##### 



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 September 30, 2003

OR

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

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

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.

18,767,050 shares of Common Stock outstanding as of November 3, 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
September 30, 2003 (Unaudited) and December 31, 2002                                           |  |          | 2  | 
|Condensed Consolidated Statements of Income (Loss) (Unaudited)
Three and Nine Months Ended September 30, 2003 and 2002               |  |          | 3  | 
|Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three and Nine Months Ended September 30, 2003 and 2002 |  |          | 4  | 
|Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 2003 and 2002                            |  |          | 5  | 
|Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                      |  |          | 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.                                                                   |  |          | 26 | 
|Item 4. Controls and Procedures.                                                                                                      |  |          | 27 | 
|PART II. Other Information                                                                                                            |  |          |    | 
|Item 1. Legal Proceedings.                                                                                                            |  |          | 27 | 
|Item 2. Changes in Securities and Use of Proceeds.                                                                                    |  |          | 27 | 
|Item 3. Defaults Upon Senior Securities.                                                                                              |  |          | 27 | 
|Item 4. Submission of Matters to a Vote of Security Holders.                                                                          |  |          | 27 | 
|Item 5. Other Information.                                                                                                            |  |          | 28 | 
|Item 6. Exhibits and Reports on Form 8-K.                                                                                             |  |          | 28 | 
|Signatures                                                                                                                            |  |          | 29 | 
|Exhibit Index                                                                                                                         |  |          | 30 | 

1



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##### 



Part I. FINANCIAL INFORMATION

Item 1. Financial Statements.

CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)

|                                           |                                                                                                                      |                                              |         |               |         |              |         |         |         | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------- | ------------- | ------- | ------------ | ------- | ------- | ------- | 
|                                           |                                                                                                                      |                                              |         | (Unaudited)   |         |              |         |        
|                                           |                                                                                                                      |                                              |         | September 30, |         | December 31,
|                                           |                                                                                                                      |                                              |         | 2003          |         | 2002        
|                                           |                                                                                                                      |                                              |         |               |         |             
|ASSETS                                     |                                                                                                                      |                                              |         |               |         |              |         |        
|Current assets:                            |                                                                                                                      |                                              |         |               |         |              |         |        
|                                           | Cash and cash equivalents                                                                                            |                                              | $       | 16,825        |         |              | $       | 7,652   |        
|                                           | Accounts receivable and unbilled revenue, net                                                                        |                                              |         | 21,000        |         |              |         | 22,289  |        
|                                           | Income tax receivable                                                                                                |                                              |         | 489           |         |              |         | 3,007   |        
|                                           | Other                                                                                                                |                                              |         | 5,457         |         |              |         | 5,696   |        
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|                                           |                                                                                                                      | Total current assets                         |         |               | 43,771  |              |         |         | 38,644  | 
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|Investment securities                      |                                                                                                                      |                                              | 5,387   |               |         |              | 4,521   |        
|Other investments                          |                                                                                                                      |                                              | 1,271   |               |         |              | 797     |        
|Investments in unconsolidated companies    |                                                                                                                      |                                              | 14,630  |               |         |              | 14,587  |        
|Property and equipment, net                |                                                                                                                      |                                              | 209,388 |               |         |              | 214,421 |        
|Goodwill                                   |                                                                                                                      |                                              | 9,906   |               |         |              | 9,906   |        
|Other intangibles, net                     |                                                                                                                      |                                              | 35,294  |               |         |              | 53,070  |        
|Other assets                               |                                                                                                                      |                                              | 1,418   |               |         |              | 1,612   |        
|Assets of discontinued operations          |                                                                                                                      |                                              |        |               |         |              | 1,206   |        
|                                           |                                                                                                                      |                                              |         |               |         |              |         |         |        
|Total assets                               |                                                                                                                      | $                                            | 321,065 |               |         | $            | 338,764 |        
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY       |                                                                                                                      |                                              |         |               |         |              |         |        
|Current liabilities:                       |                                                                                                                      |                                              |         |               |         |              |         |        
|                                           | Accounts payable                                                                                                     |                                              | $       | 7,839         |         |              | $       | 8,632   |        
|                                           | Customer deposits and advance billings                                                                               |                                              |         | 2,371         |         |              |         | 2,593   |        
|                                           | Other accrued liabilities                                                                                            |                                              |         | 16,434        |         |              |         | 12,363  |        
|                                           | Liabilities of discontinued operations                                                                               |                                              |         | 1,213         |         |              |         | 1,645   |        
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|                                           |                                                                                                                      | Total current liabilities                    |         |               | 27,857  |              |         |         | 25,233  | 
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|Long-term debt                             |                                                                                                                      |                                              | 86,000  |               |         |              | 127,697 |        
|Deferred credits and other liabilities:    |                                                                                                                      |                                              |         |               |         |              |         |        
|                                           | Deferred income taxes                                                                                                |                                              |         | 19,624        |         |              |         | 12,433  |        
|                                           | Post-retirement benefits other than pension                                                                          |                                              |         | 11,523        |         |              |         | 11,099  |        
|                                           | Other                                                                                                                |                                              |         | 2,022         |         |              |         | 2,101   |        
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|                                           |                                                                                                                      | Total deferred credits and other liabilities |         |               | 33,169  |              |         |         | 25,633  | 
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|Total liabilities                          |                                                                                                                      |                                              | 147,026 |               |         |              | 178,563 |        
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|Stockholders equity:                      |                                                                                                                      |                                              |         |               |         |              |         |        
|                                           | Preferred stock not subject to mandatory redemption:                                                                 |                                              |         |               |         |              |         |         |        
|                                           | 5% series, $100 par value; 3,356 shares outstanding at September
30, 2003 and December 31, 2002                      |                                              |         | 336           |         |              |         | 336     |        
|                                           | 4.5% series, $100 par value; 614 shares outstanding at September
30, 2003 and December 31, 2002                      |                                              |         | 61            |         |              |         | 61      |        
|                                           | Common stock, 18,767,146 and 18,686,740 shares outstanding at
September 30, 2003 and December 31, 2002, respectively |                                              |         | 40,772        |         |              |         | 39,962  |        
|                                           | Other capital                                                                                                        |                                              |         | 298           |         |              |         | 298     |        
|                                           | Unearned compensation                                                                                                |                                              |         | (452          | )       |              |         | (470    | )      
|                                           | Other accumulated comprehensive loss                                                                                 |                                              |         | (131          | )       |              |         | (817    | )      
|                                           | Retained earnings                                                                                                    |                                              |         | 133,155       |         |              |         | 120,831 |        
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|                                           |                                                                                                                      | Total stockholders equity                   |         |               | 174,039 |              |         |         | 160,201 | 
|                                           |                                                                                                                      |                                              |         |               |         |              |         |        
|Total liabilities and stockholders equity |                                                                                                                      | $                                            | 321,065 |               |         | $            | 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 (Loss) (Unaudited)
(in thousands, except share and per share data)

|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |        |        | 
|------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | ---------- | ------------------ | ----- | ----------------- | ---------- | ---------- | ----- | ---- | ---------- | ------ | ------ | ---------- | ---------- | ------ | ------ | 
|                                            |                                                                                                                                                                                                                           |                                                       |            | Three Months Ended |       | Nine Months Ended
|                                            |                                                                                                                                                                                                                           |                                                       |            | September 30,      |       | September 30,    
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            | (Restated) |       |      |            |        |        | (Restated)
|                                            |                                                                                                                                                                                                                           |                                                       |            | 2003               |       | 2002              |            | 2003       |       | 2002
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |     
|Operating revenue                           |                                                                                                                                                                                                                           | $                                                     | 40,603     |                    |       | $                 | 36,969     |            |       | $    | 119,252    |        |        | $          | 109,750    |       
|Operating expense                           |                                                                                                                                                                                                                           |                                                       | 36,222     |                    |       |                   | 32,014     |            |       |      | 105,393    |        |        |            | 96,120     |       
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                           | Operating income                                      |            |                    | 4,381 |                   |            |            | 4,955 |      |            |        | 13,859 |            |            |        | 13,630 | 
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|Other income (expense):                     |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            | Equity in income of unconsolidated companies, net                                                                                                                                                                         |                                                       |            | 1,787              |       |                   |            | 1,436      |       |      |            | 4,235  |        |            |            | 3,296  |       
|                                            | Interest, dividend income and gain on sale of
investments                                                                                                                                                                 |                                                       |            | 858                |       |                   |            | 13         |       |      |            | 16,122 |        |            |            | 4,801  |       
|                                            | Impairment of investments                                                                                                                                                                                                 |                                                       |            | (460               | )     |                   |            |           |       |      |            | (1,744 | )      |            |            | (704   | )     
|                                            | Other expenses, principally interest                                                                                                                                                                                      |                                                       |            | (1,682             | )     |                   |            | (1,730     | )     |      |            | (5,558 | )      |            |            | (4,627 | )     
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            | Total other income (expense)                                                                                                                                                                                              |                                                       |            | 503                |       |                   |            | (281       | )     |      |            | 13,055 |        |            |            | 2,766  |       
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                           | Income from continuing operations before income
taxes |            |                    | 4,884 |                   |            |            | 4,674 |      |            |        | 26,914 |            |            |        | 16,396 | 
|Income taxes                                |                                                                                                                                                                                                                           |                                                       | 1,735      |                    |       |                   | 1,776      |            |       |      | 10,501     |        |        |            | 6,396      |       
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                           | Income from continuing operations                     |            |                    | 3,149 |                   |            |            | 2,898 |      |            |        | 16,413 |            |            |        | 10,000 | 
|Discontinued operations:                    |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            | Loss from operations of discontinued business, net of
income tax benefits of $276 for the nine months ended
September 30, 2003 and $2,124 and $2,993 for the
three
and nine months ended September 30, 2002, respectively |                                                       |            |                   |       |                   |            | (3,416     | )     |      |            | (424   | )      |            |            | (5,104 | )     
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                           | Net income (loss)                                     |            |                    | 3,149 |                   |            |            | (518  | )    |            |        | 15,989 |            |            |        | 4,896  | 
|Dividends on preferred stock                |                                                                                                                                                                                                                           |                                                       | 5          |                    |       |                   | 5          |            |       |      | 15         |        |        |            | 15         |       
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            |                                                                                                                                                                                                                           | Earnings (loss) for common stock                      |            | $                  | 3,144 |                   |            | $          | (523  | )    |            | $      | 15,974 |            |            | $      | 4,881  | 
|                                            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|Basic earnings (loss) per share:            |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            | Continuing operations                                                                                                                                                                                                     |                                                       | $          | 0.17               |       |                   | $          | 0.16       |       |      | $          | 0.88   |        |            | $          | 0.53   |       
|                                            | Discontinued operations                                                                                                                                                                                                   |                                                       |            |                   |       |                   |            | (0.18      | )     |      |            | (0.02  | )      |            |            | (0.27  | )     
|                                            | Net income (loss)                                                                                                                                                                                                         |                                                       |            | 0.17               |       |                   |            | (0.03      | )     |      |            | 0.85   |        |            |            | 0.26   |       
|Diluted earnings (loss) per share:          |                                                                                                                                                                                                                           |                                                       |            |                    |       |                   |            |            |       |      |            |        |        |            |            |       
|                                            | Continuing operations                                                                                                                                                                                                     |                                                       |            | 0.17               |       |                   |            | 0.15       |       |      |            | 0.87   |        |            |            | 0.53   |       
|                                            | Discontinued operations                                                                                                                                                                                                   |                                                       |            |                   |       |                   |            | (0.18      | )     |      |            | (0.02  | )      |            |            | (0.27  | )     
|                                            | Net income (loss)                                                                                                                                                                                                         |                                                       |            | 0.17               |       |                   |            | (0.03      | )     |      |            | 0.85   |        |            |            | 0.26   |       
|Basic weighted average shares outstanding   |                                                                                                                                                                                                                           |                                                       | 18,764,576 |                    |       |                   | 18,670,834 |            |       |      | 18,740,288 |        |        |            | 18,721,329 |       
|Diluted weighted average shares outstanding |                                                                                                                                                                                                                           |                                                       | 18,852,536 |                    |       |                   | 18,712,677 |            |       |      | 18,791,492 |        |        |            | 18,762,702 |       

