##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

(MARK ONE)

x   
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

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.

(Exact name of registrant as specified in its charter)


|                                                                                          |  |                                                
|----------------------------------------------------------------------------------------- |  | -----------------------------------------------
|NORTH CAROLINA
(State or other jurisdiction of
incorporation or organization)             |  | 56-1837282
(I.R.S. Employer
Identification No.)
|                                                                                         
|1000 Progress Place NE
P.O. Box 227, Concord, NC
(Address of principal executive offices) |  | 28026-0227
(Zip Code)                          

(704) 722-2500
(Registrants telephone number, including area code)

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   
Yes   x   
No   o

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).   
Yes   x   
No   o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

18,763,695 shares of Common Stock outstanding as of August 1, 2003.





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CT COMMUNICATIONS, INC. AND SUBSIDIARIES

INDEX

|                                                                                                                    |  |          |    | 
|------------------------------------------------------------------------------------------------------------------- |  | -------- | -- | 
|                                                                                                                    |  | Page No.
|                                                                                                                    |  |         
|PART I. Financial Information.                                                                                      |  |          |    | 
|Item 1. Financial Statements                                                                                        |  |          |    | 
|Condensed Consolidated Balance Sheets 
June 30, 2003 and December 31, 2002                                         |  |          | 2  | 
|Condensed Consolidated Statements of Income
Three and Six Months Ended June 30, 2003 and 2002                      |  |          | 3  | 
|Condensed Consolidated Statements of Comprehensive Income (Loss)
Three and Six Months Ended June 30, 2003 and 2002 |  |          | 4  | 
|Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2003 and 2002                            |  |          | 5  | 
|Notes to Condensed Consolidated Financial Statements                                                                |  |          | 6  | 
|Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations                       |  |          | 16 | 
|Item 3. Quantitative and Qualitative Disclosures
About Market Risk                                                  |  |          | 25 | 
|Item 4. Controls and Procedures                                                                                     |  |          | 25 | 
|PART II. Other Information                                                                                          |  |          |    | 
|Item 1. Legal Proceedings                                                                                           |  |          | 26 | 
|Item 2. Changes in Securities and Use of Proceeds                                                                   |  |          | 26 | 
|Item 3. Defaults Upon Senior Securities                                                                             |  |          | 26 | 
|Item 4. Submission of Matters to a Vote of Security Holders                                                         |  |          | 26 | 
|Item 5. Other Information                                                                                           |  |          | 26 | 
|Item 6. Exhibits and Reports on Form 8-K                                                                            |  |          | 27 | 
|Signatures                                                                                                          |  |          | 28 | 
|Exhibit Index                                                                                                       |  |          | 29 | 

1



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets


(in thousands except share data)


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

|                                           |                                                                                                                 |                                              |         |             |         |              |         |         |         | 
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------- | ----------- | ------- | ------------ | ------- | ------- | ------- | 
|                                           |                                                                                                                 |                                              |         | (Unaudited) |         |              |         |        
|                                           |                                                                                                                 |                                              |         | June 30,    |         | December 31,
|                                           |                                                                                                                 |                                              |         | 2003        |         | 2002        
|                                           |                                                                                                                 |                                              |         |             |         |             
|Current assets:                            |                                                                                                                 |                                              |         |             |         |              |         |        
|                                           | Cash and cash equivalents                                                                                       |                                              | $       | 8,628       |         |              | $       | 7,652   |        
|                                           | Accounts receivable and unbilled revenue, net                                                                   |                                              |         | 20,556      |         |              |         | 22,289  |        
|                                           | Income tax receivable                                                                                           |                                              |         |            |         |              |         | 3,007   |        
|                                           | Other                                                                                                           |                                              |         | 9,164       |         |              |         | 8,220   |        
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|                                           |                                                                                                                 | Total current assets                         |         |             | 38,348  |              |         |         | 41,168  | 
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|Investment securities                      |                                                                                                                 |                                              | 6,838   |             |         |              | 6,379   |        
|Other investments                          |                                                                                                                 |                                              | 1,188   |             |         |              | 797     |        
|Investments in unconsolidated companies    |                                                                                                                 |                                              | 13,945  |             |         |              | 12,729  |        
|Property and equipment, net                |                                                                                                                 |                                              | 208,606 |             |         |              | 211,897 |        
|Goodwill                                   |                                                                                                                 |                                              | 9,906   |             |         |              | 9,906   |        
|Other intangibles, net                     |                                                                                                                 |                                              | 35,299  |             |         |              | 53,070  |        
|Other assets                               |                                                                                                                 |                                              | 1,354   |             |         |              | 1,612   |        
|Assets of discontinued operations          |                                                                                                                 |                                              |        |             |         |              | 1,206   |        
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|Total assets                               |                                                                                                                 | $                                            | 315,484 |             |         | $            | 338,764 |        
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|Current liabilities:                       |                                                                                                                 |                                              |         |             |         |              |         |        
|                                           | Accounts payable                                                                                                |                                              | $       | 5,117       |         |              | $       | 8,632   |        
|                                           | Customer deposits and advance billings                                                                          |                                              |         | 2,467       |         |              |         | 2,593   |        
|                                           | Other accrued liabilities                                                                                       |                                              |         | 14,131      |         |              |         | 12,363  |        
|                                           | Liabilities of discontinued operations                                                                          |                                              |         | 1,388       |         |              |         | 1,645   |        
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|                                           |                                                                                                                 | Total current liabilities                    |         |             | 23,103  |              |         |         | 25,233  | 
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|Long-term debt                             |                                                                                                                 |                                              | 90,000  |             |         |              | 127,697 |        
|Deferred credits and other liabilities:    |                                                                                                                 |                                              |         |             |         |              |         |        
|                                           | Deferred income taxes                                                                                           |                                              |         | 17,136      |         |              |         | 12,433  |        
|                                           | Post-retirement benefits other than pension                                                                     |                                              |         | 11,383      |         |              |         | 11,099  |        
|                                           | Other                                                                                                           |                                              |         | 2,218       |         |              |         | 2,101   |        
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|                                           |                                                                                                                 | Total deferred credits and other liabilities |         |             | 30,737  |              |         |         | 25,633  | 
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|Total liabilities                          |                                                                                                                 |                                              | 143,840 |             |         |              | 178,563 |        
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|Stockholders equity:                      |                                                                                                                 |                                              |         |             |         |              |         |        
|                                           | Preferred stock not subject to mandatory redemption:                                                            |                                              |         |             |         |              |         |         |        
|                                           | 5% series, $100 par value; 3,356 shares outstanding at June 30,
2003 and December 31, 2002                      |                                              |         | 336         |         |              |         | 336     |        
|                                           | 4.5% series, $100 par value; 614 shares outstanding at June 30,
2003 and December 31, 2002                      |                                              |         | 61          |         |              |         | 61      |        
|                                           | Common stock, 18,763,695 and 18,686,740 shares outstanding at
June 30, 2003 and December 31, 2002, respectively |                                              |         | 40,729      |         |              |         | 39,962  |        
|                                           | Other capital                                                                                                   |                                              |         | 298         |         |              |         | 298     |        
|                                           | Unearned compensation                                                                                           |                                              |         | (648        | )       |              |         | (470    | )      
|                                           | Other accumulated comprehensive loss                                                                            |                                              |         | (357        | )       |              |         | (817    | )      
|                                           | Retained earnings                                                                                               |                                              |         | 131,225     |         |              |         | 120,831 |        
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|                                           |                                                                                                                 | Total stockholders equity                   |         |             | 171,644 |              |         |         | 160,201 | 
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        
|Total liabilities and stockholders equity |                                                                                                                 | $                                            | 315,484 |             |         | $            | 338,764 |        
|                                           |                                                                                                                 |                                              |         |             |         |              |         |        

See accompanying notes to condensed consolidated financial statements (unaudited).

2



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CT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)


(in thousands, except share and share data)


|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |        |        | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------- | --------------------------- | ------ | ------------------------- | ---------- | ---------- | ----- | ---- | ---------- | ------ | ------ | ---------- | ---------- | ------ | ------ | 
|                                            |                                                                                                                                                                                                                     |                                                       |            | Three Months Ended June 30, |        | Six Months Ended June 30,
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                          
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            | (Restated) |       |      |            |        |        | (Restated)
|                                            |                                                                                                                                                                                                                     |                                                       |            | 2003                        |        | 2002                      |            | 2003       |       | 2002
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |     
|Operating revenue                           |                                                                                                                                                                                                                     | $                                                     | 39,953     |                             |        | $                         | 37,126     |            |       | $    | 78,649     |        |        | $          | 72,781     |       
|Operating expense                           |                                                                                                                                                                                                                     |                                                       | 34,807     |                             |        |                           | 32,708     |            |       |      | 69,171     |        |        |            | 64,106     |       
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                     | Operating income                                      |            |                             | 5,146  |                           |            |            | 4,418 |      |            |        | 9,478  |            |            |        | 8,675  | 
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|Other income (expense):                     |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            | Equity in income of unconsolidated companies, net                                                                                                                                                                   |                                                       |            | 1,398                       |        |                           |            | 1,180      |       |      |            | 2,448  |        |            |            | 1,860  |       
|                                            | Interest, dividend income and gain on sale of
investments                                                                                                                                                           |                                                       |            | 14,747                      |        |                           |            | 1,844      |       |      |            | 15,264 |        |            |            | 4,786  |       
|                                            | Impairment of investments                                                                                                                                                                                           |                                                       |            | (1,273                      | )      |                           |            | (171       | )     |      |            | (1,284 | )      |            |            | (705   | )     
|                                            | Other expenses, principally interest                                                                                                                                                                                |                                                       |            | (2,236                      | )      |                           |            | (1,602     | )     |      |            | (3,877 | )      |            |            | (2,894 | )     
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            | Total other income                                                                                                                                                                                                  |                                                       |            | 12,636                      |        |                           |            | 1,251      |       |      |            | 12,551 |        |            |            | 3,047  |       
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                     | Income from continuing operations before income
taxes |            |                             | 17,782 |                           |            |            | 5,669 |      |            |        | 22,029 |            |            |        | 11,722 | 
|Income taxes                                |                                                                                                                                                                                                                     |                                                       | 7,000      |                             |        |                           | 2,237      |            |       |      | 8,765      |        |        |            | 4,620      |       
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                     | Income from continuing operations                     |            |                             | 10,782 |                           |            |            | 3,432 |      |            |        | 13,264 |            |            |        | 7,102  | 
|Discontinued operations:                    |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            | Loss from operations of discontinued business, net of
income tax benefits of $276 for the three and six
months
ended June 30, 2003 and $389 and $870 for the
three and six months ended June 30, 2002, respectively |                                                       |            | (424                        | )      |                           |            | (756       | )     |      |            | (424   | )      |            |            | (1,688 | )     
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                     | Net income                                            |            |                             | 10,358 |                           |            |            | 2,676 |      |            |        | 12,840 |            |            |        | 5,414  | 
|Dividends on preferred stock                |                                                                                                                                                                                                                     |                                                       | 5          |                             |        |                           | 4          |            |       |      | 10         |        |        |            | 10         |       
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                     | Earnings for common stock                             |            | $                           | 10,353 |                           |            | $          | 2,672 |      |            | $      | 12,830 |            |            | $      | 5,404  | 
|                                            |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|Basic earnings per share:                   |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            | Continuing operations                                                                                                                                                                                               |                                                       | $          | 0.58                        |        |                           | $          | 0.18       |       |      | $          | 0.71   |        |            | $          | 0.38   |       
|                                            | Discontinued operations                                                                                                                                                                                             |                                                       |            | (0.02                       | )      |                           |            | (0.04      | )     |      |            | (0.02  | )      |            |            | (0.09  | )     
|                                            | Net income                                                                                                                                                                                                          |                                                       |            | 0.55                        |        |                           |            | 0.14       |       |      |            | 0.69   |        |            |            | 0.29   |       
|Diluted earnings per share:                 |                                                                                                                                                                                                                     |                                                       |            |                             |        |                           |            |            |       |      |            |        |        |            |            |       
|                                            | Continuing operations                                                                                                                                                                                               |                                                       |            | 0.57                        |        |                           |            | 0.18       |       |      |            | 0.71   |        |            |            | 0.38   |       
|                                            | Discontinued operations                                                                                                                                                                                             |                                                       |            | (0.02                       | )      |                           |            | (0.04      | )     |      |            | (0.02  | )      |            |            | (0.09  | )     
|                                            | Net income                                                                                                                                                                                                          |                                                       |            | 0.55                        |        |                           |            | 0.14       |       |      |            | 0.68   |        |            |            | 0.29   |       
|Basic weighted average shares outstanding   |                                                                                                                                                                                                                     |                                                       | 18,739,580 |                             |        |                           | 18,734,756 |            |       |      | 18,727,943 |        |        |            | 18,746,997 |       
|Diluted weighted average shares outstanding |                                                                                                                                                                                                                     |                                                       | 18,781,631 |                             |        |                           | 18,774,592 |            |       |      | 18,748,101 |        |        |            | 18,790,135 |       

See accompanying notes to condensed consolidated financial statements (unaudited).

