##### 



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 March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 0-19179
 CT COMMUNICATIONS, INC.
  NORTH CAROLINA
    
    56-1837282(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)1000 Progress Place NEP.O. Box 227, Concord, NC
    
    28026-0227(Address of principal executive offices)
    
    (Zip Code)
 
 
 þ o
  o þ o
 o þ




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 INDEX
 Page No.PART I. Financial InformationItem 1. Financial StatementsCondensed Consolidated Balance SheetsMarch 31, 2007 (Unaudited) and December 31, 2006
    
    
    2Condensed Consolidated Statements of Income (Unaudited)Three months Ended March 31, 2007 and 2006
    
    
    3Condensed Consolidated Statements of Comprehensive Income (Unaudited)Three months Ended March 31, 2007 and 2006
    
    
    4Condensed Consolidated Statements of Stockholders Equity (Unaudited)Three months Ended March 31, 2007 and 2006
    
    
    5Condensed Consolidated Statements of Cash Flows (Unaudited)Three months Ended March 31, 2007 and 2006
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    29Item 4. Controls and Procedures
    
    
    30PART II. Other InformationItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3. Defaults Upon Senior Securities
    
    
    31Item 4. Submission of Matters to a Vote of Security Holders
    
    
    31Item 5. Other Information
    
    
    31Item 6. Exhibits
    
    
    31Signatures
    
    
    32Exhibit Index
    
    
    33
 1




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##### 



Part I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
 CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 (Unaudited)March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,662
    
    
    $
    14,063Marketable securities
    
    
    3,915
    
    
    
    Short-term investments
    
    
    82,467
    
    
    
    86,741Accounts receivable and unbilled revenue, net
    
    
    15,644
    
    
    
    16,419Other
    
    
    11,012
    
    
    
    11,775Total current assets
    
    
    126,700
    
    
    
    128,998Investments
    
    
    7,589
    
    
    
    10,960Property and equipment, net
    
    
    212,483
    
    
    
    209,908Goodwill
    
    
    9,906
    
    
    
    9,906Other intangibles, net
    
    
    19,989
    
    
    
    19,989Other assets
    
    
    8,033
    
    
    
    7,597Total assets
    
    $
    384,700
    
    
    $
    387,358LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    5,000
    
    
    $
    5,000Accounts payable
    
    
    9,083
    
    
    
    12,553Accrued payroll
    
    
    4,073
    
    
    
    8,636Customer deposits and advance billings
    
    
    4,884
    
    
    
    4,618Accrued pension and postretirement benefit cost
    
    
    3,159
    
    
    
    2,391Other accrued liabilities
    
    
    3,292
    
    
    
    1,687Total current liabilities
    
    
    29,491
    
    
    
    34,885Long-term debt
    
    
    33,750
    
    
    
    35,000Deferred income taxes
    
    
    19,029
    
    
    
    23,060Postretirement and pension benefits
    
    
    8,234
    
    
    
    8,499Other
    
    
    11,703
    
    
    
    6,536Total liabilities
    
    
    102,207
    
    
    
    107,980Stockholders equity:Common stock, 20,261,952 and 20,035,823 shares outstanding
at March 31, 2007 and December 31, 2006, respectively
    
    
    60,834
    
    
    
    59,132Accumulated other comprehensive income
    
    
    4,559
    
    
    
    4,276Retained earnings
    
    
    217,100
    
    
    
    215,970Total stockholders equity
    
    
    282,493
    
    
    
    279,378Total liabilities and stockholders equity
    
    $
    384,700
    
    
    $
    387,358
  2




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006(1)Operating revenue:Wireline
    
    $
    35,651
    
    
    $
    33,938Wireless
    
    
    9,761
    
    
    
    9,157Total operating revenue
    
    
    45,412
    
    
    
    43,095Operating expense:Wireline cost of service (excludes depreciation of $6,522,
and $6,532, respectively)
    
    
    9,745
    
    
    
    9,815Wireless cost of service (excludes depreciation of
$688 and $630, respectively)
    
    
    5,537
    
    
    
    5,170Selling, general and administrative (excludes depreciation of
$698 and $958, respectively)
    
    
    16,099
    
    
    
    14,915Depreciation
    
    
    7,908
    
    
    
    8,120Total operating expense
    
    
    39,289
    
    
    
    38,020Operating income
    
    
    6,123
    
    
    
    5,075Other income (expense):Equity in income of unconsolidated companies, net
    
    
    11
    
    
    
    89,840Interest, dividend income and gain on sale of investments
    
    
    1,351
    
    
    
    813Impairment of investments
    
    
    
    
    
    
    (876
    )Interest expense
    
    
    (589
    )
    
    
    (1,024
    )Other expense
    
    
    (64
    )
    
    
    (10
    )Total other income
    
    
    709
    
    
    
    88,743Income before income taxes
    
    
    6,832
    
    
    
    93,818Income taxes
    
    
    2,206
    
    
    
    36,452Net income
    
    $
    4,626
    
    
    $
    57,366Earnings per common share:Basic
    
    $
    0.23
    
    
    $
    3.04Diluted
    
    $
    0.23
    
    
    
    2.99Basic weighted-average shares outstanding
    
    
    19,960
    
    
    
    18,901Diluted weighted-average shares outstanding
    
    
    20,137
    
    
    
    19,187
 
 (1)
    
    Adjusted for the effect of
SAB No. 108 items  See Note 2.  3




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006(1)Net income
    
    $
    4,626
    
    
    $
    57,366Other comprehensive income (loss), net of tax:Unrealized holding gains (losses) on available-for
sale securities
    
    
    296
    
    
    
    (5
    )Reclassification adjustment for gains realized in
net income
    
    
    
    
    
    
    (11
    )Amortization of prior service cost and net actuarial
gains
    
    
    (13
    )
    
    
    Comprehensive income
    
    $
    4,909
    
    
    $
    57,350
 
 (1)
    
    Adjusted for the effect of
SAB No. 108 items  See Note 2.  4




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders Equity (Unaudited)
 Accum. Other
    
    
    
    
    
    
    Total4.5% Series
    
    
    Common
    
    
    Unearned
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersPref Stock
    
    
    Stock
    
    
    Compensation
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance at December 31, 2005
    
    $
    61
    
    
    $
    42,946
    
    
    $
    (307
    )
    