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

3



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in thousands)

|                                               |                                                                            |   |                    |     |                   |   |            |      |      |   |        |     |            |   |        |        |  
|---------------------------------------------- | -------------------------------------------------------------------------- | - | ------------------ | --- | ----------------- | - | ---------- | ---- | ---- | - | ------ | --- | ---------- | - | ------ | ------ | -
|                                               |                                                                            |   | Three Months Ended |     | Nine Months Ended
|                                               |                                                                            |   | September 30,      |     | September 30,    
|                                               |                                                                            |   |                    |     |                   |   | (Restated) |      |      |   |        |     | (Restated)
|                                               |                                                                            |   | 2003               |     | 2002              |   | 2003       |      | 2002
|                                               |                                                                            |   |                    |     |                   |   |            |      |     
|Net income (loss)                              |                                                                            | $ | 3,149              |     |                   | $ | (518       | )    |      | $ | 15,989 |     |            | $ | 4,896  |       
|Other comprehensive income (loss), net of tax: |                                                                            |   |                    |     |                   |   |            |      |      |   |        |     |            |   |        |       
|                                               | Unrealized holding gains (losses) on available-for-sale
securities         |   |                    | 94  |                   |   |            | (666 | )    |   |        | 470 |            |   |        | (3,152 | )
|                                               | Unrealized holding gains (losses) on interest rate swaps                   |   |                    | 136 |                   |   |            | (375 | )    |   |        | 212 |            |   |        | (438   | )
|                                               | Less reclassification adjustment for losses (gains)
realized
in net income |   |                    | (4  | )                 |   |            | 468  |      |   |        | 4   |            |   |        | (2,497 | )
|                                               |                                                                            |   |                    |     |                   |   |            |      |      |   |        |     |            |   |        |       
|Comprehensive income (loss)                    |                                                                            | $ | 3,375              |     |                   | $ | (1,091     | )    |      | $ | 16,675 |     |            | $ | (1,191 | )     
|                                               |                                                                            |   |                    |     |                   |   |            |      |      |   |        |     |            |   |        |       

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)

|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |         |        |            |         |  
|----------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------ | --------------------------------------------------- | ------- | ------------------------------- | ------- | ------- | ------ | ---------- | ------- | -
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         | Nine Months Ended September 30,
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |         |        | (Restated)
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         | 2003                            |         | 2002   
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |        
|Cash flows from operating activities:                                   |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |        
|                                                                        | Net income                                                                                                          |                                                                             | $      | 15,989                                              |         |                                 | $       | 4,896   |       
|                                                                        | Adjustments to reconcile net income to net cash provided
by operating activities:                                   |                                                                             |        |                                                     |         |                                 |         |         |       
|                                                                        |                                                                                                                     | Loss from discontinued operations                                           |        |                                                     | 424     |                                 |         |         | 5,104  |           
|                                                                        |                                                                                                                     | Depreciation and amortization                                               |        |                                                     | 22,991  |                                 |         |         | 20,546 |           
|                                                                        |                                                                                                                     | Post-retirement benefits                                                    |        |                                                     | 424     |                                 |         |         | 35     |           
|                                                                        |                                                                                                                     | Loss (gain) on sale of investment securities                                |        |                                                     | 7       |                                 |         |         | (3,893 | )         
|                                                                        |                                                                                                                     | Gain on sale of investments in unconsolidated companies                     |        |                                                     | (15,063 | )                               |         |         | (657   | )         
|                                                                        |                                                                                                                     | Impairment of investments                                                   |        |                                                     | 1,744   |                                 |         |         | 704    |           
|                                                                        |                                                                                                                     | Undistributed income of unconsolidated companies                            |        |                                                     | (4,235  | )                               |         |         | (3,296 | )         
|                                                                        |                                                                                                                     | Undistributed patronage dividends                                           |        |                                                     | (483    | )                               |         |         |       |           
|                                                                        |                                                                                                                     | Deferred income taxes and tax credits                                       |        |                                                     | 6,730   |                                 |         |         | 2,176  |           
|                                                                        |                                                                                                                     | Changes in operating assets and liabilities, net of effects of
acquisitions |        |                                                     | 8,394   |                                 |         |         | 96     |           
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |         |       
|                                                                        |                                                                                                                     |                                                                             |        | Net cash provided by operating activities           |         |                                 | 36,922  |         |        |            | 25,711  |  
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |        
|Cash flows from investing activities:                                   |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |        
|                                                                        | Capital expenditures                                                                                                |                                                                             |        | (16,923                                             | )       |                                 |         | (36,209 | )     
|                                                                        | Purchases of investments in unconsolidated companies                                                                |                                                                             |        | (2,959                                              | )       |                                 |         | (500    | )     
|                                                                        | Purchases of investment securities                                                                                  |                                                                             |        | (353                                                | )       |                                 |         | (1,583  | )     
|                                                                        | Purchases of wireless spectrum                                                                                      |                                                                             |        |                                                    |         |                                 |         | (760    | )     
|                                                                        | Proceeds from sale of investment in unconsolidated companies                                                        |                                                                             |        | 17,052                                              |         |                                 |         | 818     |       
|                                                                        | Proceeds from sale of investment securities                                                                         |                                                                             |        | 208                                                 |         |                                 |         | 5,328   |       
|                                                                        | Partnership capital distribution                                                                                    |                                                                             |        | 3,438                                               |         |                                 |         | 4,788   |       
|                                                                        | Acquisitions, net of cash                                                                                           |                                                                             |        |                                                    |         |                                 |         | (3,213  | )     
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |         |       
|                                                                        |                                                                                                                     |                                                                             |        | Net cash provided by (used in) investing activities |         |                                 | 463     |         |        |            | (31,331 | )
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |         |       
|Cash flows from financing activities:                                   |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |        
|                                                                        | Proceeds from credit facility                                                                                       |                                                                             |        |                                                    |         |                                 |         | 13,000  |       
|                                                                        | Repayment of long-term debt                                                                                         |                                                                             |        | (24,000                                             | )       |                                 |         |        |       
|                                                                        | Dividends paid                                                                                                      |                                                                             |        | (3,665                                              | )       |                                 |         | (3,670  | )     
|                                                                        | Repurchases of common stock                                                                                         |                                                                             |        |                                                    |         |                                 |         | (2,395  | )     
|                                                                        | Proceeds from common stock issuances                                                                                |                                                                             |        | 383                                                 |         |                                 |         | 408     |       
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |         |       
|                                                                        |                                                                                                                     |                                                                             |        | Net cash (used in) provided by financing activities |         |                                 | (27,282 | )       |        |            | 7,343   |  
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |         |       
|Net cash used in discontinued operations                                |                                                                                                                     |                                                                             | (930   | )                                                   |         |                                 | (1,703  | )      
|Net increase in cash and cash equivalents                               |                                                                                                                     |                                                                             | 9,173  |                                                     |         |                                 | 20      |        
|Cash and cash equivalents at beginning of period                        |                                                                                                                     |                                                                             | 7,652  |                                                     |         |                                 | 8,397   |        
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |        
|Cash and cash equivalents at end of period                              |                                                                                                                     | $                                                                           | 16,825 |                                                     |         | $                               | 8,417   |        
|                                                                        |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |        
|Supplemental disclosure of non-cash investing and financing activities: |                                                                                                                     |                                                                             |        |                                                     |         |                                 |         |        
|                                                                        | Cancellation of note payable and reduction in other intangibles in connection with disposition of wireless spectrum |                                                                             | $      | (17,697                                             | )       |                                 | $       |        |       
|                                                                        | Issuance of note payable in connection with acquisition 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
September 30, 2003 and December 31, 2002 and the results of its
operations for the three and nine months ended September 30, 2003
and September 30, 2002 and the statements of cash flows for the nine
months ended September 30, 2003 and September 30, 2002. 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 nine months ended September 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):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                      |  |                    |          |                   |  |   |          |  
|------------------------------------- |  | ------------------ | -------- | ----------------- |  | - | -------- | -
|                                      |  | September 30, 2003 |          | December 31, 2002
|                                      |  |                    |          |                  
|Land, buildings and general equipment |  | $                  | 88,813   |                   |  | $ | 85,716   |  
|Central office equipment              |  |                    | 161,351  |                   |  |   | 148,484  |  
|Poles, wires, cables and conduit      |  |                    | 141,136  |                   |  |   | 133,645  |  
|Construction in progress              |  |                    | 5,681    |                   |  |   | 10,846   |  
|                                      |  |                    |          |                   |  |   |          |  
|                                      |  |                    | 396,981  |                   |  |   | 378,691  |  
|Accumulated depreciation              |  |                    | (187,593 | )                 |  |   | (164,270 | )
|                                      |  |                    |          |                   |  |   |          |  
|Property and equipment, net           |  | $                  | 209,388  |                   |  | $ | 214,421  |  
|                                      |  |                    |          |                   |  |   |          |  



|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.                                                                                                                                                                                                                                               
|  
|   |  | In addition, as presented in the Companys Current Report on Form 8-K
on October 23, 2003, the Company has made certain further adjustments
to information previously reported in Note 19  Summary of Income
Statement Information (Unaudited) contained in the Notes to
Consolidated Financial Statements in the Companys Annual Report on
Form 10-K for the year ended December 31, 2002. These subsequent
adjustments, which the Company believes are not material, were made
to operating revenue and expense for the third and fourth quarters of
2002 and had no impact on net income for the year ended December 31,
2002.
|  
|   |  | The cumulative after-tax effect of these changes for the three and
nine months ended September 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 changes
resulted in a decrease in diluted earnings per share of $0.01 per
share for the three and nine months ended September 30, 2002. The
accompanying financial statements for the three and nine months ended
September 30, 2002 have been restated to reflect the corrected
calculations and adjusted accordingly.                                                    