3



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CT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consoldiated Statements of Comprehensive Income (Loss) (Unaudited)


(in thousands)


|                                               |                                                                            |   |                             |     |                           |   |            |        |      |   |        |     |            |   |       |        |  
|---------------------------------------------- | -------------------------------------------------------------------------- | - | --------------------------- | --- | ------------------------- | - | ---------- | ------ | ---- | - | ------ | --- | ---------- | - | ----- | ------ | -
|                                               |                                                                            |   | Three Months Ended June 30, |     | Six Months Ended June 30,
|                                               |                                                                            |   |                             |     |                          
|                                               |                                                                            |   |                             |     |                           |   | (Restated) |        |      |   |        |     | (Restated)
|                                               |                                                                            |   | 2003                        |     | 2002                      |   | 2003       |        | 2002
|                                               |                                                                            |   |                             |     |                           |   |            |        |     
|Net income                                     |                                                                            | $ | 10,358                      |     |                           | $ | 2,676      |        |      | $ | 12,840 |     |            | $ | 5,414 |       
|Other comprehensive income (loss), net of tax: |                                                                            |   |                             |     |                           |   |            |        |      |   |        |     |            |   |       |       
|                                               | Unrealized holding gains (losses) on available-for-sale
securities         |   |                             | 377 |                           |   |            | (907   | )    |   |        | 376 |            |   |       | (2,486 | )
|                                               | Unrealized holding gains (losses) on interest rate swaps                   |   |                             | 34  |                           |   |            | (221   | )    |   |        | 76  |            |   |       | (63    | )
|                                               | Less reclassification adjustment for losses (gains)
realized
in net income |   |                             | 4   |                           |   |            | (1,137 | )    |   |        | 8   |            |   |       | (2,965 | )
|                                               |                                                                            |   |                             |     |                           |   |            |        |      |   |        |     |            |   |       |       
|Comprehensive income (loss)                    |                                                                            | $ | 10,773                      |     |                           | $ | 411        |        |      | $ | 13,300 |     |            | $ | (100  | )     
|                                               |                                                                            |   |                             |     |                           |   |            |        |      |   |        |     |            |   |       |       

See accompanying notes to condensed consolidated financial statements (unaudited).

4



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


(in thousands)


|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |        |            |         |  
|----------------------------------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ----------------- | --------------------------------------------------- | ------- | ------------------------- | ------- | ------- | ------ | ---------- | ------- | -
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         | Six Months Ended June 30,
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                          
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |        | (Restated)
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         | 2003                      |         | 2002   
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |        
|Cash flows from operating activities:                                   |                                                                                   |                                                                             |                   |                                                     |         |                           |         |        
|                                                                        | Net income                                                                        |                                                                             | $                 | 12,840                                              |         |                           | $       | 5,414   |       
|                                                                        | Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                             |                   |                                                     |         |                           |         |         |       
|                                                                        |                                                                                   | Loss from discontinued operations                                           |                   |                                                     | 424     |                           |         |         | 1,688  |           
|                                                                        |                                                                                   | Depreciation and amortization                                               |                   |                                                     | 15,387  |                           |         |         | 13,288 |           
|                                                                        |                                                                                   | Post-retirement benefits                                                    |                   |                                                     | 283     |                           |         |         | 138    |           
|                                                                        |                                                                                   | Loss (gain) on sale of investment securities                                |                   |                                                     | 13      |                           |         |         | (3,967 | )         
|                                                                        |                                                                                   | Gain on sale of investments in unconsolidated companies                     |                   |                                                     | (14,401 | )                         |         |         | (657   | )         
|                                                                        |                                                                                   | Impairment of investments                                                   |                   |                                                     | 1,284   |                           |         |         | 705    |           
|                                                                        |                                                                                   | Undistributed income of unconsolidated companies                            |                   |                                                     | (2,448  | )                         |         |         | (1,860 | )         
|                                                                        |                                                                                   | Undistributed patronage dividends                                           |                   |                                                     | (391    | )                         |         |         |       |           
|                                                                        |                                                                                   | Deferred income taxes and tax credits                                       |                   |                                                     | 4,409   |                           |         |         | 1,397  |           
|                                                                        |                                                                                   | Changes in operating assets and liabilities, net of effects of
acquisitions |                   |                                                     | 3,028   |                           |         |         | 1,343  |           
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |       
|                                                                        |                                                                                   |                                                                             |                   | Net cash provided by operating activities           |         |                           | 20,428  |         |        |            | 17,489  |  
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |       
|Cash flows from investing activities:                                   |                                                                                   |                                                                             |                   |                                                     |         |                           |         |        
|                                                                        | Capital expenditures                                                              |                                                                             |                   | (11,223                                             | )       |                           |         | (27,341 | )     
|                                                                        | Purchases of investments in unconsolidated companies                              |                                                                             |                   | (2,959                                              | )       |                           |         | (500    | )     
|                                                                        | Purchases of investment securities                                                |                                                                             |                   | (177                                                | )       |                           |         | (1,148  | )     
|                                                                        | Purchases of wireless spectrum                                                    |                                                                             |                   |                                                    |         |                           |         | (760    | )     
|                                                                        | Proceeds from sale of investment in unconsolidated companies                      |                                                                             |                   | 16,380                                              |         |                           |         | 818     |       
|                                                                        | Proceeds from sale of investment securities                                       |                                                                             |                   | 33                                                  |         |                           |         | 4,892   |       
|                                                                        | Partnership capital distribution                                                  |                                                                             |                   | 1,197                                               |         |                           |         | 1,987   |       
|                                                                        | Acquisitions, net of cash                                                         |                                                                             |                   |                                                    |         |                           |         | (3,213  | )     
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |       
|                                                                        |                                                                                   |                                                                             |                   | Net cash provided by (used in) investing activities |         |                           | 3,251   |         |        |            | (25,265 | )
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |       
|Cash flows from financing activities:                                   |                                                                                   |                                                                             |                   |                                                     |         |                           |         |        
|                                                                        | Proceeds from credit facility                                                     |                                                                             |                   |                                                    |         |                           |         | 12,500  |       
|                                                                        | Repayment of long-term debt                                                       |                                                                             |                   | (20,000                                             | )       |                           |         |        |       
|                                                                        | Dividends paid                                                                    |                                                                             |                   | (2,446                                              | )       |                           |         | (2,457  | )     
|                                                                        | Repurchases of common stock                                                       |                                                                             |                   |                                                    |         |                           |         | (2,395  | )     
|                                                                        | Proceeds from common stock issuances                                              |                                                                             |                   | 335                                                 |         |                           |         | 327     |       
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |       
|                                                                        |                                                                                   |                                                                             |                   | Net cash (used in) provided by financing activities |         |                           | (22,111 | )       |        |            | 7,975   |  
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |       
|Net cash used in discontinued operations                                |                                                                                   |                                                                             | (592              | )                                                   |         |                           | (1,958  | )      
|Net increase (decrease) in cash and cash equivalents                    |                                                                                   |                                                                             | 976               |                                                     |         |                           | (1,759  | )      
|Cash and cash equivalents at beginning of period                        |                                                                                   |                                                                             | 7,652             |                                                     |         |                           | 8,397   |        
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |       
|Cash and cash equivalents at end of period                              |                                                                                   | $                                                                           | 8,628             |                                                     |         | $                         | 6,638   |        
|                                                                        |                                                                                   |                                                                             |                   |                                                     |         |                           |         |         |       
|Supplemental disclosure of non-cash investing and financing activities: |                                                                                   |                                                                             |                   |                                                     |         |                           |         |        
|                                                                        | Cancellation of note payable in connection with disposition of                    |                                                                             |                   |                                                     |         |                           |         |         |       
|                                                                        |                                                                                   |                                                                             | wireless spectrum |                                                     | $       | 17,697                    |         |         | $      |           |        

See accompanying notes to condensed consolidated financial statements (unaudited).

5



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



|1. |  | In the opinion of management of CT Communications, Inc. (the
Company), the accompanying unaudited financial statements contain
all adjustments consisting of only normal recurring accruals
necessary to present fairly the Companys financial position as of
June 30, 2003 and 2002, and the results of its operations and cash
flows for the three and six months then ended. These unaudited
financial statements should be read along with the Companys Annual
Report on Form 10-K for the year ended December 31, 2002 and do not
include all disclosures associated with the Companys annual
financial statements.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | In certain instances, amounts previously reported in the 2002
consolidated financial statements have been reclassified to conform
to the 2003 consolidated financial statements presentation. Such
reclassifications have no effect on net income or retained earnings
as previously reported.                                                                                                                                                                                                                                                                                                                              
|  
|3. |  | The results of operations for the six months ended June 30, 2003
and 2002 are not necessarily indicative of the results to be
expected for the full year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|4. |  | PROPERTY AND EQUIPMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Property and equipment is composed of the following (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                      |  |               |          |                   |  |   |          |  
|------------------------------------- |  | ------------- | -------- | ----------------- |  | - | -------- | -
|                                      |  | June 30, 2003 |          | December 31, 2002
|                                      |  |               |          |                  
|Land, buildings and general equipment |  | $             | 86,797   |                   |  | $ | 85,716   |  
|Central office equipment              |  |               | 159,125  |                   |  |   | 148,484  |  
|Poles, wires, cables and conduit      |  |               | 138,331  |                   |  |   | 133,645  |  
|Construction in progress              |  |               | 4,068    |                   |  |   | 8,322    |  
|                                      |  |               |          |                   |  |   |          |  
|                                      |  |               | 388,321  |                   |  |   | 376,167  |  
|Accumulated depreciation              |  |               | (179,715 | )                 |  |   | (164,270 | )
|                                      |  |               |          |                   |  |   |          |  
|Property and equipment, net           |  | $             | 208,606  |                   |  | $ | 211,897  |  
|                                      |  |               |          |                   |  |   |          |  



|5. |  | RESTATEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In the course of the preparation of its financial statements for the
year 2002, the Company identified accounting errors in estimating
certain revenues and expenses in prior periods. Specifically, the
Company determined that estimates for certain access revenues and
network expenses, as well as several settlement processes with other
telephone companies, were incorrect. The cumulative after-tax
effect of these errors for the three and six months ended June 30,
2002, resulted in the Company recording additional net loss of $0.1
million and $0.2 million, respectively. The cumulative after-tax
effect of these errors resulted in a reduction in diluted earnings
per share of $0.01 per share for the three and six months ended June
30, 2002. The accompanying financial statements for the three and
six months ended June 30, 2002, have been restated to reflect the
corrected calculations.

6



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



| |  | The correction of the above items resulted in the restatement of
certain amounts on the statements of income for the three and six
months ended June 30, 2002. These items are as follows (in
thousands):
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      |  |                                  |        |            |  |              |        |             |  |   |      |   |  |   |        |  
|----------------------------------------------------- |  | -------------------------------- | ------ | ---------- |  | ------------ | ------ | ----------- |  | - | ---- | - |  | - | ------ | -
|                                                      |  | Three months ended June 30, 2002
|                                                      |  |                                 
|                                                      |  |                                  |        |            |  | (Note 6)     |        |             |  |   |      |   |  |  
|                                                      |  |                                  |        |            |  | Discontinued |        |             |  |   |      |   |  |  
|Income Statement                                      |  | As Reported                      |        | Operations |  | Restatement  |        | As Restated
|                                                      |  |                                  |        |            |  |              |        |            
|Operating revenue                                     |  | $                                | 37,381 |            |  | $            | (47    | )           |  | $ | (208 | ) |  | $ | 37,126 |  
|Operating expense                                     |  |                                  | 33,967 |            |  |              | (1,222 | )           |  |   | (37  | ) |  |   | 32,708 |  
|Operating income                                      |  |                                  | 3,414  |            |  |              | 1,175  |             |  |   | (171 | ) |  |   | 4,418  |  
|Other income                                          |  |                                  | 1,281  |            |  |              | (30    | )           |  |   |     |   |  |   | 1,251  |  
|Income from continuing
operations before income taxes |  |                                  | 4,695  |            |  |              | 1,145  |             |  |   | (171 | ) |  |   | 5,669  |  
|Income taxes                                          |  |                                  | 1,918  |            |  |              | 389    |             |  |   | (70  | ) |  |   | 2,237  |  
|Income from continuing operations                     |  |                                  | 2,777  |            |  |              | 756    |             |  |   | (101 | ) |  |   | 3,432  |  
|Loss from discontinued operations                     |  |                                  |       |            |  |              | (756   | )           |  |   |     |   |  |   | (756   | )
|Net income (loss)                                     |  |                                  | 2,777  |            |  |              |       |             |  |   | (101 | ) |  |   | 2,676  |  