    $
    282
    
    
    $
    152,898
    
    
    $
    195,880SAB 108 transition cumulative
effect adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (350
    )
    
    
    (350
    )Adj. balance at January 1, 2006
    
    $
    61
    
    
    $
    42,946
    
    
    $
    (307
    )
    
    $
    282
    
    
    $
    152,548
    
    
    $
    195,530Net Income (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    57,366
    
    
    
    57,366Issuance of 41,287 shares of
common stock
    
    
    
    
    
    
    564
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    564Issuance of 178,195 shares for
exercise of stock options
    
    
    
    
    
    
    1,878
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,878Forfeiture and cancellation of
48,810 common shares
    
    
    
    
    
    
    (632
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (632
    )Reversal of unamortized unearned
compensation balance
    
    
    
    
    
    
    (307
    )
    
    
    307
    
    
    
    
    
    
    
    
    
    
    
    Tax benefits from exercised
stock options
    
    
    
    
    
    
    227
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    227Dividends declared:Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,906
    )
    
    
    (1,906
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    
    
    
    
    (16
    )Restricted stock compensation
including $284 earned in 2006
    
    
    
    
    
    
    487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    487Balance at March 31, 2006
    
    $
    61
    
    
    $
    45,163
    
    
    $
    
    
    
    $
    266
    
    
    $
    208,008
    
    
    $
    253,498
 Accum. Other
    
    
    
    
    
    
    Total4.5% Series
    
    
    Common
    
    
    Unearned
    
    
    Comprehensive
    
    
    Retained
    
    
    StockholdersPref Stock
    
    
    Stock
    
    

Compensation
    
    
    Income
    
    
    Earnings
    
    
    EquityBalance at December 31, 2006
    
    $
    
    
    
    $
    59,132
    
    
    $
    
    
    
    $
    4,276
    
    
    $
    215,970
    
    
    $
    279,378FIN 48
transition cumulative effect
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,075
    )
    
    
    (1,075
    )Adj. balance at January 1, 2007
    
    $
    
    
    
    $
    59,132
    
    
    $
    
    
    
    $
    4,276
    
    
    $
    214,895
    
    
    $
    278,303Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,626
    
    
    
    4,626Issuance of 42,190 shares of
common stock
    
    
    
    
    
    
    1,005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,005Issuance of 7,880 shares for
exercise of stock options
    
    
    
    
    
    
    97
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    97Forfeiture and cancellation of
22,650 common shares
    
    
    
    
    
    
    (541
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (541
    )Tax benefits from exercised
stock options
    
    
    
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    279Dividends declared:Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,421
    )
    
    
    (2,421
    )Other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    283
    
    
    
    
    
    
    
    283Restricted stock compensation
including $244 earned in 2007
    
    
    
    
    
    
    862
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    862Balance at March 31, 2007
    
    $
    
    
    
    $
    60,834
    
    
    $
    
    
    
    $
    4,559
    
    
    $
    217,100
    
    
    $
    282,493
 
 (1)
    
    Adjusted for the effect of
SAB No. 108 items  See Note 2.  5




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Three Months Ended March 31,2007
    
    
    2006(1)Cash flows from operating activities:Net income
    
    $
    4,626
    
    
    $
    57,366Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation
    
    
    7,908
    
    
    
    8,120Stock compensation expense
    
    
    1,247
    
    
    
    664(Gain)/loss on retirement of equipment
    
    
    (73
    )
    
    
    4Postretirement and pension benefits
    
    
    483
    
    
    
    17Impairments on investments and fixed assets
    
    
    
    
    
    
    1,066Gain on sale of investment securities
    
    
    
    
    
    
    (193
    )Interest income on short-term investments
    
    
    585
    
    
    
    (45
    )Equity in income of unconsolidated companies
    
    
    (11
    )
    
    
    (89,840
    )Undistributed patronage dividends
    
    
    (50
    )
    
    
    (58
    )Deferred income taxes and tax credits
    
    
    (1,680
    )
    
    
    (3,146
    )Changes in operating assets and liabilities
    
    
    (3,526
    )
    
    
    32,928Net cash provided by operating activities
    
    
    9,509
    
    
    
    6,883Cash flows from investing activities:Capital expenditures
    
    
    (10,503
    )
    
    
    (6,987
    )Proceeds from sale of property, plant and equipment
    
    
    93
    
    
    
    32Proceeds from sale of investment securities
    
    
    55
    
    
    
    344Proceeds from sale of short-term investments
    
    
    20,460
    
    
    
    Purchases of short-term investments
    
    
    (16,771
    )
    
    
    (61,660
    )Purchases of investments
    
    
    
    
    
    
    (116
    )Payment for wireless spectrum
    
    
    
    
    
    
    (300
    )Distribution from unconsolidated companies
    
    
    
    
    
    
    97,457Net cash (used in) provided by investing activities
    
    
    (6,666
    )
    
    
    28,770Cash flows from financing activities:Repayment of long-term debt
    
    
    (1,250
    )
    
    
    (11,250
    )Dividends paid
    
    
    (2,421
    )
    
    
    (1,906
    )Tax benefits credited to additional paid-in-capital
    
    
    279
    
    
    
    227Proceeds from common stock issuances
    
    
    148
    
    
    
    913Net cash used in financing activities
    
    
    (3,244
    )
    
    
    (12,016
    )Net cash used in discontinued operations  operating activities
    
    
    
    
    
    
    (93
    )Net (decrease) increase in cash and cash equivalents
    
    
    (401
    )
    
    
    23,544Cash and cash equivalents at beginning of period
    
    
    14,063
    
    
    
    23,011Cash and cash equivalents at end of period
    
    $
    13,662
    
    
    $
    46,555Supplemental disclosure of non-cash financing activities:Common and nonvested shares issued under long-term incentive plans
    
    $
    1,572
    
    
    $
    714
 
 (1)
    
    Adjusted for the effect of
SAB No. 108 items  See Note 2.  6




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1.
    