6



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



| |  | The correction of the items noted above and adjustments for
discontinued operations (Note 6) resulted in the restatement of
certain amounts on the statements of income for the three and nine
months ended September 30, 2002. These items are as follows (in
thousands):
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                             |  |                                       |        |              |  |              |        |             |  |          |      |   |  |     |      |             |  |   |        |  
|------------------------------------------------------------ |  | ------------------------------------- | ------ | ------------ |  | ------------ | ------ | ----------- |  | -------- | ---- | - |  | --- | ---- | ----------- |  | - | ------ | -
|                                                             |  | Three months ended September 30, 2002
|                                                             |  |                                      
|                                                             |  |                                       |        |              |  | (Note 6)     |        |             |  |          |      |   |  |     |      | As Restated
|                                                             |  | As                                    |        | Discontinued |  |              |        |             |  |          |      |   |  | and
|Income Statement                                             |  | Reported                              |        | Operations   |  | Restatement1 |        | Adjustments |  | Adjusted
|                                                             |  |                                       |        |              |  |              |        |             |  |         
|Operating revenue                                            |  | $                                     | 37,036 |              |  | $            | (52    | )           |  | $        | 93   |   |  | $   | (108 | )           |  | $ | 36,969 |  
|Operating expense                                            |  |                                       | 37,491 |              |  |              | (5,593 | )           |  |          | (176 | ) |  |     | 292  |             |  |   | 32,014 |  
|Operating income (loss)                                      |  |                                       | (455   | )            |  |              | 5,541  |             |  |          | 269  |   |  |     | (400 | )           |  |   | 4,955  |  
|Other income (expense)                                       |  |                                       | (280   | )            |  |              | (1     | )           |  |          |     |   |  |     |     |             |  |   | (281   | )
|Income (loss) from continuing
operations before income taxes |  |                                       | (735   | )            |  |              | 5,540  |             |  |          | 269  |   |  |     | (400 | )           |  |   | 4,674  |  
|Income taxes                                                 |  |                                       | (294   | )            |  |              | 2,124  |             |  |          | 110  |   |  |     | (164 | )           |  |   | 1,776  |  
|Income (loss) from continuing operations                     |  |                                       | (441   | )            |  |              | 3,416  |             |  |          | 159  |   |  |     | (236 | )           |  |   | 2,898  |  
|Loss from discontinued operations                            |  |                                       |       |              |  |              | (3,416 | )           |  |          |     |   |  |     |     |             |  |   | (3,416 | )
|Net income (loss)                                            |  |                                       | (441   | )            |  |              |       |             |  |          | 159  |   |  |     | (236 | )           |  |   | (518   | )

|                                                             |  |                                      |         |              |  |              |        |             |  |          |   |  |  |     |      |             |  |   |         |  
|------------------------------------------------------------ |  | ------------------------------------ | ------- | ------------ |  | ------------ | ------ | ----------- |  | -------- | - |  |  | --- | ---- | ----------- |  | - | ------- | -
|                                                             |  | Nine months ended September 30, 2002
|                                                             |  |                                     
|                                                             |  |                                      |         |              |  | (Note 6)     |        |             |  |          |   |  |  |     |      | As Restated
|                                                             |  | As                                   |         | Discontinued |  |              |        |             |  |          |   |  |  | and
|Income Statement                                             |  | Reported                             |         | Operations   |  | Restatement1 |        | Adjustments |  | Adjusted
|                                                             |  |                                      |         |              |  |              |        |             |  |         
|Operating revenue                                            |  | $                                    | 109,992 |              |  | $            | (134   | )           |  | $        |  |  |  | $   | (108 | )           |  | $ | 109,750 |  
|Operating expense                                            |  |                                      | 103,972 |              |  |              | (8,144 | )           |  |          |  |  |  |     | 292  |             |  |   | 96,120  |  
|Operating income (loss)                                      |  |                                      | 6,020   |              |  |              | 8,010  |             |  |          |  |  |  |     | (400 | )           |  |   | 13,630  |  
|Other income                                                 |  |                                      | 2,679   |              |  |              | 87     |             |  |          |  |  |  |     |     |             |  |   | 2,766   |  
|Income (loss) from continuing
operations before income taxes |  |                                      | 8,699   |              |  |              | 8,097  |             |  |          |  |  |  |     | (400 | )           |  |   | 16,396  |  
|Income taxes                                                 |  |                                      | 3,567   |              |  |              | 2,993  |             |  |          |  |  |  |     | (164 | )           |  |   | 6,396   |  
|Income (loss) from continuing operations                     |  |                                      | 5,132   |              |  |              | 5,104  |             |  |          |  |  |  |     | (236 | )           |  |   | 10,000  |  
|Loss from discontinued operations                            |  |                                      |        |              |  |              | (5,104 | )           |  |          |  |  |  |     |     |             |  |   | (5,104  | )
|Net income (loss)                                            |  |                                      | 5,132   |              |  |              |       |             |  |          |  |  |  |     | (236 | )           |  |   | 4,896   |  

|                                          |  |                                      |         |                         |  |              |        |             |  |   |   |  |  |   |         |  
|----------------------------------------- |  | ------------------------------------ | ------- | ----------------------- |  | ------------ | ------ | ----------- |  | - | - |  |  | - | ------- | -
|                                          |  | Nine months ended September 30, 2002
|                                          |  |                                     
|                                          |  |                                      |         |                         |  | (Note 6)     |        |             |  |   |   |  |  |  
|Cash Flow Statement                       |  | As Reported                          |         | Discontinued Operations |  | Restatement1 |        | As Restated
|                                          |  |                                      |         |                         |  |              |        |            
|Net cash provided by operating
activities |  | $                                    | 24,623  |                         |  | $            | 1,088  |             |  | $ |  |  |  | $ | 25,711  |  
|Net cash used in investing activities     |  |                                      | (31,946 | )                       |  |              | 615    |             |  |   |  |  |  |   | (31,331 | )
|Net cash used in discontinued operations  |  |                                      |        |                         |  |              | (1,703 | )           |  |   |  |  |  |   | (1,703  | )



|1 |  | See Note 19  Summary of Income Statement Information (Unaudited) contained
in the Notes to Consolidated Financial Statements in our Annual Report on Form
10-K for the year ended December 31, 2002.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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, L.L.C. (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,
Accounting for the Impairment or Disposal of Long-Lived Assets.
For the three and nine months ended September 30, 2002, Wavetels
revenue reported in discontinued operations was $52,000 and $134,000,
respectively. Wavetels loss before income taxes, reported in
discontinued operations, for the three and nine months ended
September 30, 2002 was $5.5 million and $8.1 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. As of September 30, 2003, the Company
believes that the reserve is adequate. 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 September 30, 2003 and December 31, 2002
consist of the following (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                                        |                                                |  |               |       |              |  |   |       | 
|--------------------------------------- | ---------------------------------------------- |  | ------------- | ----- | ------------ |  | - | ----- | 
|                                        |                                                |  | September 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                               |  | $             | 29    |              |  | $ | 276   | 
|                                        | Accrued liabilities                            |  |               |      |              |  |   | 124   | 
|                                        | Other liabilities, primarily lease obligations |  |               | 1,184 |              |  |   | 1,245 | 
|                                        |                                                |  |               |       |              |  |   |      
|                                        | Total liabilities                              |  | $             | 1,213 |              |  | $ | 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 nine months ended September 30, 2003
is as follows (in thousands):
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |                         |   |       |      |  
|----------------------------- | ----------------------- | - | ----- | ---- | -
|Balance at December 31, 2002  |                         | $ | 1,243 |     
|                              | Lease termination costs |   |       | (428 | )
|                              | Severance costs         |   |       | (130 | )
|                              | Network removal costs   |   |       | (93  | )
|                              | Other costs             |   |       | (108 | )
|                              | Adjustments             |   |       | 700  |  
|                              |                         |   |       |     
|Balance at September 30, 2003 |                         | $ | 1,184 |     
|                              |                         |   |       |     



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

|                                     |  |        |            |        |  |   |            |  
|------------------------------------ |  | ------ | ---------- | ------ |  | - | ---------- | -
|                                     |  | Shares |            | Amount
|                                     |  |        |            |       
|Outstanding at December 31, 2002     |  |        | 18,686,740 |        |  | $ | 39,962,278 |  
|Purchase/forfeitures of Common Stock |  |        | (41,637    | )      |  |   | (443,876   | )
|Issuance of Common Stock             |  |        | 122,043    |        |  |   | 1,253,782  |  
|                                     |  |        |            |        |  |   |            |  
|Outstanding at September 30, 2003    |  |        | 18,767,146 |        |  | $ | 40,772,184 |  
|                                     |  |        |            |        |  |   |            |  

|                                                                                  |  |       |            |         |  |  |            | 
|--------------------------------------------------------------------------------- |  | ----- | ---------- | ------- |  |  | ---------- | 
|                                                                                  |  | Basic |            | Diluted
|                                                                                  |  |       |            |        
|Weighted average shares outstanding for the
three months ended September 30, 2003 |  |       | 18,764,576 |         |  |  | 18,852,536 | 
|Weighted average shares outstanding for the
three months ended September 30, 2002 |  |       | 18,670,834 |         |  |  | 18,712,677 | 
|Weighted average shares outstanding for the
nine months ended September 30, 2003  |  |       | 18,740,288 |         |  |  | 18,791,492 | 
|Weighted average shares outstanding for the
nine months ended September 30, 2002  |  |       | 18,721,329 |         |  |  | 18,762,702 | 



| |  | 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 September 30, 2003, 322,950 shares had been
repurchased since March 2001, at a cost of approximately $4.7
million.                                                                                         
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Outstanding options to purchase approximately 582,000 shares of
Common Stock for the three and nine months ended September 30, 2003
and approximately 646,000 shares of Common Stock for the three and
nine months ended September 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. At September 30, 2003 and September 30, 2002,
the Company had total options outstanding of 849,000 and 776,000,
respectively.