|                                                      |  |                                |        |            |  |              |        |             |  |   |      |   |  |   |        |  
|----------------------------------------------------- |  | ------------------------------ | ------ | ---------- |  | ------------ | ------ | ----------- |  | - | ---- | - |  | - | ------ | -
|                                                      |  | Six months ended June 30, 2002
|                                                      |  |                               
|                                                      |  |                                |        |            |  | (Note 6)     |        |             |  |   |      |   |  |  
|                                                      |  |                                |        |            |  | Discontinued |        |             |  |   |      |   |  |  
|Income Statement                                      |  | As Reported                    |        | Operations |  | Restatement  |        | As Restated
|                                                      |  |                                |        |            |  |              |        |            
|Operating revenue                                     |  | $                              | 72,956 |            |  | $            | (82    | )           |  | $ | (93  | ) |  | $ | 72,781 |  
|Operating expense                                     |  |                                | 66,480 |            |  |              | (2,550 | )           |  |   | 176  |   |  |   | 64,106 |  
|Operating income                                      |  |                                | 6,476  |            |  |              | 2,468  |             |  |   | (269 | ) |  |   | 8,675  |  
|Other income                                          |  |                                | 2,958  |            |  |              | 89     |             |  |   |     |   |  |   | 3,047  |  
|Income from continuing
operations before income taxes |  |                                | 9,434  |            |  |              | 2,557  |             |  |   | (269 | ) |  |   | 11,722 |  
|Income taxes                                          |  |                                | 3,861  |            |  |              | 869    |             |  |   | (110 | ) |  |   | 4,620  |  
|Income from continuing operations                     |  |                                | 5,573  |            |  |              | 1,688  |             |  |   | (159 | ) |  |   | 7,102  |  
|Loss from discontinued operations                     |  |                                |       |            |  |              | (1,688 | )           |  |   |     |   |  |   | (1,688 | )
|Net income (loss)                                     |  |                                | 5,573  |            |  |              |       |             |  |   | (159 | ) |  |   | 5,414  |  

|                                          |  |                                |         |            |  |              |        |             |  |   |   |  |  |   |         |  
|----------------------------------------- |  | ------------------------------ | ------- | ---------- |  | ------------ | ------ | ----------- |  | - | - |  |  | - | ------- | -
|                                          |  | Six months ended June 30, 2002
|                                          |  |                               
|                                          |  |                                |         |            |  | (Note 6)     |        |             |  |   |   |  |  |  
|                                          |  |                                |         |            |  | Discontinued |        |             |  |   |   |  |  |  
|Cash Flow Statement                       |  | As Reported                    |         | Operations |  | Restatement  |        | As Restated
|                                          |  |                                |         |            |  |              |        |            
|Net cash provided by operating
activities |  | $                              | 15,531  |            |  | $            | 1,958  |             |  | $ |  |  |  | $ | 17,489  |  
|Net cash used in investing
activities     |  |                                | (25,265 | )          |  |              |       |             |  |   |  |  |  |   | (25,265 | )
|Net cash used in discontinued
operations  |  |                                |        |            |  |              | (1,958 | )           |  |   |  |  |  |   | (1,958  | )

7



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



|6. |  | DISCONTINUED OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On December 9, 2002 the Company discontinued its wireless broadband
commercial trial operations in Fayetteville, North Carolina. These
operations were provided by Wavetel, a subsidiary of the Company.
The Company ceased 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. As a result, Wavetels operations have
been reflected as discontinued operations and as assets and
liabilities held for sale in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144. For the three and six months
ended June 30, 2002, Wavetels revenue reported in discontinued
operations was $47,000 and $82,000, respectively. Wavetels loss
before income taxes, reported in discontinued operations, for the
three and six months ended June 30, 2002 was $1.1 million and $2.6
million, respectively. In the second quarter of 2003, the Company
re-evaluated the potential future liabilities related to the
discontinued Wavetel operations and determined that the potential
liabilities exceed the remaining restructuring reserve. Therefore,
the Company recorded an additional loss from discontinued operations,
before income taxes, of $0.7 million. The additional loss relates to
the Companys inability to sublease certain facilities that were
previously used in Wavetels operations. The adjustment is an
estimate based on the current market condition and could be revised
on a quarterly basis as new information becomes available. The
Company had no outstanding indebtedness directly related to the
Wavetel operations; therefore, no interest expense was allocated to
discontinued operations.
|  
|   |  | In connection with the discontinuance of operations, the Company
recognized a loss of $4.4 million in 2002 to write down the related
carrying amounts of assets to their fair values less cost to sell in
accordance with SFAS No. 144 and 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 assets and liabilities of the
discontinued operations at June 30, 2003 and December 31, 2002
consist of the following (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                        |                                                |  |          |       |              |  |   |       | 
|--------------------------------------- | ---------------------------------------------- |  | -------- | ----- | ------------ |  | - | ----- | 
|                                        |                                                |  | June 30, |       | December 31,
|                                        |                                                |  | 2003     |       | 2002        
|                                        |                                                |  |          |       |             
|Assets of discontinued operations:      |                                                |  |          |       |              |  |   |      
|                                        | Other current assets                           |  | $        |      |              |  | $ | 13    | 
|                                        | Property and equipment, net                    |  |          |      |              |  |   | 1,206 | 
|                                        |                                                |  |          |       |              |  |   |       | 
|                                        | Total assets                                   |  | $        |      |              |  | $ | 1,219 | 
|                                        |                                                |  |          |       |              |  |   |       | 
|Liabilities of discontinued operations: |                                                |  |          |       |              |  |   |      
|                                        | Accounts payable                               |  | $        | 28    |              |  | $ | 276   | 
|                                        | Accrued liabilities                            |  |          | 38    |              |  |   | 124   | 
|                                        | Other liabilities, primarily lease obligations |  |          | 1,322 |              |  |   | 1,245 | 
|                                        |                                                |  |          |       |              |  |   |       | 
|                                        | Total liabilities                              |  | $        | 1,388 |              |  | $ | 1,645 | 
|                                        |                                                |  |          |       |              |  |   |       | 

8



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



| |  | A summary of restructuring liability activity related to the
discontinued operations for the six months ended June 30, 2003 is as
follows (in thousands):
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|                             |                         |   |       |      |  
|---------------------------- | ----------------------- | - | ----- | ---- | -
|Balance at December 31, 2002 |                         | $ | 1,243 |     
|                             | Lease termination costs |   |       | (298 | )
|                             | Severance costs         |   |       | (130 | )
|                             | Network removal costs   |   |       | (93  | )
|                             | Other costs             |   |       | (100 | )
|                             | Adjustments             |   |       | 700  |  
|                             |                         |   |       |     
|Balance at June 30, 2003     |                         | $ | 1,322 |     
|                             |                         |   |       |     



|7. |  | COMMON STOCK                                                                                      
|-- |  | --------------------------------------------------------------------------------------------------
|  
|   |  | The following is a summary of Common Stock transactions during the
six months ended June 30, 2003:

|                                 |  |        |            |        |  |   |            |  
|-------------------------------- |  | ------ | ---------- | ------ |  | - | ---------- | -
|                                 |  | Shares |            | Amount
|                                 |  |        |            |       
|Outstanding at December 31, 2002 |  |        | 18,686,740 |        |  | $ | 39,962,278 |  
|Purchase of Common Stock         |  |        | (41,193    | )      |  |   | (438,383   | )
|Issuance of Common Stock         |  |        | 118,148    |        |  |   | 1,205,187  |  
|                                 |  |        |            |        |  |   |            |  
|Outstanding at June 30, 2003     |  |        | 18,763,695 |        |  | $ | 40,729,082 |  
|                                 |  |        |            |        |  |   |            |  

|                                                                             |  |       |            |         |  |  |            | 
|---------------------------------------------------------------------------- |  | ----- | ---------- | ------- |  |  | ---------- | 
|                                                                             |  | Basic |            | Diluted
|                                                                             |  |       |            |        
|Weighted average shares outstanding for the
three months ended June 30, 2003 |  |       | 18,739,580 |         |  |  | 18,781,631 | 
|Weighted average shares outstanding for the
three months ended June 30, 2002 |  |       | 18,734,756 |         |  |  | 18,774,592 | 
|Weighted average shares outstanding for the
six months ended June 30, 2003   |  |       | 18,727,943 |         |  |  | 18,748,101 | 
|Weighted average shares outstanding for the
six months ended June 30, 2002   |  |       | 18,746,997 |         |  |  | 18,790,135 | 



| |  | The Company began a stock repurchase program in March 2001 that was
extended in March 2002 that authorized the repurchase of up to
1,000,000 shares of its outstanding Common Stock. In April 2003,
the Board of Directors approved the extension of the stock
repurchase program through March 2004 and authorized the repurchase
of up to an additional 1,000,000 shares of its outstanding Common
Stock. As of June 30, 2003, 322,950 shares had been repurchased
since March 2001, at a cost of approximately $4.7 million.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Outstanding options to purchase approximately 597,000 and 624,000
shares of Common Stock for the three and six months ended June 30,
2003, respectively, and approximately 674,000 shares of Common Stock
for the three and six months ended June 30, 2002 were not included
in the computation of diluted earnings per share and diluted
weighted shares outstanding because the exercise price of these
options was greater than the average market price of the Common
Stock during the respective periods.                 

9



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



|8. |  | INVESTMENT SECURITIES                                                                                                                                                                                                       
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The amortized cost, gross unrealized holding gains, gross unrealized
holding losses and fair value for the Companys investments by class
of security at June 30, 2003 and December 31, 2002 were as follows
(in thousands):

|                   |  |           |       |                  |  |                  |     |            |  |   |      |   |  |   |       | 
|------------------ |  | --------- | ----- | ---------------- |  | ---------------- | --- | ---------- |  | - | ---- | - |  | - | ----- | 
|Equity Securities  |  | Amortized |       | Gross Unrealized |  | Gross Unrealized |     |            |  |  
|Available-for-Sale |  | Cost      |       | Holding Gains    |  | Holding Losses   |     | Fair Value
|                   |  |           |       |                  |  |                  |     |           
|June 30, 2003      |  | $         | 6,458 |                  |  | $                | 507 |            |  | $ | (127 | ) |  | $ | 6,838 | 
|December 31, 2002  |  | $         | 6,597 |                  |  | $                | 98  |            |  | $ | (316 | ) |  | $ | 6,379 | 



|   |  | During the second quarter of 2003, the Company recognized an
impairment loss of $0.3 million on an equity security investment due
to a decline in fair value of the equity security that, in the
opinion of management, was considered to be other than temporary.
This impairment loss is included in the caption Impairment of
investments in the accompanying consolidated statements of income.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|9. |  | INVESTMENTS IN UNCONSOLIDATED COMPANIES                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Investments in unconsolidated companies consist of the following (in
thousands):                                                                                                                                                                                                                                                                                                                     

|               |                                         |       |   |               |        |                   |   |       |        | 
|-------------- | --------------------------------------- | ----- | - | ------------- | ------ | ----------------- | - | ----- | ------ | 
|               |                                         |       |   | June 30, 2003 |        | December 31, 2002
|               |                                         |       |   |               |        |                  
|Equity Method: |                                         |       |   |               |        |                   |   |      
|               | Palmetto MobileNet, L.P.                |       | $ | 10,003        |        |                   | $ | 8,740 |       
|               | Other                                   |       |   | 109           |        |                   |   | 120   |       
|Cost Method:   |                                         |       |   |               |        |                   |   |      
|               | ITC Holding Company                     |       |   |              |        |                   |   | 1,980 |       
|               | Maxcom
Telecomunicaciones, S.A. de C.V. |       |   | 500           |        |                   |   | 1,239 |       
|               | Magnolia Holding Company                |       |   | 2,958         |        |                   |   |      |       
|               | Other                                   |       |   | 375           |        |                   |   | 650   |       
|               |                                         |       |   |               |        |                   |   |       |        | 
|               |                                         | Total |   | $             | 13,945 |                   |   | $     | 12,729 | 
|               |                                         |       |   |               |        |                   |   |       |       



| |  | On September 14, 2001, the Companys wholly-owned subsidiary, CT
Wireless Cable, Inc. (CTWC), and Wireless One of North Carolina,
L.L.C. (WONC), entered into a Limited Liability Company Interest
Purchase Agreement (the Purchase Agreement) with Wireless One,
Inc., a subsidiary of WorldCom, Inc. (Wireless One), and Worldcom
Broadband Solutions, Inc., pursuant to which WONC would purchase
from Wireless One its entire 50% interest in WONC. The Federal
Communications Commission (FCC) approved this transaction on March
28, 2002 and the transaction was closed on April 5, 2002. At
December 31, 2002, CTWC held 100% of the equity interest in WONC.
This transaction was accounted for using the purchase method of
accounting. As a result, the results of WONC were consolidated with
the Companys results from the beginning of the second quarter of
2002. Pro forma results for WONC are not material to the Companys
consolidated financial statements.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