    BASIS OF PRESENTATIONIn the opinion of the management of CT Communications, Inc. (the Company), the
accompanying unaudited financial statements contain all adjustments consisting of only
normal recurring adjustments necessary to present fairly the Companys financial
position as of March 31, 2007 and December 31, 2006 and the results of its operations
and cash flows for the three months ended March 31, 2007 and March 31, 2006. These
unaudited financial statements do not include all disclosures associated with the
Companys annual financial statements and should be read along with the Companys
Annual Report on Form 10-K for the year ended December 31, 2006. The preparation of
consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements, as well as the amounts
of income and expenses during the reporting period. Actual results could differ from
those estimates. In addition, the results of operations for the three months ended
March 31, 2007 are not necessarily indicative of the results to be expected for the
full year.
 2.
    
    RECLASSIFICATIONSIn certain instances, amounts previously reported in the 2006 consolidated financial
statements have been reclassified to conform to the presentation of the 2007
consolidated financial statements. Such reclassifications have no effect on net income
or retained earnings as previously reported, except for the adjustments discussed below
related to Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements.As discussed in Note 3 below, effective in the first quarter of 2007, the Company
reorganized the financial reporting of its operating segments into four operating
segments to show amounts previously reported as the Companys Internet operating
segment as a product within the other operating segments. Accordingly, prior period
segment information has been recast to conform to the current period presentation.
There was no impact on the consolidated financial statements.In September 2006, the Securities and Exchange Commission (SEC) issued SAB No. 108.
to eliminate the diversity of practice surrounding how public companies quantify
financial statement misstatements. The Company adopted SAB No. 108 on December 31, 2006
and recorded related adjustments using the cumulative effect transition method as of
January 1, 2006. The Company has recast its first quarter 2006 financial results to
reflect the first quarter 2006 impact of the SAB No. 108 items.3.
    
    SEGMENT INFORMATIONStatement of Financial Accounting Standards (SFAS) No. 131 Disclosures about
Segments of an Enterprise and Related Information, establishes standards for reporting
information about operating segments, which requires segmentation based on internal
organization and reporting of revenue and operating income based on internal accounting
methods. Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance.Historically, the Company has reported its results of operations in six separate
operating segments as defined by SFAS No. 131. These six segments were its incumbent
local exchange carrier (ILEC) segment, competitive local exchange carrier (CLEC)
segment, Wireless segment, Greenfield segment, Internet segment, and Palmetto
MobileNet, L.P. (Palmetto) segment.During 2006, the Company sold its investment in Palmetto and as a result will no longer
report results for that segment after December 31, 2006. During the first quarter of
2007, the Company launched its video product to trial customers located within the ILEC
service territory, and as a result the Company evaluated whether video should be
accounted for as a separate operating segment or as a product within the Companys
existing operating segments. This in turn led the Company to reassess how it manages
the business and its assumptions, methodologies and reporting classifications
associated with all of its reporting segments. In response to the increased focus on
integrated telecommunications bundled offerings and the addition of new product
offerings, the Company has restructured its financial reporting
processes to present revenues and expenses by defined customer groups. This method of presentation will
report revenues and expenses by customer relationship to aid in decision-making. As a result
of the restructuring of the Companys financial reporting process and the assessment
performed, the Company modified its segment reporting to
 7




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
   
 Three months ended March 31, 2007
 ILEC
    
    
    CLEC
    
    
    Greenfield
    
    
    Wireless
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    27,122
    
    
    $
    5,365
    
    
    $
    3,164
    
    
    $
    9,761
    
    
    $
    
    
    
    $
    45,412External expense
    
    
    15,569
    
    
    
    4,929
    
    
    
    2,363
    
    
    
    8,402
    
    
    
    118
    
    
    
    31,381Depreciation
    
    
    5,155
    
    
    
    721
    
    
    
    1,114
    
    
    
    693
    
    
    
    225
    
    
    
    7,908Operating income (loss)
    
    $
    6,398
    
    
    $
    (285
    )
    
    $
    (313
    )
    
    $
    666
    
    
    $
    (343
    )
    
    $
    6,123Segment assets
    
    $
    267,566
    
    
    $
    15,505
    
    
    $
    33,040
    
    
    $
    33,435
    
    
    $
    35,154
    
    
    $
    384,700
 Three months ended March 31, 2006 (1)
 ILEC
    
    
    CLEC
    
    
    Greenfield
    
    
    Wireless
    
    
    Other
    
    
    TotalExternal revenue
    
    $
    25,923
    
    
    $
    5,219
    
    
    $
    2,796
    
    
    $
    9,157
    
    
    $
    
    
    
    $
    43,095External expense
    
    
    13,885
    
    
    
    5,146
    
    
    
    2,492
    
    
    
    7,971
    
    
    
    406
    
    
    
    29,900Depreciation
    
    
    5,478
    
    
    
    715
    
    
    
    1,014
    
    
    
    635
    
    
    
    278
    
    
    
    8,120Operating income (loss)
    
    $
    6,560
    
    
    $
    (642
    )
    
    $
    (710
    )
    
    $
    551
    
    
    $
    (684
    )
    
    $
    5,075Segment assets
    
    $
    258,279
    
    
    $
    16,234
    
    
    $
    31,627
    
    
    $
    33,260
    
    
    $
    57,991
    
    
    $
    397,391
 
 (1)
    
    Adjusted for the effect of
SAB No. 108 items  See Note 2 8




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  Three Months EndedMarch 31,2007
    
    
    2006(1)Segment operating income
    
    $
    6,123
    
    
    $
    5,075Other income (expense):Equity in income of unconsolidated companies, net
    
    
    11
    
    
    
    89,840Interest, dividend income and gain on sale of investments
    
    
    1,351
    
    
    
    813Impairment of investments
    
    
    
    
    
    
    (876
    )Interest expense
    
    
    (589
    )
    
    
    (1,024
    )Other income (expense)
    
    
    (64
    )
    
    
    (10
    )Total other income
    
    
    709
    
    
    
    88,743Income before income taxes
    
    $
    6,832
    
    
    $
    93,818
 
 (1)
    
    Adjusted for the effect of
SAB No. 108 items  See Note 2       9




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 5.
    