9



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



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

|                   |  |           |       |         |  |            |     |            |  |   |      |   |  |   |       | 
|------------------ |  | --------- | ----- | ------- |  | ---------- | --- | ---------- |  | - | ---- | - |  | - | ----- | 
|                   |  |           |       |         |  | Gross      |     | Gross      |  |   |      |  
|                   |  |           |       |         |  | Unrealized |     | Unrealized |  |   |      |  
|Equity Securities  |  | Amortized |       | Holding |  | Holding    |     |            |  |  
|Available-for-Sale |  | Cost      |       | Gains   |  | Losses     |     | Fair Value
|                   |  |           |       |         |  |            |     |           
|September 30, 2003 |  | $         | 4,866 |         |  | $          | 636 |            |  | $ | (115 | ) |  | $ | 5,387 | 
|                  
|December 31, 2002  |  | $         | 4,739 |         |  | $          | 98  |            |  | $ | (316 | ) |  | $ | 4,521 | 



|   |  | During the third quarter of 2003, the Company revised the
classification of certain investments that were historically
classified as investment securities. These investments will be
accounted for under the cost method as there is no readily
determinable market value. As a result of this change, $1.9 million
of investments were reclassified as investments in unconsolidated
companies on the condensed consolidated balance sheets as of
December 31, 2002 and September 30, 2003. This change did not
affect gross unrealized holding gains or losses and had no impact on
the condensed consolidated statements of income.
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|9. |  | INVESTMENTS IN UNCONSOLIDATED COMPANIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Investments in unconsolidated companies consist of the following (in
thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|               |                                         |       |   |               |        |              |   |       |        | 
|-------------- | --------------------------------------- | ----- | - | ------------- | ------ | ------------ | - | ----- | ------ | 
|               |                                         |       |   | September 30, |        | December 31,
|               |                                         |       |   | 2003          |        | 2002        
|               |                                         |       |   |               |        |             
|Equity Method: |                                         |       |   |               |        |              |   |      
|               | Palmetto MobileNet, L.P.                |       | $ | 9,549         |        |              | $ | 8,740 |       
|               | Other                                   |       |   | 108           |        |              |   | 120   |       
|Cost Method:   |                                         |       |   |               |        |              |   |      
|               | ITC Holding Company                     |       |   |              |        |              |   | 1,980 |       
|               | Maxcom Telecomunicaciones, S.A. de C.V. |       |   | 40            |        |              |   | 1,239 |       
|               | Knology, Inc.                           |       |   | 1,009         |        |              |   | 1,009 |       
|               | Magnolia Holding Company                |       |   | 2,958         |        |              |   |      |       
|               | Other                                   |       |   | 966           |        |              |   | 1,499 |       
|               |                                         |       |   |               |        |              |   |      
|               |                                         | Total |   | $             | 14,630 |              |   | $     | 14,587 | 
|               |                                         |       |   |               |        |              |   |      



| |  | 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 remaining $17.7 million 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. At September 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 are being 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. During the third quarter of
2003, the Company received $0.7 million in cash representing the
final purchase price adjustment on the transaction and recorded an
additional gain on the sale of the ITC investment of $0.7 million.
|
| |  | In addition, in a separate, but related transaction, the Company
elected to use $2.9 million 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 third quarter of 2003, the Company signed a letter of
intent to sell its investment in Maxcom Telecomunicaciones, S.A. de
C.V. As a result, the Company recorded an impairment loss during
the third quarter of $0.5 million, which reduced the carrying value
to the estimated sale price. For the nine months ended September
30, 2003, the Company has recognized impairment losses totaling $1.7
million, of which $1.2 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
condensed 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 that is currently
1.25%, based on various financial ratios. The interest rate on
September 30, 2003 was 2.44%. The credit facility provides for
quarterly payments of interest until maturity on March 31, 2006. As
of September 30, 2003, $36.0 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 September 30, 2003. The Company
also has an additional line of credit for $10.0 million at one month
LIBOR plus 1.25%. As of September 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 September 30, 2003 was $(0.2) million, $(0.4) million and
$(0.2) million, respectively. The swaps mature on March 31, 2004,
November 3, 2006 and November 3, 2004, 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 September 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. |  | STATE INCOME TAX ASSESSMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | In October 2003, the Company received income tax assessments from
the North Carolina Department of Revenue related to certain state
tax returns filed for the years ended December 31, 1998, 1999 and
2000. The Company intends to vigorously appeal these assessments.
The Company believes that it has meritorious defenses to the
assessments and the ultimate outcome will not result in a material
impact on the Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                          
|   
|13. |  | 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                                                                                                                                                                                                                                                                                                                                                                                                                                      

12



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



|    |  | 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 material impact on the Companys financial
position or results of operations.                                                                                                                                                                                                                                       
|   
|    |  | 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.                                                                                  
|   
|14. |  | 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 |      | Nine months ended
|                                                                                                                  |             |   | September 30,      |      | September 30,    
|                                                                                                                  |             |   |                    |      |                   |   | (Restated) |       |      |   |        |      | (Restated)
|                                                                                                                  |             |   | 2003               |      | 2002              |   | 2003       |       | 2002
|                                                                                                                  |             |   |                    |      |                   |   |            |       |     
|Net income (loss), as reported                                                                                    |             | $ | 3,149              |      |                   | $ | (518       | )     |      | $ | 15,989 |      |            | $ | 4,896 |     
|Total stock-based compensation expense
determined under fair value-based
method
for all awards, net of income tax |             |   | 209                |      |                   |   | 181        |       |      |   | 626    |      |            |   | 543   |     
|                                                                                                                  |             |   |                    |      |                   |   |            |       |      |   |        |      |            |   |       |     
|Pro forma net income (loss)                                                                                       |             | $ | 2,940              |      |                   | $ | (699       | )     |      | $ | 15,363 |      |            | $ | 4,353 |     
|                                                                                                                  |             |   |                    |      |                   |   |            |       |      |   |        |      |            |   |       |     
|Basic earnings (loss) per common share                                                                            |             |   |                    |      |                   |   |            |       |      |   |        |      |            |   |       |     
|                                                                                                                  | As reported |   | $                  | 0.17 |                   |   | $          | (0.03 | )    |   | $      | 0.85 |            |   | $     | 0.26 | 
|                                                                                                                  | Pro forma   |   |                    | 0.16 |                   |   |            | (0.04 | )    |   |        | 0.82 |            |   |       | 0.23 | 
|Diluted earnings (loss) per common share                                                                          |             |   |                    |      |                   |   |            |       |      |   |        |      |            |   |       |     
|                                                                                                                  | As reported |   |                    | 0.17 |                   |   |            | (0.03 | )    |   |        | 0.85 |            |   |       | 0.26 | 
|                                                                                                                  | Pro forma   |   |                    | 0.16 |                   |   |            | (0.04 | )    |   |        | 0.82 |            |   |       | 0.23 | 

13



---



##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



|15. |  | SEGMENT INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company has six reportable segments, each of which is a
strategic business that is managed separately due to certain
fundamental differences such as regulatory environment, services
offered and/or customers served. The segments and a description of
their businesses are as follows: the incumbent local exchange
carrier (ILEC), which provides local telephone services, the
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-up and high-speed
internet access and other data related services and Palmetto
MobileNet, L.P. (Palmetto), which is a limited partnership with
interests in wireless operations in North Carolina and South
Carolina in which the Company has an equity interest through 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 Companys Annual Report on 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 as of and for
the three and nine months ended September 30, 2003 and 2002, is as
follows (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  | Three months ended September 30, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|----------------------- |  | ---- | ------- | -------- |  | ------- | ------ | ---------- |  | --- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | 
|                        |  |      |         |          |  | Digital |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |  
|                        |  | ILEC |         | Wireless |  | CLEC    |        | Greenfield |  | IDS |        | Other |  | Total
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |      
|External
revenue        |  | $    | 24,132  |          |  | $       | 7,468  |            |  | $   | 4,911  |       |  | $     | 1,540  |   |  | $ | 2,552  |   |  | $ |       |   |  | $ | 40,603  | 
|External
expense        |  |      | 12,217  |          |  |         | 6,852  |            |  |     | 4,676  |       |  |       | 2,161  |   |  |   | 2,448  |   |  |   | 263    |   |  |   | 28,617  | 
|Depreciation            |  |      | 4,990   |          |  |         | 450    |            |  |     | 635    |       |  |       | 659    |   |  |   | 540    |   |  |   | 331    |   |  |   | 7,605   | 
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Operating
income (loss) |  | $    | 6,925   |          |  | $       | 166    |            |  | $   | (400   | )     |  | $     | (1,280 | ) |  | $ | (436   | ) |  | $ | (594   | ) |  | $ | 4,381   | 
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Segment assets          |  | $    | 168,295 |          |  | $       | 31,065 |            |  | $   | 16,115 |       |  | $     | 23,630 |   |  | $ | 15,093 |   |  | $ | 66,867 |   |  | $ | 321,065 | 



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

|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|----------------------- |  | ---- | ------- | -------- |  | ------- | ------ | ---------- |  | --- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | 
|                        |  |      |         |          |  | Digital |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |  
|                        |  | ILEC |         | Wireless |  | CLEC    |        | Greenfield |  | IDS |        | Other |  | Total
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |      
|External
revenue        |  | $    | 23,344  |          |  | $       | 6,053  |            |  | $   | 4,041  |       |  | $     | 1,155  |   |  | $ | 2,376  |   |  | $ |       |   |  | $ | 36,969  | 
|External
expense        |  |      | 10,597  |          |  |         | 5,070  |            |  |     | 4,517  |       |  |       | 1,976  |   |  |   | 2,248  |   |  |   | 346    |   |  |   | 24,754  | 
|Depreciation            |  |      | 5,163   |          |  |         | 333    |            |  |     | 568    |       |  |       | 531    |   |  |   | 431    |   |  |   | 234    |   |  |   | 7,260   | 
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Operating
income (loss) |  | $    | 7,584   |          |  | $       | 650    |            |  | $   | (1,044 | )     |  | $     | (1,352 | ) |  | $ | (303   | ) |  | $ | (580   | ) |  | $ | 4,955   | 
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Segment assets          |  | $    | 164,847 |          |  | $       | 31,077 |            |  | $   | 14,446 |       |  | $     | 20,768 |   |  | $ | 14,663 |   |  | $ | 88,983 |   |  | $ | 334,784 | 