| |  | The total purchase price for Wireless Ones interest in WONC was
$20.7 million, $3.0 million of which was paid in cash at the closing
and the remainder of which was paid in the form of an interest
bearing promissory note of WONC. The total purchase price of $20.7
million was allocated as follows (in thousands):
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         |  |   |        |  
|------------------------ |  | - | ------ | -
|Current assets           |  | $ | 278    |  
|Intangibles and licenses |  |   | 20,726 |  
|Equipment                |  |   | 412    |  
|Accounts payable         |  |   | (720   | )
|                         |  |   |        |  
|Total purchase price     |  | $ | 20,696 |  
|                         |  |   |        |  



| |  | On July 19, 2002, WONC delivered a Split-Up Notice to Wireless One
pursuant to the Purchase Agreement. This notice set into motion a
process under the Purchase Agreement pursuant to which WONC would
transfer to Wireless One certain of WONCs licensed frequencies.                                                                                                                                                                                                                                                                                                           
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | On April 22, 2003, WONC executed an agreement that resulted in the
cancellation of the $17.7 million promissory note payable to
Wireless One. The agreement resulted in the payment of accrued
interest due under the promissory note and the transfer of certain
licensed frequencies to Wireless One in exchange for the
cancellation of the $17.7 million promissory note payable to
Wireless One. The Company recorded charges of $0.4 million in the
second quarter as a result of this agreement. At June 30, 2003,
CTWC held 100% of the equity interest in WONC.            
|
| |  | On May 9, 2003, West Corporation (West) purchased the stock of ITC
Holding Company, Inc. (ITC). The Company had a 4.4% equity
interest in ITC. This transaction resulted in a gain to the Company
of $14.5 million. As part of the purchase agreement between West
and ITC, certain funds will be held in escrow until certain
contingencies are resolved. The Companys portion of the escrowed
funds is $1.2 million. The $1.2 million will not be recorded in the
Companys financial statements until the contingencies are resolved
and the escrowed funds become issuable.
|
| |  | In addition, in a separate, but related transaction, the Company
elected to use a portion of the cash proceeds received from the sale
of ITC to purchase stock of a newly formed company called Magnolia
Holding Company (Magnolia). Magnolia purchased certain assets of
ITC that were not purchased by West. The Company holds a 4.6%
equity interest in Magnolia.                                                                                                                                                                                                              
|
| |  | During the second quarter of 2003, the Company recognized an
impairment loss of $1.0 million related to its investments in
unconsolidated companies, of which $0.7 million related to its
investment in Maxcom Telecomunicaciones, S.A. de C.V. The
impairment loss is included in the caption Impairment of
investments in the accompanying consolidated statements of income.                                                                                                                                                                                                   

11



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CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



|10. |  | LONG-TERM DEBT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company has a $90.0 million revolving five year line of credit
with interest at three month LIBOR plus a spread based on various
financial ratios. The interest rate on June 30, 2003 was 2.62%.
The credit facility provides for quarterly payments of interest
until maturity on March 31, 2006. As of June 30, 2003, $40.0
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. All $50.0 million was outstanding as
of June 30, 2003. The Company also has an additional line of credit
for $10.0 million at one month LIBOR plus 1.25%. As of June 30,
2003, the Company had no amounts outstanding under this credit line.                                         
|   
|    |  | The Company has three interest rate swap transactions to fix $10.0
million, $5.0 million and $5.0 million of the amounts outstanding
under the $90.0 million revolving line of credit at rates of 5.9%,
4.53% and 3.81%, respectively. The fair value of each of the swaps
as of June 30, 2003 was $(0.4) million, $(0.4) million and $(0.2)
million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|11. |  | GOODWILL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | On 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 will continue
to test goodwill for impairment at least annually. Goodwill was
$9.9 million as of June 30, 2003, and was unchanged for the quarter
then ended.                                                                                                                                                                                                                                                                                             
|   
|    |  | In adopting SFAS No. 142, the Company reassessed the useful lives of
other intangible assets. Other intangible assets consist primarily
of wireless licenses. Wireless licenses have terms of 10 years, but
are renewable through a routine process involving a nominal fee.
The Company has determined that no legal, regulatory, contractual,
competitive, economic or other factors currently exist that limit
the useful life of its wireless licenses. Therefore, the Company is
no longer amortizing wireless licenses based on the determination
that these assets have indefinite lives. In accordance with SFAS
No. 142, the Company periodically reviews its determination of an
indefinite useful life for wireless licenses.                                                
|   
|12. |  | RECENT ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | In April 2002, the Financial Accounting Standards Board (FASB)
issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections.
This statement eliminates extraordinary accounting treatment for a
gain or loss reported on the extinguishment of debt and amends other
existing authoritative pronouncements to make technical corrections,
clarify meanings, or describe their applicability under changed
conditions. The provisions of this statement are effective for the
Company with the beginning of fiscal year 2003. The adoption of
this statement did not have a material impact on the Companys
overall financial position or results of operations.                                              
|   
|    |  | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires
that the fair value of a liability associated with an exit or
disposal activity be recognized when the liability is incurred.
Prior to the adoption of SFAS No. 146, certain exit costs were
recognized when the Company committed to a restructuring plan, which
may have been before the liability was incurred. The Company will
apply the provisions of SFAS No. 146 for all exit or disposal
activities initiated after December 31, 2002.                                                                                                                                                                                                   
|   
|    |  | In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based CompensationTransition and Disclosure. SFAS No. 148
presents additional alternatives for transitioning to the fair value
method of accounting for stock-based compensation, prescribes the
format to be used for pro forma disclosures and requires the
inclusion of similar pro forma disclosures in interim financial
statements. SFAS No. 148 is effective for fiscal years ending after
December 15, 2002. The interim disclosure provisions are effective
for financial reports containing financial statements for interim
periods beginning after December 15, 2002. The adoption of this
statement did not have a significant effect on the Companys
financial position or results of operations.

12



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



|    |  | In January 2003, the FASB issued Interpretation No. 46,
Consolidation of Variable Interest Entities, (Interpretation 46)
to clarify the conditions under which assets, liabilities and
activities of another entity should be consolidated into the
financial statements of a company. Interpretation 46 requires the
consolidation of a variable interest entity (including a special
purpose entity such as that utilized in an accounts receivable
securitization transaction) by a company that bears the majority of
the risk of loss from the variable interest entitys activities, is
entitled to receive a majority of the variable interest entitys
residual returns or both. The provisions of Interpretation 46 are
required to be adopted by the Company in 2003. The Company does not
believe the adoption of Interpretation 46 will have a material
impact on its overall financial position or results of operations.                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|13. |  | STOCK OPTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related
interpretations including FASB Interpretation No. 44, Accounting
for Certain Transactions Involving Stock Compensation an
Interpretation of APB Opinion No. 25 issued in March 2000 to

account for its fixed plan stock options. Under this method,
compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise
price. SFAS No. 123, Accounting for Stock-Based Compensation,
established accounting and disclosure requirements using a fair
value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply the intrinsic value-based method of
accounting described above, and has adopted the disclosure
requirements of SFAS No. 123 and SFAS No. 148.
|   
|    |  | 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 June 30, |      | Six months ended June 30,
|                                                                                                                  |             |   |                             |      |                          
|                                                                                                                  |             |   |                             |      |                           |   | (Restated) |      |      |   |        |      | (Restated)
|                                                                                                                  |             |   | 2003                        |      | 2002                      |   | 2003       |      | 2002
|                                                                                                                  |             |   |                             |      |                           |   |            |      |     
|Net income, as reported                                                                                           |             | $ | 10,358                      |      |                           | $ | 2,676      |      |      | $ | 12,840 |      |            | $ | 5,414 |     
|Total stock-based compensation expense
determined under fair value based method
for all awards, net of income tax |             |   | 209                         |      |                           |   | 181        |      |      |   | 417    |      |            |   | 362   |     
|                                                                                                                  |             |   |                             |      |                           |   |            |      |      |   |        |      |            |   |       |     
|Pro forma net income                                                                                              |             | $ | 10,149                      |      |                           | $ | 2,495      |      |      | $ | 12,423 |      |            | $ | 5,052 |     
|                                                                                                                  |             |   |                             |      |                           |   |            |      |      |   |        |      |            |   |       |     
|Basic earnings per common share                                                                                   |             |   |                             |      |                           |   |            |      |      |   |        |      |            |   |       |     
|                                                                                                                  | As reported |   | $                           | 0.55 |                           |   | $          | 0.14 |      |   | $      | 0.69 |            |   | $     | 0.29 | 
|                                                                                                                  | Pro forma   |   |                             | 0.54 |                           |   |            | 0.13 |      |   |        | 0.66 |            |   |       | 0.27 | 
|Diluted earnings per common share                                                                                 |             |   |                             |      |                           |   |            |      |      |   |        |      |            |   |       |     
|                                                                                                                  | As reported |   |                             | 0.55 |                           |   |            | 0.14 |      |   |        | 0.68 |            |   |       | 0.29 | 
|                                                                                                                  | Pro forma   |   |                             | 0.54 |                           |   |            | 0.13 |      |   |        | 0.66 |            |   |       | 0.27 | 



|14. |  | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company has six reportable segments, each of which are strategic
businesses that are managed separately due to certain fundamental
differences such as regulatory environment or services offered. The
segments and a description of their businesses are as follows: the
incumbent local exchange carrier (ILEC), which provides local
telephone services, the digital wireless group (Digital Wireless),
which provides wireless phone services, the competitive local
exchange carrier (CLEC), which provides competitive local
telephone services to customers outside the ILECs operating area,
the Greenfield business (Greenfield), which provides full
telecommunications services to mixed-use developments outside the
ILECs operating area, Internet and data services (IDS), which
provides dial-

13



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



| |  | 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 of which the Company has an equity interest
through CT Cellular. All other business units, investments and
operations of the Company that do not meet reporting guidelines and
thresholds are reported under Other. Quarterly information for
the Palmetto reporting segment is not shown separately below due to
the lack of availability of timely financial information. Palmetto
is not a public company and therefore, is not subject to the same
reporting deadlines as the Company. The Company will continue to
include the financial information for Palmetto on an annual basis as
presented in the Form 10-K for the year ended December 31, 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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 for the year ended December 31,
2002. The Company evaluates performance based on operating income.
Intersegment transactions have been eliminated for purposes of
calculating operating income. All segments reported below provide
services primarily within North Carolina. Greenfield also provides
service in Georgia. Selected data by business segment for the three
and six months ended June 30, 2003 and 2002, is as follows (in
thousands):                                                                                                                                                                                                                                                      
|
| |  | Three months ended June 30, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|----------------------------- |  | ---- | ------- | -------- |  | ------- | ------ | ---------- |  | --- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | 
|                              |  |      |         |          |  | Digital |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |  
|                              |  | ILEC |         | Wireless |  | CLEC    |        | Greenfield |  | IDS |        | Other |  | Total
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |      
|External
revenue              |  | $    | 23,568  |          |  | $       | 6,808  |            |  | $   | 5,377  |       |  | $     | 1,565  |   |  | $ | 2,635  |   |  | $ |       |   |  | $ | 39,953  | 
|External
expense              |  |      | 11,428  |          |  |         | 5,612  |            |  |     | 4,790  |       |  |       | 2,073  |   |  |   | 2,548  |   |  |   | 757    |   |  |   | 27,208  | 
|Depreciation
and
amortization |  |      | 5,045   |          |  |         | 437    |            |  |     | 424    |       |  |       | 861    |   |  |   | 501    |   |  |   | 331    |   |  |   | 7,599   | 
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Operating
income (loss)       |  | $    | 7,095   |          |  | $       | 759    |            |  | $   | 163    |       |  | $     | (1,369 | ) |  | $ | (414   | ) |  | $ | (1,088 | ) |  | $ | 5,146   | 
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Segment assets                |  | $    | 163,125 |          |  | $       | 30,742 |            |  | $   | 16,215 |       |  | $     | 23,153 |   |  | $ | 14,937 |   |  | $ | 67,312 |   |  | $ | 315,484 | 



| |  | Three months ended June 30, 2002 (Restated)
| |  | -------------------------------------------

|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|----------------------------- |  | ---- | ------- | -------- |  | ------- | ------ | ---------- |  | --- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | 
|                              |  |      |         |          |  | Digital |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |  
|                              |  | ILEC |         | Wireless |  | CLEC    |        | Greenfield |  | IDS |        | Other |  | Total
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |      
|External
revenue              |  | $    | 23,906  |          |  | $       | 6,001  |            |  | $   | 3,873  |       |  | $     | 902    |   |  | $ | 2,444  |   |  | $ |       |   |  | $ | 37,126  | 
|External
expense              |  |      | 11,133  |          |  |         | 4,840  |            |  |     | 5,199  |       |  |       | 1,709  |   |  |   | 2,502  |   |  |   | 539    |   |  |   | 25,922  | 
|Depreciation
and
amortization |  |      | 4,929   |          |  |         | 278    |            |  |     | 547    |       |  |       | 479    |   |  |   | 348    |   |  |   | 205    |   |  |   | 6,786   | 
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Operating
income (loss)       |  | $    | 7,844   |          |  | $       | 883    |            |  | $   | (1,873 | )     |  | $     | (1,286 | ) |  | $ | (406   | ) |  | $ | (744   | ) |  | $ | 4,418   | 
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Segment assets                |  | $    | 161,536 |          |  | $       | 29,968 |            |  | $   | 17,511 |       |  | $     | 18,253 |   |  | $ | 15,562 |   |  | $ | 90,245 |   |  | $ | 333,075 | 