    RECENT ACCOUNTING PRONOUNCEMENTSSFAS No. 159In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial
Assets and Financial Liabilities, which amends statement No. 115. SFAS No. 159
permits business entities to measure eligible items at fair value at specified election
dates, and report unrealized gains and losses on items for which fair value option has
been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective
as of the beginning of an entitys first fiscal year that begins after November 15,
2007. The Company will adopt SFAS No. 159 on January 1, 2008, and is currently
evaluating the impact of SFAS No. 159 on the results of operations, financial position
and cash flows.Emerging Issues Task Force Issue No. 06-4In September 2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF
Issue No. 06-4 (EITF 06-4), Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. The scope of
EITF 06-4 is limited to the recognition of a liability and related compensation costs
for endorsement split-dollar life insurance policies that provide a benefit to an
employee that extends to postretirement periods. The EITF reached a consensus that for
a split-dollar life insurance arrangement within the scope of EITF 06-4, an employer
should recognize a liability for future benefits in accordance with existing accounting
guidance. EITF 06-4 is effective for fiscal years beginning after December 15, 2006.
The Company adopted EITF 06-4 on January 1, 2007, with no material effect on its
consolidated financial statements.EITF Issue No. 06-5In September 2006, the EITF reached a consensus on EITF Issue No. 06-5 (EITF 06-5),
Accounting for Purchases of Life Insurance  Determining the Amount That Could Be
Realized in Accordance with FASB Technical Bulletin No. 85-4. The EITF reached a
conclusion that a policyholder should consider any additional amounts included in the
contractual terms of the policy in determining the amount that could be realized under
the insurance contract and that a policyholder should determine the amount that could
be realized under the life insurance contract assuming the surrender of an
individual-life by individual-life policy (or certificate by certificate in a group
policy). EITF 06-5 is effective for fiscal years beginning after December 15, 2006. The
Company adopted EITF 06-5 on January 1, 2007, with no material effect on its
consolidated financial statements.SFAS No. 157In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No.
157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or permit fair
value measurements, and therefore does not require any new fair value measurements.
SFAS No. 157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007. The Company will adopt SFAS No. 157 on January 1, 2008 and is
currently evaluating the impact of SFAS No. 157 on the results of operations, financial
position and cash flows.FASB Interpretation No. 48In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes, an
interpretation of SFAS No. 109, Accounting for Income Taxes. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprises financial
statements in accordance with SFAS No. 109 and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The evaluation of a tax
position in accordance with this Interpretation is a two-step process. The first step
is recognition, in which the enterprise determines whether it is more likely than not
that a tax position will be sustained upon examination, including resolution of any
related appeals or litigation processes, based on the technical merits of the position.
The second step is measurement. A tax position that meets the more-likely-than-not
recognition threshold is measured to determine the amount of benefit to recognize in
the financial statements. FIN 48 is effective for fiscal years beginning after December
15, 2006. The Company adopted FIN 48 on January 1, 2007. As a result of the
implementation of FIN 48, the Company recognized a charge of approximately $1.1 million
to the January 1, 2007 balance of retained earnings. As of the date of adoption, the
Company had unrecognized tax benefits of $8.0 million. Included in the balance at
January 1, 2007, are $2.3 million of unrecognized tax benefits that, if recognized,
would affect the effective tax rate.
 10




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 EITF Issue No. 06-3In June 2006, the EITF reached a consensus on EITF Issue No. 06-3 (EITF 06-3), How
Taxes Collected from Customers and Remitted to Governmental Authorities Should Be
Presented in the Income Statement. The EITF reached a consensus that the scope of EITF
06-3 includes any tax assessed by a governmental authority that is directly imposed on
a revenue-producing transaction between a seller and a customer and may include, but
are not limited to, sales, use, value added, and some excise taxes. The EITF also
reached a consensus that the presentation of taxes within the scope of this issue on
either a gross (included in revenues and costs) or a net (excluded from revenues) basis
is an accounting policy decision that should be disclosed. In addition, for any such
taxes that are reported on a gross basis, a company should disclose the amounts of
those taxes in interim and annual financial statements for each period for which an
income statement is presented if those amounts are significant. The Company presents
sales and excise taxes received from customers on a net basis. Universal Service
Administration Company (USAC) payments remitted as well as USAC revenue received from
customers, are recorded on a gross basis. For the three months ended March 31, 2007,
the Company included $0.6 million of revenue and $0.8 million of expense in its
consolidated financial statements, compared to $0.5 million of revenue and $0.6 million
of expense for the three months ended March 31, 2006. EITF 06-3 is effective for fiscal
years beginning after December 15, 2006. The Company adopted EITF 06-3 on January 1,
2007, with no material effect on its consolidated financial statements.6.
    
    STOCK COMPENSATION PLANSThe Company accounts for cash-settled awards as liability awards and records
compensation expense based on the fair value of the award at the end of each reporting
period. The liability is re-measured at each reporting period based on the then current
stock price and the effects of the stock price changes are recognized as compensation
expense. The Company accounts for equity awards based on the grant date fair value. The
Company records compensation expense and credits common stock within shareholders
equity based on the fair value of the award at the grant date, which is recognized over
the vesting period of the stock. At March 31, 2007, the majority of the Companys stock
compensation expense was included in selling, general and administrative expense in the
Companys Consolidated Statements of Income.During the three months ended March 31, 2007 and 2006, respectively, the Company
granted 238,992 and 88,496 unrestricted and nonvested shares, of which 198,709 and
56,902 were nonvested shares, respectively, under the Amended and Restated 2001 Stock
Incentive Plan (Stock Incentive Plan) to participants with a weighted-average fair
value of $24 and $13, respectively, measured at the grant-date fair value. At March 31,
2007, there were 242,583 nonvested shares outstanding. The Company accounts for the
unrestricted and nonvested share awards as equity awards in accordance with SFAS No.
123R. At March 31, 2007, unrecognized compensation expense related to nonvested shares
was $4.2 million, which will be recognized over a weighted-average period of 2.5 years.
For the three months ended March 31, 2007, the Company recognized stock compensation
expense and related tax benefits of $1.2 million and $0.5 million, respectively,
compared to $0.7 million and $0.3 million, respectively, for the same period in 2006.Prior to August 10, 2005, the Company granted stock options under the Stock Incentive
Plan. These options were granted at prices determined by the Board of Directors, which
was the closing price on the date of grant, and expire 10 years
from the date of grant. Beginning in August 2005, the Company changed its compensation philosophy to
eliminate future stock option grants. The Company accounts for its stock options as
equity awards in accordance with SFAS No. 123R. The total intrinsic value of stock
options exercised during the three months ended March 31, 2007 and 2006 was $0.1
million and $0.5 million, respectively. There were no stock options granted during the
three months ended March 31, 2007 and 2006, respectively.The Company adopted the provisions of FASB Staff Position FAS 123R-3 on January 1,
2006. Accordingly, the Company reported the entire amount of excess tax benefits of
$0.3 million and $0.2 million for the three months ended March 31, 2007 and 2006,
respectively, credited to additional paid-in capital resulting from its stock
compensation plans in cash flows from financing activities in its Consolidated
Statements of Cash Flows.
 11