14



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##### 



CT COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



| |  | Nine months ended September 30, 2003
| |  | ------------------------------------

|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|----------------------- |  | ---- | ------- | -------- |  | ------- | ------ | ---------- |  | --- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | 
|                        |  |      |         |          |  | Digital |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |  
|                        |  | ILEC |         | Wireless |  | CLEC    |        | Greenfield |  | IDS |        | Other |  | Total
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |      
|External
revenue        |  | $    | 71,232  |          |  | $       | 21,149 |            |  | $   | 14,759 |       |  | $     | 4,417  |   |  | $ | 7,695  |   |  | $ |       |   |  | $ | 119,252 | 
|External
expense        |  |      | 34,615  |          |  |         | 18,139 |            |  |     | 14,234 |       |  |       | 6,162  |   |  |   | 7,392  |   |  |   | 1,859  |   |  |   | 82,401  | 
|Depreciation            |  |      | 15,442  |          |  |         | 1,250  |            |  |     | 1,721  |       |  |       | 2,074  |   |  |   | 1,512  |   |  |   | 993    |   |  |   | 22,992  | 
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Operating
income (loss) |  | $    | 21,175  |          |  | $       | 1,760  |            |  | $   | (1,196 | )     |  | $     | (3,819 | ) |  | $ | (1,209 | ) |  | $ | (2,852 | ) |  | $ | 13,859  | 
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Segment assets          |  | $    | 168,295 |          |  | $       | 31,065 |            |  | $   | 16,115 |       |  | $     | 23,630 |   |  | $ | 15,093 |   |  | $ | 66,867 |   |  | $ | 321,065 | 



| |  | Nine months ended September 30, 2002 (Restated)
| |  | -----------------------------------------------

|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|----------------------- |  | ---- | ------- | -------- |  | ------- | ------ | ---------- |  | --- | ------ | ----- |  | ----- | ------ | - |  | - | ------ | - |  | - | ------ | - |  | - | ------- | 
|                        |  |      |         |          |  | Digital |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |  
|                        |  | ILEC |         | Wireless |  | CLEC    |        | Greenfield |  | IDS |        | Other |  | Total
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |      
|External
revenue        |  | $    | 70,471  |          |  | $       | 17,899 |            |  | $   | 11,361 |       |  | $     | 2,857  |   |  | $ | 7,162  |   |  | $ |       |   |  | $ | 109,750 | 
|External
expense        |  |      | 32,452  |          |  |         | 14,662 |            |  |     | 14,479 |       |  |       | 5,326  |   |  |   | 7,527  |   |  |   | 1,126  |   |  |   | 75,572  | 
|Depreciation            |  |      | 15,010  |          |  |         | 811    |            |  |     | 1,630  |       |  |       | 1,430  |   |  |   | 1,222  |   |  |   | 445    |   |  |   | 20,548  | 
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Operating
income (loss) |  | $    | 23,009  |          |  | $       | 2,426  |            |  | $   | (4,748 | )     |  | $     | (3,899 | ) |  | $ | (1,587 | ) |  | $ | (1,571 | ) |  | $ | 13,630  | 
|                        |  |      |         |          |  |         |        |            |  |     |        |       |  |       |        |   |  |   |        |   |  |   |        |   |  |   |         | 
|Segment assets          |  | $    | 164,847 |          |  | $       | 31,077 |            |  | $   | 14,446 |       |  | $     | 20,768 |   |  | $ | 14,663 |   |  | $ | 88,983 |   |  | $ | 334,784 | 



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

|                                                      |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        | 
|----------------------------------------------------- |  | ------------------ | ----- | ----------------- |  | ---------- | ----- | ---- |  | - | ------ | ---------- |  | - | ------ | 
|                                                      |  | Three months ended |       | Nine months ended
|                                                      |  | September 30,      |       | September 30,    
|                                                      |  |                    |       |                   |  | (Restated) |       |      |  |   |        | (Restated)
|                                                      |  | 2003               |       | 2002              |  | 2003       |       | 2002
|                                                      |  |                    |       |                   |  |            |       |     
|Segment operating income                              |  | $                  | 4,381 |                   |  | $          | 4,955 |      |  | $ | 13,859 |            |  | $ | 13,630 | 
|Total other income (expense)                          |  |                    | 503   |                   |  |            | (281  | )    |  |   | 13,055 |            |  |   | 2,766  | 
|                                                      |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        | 
|Income from continuing operations
before income taxes |  | $                  | 4,884 |                   |  | $          | 4,674 |      |  | $ | 26,914 |            |  | $ | 16,396 | 
|                                                      |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        | 

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, IDS and
Digital Wireless businesses. We will also consider strategic
acquisitions and investments as opportunities arise.                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | We have six reportable segments, each of which is a strategic
business that is managed separately due to certain fundamental
differences such as regulatory environment, services offered and/or
customers served. The identified reportable segments are: ILEC,
CLEC, Greenfield, Digital Wireless, IDS 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 |        | Nine months ended
|                            |  | September 30,      |        | September 30,    
|                            |  |                    |        |                   |  | (Restated) |        |      |  |   |         | (Restated)
|                            |  | 2003               |        | 2002              |  | 2003       |        | 2002
|                            |  |                    |        |                   |  |            |        |     
|Total operating revenue     |  | $                  | 40,603 |                   |  | $          | 36,969 |      |  | $ | 119,252 |            |  | $ | 109,750 | 
|Total operating expense     |  |                    | 36,222 |                   |  |            | 32,014 |      |  |   | 105,393 |            |  |   | 96,120  | 
|                            |  |                    |        |                   |  |            |        |      |  |   |         |            |  |   |         | 
|Operating income            |  | $                  | 4,381  |                   |  | $          | 4,955  |      |  | $ | 13,859  |            |  | $ | 13,630  | 
|                            |  |                    |        |                   |  |            |        |      |  |   |         |            |  |   |         | 
|Depreciation                |  | $                  | 7,605  |                   |  | $          | 7,260  |      |  | $ | 22,992  |            |  | $ | 20,548  | 
|Capital expenditures        |  |                    | 6,426  |                   |  |            | 10,180 |      |  |   | 17,452  |            |  |   | 37,502  | 
|Total assets                |  |                    |        |                   |  |            |        |      |  |   | 321,065 |            |  |   | 334,784 | 
|Ending wired access lines   |  |                    |        |                   |  |            |        |      |  |   | 154,079 |            |  |   | 152,697 | 
|Ending wireless subscribers |  |                    |        |                   |  |            |        |      |  |   | 36,778  |            |  |   | 32,668  | 

16



---



##### 





| |  | Three months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating revenue increased $3.6 million or 9.8% for the three
months ended September 30, 2003 compared to the three months ended
September 30, 2002. This $3.6 million increase is primarily
attributable to a $1.4 million increase in wireless revenue driven
by a 12.6% increase in customers and an increase in network traffic,
a $0.8 million increase in CLEC revenue driven by a 9.7% increase in
access lines, a $0.8 million increase in ILEC revenue driven
primarily by an increase in certain regulatory settlements and sales
of phone systems, a $0.4 million increase in Greenfield revenue
driven by a 58% increase in Greenfield access lines and a $0.2
million increase in IDS revenue related to a 63.3% increase in
digital subscriber lines (DSL).
|
| |  | For the three months ended September 30, 2003, operating expense
increased $4.2 million or 13.1% compared to the three months ended
September 30, 2002. The increase in operating expense is partially
due to an increase in costs of goods sold ($0.6 million) driven by
higher equipment sales, an increase in customer acquisition costs
($0.6 million), an increase in pension and postretirement expenses
($0.4 million) and an increase in depreciation expense ($0.3
million). The remaining increase in operating expense is primarily
related to the increasing customer base in our Digital Wireless,
CLEC and Greenfield businesses.                                                                                                                             
|
| |  | Operating margin was 10.8% for the three months ended September 30,
2003 compared to 13.4% for the three months ended September 30,
2002. The decrease in operating margin is due primarily to a
reduction in higher margin access and interconnection revenues in
our incumbent phone business, an increase in expenses as discussed
above and an increase in lower margin equipment sales.                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Nine months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Operating revenue increased $9.5 million or 8.7% for the nine months
ended September 30, 2003 compared to the nine months ended September
30, 2002. This $9.5 million increase is primarily attributable to a
$3.4 million increase in CLEC revenue driven by a 9.7% increase in
access lines, a $3.3 million increase in wireless revenue driven by
a 12.6% increase in customers and an increase in network traffic, a
$1.6 million increase in Greenfield revenue driven by a 58.2%
increase in access lines, a $0.8 million increase in ILEC revenue
and a $0.5 million increase in IDS 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 nine months ended September 30, 2003, ILEC
revenue represented 59.7% of total revenue compared to 64.2% in
2002, while Digital Wireless has grown to 17.7% of total revenue, up
from 16.3% in 2002, and the combined CLEC and Greenfield businesses
have grown to 16.1% of total revenue up from 13.0% in 2002.                                                                                                                                                                                                                                                                                               
|
| |  | For the nine months ended September 30, 2003, operating expense
increased $9.3 million or 9.6% compared to the nine months ended
September 30, 2002. Of this increase in operating expense, $2.4
million is related to depreciation expense as several large capital
projects were completed during 2002. The remaining increase is
driven by an increase in customer acquisition costs, an increase in
pension and postretirement expense and service expenses associated
with the increasing customer base in our Digital Wireless, CLEC and
Greenfield businesses.                                                                                                                                                                                                       
|
| |  | Operating margin was 11.6% for the nine months ended September 30,
2003 compared to 12.4% for the nine months ended September 30, 2002.
The decrease in operating margin is due primarily to an increase in
depreciation expense partially offset by improvements in operating
margins in CLEC and Greenfield.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | On July 30, 2003, Pillowtex Corporation, a large textile company in
North Carolina, announced it was filing for bankruptcy and would
layoff its entire workforce. A large portion 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 cannot be determined at this time.                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | In August 2003, the FCC released its Triennial Review Order
addressing unbundled network elements. State commissions are
required to address several issues regarding the definition of
markets within the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