14



---



##### 





| |  | Six months ended June 30, 2003
| |  | ------------------------------

|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|----------------------------- |  | ---- | ------- | -------- |  | ------- | ------ | ---------- |  | --- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | 
|                              |  |      |         |          |  | Digital |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |  
|                              |  | ILEC |         | Wireless |  | CLEC    |        | Greenfield |  | IDS |        | Other |  | Total
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |      
|External
revenue              |  | $    | 47,100  |          |  | $       | 13,681 |            |  | $   | 9,848  |       |  | $     | 2,877  |   |  | $ | 5,143  |   |  | $ |       |   |  | $ | 78,649  | 
|External
expense              |  |      | 22,398  |          |  |         | 11,287 |            |  |     | 9,558  |       |  |       | 4,001  |   |  |   | 4,944  |   |  |   | 1,596  |   |  |   | 53,784  | 
|Depreciation
and
amortization |  |      | 10,452  |          |  |         | 800    |            |  |     | 1,086  |       |  |       | 1,415  |   |  |   | 972    |   |  |   | 662    |   |  |   | 15,387  | 
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Operating
income (loss)       |  | $    | 14,250  |          |  | $       | 1,594  |            |  | $   | (796   | )     |  | $     | (2,539 | ) |  | $ | (773   | ) |  | $ | (2,258 | ) |  | $ | 9,478   | 
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Segment assets                |  | $    | 163,125 |          |  | $       | 30,742 |            |  | $   | 16,215 |       |  | $     | 23,153 |   |  | $ | 14,937 |   |  | $ | 67,312 |   |  | $ | 315,484 | 



| |  | Six months ended June 30, 2002 (Restated)
| |  | -----------------------------------------

|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|----------------------------- |  | ---- | ------- | -------- |  | ------- | ------ | ---------- |  | --- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | 
|                              |  |      |         |          |  | Digital |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |  
|                              |  | ILEC |         | Wireless |  | CLEC    |        | Greenfield |  | IDS |        | Other |  | Total
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |      
|External
revenue              |  | $    | 47,127  |          |  | $       | 11,846 |            |  | $   | 7,320  |       |  | $     | 1,702  |   |  | $ | 4,786  |   |  | $ |       |   |  | $ | 72,781  | 
|External
expense              |  |      | 21,855  |          |  |         | 9,592  |            |  |     | 9,962  |       |  |       | 3,350  |   |  |   | 5,279  |   |  |   | 780    |   |  |   | 50,818  | 
|Depreciation
and
amortization |  |      | 9,847   |          |  |         | 478    |            |  |     | 1,062  |       |  |       | 899    |   |  |   | 791    |   |  |   | 211    |   |  |   | 13,288  | 
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Operating
income (loss)       |  | $    | 15,425  |          |  | $       | 1,776  |            |  | $   | (3,704 | )     |  | $     | (2,547 | ) |  | $ | (1,284 | ) |  | $ | (991   | ) |  | $ | 8,675   | 
|                              |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Segment assets                |  | $    | 161,536 |          |  | $       | 29,968 |            |  | $   | 17,511 |       |  | $     | 18,253 |   |  | $ | 15,562 |   |  | $ | 90,245 |   |  | $ | 333,075 | 



| |  | Reconciliation to income from continuing operations before income
taxes (in thousands):
| |  | ---------------------------------------------------------------------------------------

|                                                      |  |                             |        |                           |  |            |       |      |  |   |        |            |  |   |        | 
|----------------------------------------------------- |  | --------------------------- | ------ | ------------------------- |  | ---------- | ----- | ---- |  | - | ------ | ---------- |  | - | ------ | 
|                                                      |  | Three months ended June 30, |        | Six months ended June 30,
|                                                      |  |                             |        |                          
|                                                      |  |                             |        |                           |  | (Restated) |       |      |  |   |        | (Restated)
|                                                      |  | 2003                        |        | 2002                      |  | 2003       |       | 2002
|                                                      |  |                             |        |                           |  |            |       |     
|Segment operating income                              |  | $                           | 5,146  |                           |  | $          | 4,418 |      |  | $ | 9,478  |            |  | $ | 8,675  | 
|Total other income                                    |  |                             | 12,636 |                           |  |            | 1,251 |      |  |   | 12,551 |            |  |   | 3,047  | 
|                                                      |  |                             |        |                           |  |            |       |      |  |   |        |            |  |   |        | 
|Income from continuing operations
before income taxes |  | $                           | 17,782 |                           |  | $          | 5,669 |      |  | $ | 22,029 |            |  | $ | 11,722 | 
|                                                      |  |                             |        |                           |  |            |       |      |  |   |        |            |  |   |        | 

15



---



##### 



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

Overview and Segments



| |  | We are a growing provider of telecommunications services to
residential and business customers located primarily in North
Carolina. We offer a broad range of telecommunications services
consisting of local and long distance telephone services, Internet
and data services, and digital wireless products and services.                                                                                                                                                                                                                                                                                                                             
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | We have worked to expand our core businesses through the development
of integrated product and service offerings, investment in growth
initiatives that exceed our return thresholds and targeted marketing
efforts to efficiently identify and obtain customers.                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | In addition, we have made certain strategic investments that
complement our business units. During 2001, we expanded our
wireless business through the partitioning of our area of the
Cingular digital networks.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | We devoted substantial effort in the past three years to developing
business plans, enhancing our management team and board of
directors, and designing and developing our business support and
operating systems. Development of these areas required significant
investment of capital and start-up expenses. We believe that through
these investments, we are positioning ourselves to achieve our
strategic objectives.                                                                                                                                                                                                                            
|
| |  | Our primary focus is to maximize our ILEC business in our current
markets by cross-selling integrated products and packages and
growing our customer base through our CLEC, Greenfield, Internet and
Data Services, and Digital Wireless businesses. We will also
consider strategic acquisitions and investments as opportunities
arise.                                                                                                                                                                                                                                                                                                               
|
| |  | We have identified reportable segments based on the common
characteristics of products and services and/or the customers
served. The identified reportable segments are: ILEC, CLEC,
Greenfield, Digital Wireless, Internet and Data Services and

Palmetto. All other businesses that do not meet reporting
guidelines and thresholds are reported under Other Business Units.
Quarterly information for the Palmetto reporting segment is not
shown separately below due to the lack of availability of timely
financial information. Palmetto is not a public company and
therefore, is not subject to the same reporting deadlines as the
Company.
|
| |  | The following discussion reviews the results of our consolidated
operations and specific results within each reportable segment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

Results of Operations



| |  | Consolidated Operating Results(in thousands except lines and subscribers)
| |  | -------------------------------------------------------------------------

|                              |  |                             |        |                           |  |            |        |      |  |   |         |            |  |   |         | 
|----------------------------- |  | --------------------------- | ------ | ------------------------- |  | ---------- | ------ | ---- |  | - | ------- | ---------- |  | - | ------- | 
|                              |  | Three months ended June 30, |        | Six months ended June 30,
|                              |  |                             |        |                          
|                              |  |                             |        |                           |  | (Restated) |        |      |  |   |         | (Restated)
|                              |  | 2003                        |        | 2002                      |  | 2003       |        | 2002
|                              |  |                             |        |                           |  |            |        |     
|Total operating revenue       |  | $                           | 39,953 |                           |  | $          | 37,126 |      |  | $ | 78,649  |            |  | $ | 72,781  | 
|Total operating expense       |  |                             | 34,807 |                           |  |            | 32,708 |      |  |   | 69,171  |            |  |   | 64,106  | 
|                              |  |                             |        |                           |  |            |        |      |  |   |         |            |  |   |         | 
|Operating income              |  | $                           | 5,146  |                           |  | $          | 4,418  |      |  | $ | 9,478   |            |  | $ | 8,675   | 
|                              |  |                             |        |                           |  |            |        |      |  |   |         |            |  |   |         | 
|Depreciation and amortization |  | $                           | 7,599  |                           |  | $          | 6,786  |      |  | $ | 15,387  |            |  | $ | 13,288  | 
|Capital expenditures          |  |                             | 5,248  |                           |  |            | 14,888 |      |  |   | 11,024  |            |  |   | 27,322  | 
|Total assets                  |  |                             |        |                           |  |            |        |      |  |   | 315,484 |            |  |   | 333,075 | 
|Ending wired access lines     |  |                             |        |                           |  |            |        |      |  |   | 152,720 |            |  |   | 150,354 | 
|Ending wireless subscribers   |  |                             |        |                           |  |            |        |      |  |   | 34,572  |            |  |   | 32,107  | 



| |  | Three months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating revenue increased $2.8 million or 7.6% for the three
months ended June 30, 2003 compared to the three months ended June
30, 2002. This $2.8 million increase is primarily attributable to a
$1.5 million increase in CLEC revenue driven by a 13.4% increase in
CLEC access lines and recognition of $0.5 million in previously
disputed access revenue, a $0.8 million increase in Digital Wireless
revenue driven by a 7.7% increase in wireless subscribers

16



---



##### 





| |  | and an increase in wireless settlement and roaming revenue, a $0.7
million increase in Greenfield revenue as Greenfield access lines
increased 81.5% and a $0.2 million increase in Internet and Data
Services revenue. These increases were partially offset by a $0.3
million decrease in ILEC revenue.                                                                                                                                                                                                                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For the three months ended June 30, 2003, operating expense
increased $2.1 million or 6.4% compared to the three months ended
June 30, 2002. The increase in operating expense is primarily
related to the increasing customer base in our Digital Wireless,
CLEC and Greenfield businesses. In addition, $0.8 million of the
increase is related to higher depreciation and amortization expenses
related to the addition of 14 cell sites during the second half of
2002.                                                                                                          
|
| |  | Operating margin was 12.9% for the three months ended June 30, 2003
compared to 11.9% for the three months ended June 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Six months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Operating revenue increased $5.9 million or 8.1% for the six months
ended June 30, 2003 when compared to the six months ended June 30,
2002. This $5.9 million increase is primarily attributable to a
$2.5 million increase in CLEC revenue, a $1.8 million increase in
Digital Wireless revenue and a $1.2 million increase in Greenfield
revenue.                                                                                                                                                                                                                                 
|
| |  | As a result of this growth in our competitive businesses, we have
diversified operating revenue in the Company significantly over the
past two years. For the six months ended June 30, 2003, the ILEC
represented 59.9% of revenue compared to 64.8% in 2002, while
Digital Wireless has grown to 17.4% of revenue and the combined CLEC
and Greenfield businesses has grown to 16.2% of revenue.                                                                                                                                                                                   
|
| |  | For the six months ended June 30, 2003, operating expense increased
$5.1 million or 7.9% as compared to the six months ended June 30,
2002. Of this increase in operating expense, $2.1 million is
related to depreciation and amortization expense as several large
capital projects were completed during 2002. The remaining increase
is related to the increasing customer base in our Digital Wireless,
CLEC and Greenfield businesses.                                                                                                                                         
|
| |  | For the six months ended June 30, 2003, revenue grew 8.1% and
expense grew 7.9%. Operating margin was 12.1% for the six months
ended June 30, 2003 compared to 11.9% for the six months ended June
30, 2002.                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | On July 30, 2003, Pillowtex Corp., a large textile company in North
Carolina, announced it was filing for bankruptcy and would layoff
its entire workforce. The majority of Pillowtexs operations and
employees are located in the areas in which the Company operates.
The potential impact on the Companys financial results can not be
determined at this time.                                                                                                                                                                                                                 
|
| |  | In February 2003, the Federal Communications Commission (FCC)
adopted a decision resulting from a triennial review of rules
concerning unbundled network elements (UNEs). This decision has
yet to be released by the FCC. After it is released, state
commissions will be required to address several issues. In
addition, the FCC is expected to begin an inquiry later this year
into making changes to its total element long run incremental cost
methodology (TELRIC) pricing rules. At this time, the impact of
these decisions to our businesses can not be determined.
|
| |  | 17                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | ILEC(in thousands except lines)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                |  |                             |        |                           |  |            |        |      |  |   |         |            |  |   |         | 
|------------------------------- |  | --------------------------- | ------ | ------------------------- |  | ---------- | ------ | ---- |  | - | ------- | ---------- |  | - | ------- | 
|                                |  | Three months ended June 30, |        | Six months ended June 30,
|                                |  |                             |        |                          
|                                |  |                             |        |                           |  | (Restated) |        |      |  |   |         | (Restated)
|                                |  | 2003                        |        | 2002                      |  | 2003       |        | 2002
|                                |  |                             |        |                           |  |            |        |     
|Total operating revenue         |  | $                           | 23,568 |                           |  | $          | 23,906 |      |  | $ | 47,100  |            |  | $ | 47,127  | 
|Total operating expense         |  |                             | 16,473 |                           |  |            | 16,062 |      |  |   | 32,850  |            |  |   | 31,702  | 
|                                |  |                             |        |                           |  |            |        |      |  |   |         |            |  |   |         | 
|Operating income                |  | $                           | 7,095  |                           |  | $          | 7,844  |      |  | $ | 14,250  |            |  | $ | 15,425  | 
|                                |  |                             |        |                           |  |            |        |      |  |   |         |            |  |   |         | 
|Depreciation and amortization   |  | $                           | 5,045  |                           |  | $          | 4,929  |      |  | $ | 10,452  |            |  | $ | 9,847   | 
|Capital expenditures            |  |                             | 2,868  |                           |  |            | 5,464  |      |  |   | 6,176   |            |  |   | 8,764   | 
|Total assets                    |  |                             |        |                           |  |            |        |      |  |   | 163,125 |            |  |   | 161,536 | 
|Ending business access lines    |  |                             |        |                           |  |            |        |      |  |   | 29,373  |            |  |   | 31,458  | 
|Ending residential access lines |  |                             |        |                           |  |            |        |      |  |   | 87,489  |            |  |   | 89,905  | 
|Ending total access lines       |  |                             |        |                           |  |            |        |      |  |   | 116,862 |            |  |   | 121,363 | 
|Ending long distance lines      |  |                             |        |                           |  |            |        |      |  |   | 84,686  |            |  |   | 83,849  | 



