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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 0-11053
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C-TEC CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-2093008
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
105 CARNEGIE CENTER, 08540-6215
PRINCETON, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE:
609-734-3700
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
CLASS B COMMON STOCK, PAR VALUE $1.00 PER SHARE
(TITLE OF CLASS)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Number of shares of the Registrant's Stock ($1.00 par value) outstanding at
February 29, 1996:
19,318,232 Common Stock
8,128,935 Class B Common Stock
Aggregate market value of Registrant's voting stock held by non-affiliates at
February 29, 1996 computed by reference to closing price as reported by the
NASDAQ Stock Market for Common Stock ($37.187 per share) and to the closing
price as reported by the NASDAQ Smallcap Market for Class B Common Stock
($37.000 per share), is as follows:
$412,482,634 Common Stock
$112,284,344 Class B Common Stock
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS.
THE COMPANY
C-TEC Corporation was organized in 1979. It is incorporated under the laws
of the Commonwealth of Pennsylvania and has its principal office in Princeton,
New Jersey. C-TEC is a holding company with wholly-owned subsidiaries engaged
in various aspects of the communications industry and organized into four
principal groups--Telephone, Cable Television, Communications Services, and
Long Distance. Effective in 1994, the Company discontinued its Mobile Services
business segment. Through its wholly-owned subsidiaries, C-TEC also has
ownership interests of 80% in Homelink Limited Partnership and 61.92% in
Mercom, Inc., both cable television subsidiaries; and 40% in Mexico's second
largest cable television system operator.
OPERATIONS
TELEPHONE
The Telephone Group consists of a Pennsylvania public utility providing
local telephone service to a 19 county, 5,067 square mile service territory in
Pennsylvania. As of December 31, 1995, the Telephone Group provided service to
approximately 226,000 main access lines. Of these, 174,000 are residential and
52,000 primarily relate to business. This Group's operating territory is
rural, containing only 44.6 access lines per square mile as compared to an
estimated Pennsylvania average of 153.0 lines per square mile. The Group's 78
central offices serve an average of 2,897 lines and 65 square miles.
In addition to providing local telephone service, this Group provides
network access and long distance services to interexchange carriers. This
Group also has other revenues which are considered non-regulated and primarily
relate to telecommunications equipment sales, and services and
billing/collection services for interexchange long distance carriers.
Through the continued expansion of epix(TM) Eastern Pennsylvania Internet
Exchange, (introduced in mid-1994) the Telephone Group has become a regional
provider of information services. In addition to its own customers, the Group
is currently marketing epix(TM) through other telephone companies and
newspaper organizations. Other new product offerings, such as distance
learning systems, have resulted in additional sales. Distance learning systems
were a key to the start-up phase of the Telephone Group's video conferencing
business. By using compressed video equipment and service from the Telephone
Group, such systems allow students to attend courses to which they previously
did not have access. This coupled with the Telephone Group's arrangement as an
authorized dealer for the largest manufacturer of video conferencing systems
and its ability to provide equipment and video bridging services, provides
this Group with a significant competitive advantage throughout eastern
Pennsylvania. With regulatory barriers lifted, Caller ID has been introduced
and has been very well received by the marketplace.
The Telephone Group believes that the type of services referred to above,
which are supported by the existing 100% digital network are not currently
found readily within the operating territory. Most importantly, these services
can provide new revenue sources which are not dependent upon or subject to
regulatory approval.
The Telephone Group's operating territory is primarily rural and competition
focuses on telecommunications equipment sales and services. Revenues derived
from telecommunications equipment sales and services is not a significant
portion of the Group's business.
Although intraLATA toll bypass and alternative local access telephone
service providers are potential competitive threats, no significant facility
bypass and only moderate lata toll competition has occurred to date. The Group
expects intraLATA toll presubscription to be implemented January 1, 1998.
IntraLATA toll and access revenue comprise a significant portion of the
Group's business.