17



---



##### 





| |  | state. 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 pricing rules. At this time, the
impact of these decisions on our businesses can not been determined.                                                                                                                                                                                                  
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In October 2003, the Company received income tax assessments from
the North Carolina Department of Revenue related to certain state
tax returns filed for the years ended December 31, 1998, 1999 and
2000. The Company intends to vigorously appeal these assessments.
The Company believes that it has meritorious defenses to the
assessments and the ultimate outcome will not result in a material
impact on the Companys consolidated financial statements.
|
| |  | ILEC(in thousands, except lines)                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                |  |                    |        |                   |  |            |        |      |  |   |         |            |  |   |         | 
|------------------------------- |  | ------------------ | ------ | ----------------- |  | ---------- | ------ | ---- |  | - | ------- | ---------- |  | - | ------- | 
|                                |  | Three months ended |        | Nine months ended
|                                |  | September 30,      |        | September 30,    
|                                |  |                    |        |                   |  | (Restated) |        |      |  |   |         | (Restated)
|                                |  | 2003               |        | 2002              |  | 2003       |        | 2002
|                                |  |                    |        |                   |  |            |        |     
|Total operating revenue         |  | $                  | 24,132 |                   |  | $          | 23,344 |      |  | $ | 71,232  |            |  | $ | 70,471  | 
|Total operating expense         |  |                    | 17,207 |                   |  |            | 15,760 |      |  |   | 50,057  |            |  |   | 47,462  | 
|                                |  |                    |        |                   |  |            |        |      |  |   |         |            |  |   |         | 
|Operating income                |  | $                  | 6,925  |                   |  | $          | 7,584  |      |  | $ | 21,175  |            |  | $ | 23,009  | 
|                                |  |                    |        |                   |  |            |        |      |  |   |         |            |  |   |         | 
|Depreciation                    |  | $                  | 4,990  |                   |  | $          | 5,163  |      |  | $ | 15,442  |            |  | $ | 15,010  | 
|Capital expenditures            |  |                    | 2,712  |                   |  |            | 4,172  |      |  |   | 8,887   |            |  |   | 12,936  | 
|Total assets                    |  |                    |        |                   |  |            |        |      |  |   | 168,295 |            |  |   | 164,847 | 
|Ending business access lines    |  |                    |        |                   |  |            |        |      |  |   | 29,263  |            |  |   | 31,434  | 
|Ending residential access lines |  |                    |        |                   |  |            |        |      |  |   | 86,951  |            |  |   | 89,304  | 
|Ending total access lines       |  |                    |        |                   |  |            |        |      |  |   | 116,214 |            |  |   | 120,738 | 
|Ending long distance lines      |  |                    |        |                   |  |            |        |      |  |   | 85,045  |            |  |   | 84,944  | 



| |  | Three months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating revenue for the ILEC increased $0.8 million for the three
months ended September 30, 2003 compared to the three months ended
September 30, 2002. This 3.4% increase in revenue was primarily
due to a $0.8 million increase related to certain regulatory
settlements and a $0.7 million increase in equipment sales. These
increases were partially offset by decreases in access revenue of
$0.4 million, decreases in wireless interconnection revenues of $0.4
million and decreases in certain local revenues associated with a
3.7% access line loss.                                                                      
|
| |  | Wireless interconnection revenue is likely to decline further as the
Company has been required to develop direct billing relationships
with wireless carriers for termination of wireless traffic in our
network. The Company believes that ILEC quarterly revenue may
decline up to $0.8 million compared to the prior year. 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
on our network increases.
|
| |  | Operating expense in the ILEC increased $1.4 million for the three
months ended September 30, 2003 compared to the three months ended
September 30, 2002 primarily due to an increase in network and
administrative expenses. Operating margins decreased to 28.7% in
2003 from 32.5% in 2002. This decrease is due in part to the
decrease in high margin access and wireless interconnection revenues
and the increase in lower margin phone system sales.                                                                                                                                                                               
|
| |  | Capital expenditures for the three months ended September 30, 2003
were 11.2% of ILEC operating revenue as compared to 17.9% for the
three months ended September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | ILEC access lines subscribing to our long distance service increased
slightly for the three months ended September 30, 2003 despite the
3.7% access line loss. At September 30, 2003, 73.2% of ILEC access
lines subscribed to our long distance service, up from 70.4% at
September 30, 2002.                                                                                                                                                                                                                                                                                                                                             

18



---



##### 





| |  | Nine months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating revenue for the ILEC for the nine months ended September
30, 2003 increased $0.8 million compared to the nine months ended
September 30, 2002, despite a 3.7% decrease in access lines. The
increase is primarily due to an increase in revenue related to
certain regulatory settlements and an increase in phone system
sales.                                                                                                                                                                                                                                                                                                                             
|
| |  | Primary factors impacting the access line decrease are the loss of
second lines due to DSL adoption, cable modem penetration and
wireless substitution. In addition, during the nine months ended
September 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 revenue from these
lines.                                                                                                                                                                                        
|
| |  | Operating expense in the ILEC increased $2.6 million for the nine
months ended September 30, 2003 compared to the nine months ended
September 30, 2002. Operating margins decreased to 29.7% for the
nine months ended September 30, 2003 from 32.7% for the same period
in 2002. The decrease in margin is primarily driven by a reduction
in high margin access and wireless interconnection revenue and an
increase in lower margin phone system sales. In addition,
depreciation expense accounted for $0.4 million of the increase in
operating expense.                                                                                                          
|
| |  | Legislation was enacted in North Carolina that has deregulated
intraLATA long distance service, interLATA long distance service and
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 North Carolina Utilities Commission (NCUC).
However, this legislation will allow our ILEC more flexibility in
offering service bundles and promotions. The full impact of the
legislation is being examined by the NCUC.                                                                                          
|
| |  | Certain interstate rates charged by the Company are regulated by the
FCC and are subject to potential over-earnings claims if the
Companys interstate rates result in earnings over the FCCs
prescribed rate of return. The Company maintains a reserve related
to over-earnings based on managements estimate of potential
liability for the Company. Management periodically assesses the
Companys potential liability and makes adjustments as applicable.
Changes in managements estimate could result from changes in
current and future legislation, regulatory filings and FCC rulings,
as well as any other factors that may impact managements estimate.
|
| |  | CLEC(in thousands, except lines)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                           |  |                    |       |                   |  |            |        |      |  |   |        |            |  |   |        |  
|-------------------------- |  | ------------------ | ----- | ----------------- |  | ---------- | ------ | ---- |  | - | ------ | ---------- |  | - | ------ | -
|                           |  | Three months ended |       | Nine months ended
|                           |  | September 30,      |       | September 30,    
|                           |  |                    |       |                   |  | (Restated) |        |      |  |   |        | (Restated)
|                           |  | 2003               |       | 2002              |  | 2003       |        | 2002
|                           |  |                    |       |                   |  |            |        |     
|Total operating revenue    |  | $                  | 4,911 |                   |  | $          | 4,041  |      |  | $ | 14,759 |            |  | $ | 11,361 |  
|Total operating expense    |  |                    | 5,311 |                   |  |            | 5,085  |      |  |   | 15,955 |            |  |   | 16,109 |  
|                           |  |                    |       |                   |  |            |        |      |  |   |        |            |  |   |        |  
|Operating income (loss)    |  | $                  | (400  | )                 |  | $          | (1,044 | )    |  | $ | (1,196 | )          |  | $ | (4,748 | )
|                           |  |                    |       |                   |  |            |        |      |  |   |        |            |  |   |        |  
|Depreciation               |  | $                  | 635   |                   |  | $          | 568    |      |  | $ | 1,721  |            |  | $ | 1,630  |  
|Capital expenditures       |  |                    | 242   |                   |  |            | 532    |      |  |   | 707    |            |  |   | 2,118  |  
|Total assets               |  |                    |       |                   |  |            |        |      |  |   | 16,115 |            |  |   | 14,446 |  
|Ending access lines        |  |                    |       |                   |  |            |        |      |  |   | 28,756 |            |  |   | 26,202 |  
|Ending long distance lines |  |                    |       |                   |  |            |        |      |  |   | 14,922 |            |  |   | 13,779 |  

19



---



##### 





| |  | Three months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | For the three months ended September 30, 2003, CLEC operating
revenue increased $0.9 million compared to the three months ended
September 30, 2002. Line revenue increased $0.4 million and access
revenue increased $0.4 million due to a 9.7% increase in access
lines. The increase in access revenue was driven by higher billable
minutes partially offset by an access rate reduction. Long distance
revenue increased $0.1 million due to an 8.3% increase in CLEC
customers subscribing to our long distance service.                                                                                                                                                                                                                                                                                       
|
| |  | CLEC operating expense was $5.3 million and $5.1 million for the
three months ended September 30, 2003 and September 30, 2002,
respectively. Operating margins improved to (8.1%) for the three
months ended September 30, 2003, up from (25.8%) for the three
months ended September 30, 2002. 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. The effect of this reduction lowered
access revenue approximately $0.1 million in the third quarter.
However, 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.
|
| |  | Nine months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | For the nine months ended September 30, 2003, CLEC operating revenue
increased $3.4 million compared to the nine months ended September
30, 2002. Line revenue increased $1.7 million and access revenue
increased $1.7 million, including $0.9 million in previously
disputed access fee revenue. This increase is due to an increase in
access lines, as well as an increase in CLEC customers subscribing
to our long distance service.                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | CLEC operating expense was $16.0 million and $16.1 million for the
nine months ended September 30, 2003 and September 30, 2002,
respectively. Operating margins improved to (8.1%) for the nine
months ended September 30, 2003, up from (41.8%) for the nine months
ended September 30, 2002. This improvement was due in part to
several on-going initiatives related to revenue assurance processes
and operating efficiency improvements, as well as efficiencies
gained from a growing customer base.                                                                                                                                                                                                                                                                                                          
|
| |  | Greenfield(in thousands, except lines and signed agreements)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                                 |  |                    |        |                   |  |            |        |      |  |   |        |            |  |   |        |  
|-------------------------------- |  | ------------------ | ------ | ----------------- |  | ---------- | ------ | ---- |  | - | ------ | ---------- |  | - | ------ | -
|                                 |  | Three months ended |        | Nine months ended
|                                 |  | September 30,      |        | September 30,    
|                                 |  |                    |        |                   |  | (Restated) |        |      |  |   |        | (Restated)
|                                 |  | 2003               |        | 2002              |  | 2003       |        | 2002
|                                 |  |                    |        |                   |  |            |        |     
|Total operating revenue          |  | $                  | 1,540  |                   |  | $          | 1,155  |      |  | $ | 4,417  |            |  | $ | 2,857  |  
|Total operating expense          |  |                    | 2,820  |                   |  |            | 2,507  |      |  |   | 8,236  |            |  |   | 6,756  |  
|                                 |  |                    |        |                   |  |            |        |      |  |   |        |            |  |   |        |  
|Operating income (loss)          |  | $                  | (1,280 | )                 |  | $          | (1,352 | )    |  | $ | (3,819 | )          |  | $ | (3,899 | )
|                                 |  |                    |        |                   |  |            |        |      |  |   |        |            |  |   |        |  
|Depreciation                     |  | $                  | 659    |                   |  | $          | 531    |      |  | $ | 2,074  |            |  | $ | 1,430  |  
|Capital expenditures             |  |                    | 996    |                   |  |            | 3,046  |      |  |   | 3,148  |            |  |   | 7,877  |  
|Total assets                     |  |                    |        |                   |  |            |        |      |  |   | 23,630 |            |  |   | 20,768 |  
|Ending access lines              |  |                    |        |                   |  |            |        |      |  |   | 9,109  |            |  |   | 5,757  |  
|Ending long distance lines       |  |                    |        |                   |  |            |        |      |  |   | 4,154  |            |  |   | 2,214  |  
|Total signed provider agreements |  |                    |        |                   |  |            |        |      |  |   | 87     |            |  |   | 68     |  