| |  | Three months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating revenue for the ILEC decreased $0.3 million for the three
months ended June 30, 2003. This 1.4% decrease in revenue was
primarily due to a $0.3 million decrease in long distance revenue
and a $0.3 million decrease in equipment sales. In addition,
contributing to this decrease was a $0.4 million decrease in
wireless interconnection revenues compared to the second quarter of
2002. These decreases were partially offset by an increase in
settlement revenue of $0.6 million and a slight increase in average
recurring line revenue despite a 3.7% decrease in access lines.                                                                                                                                                                                                              
|
| |  | Wireless interconnection revenue is likely to decline further as the
Company develops direct billing relationships with wireless carriers
for termination of wireless traffic in our network. The Company
believes that quarterly revenue may decline up to $0.8 million
compared to historical rates. This decline is due to migration of
this traffic to direct billing arrangements subject to negotiated
interconnection rates that are lower than rates previously realized
for termination of this traffic. This rate decline will be somewhat
offset as wireless traffic terminated in our network increases. The
Company has raised this issue with the North Carolina Utilities
Commission (NCUC); however, it is uncertain whether the NCUC will
grant any relief or what form such relief will take.
|
| |  | Operating expense in the ILEC increased $0.4 million for the three
months ended June 30, 2003 compared to the three months ended June
30, 2002. Operating margins decreased to 30.1% in 2003 from 32.8%
in 2002. Approximately half of this margin reduction can be
attributed to the decline in wireless interconnection revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Capital expenditures for the three months ended June 30, 2003 were
12.2% of ILEC operating revenue as compared to 22.9% for the three
months ended June 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | ILEC access lines subscribing to our long distance service increased
slightly for the three months ended June 30, 2003 despite the 3.7%
access line loss. At June 30, 2003, 72.5% of ILEC access lines
subscribed to our long distance service, up from 69.1% at June 30,
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Six months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Operating revenue for the ILEC for the six months ended June 30,
2003 was flat compared to the six months ended June 30, 2002,
despite a 3.7% decrease in access lines.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Primary factors impacting the access lines decrease are the loss of
second lines due to digital subscriber line (DSL) adoption, cable
modem penetration and wireless substitution. In addition, during
the six months ended June 30, 2003, 1,581 business lines were lost
related to two Internet service providers that moved their service
to a wholesale provider. Although these 1,581 lines are not
included in the line counts, the Company still receives wholesale
revenues from these lines. Also contributing to the business line
loss during the six months ended June                                                                                                                                                                                                                             

18



---



##### 





| |  | 30, 2003 was the uncertain economic environment in the area in which
we serve, specifically the difficulties faced by the textiles
industry.                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating expense in the ILEC increased $1.1 million for the six
months ended June 30, 2003 compared to the six months ended June 30,
2002. Operating margins decreased to 30.3% in 2003 from 32.7% in
2002. An increase in depreciation and amortization expense
accounted for $0.6 million of the increase in operating expense. In
addition, a portion of the decrease in operating margins can be
attributed to the decline in wireless interconnection revenue.                                              
|
| |  | Legislation was enacted in the North Carolina General Assembly that
has effectively deregulated the provision of intraLATA long distance
service, interLATA long distance service, long distance operator
services and provided other regulatory flexibility. This
legislation will not affect our long distance operation since it is
not required to file tariffs for services regulated by the NCUC.
However, this legislation will allow our ILEC more flexibility in
offering service bundles and promotions.
|
| |  | CLEC(in thousands except lines)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                              |  |                             |       |                           |  |            |        |            |  |   |        |   |  |   |        |  
|----------------------------- |  | --------------------------- | ----- | ------------------------- |  | ---------- | ------ | ---------- |  | - | ------ | - |  | - | ------ | -
|                              |  | Three months ended June 30, |       | Six months ended June 30,
|                              |  |                             |       |                           |  | (Restated) |        | (Restated)
|                              |  | 2003                        |       | 2002                      |  | 2003       |        | 2002      
|                              |  |                             |       |                           |  |            |        |           
|Total operating revenue       |  | $                           | 5,377 |                           |  | $          | 3,873  |            |  | $ | 9,848  |   |  | $ | 7,320  |  
|Total operating expense       |  |                             | 5,214 |                           |  |            | 5,746  |            |  |   | 10,644 |   |  |   | 11,024 |  
|                              |  |                             |       |                           |  |            |        |            |  |   |        |   |  |   |        |  
|Operating income (loss)       |  | $                           | 163   |                           |  | $          | (1,873 | )          |  | $ | (796   | ) |  | $ | (3,704 | )
|                              |  |                             |       |                           |  |            |        |            |  |   |        |   |  |   |        |  
|Depreciation and amortization |  | $                           | 424   |                           |  | $          | 547    |            |  | $ | 1,086  |   |  | $ | 1,062  |  
|Capital expenditures          |  |                             | 209   |                           |  |            | 1,086  |            |  |   | 465    |   |  |   | 1,586  |  
|Total assets                  |  |                             |       |                           |  |            |        |            |  |   | 16,215 |   |  |   | 17,511 |  
|Ending access lines           |  |                             |       |                           |  |            |        |            |  |   | 27,897 |   |  |   | 24,605 |  
|Ending long distance lines    |  |                             |       |                           |  |            |        |            |  |   | 14,649 |   |  |   | 12,989 |  



| |  | Three months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For the three months ended June 30, 2003, CLEC operating revenue
increased $1.5 million compared to the three months ended June 30,
2002. This increase is due to a 13.4% increase in access lines, as
well as a 12.8% increase in CLEC customers subscribing to our long
distance service. In addition, $0.5 million of the increase in
revenue was the result of the collection of previously disputed
carrier access billings in the second quarter of 2003.                                                                                              
|
| |  | CLEC operating expense was $5.2 million and $5.7 million for the
three months ended June 30, 2003 and June 30, 2002, respectively.
We expect margins to continue to be positively impacted as we add
new customers to the existing transport infrastructure and continue
internal initiatives to control costs and improve profitability.                                                                                                                                                                                                                    
|
| |  | Six months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | For the six months ended June 30, 2003, CLEC operating revenue
increased $2.5 million compared to the six months ended June 30,
2002. This increase is due to an increase in access lines, as well
as an increase in CLEC customers subscribing to our long distance
service. In addition, $0.7 million of the increase in revenue was
the result of the collection of previously disputed carrier access
billings in the period.                                                                                                                            
|
| |  | CLEC operating expense was $10.6 million and $11.0 million for the
six months ended June 30, 2003 and June 30, 2002, respectively.
Effective June 20, 2003, the FCC directed that switched access rates
charged by CLECs to long distance companies for interstate traffic
be reduced from $0.018 per minute to $0.012 per minute. Based on
current traffic, this rate reduction is expected to negatively
impact revenue by $0.1 million per quarter. This rate reduction may
be somewhat offset in future periods as call volumes are expected to
increase.

19



---



##### 





| |  | Greenfield(in thousands except lines and signed agreements)
| |  | -----------------------------------------------------------

|                              |  |                             |        |                           |  |            |        |      |  |   |        |            |  |   |        |  
|----------------------------- |  | --------------------------- | ------ | ------------------------- |  | ---------- | ------ | ---- |  | - | ------ | ---------- |  | - | ------ | -
|                              |  | Three months ended June 30, |        | Six months ended June 30,
|                              |  |                             |        |                          
|                              |  |                             |        |                           |  | (Restated) |        |      |  |   |        | (Restated)
|                              |  | 2003                        |        | 2002                      |  | 2003       |        | 2002
|                              |  |                             |        |                           |  |            |        |     
|Total operating revenue       |  | $                           | 1,565  |                           |  | $          | 902    |      |  | $ | 2,877  |            |  | $ | 1,702  |  
|Total operating expense       |  |                             | 2,934  |                           |  |            | 2,188  |      |  |   | 5,416  |            |  |   | 4,249  |  
|                              |  |                             |        |                           |  |            |        |      |  |   |        |            |  |   |        |  
|Operating income (loss)       |  | $                           | (1,369 | )                         |  | $          | (1,286 | )    |  | $ | (2,539 | )          |  | $ | (2,547 | )
|                              |  |                             |        |                           |  |            |        |      |  |   |        |            |  |   |        |  
|Depreciation and amortization |  | $                           | 861    |                           |  | $          | 479    |      |  | $ | 1,415  |            |  | $ | 899    |  
|Capital expenditures          |  |                             | 1,003  |                           |  |            | 2,725  |      |  |   | 2,149  |            |  |   | 4,831  |  
|Total assets                  |  |                             |        |                           |  |            |        |      |  |   | 23,153 |            |  |   | 18,253 |  
|Ending access lines           |  |                             |        |                           |  |            |        |      |  |   | 7,961  |            |  |   | 4,386  |  
|Ending long distance lines    |  |                             |        |                           |  |            |        |      |  |   | 3,397  |            |  |   | 1,622  |  
|Total signed agreements       |  |                             |        |                           |  |            |        |      |  |   | 80     |            |  |   | 65     |  



| |  | Three months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Greenfield revenue for the three months ended June 30, 2003
increased 73.5% compared to the three months ended June 30, 2002.
This revenue increase is primarily attributable to an 81.5% increase
in access lines compared to 2002. Three new agreements were signed
during the second quarter of 2003 bringing the total agreements
signed to 80. These agreements represent an estimated 45,500 access
lines at completion, of which over 90% are residential lines.                                                                                                                                                       
|
| |  | Operating expense increased $0.7 million or 34.1% for the three
months ended June 30, 2003. This increase is related primarily to
the 81.5% increase in access lines and a $0.4 million increase in
depreciation expense, partially offset by improved gross margins
resulting from the larger customer base. Capital expenditures for
the three months ended June 30, 2003 were $1.7 million lower than
for the three months ended June 30, 2002. This decrease is
primarily due to the slower pace in which new agreements are being
signed as the Company targets developments with the most efficient
capital deployments.
|
| |  | For the three months ended June 30, 2003, 42.7% of Greenfield access
lines also subscribed to our long distance service, up from 37.0% in
2002. This increase is mainly due to the fact that many of the
early Greenfield access lines were business lines located in mall
projects. Business customers historically have not selected our
long distance service as frequently as residential customers since
many retail businesses have national long distance contracts. As
the residential percentage of Greenfield access lines increases we
have seen our long distance penetration rates increase.                     
|
| |  | Six months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Greenfield revenue for the six months ended June 30, 2003 increased
69.0% compared to the six months ended June 30, 2002. Revenue
increased primarily due to an 81.5% increase in access lines
compared to 2002.                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Operating expense increased $1.2 million or 27.5% for the six months
ended June 30, 2003. This increase related primarily to an increase
in access lines and a $0.5 million increase in depreciation expense.
Capital expenditures for the six months ended June 30, 2003 were
$2.7 million lower than for the six months ended June 30, 2002.
This decrease is primarily due to the slower pace in which new
agreements are being signed as the Company targets developments with
the most efficient capital deployments.                                                                                                    
|
| |  | On June 6, 2003 the North Carolina Utilities Commission initiated a
generic inquiry involving all certificated telecommunications
providers regarding preferred provider contracts. CT Communications
does have preferred provider contracts through its Greenfield
operations. Based on the outcome of this inquiry these agreements
may need to be modified to comply with any rules promulgated by the
North Carolina Utilities Commission.                                                                                                                                                                                