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 Activity under the Companys stock option plans for the three months ended March 31,
2007 was as follows:
 Weighted-Weighted-
    
    
    Average
    
    
    AggregateAverage
    
    
    Remaining
    
    
    IntrinsicNumber
    
    
    Exercise
    
    
    Contractual
    
    
    Valueof Options
    
    
    Price
    
    
    Term
    
    
    (in thousands)Options outstanding and exercisable at December 31, 2006
    
    
    578,183
    
    
    $
    16Options exercised
    
    
    (7,880
    )
    
    
    12Options forfeited
    
    
    (562
    )
    
    
    25Options outstanding and exercisable at March 31, 2007
    
    
    569,741
    
    
    $
    16
    
    
    
    6.11
    
    
    $
    4,847
 Nonvested share activity for the three months ended March 31, 2007 was as follows:
 Weighted-AverageNumber
    
    
    Grant-Dateof Shares
    
    
    ValueNonvested shares at December 31, 2006
    
    
    99,353
    
    
    $
    12Shares granted
    
    
    198,709
    
    
    
    24Shares vested
    
    
    (55,479
    )
    
    
    11Nonvested shares at March 31, 2007
    
    
    242,583
    
    
    $
    22
 The fair value of shares vested during the three months ended March 31, 2007 was approximately
$0.6 million.7.
    
    INVESTMENTS(a)  Investments in Unconsolidated CompaniesThe Company recognized income of less than $0.1 million and $89.8 million for the three
months ended March 31, 2007 and 2006, respectively, as its share of earnings from
unconsolidated companies accounted for under the equity method. Palmetto is a
partnership that held a 50% interest in 10 cellular rural service areas (RSAs) in
North and South Carolina. On March 15, 2006, Palmetto sold its ownership interests in
the 10 RSAs to Alltel Corporation for approximately $455 million. As a result of this
transaction, the Company recorded equity in income of unconsolidated
companies of $88.9 million, which included $10.3 million from the recognition of the difference in the
Companys carrying value of Palmetto and the Companys percentage share of the
underlying assets, and received a pre-tax cash distribution from Palmetto of $97.4
million as proceeds from the sale. In August 2006, the Company sold its remaining
investment in Palmetto for $4.2 million, which resulted in a gain of $0.8 million.
 12




---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
  OwnershipPercentage at
    
    
    March 31,
    
    
    December 31,March 31, 2007
    
    
    2007
    
    
    2006Equity Method:Access On
    
    
    20.1
    %
    
    $
    46
    
    
    $
    35Cost Method:Magnolia
Holding Company, L.L.C.
    
    
    4.6
    %
    
    
    1,111
    
    
    
    1,111InComm
    
    
    0.2
    %
    
    
    1,304
    
    
    
    1,304Other
    
    Various
    
    
    1,984
    
    
    
    2,039Total
    
    
    
    
    
    $
    4,445
    
    
    $
    4,489
    Investment Securities
    
    Book
    
    
    Gross Unrealized
    
    
    Gross UnrealizedAvailable-for-Sale
    
    Value
    
    
    Holding Gains
    
    
    Holding Losses
    
    
    Fair ValueMarch 31, 2007
    
    $
    4,015
    
    
    $
    1,041
    
    
    $
    (40
    )
    
    $
    5,016December 31, 2006
    
    $
    4,015
    
    
    $
    417
    
    
    $
    (46
    )
    
    $
    4,386
    13




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 (c) Other InvestmentsOther investments represent the Companys investment in CoBank, ACB (CoBank), and
Rural Telephone Finance Cooperative (RTFC), which are organized as cooperatives for
federal income tax purposes. Distributions from CoBank include both cash distributions
of CoBanks earnings and equity participation certificates. These equity participation
certificates are included in the Companys carrying value of the investment and are
recognized as other income in the period earned. Other investments totaled $2.0
million and $1.9 million at March 31, 2007 and December 31, 2006, respectively.8.
    
    PROPERTY AND EQUIPMENTProperty and equipment was composed of the following (in thousands):
 March 31,
    
    
    December 31,2007
    
    
    2006Land, buildings and general equipment
    
    $
    93,507
    
    
    $
    92,971Central office equipment
    
    
    211,976
    
    
    
    203,118Poles, wires, cables and conduit
    
    
    182,042
    
    
    
    174,875Construction in progress
    
    
    13,383
    
    
    
    20,043500,908
    
    
    
    491,007Accumulated depreciation
    
    
    (288,425
    )
    
    
    (281,099
    )Property and equipment, net
    
    $
    212,483
    
    
    $
    209,908
 The Companys construction in progress decreased $6.7 million to $13.4 million at March
31, 2007, primarily related to the completion of projects associated with the Companys
strategic initiative to deploy fiber optic facilities and related equipment for the
deployment of video and data services.9.
    
    COMMON STOCKDuring the three months ended March 31, 2007 and 2006, the Company issued common stock
under its Amended and Restated 2001 Stock Incentive Plan and as a result of the
exercise of stock options.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 months ended March 31, 2007 and 2006 (in thousands):
 March 31,
    
    
    March 31,2007
    
    
    2006Basic weighted-average shares outstanding
    
    
    19,960
    
    
    
    18,901Effect of dilutive stock options and nonvested
stock
    
    
    177
    
    
    
    286Total diluted weighted-average shares
outstanding
    
    
    20,137
    
    
    
    19,187
 Anti-dilutive shares of common stock totaling approximately 326,000 and 514,000 for the
three months ended March 31, 2007 and 2006, respectively, were not included in the
computation of diluted earnings per share and diluted weighted-average shares outstanding
because the exercise prices of these options were greater than the average market price
of the common stock during the respective periods. At March 31, 2007 and 2006, the
Company had total options outstanding of approximately 570,000 and 1,524,000,
respectively, and nonvested shares outstanding of approximately 243,000 and 100,000,
respectively.
 14




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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 The Company adopted the provisions of FASB Staff Position FAS 123R-3 on January 1, 2006.
Accordingly, the Company included the entire amount of excess tax benefits that would be
credited to additional paid-in capital upon the exercise of its dilutive stock options in
its diluted weighted-average share calculation.Cash dividends per share of common stock were $0.12 and $0.10 for the three months ended March
31, 2007 and 2006, respectively.10.
    