| |  | Three months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Greenfield revenue for the three months ended September 30, 2003
increased 33.3% compared to the three months ended September 30,
2002. This revenue increase is primarily attributable to a 58.2%
increase in access lines compared to 2002. Seven new provider
agreements were signed during the third quarter of 2003, bringing
the total number of agreements signed to 87. These agreements
represent up to 47,000 access lines at completion, of which over 90%
are expected to be residential lines.

20



---



##### 





| |  | Operating expense increased $0.3 million or 12.5% for the three
months ended September 30, 2003. This increase is related primarily
to the 58.2% increase in access lines and a $0.1 million increase in
depreciation expense. Operating margins improved to (83.1%), up from
(117.1%) for the three months ended September 30, 2002. This
increase is primarily the result of the larger customer base.                                                                                                                                                                                                                                                                                                               
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Capital expenditures for the three months ended September 30, 2003
of $1.0 million were $2.1 million lower than for the three months
ended September 30, 2002. This decrease is primarily due to having
signed fewer new agreements as a result of the Companys strategy to
target new developments with the most efficient capital deployments.                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | For the three months ended September 30, 2003, 45.6% of Greenfield
access lines also subscribed to our long distance service, up from
38.5% for the same period 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.                                                                                     
|
| |  | Nine months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Greenfield revenue for the nine months ended September 30, 2003
increased 54.6% compared to the nine months ended September 30,
2002. Line revenue increased $1.1 million and access revenue
increased $0.5 million for the nine months ended September 30, 2003
due to a 58.2% increase in access lines compared to the same period
in 2002.                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Operating expense increased $1.5 million or 21.9% for the nine
months ended September 30, 2003. This increase related primarily to
an increase in access lines. Depreciation expense increased $0.6
million, transport expenses increased $0.3 million, long distance
expenses increased $0.2 million and salaries increased $0.2 million
for the nine months ended September 30, 2003. Capital expenditures
for the nine months ended September 30, 2003 were $4.7 million lower
than for the nine months ended September 30, 2002. This decrease is
primarily due to having signed fewer new agreements as a result of
the Companys strategy to target new developments with the most
efficient capital deployments.
|
| |  | On June 6, 2003, the NCUC initiated a general inquiry involving all
certificated telecommunications providers regarding preferred
provider contracts. The Company understands that the NCUC is
examining all preferred provider contracts filed by CLECs and ILECs
and that hearings are expected to be held in early 2004. The
Company has 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 or
actions taken by the NCUC.                                                                                                                                                           
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                 

21



---



##### 





| |  | Digital Wireless(in thousands, except subscribers)
| |  | --------------------------------------------------

|                            |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        | 
|--------------------------- |  | ------------------ | ----- | ----------------- |  | ---------- | ----- | ---- |  | - | ------ | ---------- |  | - | ------ | 
|                            |  | Three months ended |       | Nine months ended
|                            |  | September 30,      |       | September 30,    
|                            |  |                    |       |                   |  | (Restated) |       |      |  |   |        | (Restated)
|                            |  | 2003               |       | 2002              |  | 2003       |       | 2002
|                            |  |                    |       |                   |  |            |       |     
|Total operating revenue     |  | $                  | 7,468 |                   |  | $          | 6,053 |      |  | $ | 21,149 |            |  | $ | 17,899 | 
|Total operating expense     |  |                    | 7,302 |                   |  |            | 5,403 |      |  |   | 19,389 |            |  |   | 15,473 | 
|                            |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        | 
|Operating income            |  | $                  | 166   |                   |  | $          | 650   |      |  | $ | 1,760  |            |  | $ | 2,426  | 
|                            |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        | 
|Depreciation                |  | $                  | 450   |                   |  | $          | 333   |      |  | $ | 1,250  |            |  | $ | 811    | 
|Capital expenditures        |  |                    | 784   |                   |  |            | 1,302 |      |  |   | 965    |            |  |   | 3,906  | 
|Total assets                |  |                    |       |                   |  |            |       |      |  |   | 31,065 |            |  |   | 31,077 | 
|Ending post-pay subscribers |  |                    |       |                   |  |            |       |      |  |   | 36,778 |            |  |   | 32,668 | 



| |  | Three months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Digital Wireless operating revenue for the three months ended
September 30, 2003 grew $1.4 million or 23.4% compared to the three
months ended September 30, 2002. Of this increase, $0.8 million
related to recurring monthly billing revenue from post-pay wireless
subscriber growth of over 4,100 net subscribers, an increase of
12.6% compared to the prior year, for the three months ended
September 30, 2003. Also contributing to the revenue increase for
the three months ended September 30, 2003 was higher settlement
revenue of $0.4 million related to an increase in the minutes of use
on our wireless network and higher handset revenue of $0.2 million.
|
| |  | Operating expense increased 35.1% for the three months ended
September 30, 2003 to $7.3 million. The increase in operating
expense was due to the addition of customers, the increase in
minutes of use on our network, increased acquisition costs related
to the increase in post-pay subscribers and the re-signing of
existing customers to new contracts in advance of the implementation
of local number portability.                                                                                                                                                                                                                                                  
|
| |  | Capital expenditures for the three months ended September 30, 2003
were $0.8 million compared to $1.3 million for the three months
ended September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Nine months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Digital Wireless operating revenue for the nine months ended
September 30, 2003 grew $3.3 million or 18.2% compared to the nine
months ended September 30, 2002. Of this increase, $1.5 million
related to recurring monthly billing revenue, $1.1 million related
to settlement revenue and $0.5 million related to handset revenue.
The increase in settlement revenue during the nine months ended
September 30, 2003 was related to an increase in the minutes of use
on our wireless network compared to the nine months ended September
30, 2002.                                                                                                                      
|
| |  | Operating expense increased 25.3% for the nine months ended
September 30, 2003 to $19.4 million. The increase in operating
expense was due to customer acquisition expense associated with the
growth in our customer base, the increase in minutes of use on our
network, the re-signing of existing customers to new contracts in
advance of the implementation of local number portability and an
increase in depreciation expense. Operating margins were 2.2% for
the nine months ended September 30, 2003 compared to 10.7% for the
nine months ended September 30, 2002.                                                                                              
|
| |  | Capital expenditures for the nine months ended September 30, 2003
were $1.0 million compared to $3.9 million for the nine months ended
September 30, 2002. The Company slowed capital spending during the
first half of 2003 while network testing was performed to identify
coverage and interference needs. Based on the results of that
testing, the Company constructed two sites in the third quarter of
2003 and plans to construct two additional sites during the fourth
quarter of 2003.                                                                                                                                                                            

22



---



##### 





| |  | 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 were recently addressed by the FCC.
It is expected that wireless LNP could result in increased rates of
customer churn.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Internet and Data Services (IDS)(in thousands, except lines and
accounts)                                                                                                                                                                                                                   

|                           |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        |  
|-------------------------- |  | ------------------ | ----- | ----------------- |  | ---------- | ----- | ---- |  | - | ------ | ---------- |  | - | ------ | -
|                           |  | Three months ended |       | Nine months ended
|                           |  | September 30,      |       | September 30,    
|                           |  |                    |       |                   |  | (Restated) |       |      |  |   |        | (Restated)
|                           |  | 2003               |       | 2002              |  | 2003       |       | 2002
|                           |  |                    |       |                   |  |            |       |     
|Total operating revenue    |  | $                  | 2,552 |                   |  | $          | 2,376 |      |  | $ | 7,695  |            |  | $ | 7,162  |  
|Total operating expense    |  |                    | 2,988 |                   |  |            | 2,679 |      |  |   | 8,904  |            |  |   | 8,749  |  
|                           |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        |  
|Operating income (loss)    |  | $                  | (436  | )                 |  | $          | (303  | )    |  | $ | (1,209 | )          |  | $ | (1,587 | )
|                           |  |                    |       |                   |  |            |       |      |  |   |        |            |  |   |        |  
|Depreciation               |  | $                  | 540   |                   |  | $          | 431   |      |  | $ | 1,512  |            |  | $ | 1,222  |  
|Capital expenditures       |  |                    | 639   |                   |  |            | 514   |      |  |   | 1,954  |            |  |   | 1,367  |  
|Total assets               |  |                    |       |                   |  |            |       |      |  |   | 15,093 |            |  |   | 14,663 |  
|Ending DSL lines           |  |                    |       |                   |  |            |       |      |  |   | 9,591  |            |  |   | 5,874  |  
|Ending dial-up accounts    |  |                    |       |                   |  |            |       |      |  |   | 11,535 |            |  |   | 12,887 |  
|Ending high-speed accounts |  |                    |       |                   |  |            |       |      |  |   | 536    |            |  |   | 599    |  



| |  | Three months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | IDS operating revenue for the three months ended September 30, 2003
grew 7.4% to $2.6 million. This $0.2 million increase in revenue
was attributable to a $0.4 million increase in DSL revenue,
partially offset by a decrease in dial-up, web development and web
hosting revenue and a $0.2 million increase in service interruption
credits.                                                                                                                                                                                  
|
| |  | IDS operating expense was $3.0 million for the three months ended
September 30, 2003, an 11.5% increase compared to the three months
ended September 30, 2002. This increase relates primarily to the
increase in DSL accounts. Operating loss for the third quarter of
2003 and the third quarter of 2002 was $0.4 million and $0.3
million, respectively. The primary reason for the increase in
operating loss was a $0.1 million increase in depreciation expense
and a $0.2 million increase in service interruption credits.
|
| |  | Nine months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | IDS operating revenue for the nine months ended September 30, 2003
increased $0.5 million or 7.4%. This increase in revenue was
attributable to a $1.2 million increase in DSL revenue, partially
offset by a decrease in dial-up, web development and web hosting
revenue.                                                                                                                                                                                                                                                       
|
| |  | IDS operating expense was $8.9 million for the nine months ended
September 30, 2003, a 1.8% increase compared to the nine months
ended September 30, 2002. This increase relates primarily to the
increase in DSL accounts.                                                                                                                                                                                                                                                                                                       
|
| |  | DSL customers increased 63.3% for the nine months ended September
30, 2003 compared to the nine months ended September 30, 2002
bringing total DSL lines in service to 9,591 at September 30, 2003.
This represents a penetration rate of 7.5% of ILEC access lines, up
from 4.5% at the end of the third quarter of 2002 and a penetration
rate of 9.7% of Greenfield access lines, up from 5.9% at the end of
the third quarter of 2002.                                                                                        