20



---



##### 





| |  | The Greenfield segment is also subject to the switched access rates
reduction affecting the Companys CLEC. The impact on Greenfield is
expected to be minimal and should be offset by increased levels of
traffic as the Company continues to build-out its projects.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Digital Wireless(in thousands except subscribers)                                                                                                                                                                                                                     

|                              |  |                             |       |                           |  |            |       |      |  |   |        |            |  |   |        | 
|----------------------------- |  | --------------------------- | ----- | ------------------------- |  | ---------- | ----- | ---- |  | - | ------ | ---------- |  | - | ------ | 
|                              |  | Three months ended June 30, |       | Six months ended June 30,
|                              |  |                             |       |                          
|                              |  |                             |       |                           |  | (Restated) |       |      |  |   |        | (Restated)
|                              |  | 2003                        |       | 2002                      |  | 2003       |       | 2002
|                              |  |                             |       |                           |  |            |       |     
|Total operating revenue       |  | $                           | 6,808 |                           |  | $          | 6,001 |      |  | $ | 13,681 |            |  | $ | 11,846 | 
|Total operating expense       |  |                             | 6,049 |                           |  |            | 5,118 |      |  |   | 12,087 |            |  |   | 10,070 | 
|                              |  |                             |       |                           |  |            |       |      |  |   |        |            |  |   |        | 
|Operating income              |  | $                           | 759   |                           |  | $          | 883   |      |  | $ | 1,594  |            |  | $ | 1,776  | 
|                              |  |                             |       |                           |  |            |       |      |  |   |        |            |  |   |        | 
|Depreciation and amortization |  | $                           | 437   |                           |  | $          | 278   |      |  | $ | 800    |            |  | $ | 478    | 
|Capital expenditures          |  |                             | 124   |                           |  |            | 1,702 |      |  |   | 183    |            |  |   | 2,604  | 
|Total assets                  |  |                             |       |                           |  |            |       |      |  |   | 30,742 |            |  |   | 29,968 | 
|Ending post-pay subscribers   |  |                             |       |                           |  |            |       |      |  |   | 34,572 |            |  |   | 32,107 | 



| |  | Three months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Digital Wireless operating revenue for the three months ended June
30, 2003 grew $0.8 million or 13.4% compared to the three months
ended June 30, 2002. Of this increase, $0.2 million related to
recurring monthly billing revenue from post-pay wireless subscriber
growth of nearly 2,500 net subscribers, an increase of 7.7%, in
2003. Also contributing to our increase in revenue during 2003 was
higher settlement revenue of $0.3 million related to a 23% increase
in the minutes of use on our wireless network for the three months
ended June 30, 2003 compared to the three months ended June 30,
2002.
|
| |  | Operating expense increased 18.2% in 2003 to $6.0 million. The
increase in operating expense was due to the addition of customers,
the increase in minutes of use on our network, increased marketing
expenditures and additional depreciation and amortization expense
related to the addition of 14 cell sites in the second half of 2002.                                                                                                                                                                                                                                                                          
|
| |  | Capital expenditures for the three months ended June 30, 2003 were
$0.1 million compared to $1.7 million for the three months ended
June 30, 2002. This decrease was due to the delay in construction
of new cell sites in the first half of 2003. The Company slowed
capital spending during the first half of 2003 while network testing
was performed to identify coverage and interference needs. We
currently anticipate construction of seven new cell sites in the
second half of 2003.                                                                                                                        
|
| |  | Six months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Digital Wireless operating revenue for the six months ended June 30,
2003 grew $1.8 million or 15.5% compared to the six months ended
June 30, 2002. Of this increase, $0.8 million related to recurring
monthly billing revenue. Also contributing to our increase in
revenue during 2003 was higher settlement revenue of $0.7 million
related to a 23% increase in the minutes of use on our wireless
network for the six months ended June 30, 2003 compared to the six
months ended June 30, 2002.                                                                                                               
|
| |  | Operating expense increased 20.0% in 2003 to $12.1 million. The
increase in operating expense was due to the addition of customers,
the increase in minutes of use on our network, the opening of two
new retail outlets and increased marketing expenditures.                                                                                                                                                                                                                                                                                                                                                        
|
| |  | The FCC has established a deadline of November 24, 2003 for wireless
carriers to implement local number portability (LNP). There are
several operational issues that still must be addressed by the FCC
in a timely manner to allow for wireless LNP to occur. It is
expected that wireless LNP could result in increased rates of
customer churn.                                                                                                                                                                                                                                                                  

21



---



##### 





| |  | Internet and Data Services (IDS)(in thousands except lines and accounts)
| |  | --------------------------------------------------------------------------

|                              |  |                             |       |                           |  |            |       |      |  |   |        |            |  |   |        |  
|----------------------------- |  | --------------------------- | ----- | ------------------------- |  | ---------- | ----- | ---- |  | - | ------ | ---------- |  | - | ------ | -
|                              |  | Three months ended June 30, |       | Six months ended June 30,
|                              |  |                             |       |                          
|                              |  |                             |       |                           |  | (Restated) |       |      |  |   |        | (Restated)
|                              |  | 2003                        |       | 2002                      |  | 2003       |       | 2002
|                              |  |                             |       |                           |  |            |       |     
|Total operating revenue       |  | $                           | 2,635 |                           |  | $          | 2,444 |      |  | $ | 5,143  |            |  | $ | 4,786  |  
|Total operating expense       |  |                             | 3,049 |                           |  |            | 2,850 |      |  |   | 5,916  |            |  |   | 6,070  |  
|                              |  |                             |       |                           |  |            |       |      |  |   |        |            |  |   |        |  
|Operating income (loss)       |  | $                           | (414  | )                         |  | $          | (406  | )    |  | $ | (773   | )          |  | $ | (1,284 | )
|                              |  |                             |       |                           |  |            |       |      |  |   |        |            |  |   |        |  
|Depreciation and amortization |  | $                           | 501   |                           |  | $          | 348   |      |  | $ | 972    |            |  | $ | 791    |  
|Capital expenditures          |  |                             | 477   |                           |  |            | 482   |      |  |   | 1,315  |            |  |   | 853    |  
|Total assets                  |  |                             |       |                           |  |            |       |      |  |   | 14,937 |            |  |   | 15,562 |  
|Ending DSL lines              |  |                             |       |                           |  |            |       |      |  |   | 8,546  |            |  |   | 4,832  |  
|Ending dial-up accounts       |  |                             |       |                           |  |            |       |      |  |   | 11,983 |            |  |   | 13,381 |  
|Ending high-speed accounts    |  |                             |       |                           |  |            |       |      |  |   | 565    |            |  |   | 601    |  



| |  | Three months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | IDS operating revenue for the three months ended June 30, 2003, grew
7.8% to $2.6 million. This $0.2 million increase in revenue was
attributable to a $0.5 million increase in DSL revenue, partially
offset by a decrease in dial-up, web development and web hosting
revenue.                                                                                                                                            
|
| |  | IDS operating expense was $3.0 million for the three months ended
June 30, 2003, a 7.0% increase compared to the three months ended
June 30, 2002. This increase relates primarily to the increase in
DSL accounts. Operating loss for the second quarter of 2003 and the
second quarter of 2002 was $0.4 million. Operating loss remained
flat despite a $0.2 million increase in depreciation and
amortization expense.   
|
| |  | Six months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | IDS operating revenue for the six months ended June 30, 2003
increased $0.4 million or 7.5%. This $0.4 million increase in
revenue was attributable to a $0.9 million increase in DSL revenue,
partially offset by a decrease in dial-up, web development and web
hosting revenue.                                                                                                                                          
|
| |  | IDS operating expense was $5.9 million for the six months ended June
30, 2003, a 2.5% increase compared to the six months ended June 30,
2002. This increase relates primarily to the increase in DSL
accounts.                                                                                                                                                                                                             
|
| |  | DSL customers increased 76.9% for the six months ended June 30, 2003
compared to the six months ended June 30, 2002 bringing total DSL
lines in service to 8,546 at June 30, 2003. This represents a
penetration rate of 6.7% of ILEC access lines, up from 3.8% at the
end of the second quarter of 2002, and a penetration rate of 8.7% of
Greenfield access lines, up from 4.3% at the end of the second
quarter of 2002.
|
| |  | Other Business Units(in thousands)                                                                                                                                                                                                                                                                                                                                                                                          

|                              |  |                             |        |                           |  |            |       |      |  |   |        |            |  |   |        |  
|----------------------------- |  | --------------------------- | ------ | ------------------------- |  | ---------- | ----- | ---- |  | - | ------ | ---------- |  | - | ------ | -
|                              |  | Three months ended June 30, |        | Six months ended June 30,
|                              |  |                             |        |                          
|                              |  |                             |        |                           |  | (Restated) |       |      |  |   |        | (Restated)
|                              |  | 2003                        |        | 2002                      |  | 2003       |       | 2002
|                              |  |                             |        |                           |  |            |       |     
|Total operating expense       |  | $                           | 1,088  |                           |  | $          | 744   |      |  | $ | 2,258  |            |  | $ | 991    |  
|                              |  |                             |        |                           |  |            |       |      |  |   |        |            |  |   |        |  
|Operating income (loss)       |  | $                           | (1,088 | )                         |  | $          | (744  | )    |  | $ | (2,258 | )          |  | $ | (991   | )
|                              |  |                             |        |                           |  |            |       |      |  |   |        |            |  |   |        |  
|Depreciation and amortization |  | $                           | 331    |                           |  | $          | 205   |      |  | $ | 662    |            |  | $ | 211    |  
|Capital expenditures          |  |                             | 567    |                           |  |            | 3,429 |      |  |   | 736    |            |  |   | 8,684  |  
|Total assets                  |  |                             |        |                           |  |            |       |      |  |   | 67,312 |            |  |   | 90,245 |  

22



---



##### 





| |  | Three months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating expense for the other business units increased $0.3
million for the three months ended June 30, 2003 compared to the
three months ended June 30, 2002. This increase was related to a
$0.1 million increase in depreciation and amortization expense and
the inclusion of WONC in our consolidated results ($0.2 million)
after our purchase of majority ownership in the spring of 2002.                                                                                                                                       
|
| |  | Capital expenditures of $3.4 million in the second quarter of 2002
primarily include expenditures related to the completion of the
Companys new corporate center.                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Six months ended June 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Operating expense for the other business units increased $1.3
million for the six months ended June 30, 2003 compared to the six
months ended June 30, 2002. This increase was related to a $0.4
million increase in depreciation and amortization expense and the
inclusion of WONC in our consolidated results ($0.4 million) after
our purchase of majority ownership in the spring of 2002.                                                                                                                                           
|
| |  | Other Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Other income (expense) for the three months ended June 30, 2003
increased $11.4 million compared to the three months ended June 30,
2002. This increase relates to a $12.9 million increase in gains on
sales of investments, offset by a $1.1 million increase in
impairment charges on investments. The increase in gains on sales
of investments is due to the sale of the Companys investment in
ITC, which resulted in a gain of $14.5 million in the second quarter
of 2003.                                                       
|
| |  | For the six months ended June 30, 2003, other income (expense)
increased $9.5 million compared to the six months ended June 30,
2002. This increase relates to a $10.5 million increase in gains on
sales of investments and a $0.6 million increase in equity in income
of unconsolidated companies, offset by a $1.0 million increase in
other expenses and a $0.6 million increase in impairment charges on
investments. The increase in gains on sales of investments is
primarily due to the sale of the Companys investment in ITC.