    DEBT INSTRUMENTSLong-term debt consists of the following (in thousands):
 March 31,
    
    
    December 31,2007
    
    
    2006Term loan with interest at 7.32%
    
    $
    38,750
    
    
    $
    40,000Less: Current portion of long-term debt
    
    
    5,000
    
    
    
    5,000Long-term debt
    
    $
    33,750
    
    
    $
    35,000
 On April 18, 2006, the Company entered into a Master Loan Agreement (MLA), which
provides a revolving loan commitment of $40.0 million and incorporated the Companys
existing 7.32% fixed rate $50.0 million term loan. The revolving loan commitment
expires on March 31, 2011. The proceeds of borrowings under the revolving loan
commitment will be used by the Company for working capital, capital expenditures, and
other general corporate purposes. The unpaid principal balance of each advance under
the revolving loan commitment will accrue interest, in the Companys discretion, at a
(i) variable base rate option, (ii) quoted rate option or (iii) LIBOR-based option.
Subject to exceptions relating to loans accruing interest at the LIBOR-based option,
interest will be payable on the last day of each calendar quarter. Under the MLA, the
Companys term loan matures on December 31, 2014. The term loan will accrue interest at
a fixed annual interest rate of 7.32% with principal repayments of $1.25 million due
quarterly. At March 31, 2007, $38.8 million was outstanding.11.
    
    PENSION AND POSTRETIREMENT PLANSComponents of net periodic benefit cost for the three months ended March 31 (in
thousands):
 Pension Benefits
    
    
    Postretirement Benefits2007
    
    
    2006
    
    
    2007
    
    
    2006Service cost
    
    $
    593
    
    
    $
    612
    
    
    $
    13
    
    
    $
    12Interest cost
    
    
    787
    
    
    
    724
    
    
    
    126
    
    
    
    115Expected return on plan assets
    
    
    (968
    )
    
    
    (899
    )
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (2
    )Amortization of the net gain
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (31
    )Net periodic benefit cost
    
    $
    412
    
    
    $
    437
    
    
    $
    117
    
    
    $
    94
 The Company does not expect to contribute to the pension plan in 2007.At March 31, 2007, the Companys pension and postretirement liabilities were $3.1
million and $8.3 million, respectively. The current portion of the Companys pension
and postretirement liabilities at March 31, 2007 was $2.4 million and $0.8 million,
respectively.
 15




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##### 



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




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Introduction
            17




---



##### 



Industry and Operating Trends
       18




---



##### 



19




---



##### 



20




---



##### 



Results of Operations
    21




---



##### 



Consolidated Operating Results
 Three months ended March 31,2007
    
    
    2006
    
    
    ChangeOperating revenue:Customer recurring:Wireline
    
    $
    18,581
    
    
    $
    18,762
    
    
    $
    (181
    )
    
    
    -1.0
    %Wireless
    
    
    6,359
    
    
    
    5,653
    
    
    
    706
    
    
    
    12.5
    %Broadband & dial-up
    
    
    3,896
    
    
    
    3,181
    
    
    
    715
    
    
    
    22.5
    %Total customer recurring
    
    
    28,836
    
    
    
    27,596
    
    
    
    1,240
    
    
    
    4.5
    %Universal service
    
    
    1,414
    
    
    
    1,130
    
    
    
    284
    
    
    
    25.1
    %Access & interconnection
    
    
    7,084
    
    
    
    6,793
    
    
    
    291
    
    
    
    4.3
    %Wireless roaming/settlement
    
    
    3,009
    
    
    
    2,917
    
    
    
    92
    
    
    
    3.2
    %Other
    
    
    5,069
    
    
    
    4,659
    
    
    
    410
    
    
    
    8.8
    %Total operating revenue
    
    
    45,412
    
    
    
    43,095
    
    
    
    2,317
    
    
    
    5.4
    %Operating expense:Cost of service
    
    
    15,282
    
    
    
    14,985
    
    
    
    297
    
    
    
    2.0
    %Selling, general & administrative
    
    
    16,099
    
    
    
    14,915
    
    
    
    1,184
    
    
    
    7.9
    %Depreciation
    
    
    7,908
    
    
    
    8,120
    
    
    
    (212
    )
    
    
    -2.6
    %Total operating expense
    
    
    39,289
    
    
    
    38,020
    
    
    
    1,269
    
    
    
    3.3
    %Operating income
    
    
    6,123
    
    
    
    5,075
    
    
    
    1,048
    
    
    
    20.7
    %Other income
    
    
    709
    
    
    
    88,743
    
    
    
    (88,034
    )Income before taxes
    
    
    6,832
    
    
    
    93,818
    
    
    
    (86,986
    )Income taxes
    
    
    2,206
    
    
    
    36,452
    
    
    
    (34,246
    )Net income
    
    $
    4,626
    
    
    $
    57,366
    
    
    $
    (52,740
    )Operating margin
    
    
    13.5
    %
    
    
    11.8
    %Capital expenditures
    
    $
    10,503
    
    
    $
    6,987
    
    
    $
    3,516
    
    
    
    50.3
    %Total assets
    
    
    384,700
    
    
    
    397,391
    
    
    
    (12,691
    )
    
    
    -3.2
    %Wired access lines
    
    
    157,886
    
    
    
    158,585
    
    
    
    (699
    )
    
    
    -0.4
    %Wireless subscribers
    
    
    49,806
    
    
    
    47,145
    
    
    
    2,661
    
    
    
    5.6
    %Broadband and dial-up customers
    
    
    32,916
    
    
    
    28,457
    
    
    
    4,459
    
    
    
    15.7
    %
  22




---



##### 



23




---



##### 



ILEC
 Three months ended March 31,2007
    
    
    2006
    
    
    ChangeOperating revenue:Customer recurring:Wireline
    
    $
    13,034
    
    
    $
    13,232
    
    
    $
    (198
    )
    