23



---



##### 





| |  | Other(in thousands)
| |  | -------------------

|                        |  |                    |       |                   |  |            |      |      |  |   |        |            |  |   |        |  
|----------------------- |  | ------------------ | ----- | ----------------- |  | ---------- | ---- | ---- |  | - | ------ | ---------- |  | - | ------ | -
|                        |  | Three months ended |       | Nine months ended
|                        |  | September 30,      |       | September 30,    
|                        |  |                    |       |                   |  | (Restated) |      |      |  |   |        | (Restated)
|                        |  | 2003               |       | 2002              |  | 2003       |      | 2002
|                        |  |                    |       |                   |  |            |      |     
|Total operating expense |  | $                  | 594   |                   |  | $          | 580  |      |  | $ | 2,852  |            |  | $ | 1,571  |  
|                        |  |                    |       |                   |  |            |      |      |  |   |        |            |  |   |        |  
|Operating income (loss) |  | $                  | (594  | )                 |  | $          | (580 | )    |  | $ | (2,852 | )          |  | $ | (1,571 | )
|                        |  |                    |       |                   |  |            |      |      |  |   |        |            |  |   |        |  
|Depreciation            |  | $                  | 331   |                   |  | $          | 234  |      |  | $ | 993    |            |  | $ | 445    |  
|Capital expenditures    |  |                    | 1,053 |                   |  |            | 614  |      |  |   | 1,791  |            |  |   | 9,298  |  
|Total assets            |  |                    |       |                   |  |            |      |      |  |   | 66,867 |            |  |   | 88,983 |  



| |  | Three months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating expense remained flat for the three months ended September
30, 2003 compared to the three months ended September 30, 2002,
despite a $0.1 million increase in depreciation expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Nine months ended September 30                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Operating expense increased $1.3 million for the nine months ended
September 30, 2003 compared to the nine months ended September 30,
2002. This increase was related to a $0.5 million increase in
depreciation expense and the inclusion of WONC in our consolidated
results ($0.4 million) after our purchase of the remaining ownership
interest in the spring of 2002.                                                                                                                                                                                                                                                                                                                                              
|
| |  | Capital expenditures of $9.3 million for the nine months ended
September 30, 2002 primarily include expenditures related to the
completion of the Companys new corporate center.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Other Income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Other income (expense) for the three months ended September 30, 2003
increased $0.8 million compared to the three months ended September
30, 2002. This increase relates to a $0.8 million increase in gains
on sales of investments and a $0.4 million increase in equity in
income of unconsolidated companies, offset by a $0.5 million
increase in impairment charges on investments. The increase in
gains on sales of investments represents additional proceeds
received related to final purchase price adjustments on the ITC
transaction. The Company received $0.7 million related to these
purchase price adjustments and recorded the entire amount received
as a gain on the sale of the investment in ITC.
|
| |  | For the nine months ended September 30, 2003, other income (expense)
increased $10.3 million compared to the nine months ended September
30, 2002. This increase relates to an $11.3 million increase in
gains on sales of investments and a $0.9 million increase in equity
in income of unconsolidated companies, offset by a $1.0 million
increase in impairment charges on investments and a $0.9 million
increase in other expenses. 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 $11.2 million to
$36.9 million for the nine months ended September 30, 2003. The
increase primarily related to decreases in accounts receivable and
unbilled revenue, increases in other accrued liabilities, changes in
income tax receivables and payables and other working capital
changes, partially offset by a decrease in accounts payable.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

24



---



##### 





| |  | Net cash provided by (used in) investing activities
Cash provided by investing activities increased to $0.5 million
during the nine months ended September 30, 2003 compared with cash
used in investing activities of $31.3 million for the nine months
ended September 30, 2002. Capital expenditures were lower during
the nine months ended September 30, 2003 and proceeds from sales of
investments in unconsolidated companies were up significantly in the
nine months ended September 30, 2003 compared with the nine months
ended September 30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Net cash (used in) provided by financing activities
Net cash used in financing activities was $27.3 million during the
nine months ended September 30, 2003 compared with cash provided by
financing activities of $7.3 million during the nine months ended
September 30, 2002. During 2003, the Company has paid off $24.0
million in long-term debt, which represented the primary use of cash
in financing activities. Proceeds from credit facilities of $13.0
million offset the dividends and stock repurchases in the first nine
months of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | At September 30, 2003, the fair market value of the Companys
marketable investment securities was $5.4 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 1.25%. The
interest rate on September 30, 2003 was 2.44%. The credit facility
provides for quarterly payments of interest until maturity on March
31, 2006. As of September 30, 2003, $36.0 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 September 30, 2003.
The Company also has an additional line of credit for $10.0 million
at one month LIBOR plus 1.25%. As of September 30, 2003, the
Company had no amounts outstanding under this credit line.
|
| |  | As discussed in Note 9, West purchased the stock of ITC in May 2003.
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 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.
During the third quarter of 2003, the Company received $0.7 million
in cash representing the final purchase price adjustment on the
transaction and recorded an additional gain on the sale of the ITC
investment of $0.7 million.                                                                                                                                                                                                                                              
|
| |  | The following table discloses aggregate information about our
contractual obligations and the periods in which payments are due
(in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                         |                  |   |        |        |         |   |                      |     |         |   |         |       |          |   |        |        |  |   |        |        | 
|------------------------ | ---------------- | - | ------ | ------ | ------- | - | -------------------- | --- | ------- | - | ------- | ----- | -------- | - | ------ | ------ |  | - | ------ | ------ | 
|                         |                  |   |        |        |         |   | Payments due by year
|                         |                  |   |        |        |         |   |                     
|                         |                  |   |        |        |         |   | Remainder            |     | 2004 to |   | 2006 to |       | 2008 and
|                         |                  |   | Total  |        | of 2003 |   | 2005                 |     | 2007    |   | after  
|                         |                  |   |        |        |         |   |                      |     |         |   |        
|Contractual
obligations: |                  |   |        |        |         |   |                      |     |         |   |         |       |          |   |        |        |  |   |        |       
|                         | Long-term debt   |   | $      | 86,000 |         |   | $                    |    |         |   | $       |      |          |   | $      | 36,000 |  |   | $      | 50,000 | 
|                         | Operating leases |   |        | 7,942  |         |   |                      | 807 |         |   |         | 5,226 |          |   |        | 1,642  |  |   |        | 267    | 
|                         | Capital leases   |   |        | 1,645  |         |   |                      | 121 |         |   |         | 970   |          |   |        | 554    |  |   |        |       | 
|                         |                  |   |        |        |         |   |                      |     |         |   |         |       |          |   |        |        |  |   |        |        | 
|                         |                  | $ | 95,587 |        |         | $ | 928                  |     |         | $ | 6,196   |       |          | $ | 38,196 |        |  | $ | 50,267 |       
|                         |                  |   |        |        |         |   |                      |     |         |   |         |       |          |   |        |        |  |   |        |        | 



| |  | 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 IDS units, as well as its operations, payments
associated with long-term debt and investments as summarized above.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25



---



##### 



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 telecommunications industry caused by state and
federal legislation and regulations,                                           
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the impact of economic conditions related to the
financial performance of customers, business partners,
competitors and peers within the telecommunications industry,                           
|
| |  |  | 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                                                               
|
| |  |  | 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
1.25%, based on various financial ratios. The interest rate on
September 30, 2003 was 2.44%. The credit facility provides for
quarterly payments of interest until maturity on March 31, 2006. As
of September 30, 2003, $36.0 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 September 30, 2003. In addition,
the Company has another line of credit for $10.0 million at one
month LIBOR plus 1.25%. As of September 30, 2003, the Company had
no amounts outstanding under this credit line.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | As described in Note 9, in April 2003 the Company executed an
agreement that resulted in the cancellation of the $17.7 million
promissory note to Wireless One.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

26



---



##### 





| |  | 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
September 30, 2003 was $(0.2) 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. The swaps mature on March 31, 2004, November 3, 2006 and
November 3, 2004, respectively.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | 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 (Exchange Act) is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of
the Securities and Exchange Commission (SEC). 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 September 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 MobileNet, L.P.
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.
|
| |  | 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.



| |  | None
| |  | ----

27



---



##### 



Item 5. Other Information.



| |  | None
| |  | ----

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



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

|            |      |                        |  |                                                                                                                                                              
|----------- | ---- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |      | Description of Exhibit
|            |      |                       
|            | 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 July 15, 2003, the Company filed a Current Report on Form
8-K announcing that James L. Moore, Jr. joined the Board of
Directors effective July 11, 2003.                                                                                                              
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On July 22, 2003, the Company filed a Current Report on Form
8-K announcing the Companys consolidated financial results
for the second quarter of 2003.                                                                                                                 
|
| |  |  | On August 26, 2003, the Company filed a Current Report on Form
8-K announcing that on August 25, 2003 the Company declared a
quarterly cash dividend on its common stock of $0.065 per
share to all shareholders of record at the close of business
on September 1, 2003.

28



---



##### 



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                                                                                                                                                                
|
| |  | November 6, 2003                                                                                                                                                                        
| |  |                                                                                                                                                                                         
| |  | Date                                                                                                                                                                                    
|
| |  | (The above signatory has dual responsibility as a duly authorized
officer and chief accounting officer of the Registrant.)                                                              

29



---



##### 



EXHIBIT INDEX

|            |      |                        |  |                                                                                                                                                              
|----------- | ---- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |      | Description of Exhibit
|            |      |                       
|            | 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.

30