Liquidity and Capital Resources



| |  | Net cash provided by operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Cash provided by operating activities increased $2.9 million to
$20.4 million for the six months ended June 30, 2003. The increase
primarily related to decreases in accounts receivable and unbilled
revenue, increases in other accrued liabilities and other working
capital changes, partially offset by a decrease in accounts payable.                                                                                                                                                             
|
| |  | Net cash provided by (used in) investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Cash provided by investing activities increased to $3.3 million
during the six months ended June 30, 2003 compared with cash used in
investing activities of $25.3 million for the six months ended June
30, 2002. Capital expenditures were lower during the six months
ended June 30, 2003 and proceeds from sales of investments in
unconsolidated companies were up significantly in the six months
ended June 30, 2003 compared with the six months ended June 30,
2002.                            
|
| |  | Net cash (used in) provided by financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Net cash used in financing activities was $22.1 million during the
six months ended June 30, 2003 compared with cash provided by
financing activities of $8.0 million during the six months ended
June 30, 2002. During the second quarter of 2003, the Company paid
off $20.0 million in long-term debt, which represented the primary
use of cash in financing activities. Proceeds from credit
facilities of $12.5 million offset the dividends and stock
repurchases in the first six months of 2002.
|
| |  | At June 30, 2003, the fair market value of the Companys marketable
investment securities was $6.8 million, all of which could be
pledged to secure additional borrowing, or sold, if needed for
liquidity purposes. The Company has a $90.0 million revolving five
year line of credit with interest at three month LIBOR plus a spread
based on various financial ratios, currently 1.50%. The interest
rate on June 30, 2003 was 2.62%. The credit facility provides for                              

23



---



##### 





| |  | quarterly payments of interest until maturity on March 31, 2006. As
of June 30, 2003, $40.0 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. All $50.0
million was outstanding as of June 30, 2003. The Company also has
an additional line of credit for $10.0 million at one month LIBOR
plus 1.25%. As of June 30, 2003, the Company had no amounts
outstanding under this credit line.  
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As noted in Note 9, West purchased the stock of ITC. The Company
had a 4.4% equity interest in ITC. The Company received a net
distribution of $13.4 million in cash from this transaction. In
addition, certain funds will be held in escrow until certain
contingencies are resolved. The Companys portion of the escrow
funds is $1.2 million. The $1.2 million will not be recorded in the
Companys financial statements until the contingencies are resolved
and the escrowed funds become issuable.
|
| |  | The following table discloses aggregate information about our
contractual obligations and the periods in which payments are due
(in thousands):                                                                                                                                                                                                                                                                                                                                                            

|                         |                  |   |        |        |                   |   |                      |       |      |   |         |       |         |   |          |        |  |   |        |        | 
|------------------------ | ---------------- | - | ------ | ------ | ----------------- | - | -------------------- | ----- | ---- | - | ------- | ----- | ------- | - | -------- | ------ |  | - | ------ | ------ | 
|                         |                  |   |        |        |                   |   | Payments due by year
|                         |                  |   |        |        |                   |   |                     
|                         |                  |   |        |        |                   |   |                      |       |      |   | 2004 to |       | 2006 to |   | 2008 and
|                         |                  |   | Total  |        | Remainder of 2003 |   | 2005                 |       | 2007 |   | after  
|                         |                  |   |        |        |                   |   |                      |       |      |   |        
|Contractual
obligations: |                  |   |        |        |                   |   |                      |       |      |   |         |       |         |   |          |        |  |   |        |       
|                         | Long-term debt   |   | $      | 90,000 |                   |   | $                    |      |      |   | $       |      |         |   | $        | 40,000 |  |   | $      | 50,000 | 
|                         | Operating leases |   |        | 7,495  |                   |   |                      | 1,411 |      |   |         | 4,468 |         |   |          | 1,418  |  |   |        | 198    | 
|                         | Capital leases   |   |        | 192    |                   |   |                      | 64    |      |   |         | 128   |         |   |          |       |  |   |        |       | 
|                         |                  |   |        |        |                   |   |                      |       |      |   |         |       |         |   |          |        |  |   |        |       
|                         |                  | $ | 97,687 |        |                   | $ | 1,475                |       |      | $ | 4,596   |       |         | $ | 41,418   |        |  | $ | 50,198 |       
|                         |                  |   |        |        |                   |   |                      |       |      |   |         |       |         |   |          |        |  |   |        |       



| |  | The Company anticipates that it has adequate resources to meet its
currently foreseeable obligations and capital requirements
associated with continued growth in the CLEC, Greenfield, Digital
Wireless and Internet and Data Service units, as well as its
operations, payments associated with long-term debt and investments
as summarized above.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cautionary Note Regarding Forward-Looking Statements



| |  | The foregoing discussion contains forward-looking statements, as
defined in Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, that are based on the
beliefs of management, as well as assumptions made by, and
information currently available to, management. Management has based
these forward-looking statements on its current expectations and
projections about future events and trends affecting the financial
condition and operations of the Companys business. These
forward-looking statements are subject to certain risks,
uncertainties and assumptions about us that could cause actual
results to differ materially from those reflected in the
forward-looking statements.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Factors that may cause actual results to differ materially from
these forward-looking statements include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



| |  |  | our ability to respond effectively to the issues
surrounding the industry caused by state and federal
legislation and regulations,                                                              
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the impact of economic conditions related to the
financial performance of customers, business partners,
competitors and peers within the telecommunications industry,                           
|
| |  |  | our ability to recover the substantial costs incurred
over the past few years in connection with our expansion into
new businesses,                                                             
|
| |  |  | our ability to attract and retain key personnel,                                                                                                                                                
|
| |  |  | our ability to retain our existing customer base against
wireless competition and cable telephony in all areas of the
business including local and long distance and internet and
data services,
|
| |  |  | our ability to control pricing and product offerings in a highly competitive industry,                                                                                                          
|
| |  |  | the performance of our investments,                                                                                                                                                             
|
| |  |  | our ability to effectively manage rapid changes in
technology and control capital expenditures related to those
technologies, and                                                               

24



---



##### 





| |  |  | the impact of economic and political events on the
Companys business, operating regions and customers, including
terrorist attacks.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  | In some cases, these forward-looking statements can be identified by
the use of words such as may, will, should, expect,
intend, plan, anticipate, believe, estimate, predict,
project or potential or the negative of these words or other
comparable words.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In making forward-looking statements, the Company claims the
protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995.
The Company undertakes no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. Readers are also directed to consider
the risks, uncertainties and other factors discussed in documents
filed by us with the Securities and Exchange Commission, including
those matters summarized under the caption Risk Factors in the
Companys Annual Report on Form 10-K for the year ended December 31,
2002. All forward-looking statements should be viewed with caution.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.



| |  | The Company has a $90.0 million revolving five year line of credit
with interest at three month LIBOR plus a spread that is currently
1.50%, based on various financial ratios. The interest rate on June
30, 2003 was 2.62%. The credit facility provides for quarterly
payments of interest until maturity on March 31, 2006. As of June
30, 2003, $40.0 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. All $50.0 million was
outstanding as of June 30, 2003. In addition, the Company has
another line of credit for $10.0 million at one month LIBOR plus
1.25%. As of June 30, 2003, the Company had no amounts outstanding
under this credit line.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As noted in Note 9, in April 2003 the Company executed an agreement
that resulted in the cancellation of a $17.7 million promissory note
to Wireless One.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Company has three interest rate swap transactions to fix $10.0
million, $5.0 million and $5.0 million of the amounts outstanding
under the $90.0 million revolving line of credit at rates of 5.9%,
4.53% and 3.81%, respectively. The fair value of each swap as of
June 30, 2003 was $(0.4) million, $(0.4) million and $(0.2) million,
respectively. The interest rate swaps are intended to protect the
Company against an upward movement in interest rates but subject the
Company to above market interest costs if interest rates decline.                                                                                                                                                                                                                    
|
| |  | Management believes that reasonably foreseeable movements in
interest rates will not have a material adverse effect on the
Companys financial condition or operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Item 4. Controls and Procedures.



| |  | The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed by the
Company in the reports it files under the Securities Exchange Act of
1934 (the Exchange Act) is recorded, processed, summarized and
reported within the time periods specified in the Securities and
Exchange Commissions rules and forms. These disclosure controls and
procedures are designed to insure that appropriate information is
accumulated and communicated to the Companys management, including
its chief executive officer and chief financial officer, as
appropriate to allow for timely decisions regarding disclosure.                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As required by the SEC rules, the Companys management, under the
supervision and with the participation of the Companys chief
executive officer and chief financial officer, has evaluated the
effectiveness of the Companys disclosure controls and procedures as
of June 30, 2003. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control
objectives and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Also, the Company has investments in
certain unconsolidated entities, including Palmetto. As the Company
neither controls nor manages these entities, its disclosure controls
and procedures with respect to these entities are necessarily
substantially more limited than those it maintains with respect to
its consolidated subsidiaries.

25



---



##### 





| |  | Based upon that evaluation, the Companys chief executive officer
and chief financial officer have concluded that the Companys
disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company, including its
consolidated subsidiaries, required to be included in the Companys
Exchange Act reports.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During the most recent fiscal quarter, there have been no changes in
the Companys internal controls over financial reporting that have
materially affected, or that are reasonably likely to materially
affect the Companys internal control over financial reporting.                                                                                         

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.



| |  | None
| |  | ----

Item 2. Changes in Securities and Use of Proceeds.



| |  | None
| |  | ----

Item 3. Defaults Upon Senior Securities.



| |  | None
| |  | ----

Item 4. Submission of Matters to a Vote of Security Holders.



| |  | An Annual Meeting of Shareholders was held on April 24, 2003. All
directors were elected for the terms set forth below.
| |  | -----------------------------------------------------------------------------------------------------------------------
|
| |  | Proxies were solicited for the following matters:                                                                      



| | (1) |  | To elect:                                              
| | --- |  | -------------------------------------------------------
|
| |     |  | Three Directors for a three-year term expiring in 2006:

|                   |  |       |            |          |  |  |           | 
|------------------ |  | ----- | ---------- | -------- |  |  | --------- | 
|                   |  | Votes |            | Votes   
|                   |  | For   |            | Withheld
|                   |  |       |            |         
|Raymond C. Groth   |  |       | 15,431,019 |          |  |  | 121,545   | 
|Jerry H. McClellan |  |       | 14,336,848 |          |  |  | 1,215,716 | 
|Cynthia L. Mynatt  |  |       | 15,451,439 |          |  |  | 101,125   | 



| |  |  | One Director for a two-year term expiring in 2005:
| |  |  | --------------------------------------------------

|                   |  |       |            |          |  |  |        | 
|------------------ |  | ----- | ---------- | -------- |  |  | ------ | 
|                   |  | Votes |            | Votes   
|                   |  | For   |            | Withheld
|                   |  |       |            |         
|Samuel E. Leftwich |  |       | 15,472,643 |          |  |  | 79,921 | 



| | (2) |  | To ratify the appointment of KPMG LLP as independent
public accountants of the Company for the 2003 fiscal year.
| | --- |  | ----------------------------------------------------------------------------------------------------------------

|           |  |         |        |             |  |           |        |        |  |  |   | 
|---------- |  | ------- | ------ | ----------- |  | --------- | ------ | ------ |  |  | - | 
|Votes      |  | Votes   |        |             |  |           |        | Broker
|For        |  | Against |        | Abstentions |  | Non-Votes
|           |  |         |        |             |  |          
|16,586,586 |  |         | 27,303 |             |  |           | 62,793 |        |  |  |  | 

Item 5. Other Information.



| |  | None
| |  | ----

26



---



##### 



Item 6. Exhibits and Reports on Form 8-K.



| | (a) |  | Exhibits
| | --- |  | --------

|            |  |                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                       
|            |  |                                                                                                                                                              
|10.1        |  | Amended Severance Agreement, dated as of
July 7, 2003, between CT Communications, Inc. and Barry
R. Rubens.                                                  
|11          |  | Computation of Earnings Per Share.                                                                                                                           
|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.



| | (b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On April 23, 2003, the Company filed a Current Report on Form
8-K announcing that the Company, through its wholly-owned
subsidiary CTWC, executed an agreement, dated April 22, 2003 to
implement the Split-Up of WONC between Wireless One, a
subsidiary of Worldcom, Inc., and CTWC.                                                                                                                                                                                                                                                       
|
| |     |  | On April 28, 2003, the Company filed a Current Report on Form
8-K announcing that the Companys Board of Directors approved
the extension of its stock repurchase program until March 2004.
During the extension of the stock repurchase program, the
Company may repurchase up to an additional one million shares
of its outstanding common stock from time to time through March
2004 in open market and privately negotiated transactions. In
addition, the Board of Directors declared a quarterly cash
dividend payable on June 15, 2003.
|
| |     |  | On May 14, 2003, the Company filed a Current Report on Form 8-K
announcing that the Company had received $13.4 million in cash
on May 14, 2003 as proceeds from the sale of ITC.                                                                                                                                                                                                                                                                                                                                                               
|
| |     |  | On June 2, 2003, the Company filed a Current Report on Form 8-K
announcing that the Company had repaid $20 million in long-term
debt utilizing the $13.4 million proceeds received from the
sale of its ITC investment as well as cash generated by
operations.                                                                                                                                                                                                                                                                                

27



---



##### 



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.

|                                                    |  | 
|--------------------------------------------------- |  | 
|CT COMMUNICATIONS, INC                              |  | 
|                                                    |  | 
|(Registrant)                                        |  | 
|                                                   
|/s/ Ronald A. Marino                                |  | 
|                                                    |  | 
|Ronald A. Marino                                    |  | 
|Vice President Finance and
Chief Accounting Officer |  | 
|                                                   
|August 6, 2003                                      |  | 
|                                                    |  | 
|Date                                                |  | 

(The above signatory has dual responsibility as a duly authorized
officer and chief accounting officer of the Registrant.)

28



---



##### 



EXHIBIT INDEX

|            |  |                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                       
|            |  |                                                                                                                                                              
|10.1        |  | Amended Severance
Agreement, dated as of July 7, 2003, between CT
Communications, Inc. and Barry R. Rubens.                                                  
|11          |  | Computation of Earnings Per
Share.                                                                                                                           
|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.

29