    
    (1.5
    %)Broadband & dial-up
    
    
    2,739
    
    
    
    2,302
    
    
    
    437
    
    
    
    19.0
    %Total customer recurring
    
    
    15,773
    
    
    
    15,534
    
    
    
    239
    
    
    
    1.5
    %Universal service
    
    
    1,414
    
    
    
    1,130
    
    
    
    284
    
    
    
    25.1
    %Access & interconnection
    
    
    5,386
    
    
    
    5,328
    
    
    
    58
    
    
    
    1.1
    %Other
    
    
    4,549
    
    
    
    3,931
    
    
    
    618
    
    
    
    15.7
    %Total operating revenue
    
    
    27,122
    
    
    
    25,923
    
    
    
    1,199
    
    
    
    4.6
    %Operating expense:Cost of service
    
    
    5,648
    
    
    
    5,322
    
    
    
    326
    
    
    
    6.1
    %Selling, general & administrative
    
    
    9,921
    
    
    
    8,563
    
    
    
    1,358
    
    
    
    15.9
    %Depreciation
    
    
    5,155
    
    
    
    5,478
    
    
    
    (323
    )
    
    
    (5.9
    %)Total operating expense
    
    
    20,724
    
    
    
    19,363
    
    
    
    1,361
    
    
    
    7.0
    %Operating income
    
    $
    6,398
    
    
    $
    6,560
    
    
    $
    (162
    )
    
    
    (2.5
    %)Operating margin
    
    
    23.6
    %
    
    
    25.3
    %Capital expenditures
    
    $
    7,552
    
    
    $
    3,743
    
    
    $
    3,809
    
    
    
    101.8
    %Total assets
    
    
    267,566
    
    
    
    258,279
    
    
    
    9,287
    
    
    
    3.6
    %Business access lines
    
    
    28,306
    
    
    
    28,241
    
    
    
    65
    
    
    
    0.2
    %Residential access lines
    
    
    76,684
    
    
    
    81,630
    
    
    
    (4,946
    )
    
    
    (6.1
    %)Total access lines
    
    
    104,990
    
    
    
    109,871
    
    
    
    (4,881
    )
    
    
    (4.4
    %)Broadband DSL customers
    
    
    24,031
    
    
    
    19,042
    
    
    
    4,989
    
    
    
    26.2
    %Broadband high-speed customers
    
    
    86
    
    
    
    72
    
    
    
    14
    
    
    
    19.4
    %Total broadband customers
    
    
    24,117
    
    
    
    19,114
    
    
    
    5,003
    
    
    
    26.2
    %Dial-up customers
    
    
    4,251
    
    
    
    6,031
    
    
    
    (1,780
    )
    
    
    (29.5
    %)
   24




---



##### 



CLEC
 Three months ended March 31,2007
    
    
    2006
    
    
    ChangeOperating revenue:Customer recurring:Wireline
    
    $
    3,459
    
    
    $
    3,590
    
    
    $
    (131
    )
    
    
    (3.6
    %)Broadband
    
    
    737
    
    
    
    594
    
    
    
    143
    
    
    
    24.1
    %Total customer recurring
    
    
    4,196
    
    
    
    4,184
    
    
    
    12
    
    
    
    0.3
    %Access & interconnection
    
    
    1,107
    
    
    
    955
    
    
    
    152
    
    
    
    15.9
    %Other
    
    
    62
    
    
    
    80
    
    
    
    (18
    )
    
    
    (22.5
    %)Total operating revenue
    
    
    5,365
    
    
    
    5,219
    
    
    
    146
    
    
    
    2.8
    %Operating expense:Cost of service
    
    
    2,860
    
    
    
    3,110
    
    
    
    (250
    )
    
    
    (8.0
    %)Selling, general & administrative
    
    
    2,069
    
    
    
    2,036
    
    
    
    33
    
    
    
    1.6
    %Depreciation
    
    
    721
    
    
    
    715
    
    
    
    6
    
    
    
    0.8
    %Total operating expense
    
    
    5,650
    
    
    
    5,861
    
    
    
    (211
    )
    
    
    (3.6
    %)Operating income
    
    $
    (285
    )
    
    $
    (642
    )
    
    $
    357
    
    
    
    55.6
    %Operating margin
    
    
    (5.3
    %)
    
    
    (12.3
    %)Capital expenditures
    
    $
    345
    
    
    $
    1,280
    
    
    $
    (935
    )
    
    
    (73.0
    %)Total assets
    
    
    15,505
    
    
    
    16,234
    
    
    
    (729
    )
    
    
    (4.5
    %)Access lines
    
    
    36,099
    
    
    
    33,390
    
    
    
    2,709
    
    
    
    8.1
    %Broadband high-speed customers
    
    
    772
    
    
    
    644
    
    
    
    128
    
    
    
    19.9
    %
    25




---



##### 



Greenfield
 Three months ended March 31,2007
    
    
    2006
    
    
    ChangeOperating revenue:Customer recurring:Wireline
    
    $
    2,088
    
    
    $
    1,940
    
    
    $
    148
    
    
    
    7.6
    %Broadband
    
    
    420
    
    
    
    285
    
    
    
    135
    
    
    
    47.4
    %Total customer recurring
    
    
    2,508
    
    
    
    2,225
    
    
    
    283
    
    
    
    12.7
    %Access & interconnection
    
    
    591
    
    
    
    510
    
    
    
    81
    
    
    
    15.9
    %Other
    
    
    65
    
    
    
    61
    
    
    
    4
    
    
    
    6.6
    %Total operating revenue
    
    
    3,164
    
    
    
    2,796
    
    
    
    368
    
    
    
    13.2
    %Operating expense:Cost of service
    
    
    1,237
    
    
    
    1,383
    
    
    
    (146
    )
    
    
    (10.6
    %)Selling, general & administrative
    
    
    1,126
    
    
    
    1,109
    
    
    
    17
    
    
    
    1.5
    %Depreciation
    
    
    1,114
    
    
    
    1,014
    
    
    
    100
    
    
    
    9.9
    %Total operating expense
    
    
    3,477
    
    
    
    3,506
    
    
    
    (29
    )
    
    
    (0.8
    %)Operating income
    
    $
    (313
    )
    
    $
    (710
    )
    
