $
    2,760
    
    
    $
    5,726
    
    
    $
    5,520Total operating expense
    
    
    2,511
    
    
    
    2,465
    
    
    
    5,114
    
    
    
    5,317Operating income
    
    $
    415
    
    
    $
    295
    
    
    $
    612
    
    
    $
    203Depreciation
    
    $
    455
    
    
    $
    283
    
    
    $
    934
    
    
    $
    799Capital expenditures
    
    
    170
    
    
    
    379
    
    
    
    598
    
    
    
    676Total assets
    
    
    
    
    
    
    
    
    
    
    13,433
    
    
    
    15,127DSL lines
    
    
    
    
    
    
    
    
    
    
    16,334
    
    
    
    11,582Dial-up accounts
    
    
    
    
    
    
    
    
    
    
    7,774
    
    
    
    10,038High-speed accounts
    
    
    
    
    
    
    
    
    
    
    632
    
    
    
    577
 27




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Three months ended June 30
    Six months ended June 30
    Other
 Three months ended June 30,
    
    Six months ended June 30,2005
    
    2004
    
    2005
    
    2004Total operating expense
    
    $
    520
    
    
    $
    583
    
    
    $
    1,052
    
    
    $
    1,171Operating loss
    
    $
    (520
    )
    
    $
    (583
    )
    
    $
    (1,052
    )
    
    $
    (1,171
    )Depreciation
    
    $
    339
    
    
    $
    334
    
    
    $
    674
    
    
    $
    705Capital expenditures
    
    
    206
    
    
    
    289
    
    
    
    413
    
    
    
    582Total assets
    
    
    
    
    
    
    
    
    
    
    64,726
    
    
    
    66,323
 Three months ended June 30
  28




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Six months ended June 30
  Other Income (expense)
 Three months ended June 30
  Six months ended June 30
  Liquidity and Capital Resources
      29




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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
    
    
    47,500
    
    
    
    5,000
    
    
    
    15,000
    
    
    
    10,000
    
    
    
    17,500Variable interest payments
    
    
    506
    
    
    
    506
    
    
    
    
    
    
    
    
    
    
    
    Fixed interest payments
    
    
    16,951
    
    
    
    3,340
    
    
    
    7,823
    
    
    
    3,386
    
    
    
    2,402Operating leases
    
    
    14,850
    
    
    
    2,662
    
    
    
    5,926
    
    
    
    3,973
    
    
    
    2,289Capital leases
    
    
    797
    
    
    
    455
    
    
    
    342
    
    
    
    
    
    
    
    $
    95,604
    
    
    $
    26,963
    
    
    $
    29,091
    
    
    $
    17,359
    
    
    $
    22,191
  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 our 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.
  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
 30




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##### Table of Contents



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
  31




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Total Number
    
    MaximumTotal Number
    
    
    
    
    
    of Shares
    
    Number ofThree Months
    
    of
    
    
    
    
    
    Purchased as
    
    Shares thatEnded
    
    Shares
    
    Average Price
    
    Part of Publicly
    
    May Yet BeJune 30, 2005
    
    Purchased
    
    Paid per Share
    
    Announced
    

PurchasedApril 1  April 30,
2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    May 1  May 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1  June 30,
2005
    
    
    126,628
    
    
    $
    12.94
    
    
    
    
    
    
    
    Total
    
    
    126,628
    
    
    $
    12.94
    
    
    
    
    
    
    
    
   
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
    Three Directors for a three-year term expiring in 2008
 Votes
    
    VotesFor
    
    WithheldO. Charlie Chewning, Jr.
    
    
    14,713,715
    
    
    
    291,130Michael R. Coltrane
    
    
    14,732,145
    
    
    
    272,700Linda M. Farthing
    
    
    14,855,105
    
    
    
    149,740
  32




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##### Table of Contents



(2)
    
    To ratify the appointment of KPMG LLP as independent public accountants of the
Company for the 2005 fiscal year.
 Votes
    
    Votes
    
    
    
    
    
    BrokerFor
    
    Against
    
    Abstentions
    
    Non-Votes13,891,012
    
    
    307,825
    
    
    
    806,008
    
    
    
    
 
 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.
 33




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##### Table of Contents



CT COMMUNICATIONS, INC.(Registrant)/s/ Ronald A. MarinoRonald A. MarinoVice President Finance andChief Accounting OfficerAugust 4, 2005Date
  34




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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.
 35