    $
    397
    
    
    
    55.9
    %Operating margin
    
    
    (9.9
    %)
    
    
    (25.4
    %)Capital expenditures
    
    $
    1,135
    
    
    $
    1,619
    
    
    $
    (484
    )
    
    
    (29.9
    %)Total assets
    
    
    33,040
    
    
    
    31,627
    
    
    
    1,413
    
    
    
    4.5
    %Access lines
    
    
    16,797
    
    
    
    15,324
    
    
    
    1,473
    
    
    
    9.6
    %Broadband DSL customers
    
    
    3,776
    
    
    
    2,668
    
    
    
    1,108
    
    
    
    41.5
    %Total projects
    
    
    130
    
    
    
    122
    
    
    
    8
    
    
    
    6.6
    %
     26




---



##### 



Wireless
 Three months ended March 31,2007
    
    
    2006
    
    
    ChangeOperating revenue:Customer recurring
    
    $
    6,359
    
    
    $
    5,653
    
    
    $
    706
    
    
    
    12.5
    %Wireless roaming/settlement
    
    
    3,009
    
    
    
    2,917
    
    
    
    92
    
    
    
    3.2
    %Other
    
    
    393
    
    
    
    587
    
    
    
    (194
    )
    
    
    (33.0
    %)Total operating revenue
    
    
    9,761
    
    
    
    9,157
    
    
    
    604
    
    
    
    6.6
    %Operating expense:Cost of service
    
    
    5,537
    
    
    
    5,170
    
    
    
    367
    
    
    
    7.1
    %Selling, general & administrative
    
    
    2,865
    
    
    
    2,801
    
    
    
    64
    
    
    
    2.3
    %Depreciation
    
    
    693
    
    
    
    635
    
    
    
    58
    
    
    
    9.1
    %Total operating expense
    
    
    9,095
    
    
    
    8,606
    
    
    
    489
    
    
    
    5.7
    %Operating income
    
    $
    666
    
    
    $
    551
    
    
    $
    115
    
    
    
    20.9
    %Operating margin
    
    
    6.8
    %
    
    
    6.0
    %Capital expenditures
    
    $
    264
    
    
    $
    196
    
    
    $
    68
    
    
    
    34.7
    %Total assets
    
    
    33,435
    
    
    
    33,260
    
    
    
    175
    
    
    
    0.5
    %Wireless subscribers
    
    
    49,806
    
    
    
    47,145
    
    
    
    2,661
    
    
    
    5.6
    %
    Other
 Three months ended March 31,2007
    
    
    2006
    
    
    ChangeOperating expense:Selling, general & administrative
    
    $
    118
    
    
    $
    406
    
    
    $
    (288
    )
    
    
    -70.9
    %Depreciation
    
    
    225
    
    
    
    278
    
    
    
    (53
    )
    
    
    -19.1
    %Total operating expense
    
    $
    343
    
    
    $
    684
    
    
    $
    (341
    )
    
    
    -49.9
    %Capital expenditures
    
    $
    1,207
    
    
    $
    149
    
    
    $
    1,058
    
    
    
    710.1
    %Total assets
    
    
    35,154
    
    
    
    57,991
    
    
    
    (22,837
    )
    
    
    (39.4
    %)
  27




---



##### 



Liquidity and Capital Resources
 Net cash provided by operating activities
  Net cash provided by/used in investing activities
  Net cash used in financing activities
  Anticipated sources and uses of funds
    28




---



##### 



Cautionary Note Regarding Forward-Looking Statements
   
    
    the Companys ability to respond effectively to the issues surrounding the
telecommunications industry caused by state and federal legislation and regulations,
    
    the impact of economic conditions related to the financial performance of
customers, business partners, competitors and peers within the telecommunications
industry,
    
    the Companys ability to achieve acceptable returns on investments in connection
with the expansion into new businesses, products and services
    
    the Companys ability to attract and retain key personnel,
    
    the Companys ability to retain its existing customer base against wireless,
cable telephone and other competition in all areas of the business including local
and long distance and broadband services,
    
    the Companys ability to maintain its margins in a highly competitive industry,
    
    the performance of the Companys investments,
    
    the Companys ability to effectively manage rapid changes in technology and
control capital expenditures related to those technologies, and
    
    the impact of economic and political events on the Companys business, operating
regions and customers, including terrorist attacks.
  In making forward-looking statements, the Company claims the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation Reform Act of
1995. The Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. Readers are
also directed to consider the risks, uncertainties and other factors discussed in documents
filed by us with the SEC, including those matters summarized under the caption Risk Factors
in the Companys Annual Report on Form 10-K for the year ended December 31, 2006. All
forward-looking statements should be viewed with caution.
 Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  29




---



##### 



Item 4. Controls and Procedures.
 (a)
    
    Disclosure Controls and Procedures
  (b)
    
    Changes in Internal Control Over Financial Reporting
  30




---



##### 



PART II. OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 1A. Risk Factors.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Item 3. Defaults Upon Senior Securities.
  Item 4. Submission of Matters to a Vote of Security Holders.
  Item 5. Other Information.
  Item 6. Exhibits.
  Exhibit No.
    
    Description of Exhibit10.1
    
    Amended and Restated Change in Control Agreement, dated
February 22, 2007, between CT Communications, Inc. and Michael
R. Coltrane.10.2
    
    Amended and Restated Change in Control Agreement, dated
February 22, 2007, between CT Communications, Inc. and Ronald A.
Marino.10.3
    
    Form of Amended and Restated Change in Control Agreement, dated
February 22, 2007, between CT Communications, Inc. and David H. Armistead,
Matthew J. Dowd, James E. Hausman 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.
 31




---



##### 



/s/ Ronald A. MarinoRonald A. Marino
Vice President Finance and 
Chief Accounting Officer
     32




---



##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit10.1
    
    Amended and Restated Change
in Control Agreement, dated February 22, 2007, between CT
Communications, Inc. and Michael R. Coltrane.10.2
    
    Amended and Restated Change
in Control Agreement, dated February 22, 2007, between CT
Communications, Inc. and Ronald A. Marino.10.3
    
    Form of Amended and Restated
Change in Control Agreement, dated February 22, 2007,
between CT Communications, Inc. and David H. Armistead,
Matthew J. Dowd, James E. Hausman 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.
 33