2
CABLE
The Cable Group is a cable television operator with cable television systems
located in the States of New York, New Jersey, Michigan, Delaware and
Pennsylvania. The Group owns and operates cable television systems serving
334,000 customers and is the majority owner and the manager of cable
television systems with an additional 39,000 customers, ranking it in the top
20 of U.S. multiple system operators. Most customers are served by advanced
hybrid fiber/coaxial networks, offering expanded band width and a platform for
two-way services. On January 31, 1995, the Cable Group purchased the assets of
Higgins Lake Cable, Inc., which provides cable television service to
approximately 3,200 subscribers in northern Michigan. Also, on May 15, 1995,
the Cable Group acquired 40% of the outstanding common stock of Twin County
Trans Video, Inc., ("Twin County"), which provides cable television service to
approximately 78,000 subscribers in the Greater Lehigh Valley area of
Pennsylvania. The Cable Group purchased the remaining outstanding common stock
in Twin County on September 21, 1995. The operating results of Twin County
have been reflected in the statement of operations since May 1995. In
addition, effective August 1995, the Cable Group's results reflect the
operating results of Mercom, Inc. ("Mercom"). C-TEC increased its ownership in
Mercom from approximately 43% to 62% as a result of its purchase of shares in
a stock rights offering which concluded in August 1995. The Company sold the
stock of its Delaware operation to an affiliate at net book value for
approximately $97 in February 1996.
The Company is subject to the provisions of the Cable Television Consumer
Protection and Competition Act of 1992, as amended. The Company has either
settled challenges or accrued for anticipated exposures related to rate
regulation; however, there is no assurance that there will not be challenges
to its restructured rates.
The Cable Group's performance is dependent to a large extent on its ability
to obtain and renew its franchise agreements with local government authorities
on acceptable terms. To date, all of the Group's franchises have been renewed
or extended, generally at or prior to their stated expirations and on
acceptable terms. During 1995, the Cable Group completed negotiations with 15
communities resulting in franchise renewals on terms which are acceptable to
the Group. The Cable Group has 418 franchises, 126 of which are in the 3 year
Federal Communications Commission (the "FCC") franchise renewal window at
December 31, 1995. No one franchise accounts for more than 10% of the Group's
total revenue.
Competition for the Cable Group's services in each state in which it
operates, with the exception of Pennsylvania, has traditionally come from a
variety of providers including broadcast television, video cassette recorders
and home satellite dishes. Direct broadcast satellite ("DBS"), which allows a
consumer to receive cable programming for a fee once they purchase or lease a
receiving dish, has proved to be a viable competitor. There are currently five
national DBS providers providing service in the United States. These services
are generally available throughout the country, including areas in which the
Company operates. The largest competitive traditional cable television system
within the Company's operations, Twin County, is subject to effective
competition throughout its entire operation and consequently, its rates are
not regulated under the provisions established by the FCC. Twin County
operates the largest competitive cable system in the United States.
3
The passage of the Telecommunications Act of 1996 (the "96 Act") is expected
to increase the level of competition from other video providers. The Company
is currently evaluating the impact the new Act will have on regulation,
competition and its operating results. It is impossible to quantify at this
time the impact of these technological and regulatory developments on the
cable television industry in general or on the Cable Group in particular.
The following table summarizes the development of the Cable Group over the
last five years:
AS OF DECEMBER 31
------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
Homes Passed:
Owned Systems.............. 334,461 343,871 354,929 363,322 538,451
Partially Owned/Managed
Systems................... 58,726 59,988 61,730 63,721 65,449
Basic Subscribers:
Owned Systems.............. 207,355 217,382 224,849 238,201 333,920
Partially Owned/Managed
Systems................... 33,692 34,118 34,714 37,324 38,853
Basic Penetration:
Owned Systems.............. 62.0% 63.2% 63.4% 65.6% 62.0%
Partially Owned/Managed
Systems................... 57.3% 56.9% 56.2% 58.6% 59.4%
Average Monthly Revenue per
Subscriber:
Owned Systems.............. $ 30.93 $ 32.28 $ 34.51 $ 33.48 $ 33.15
Partially Owned/Managed
Systems--(for the month of
December)................. $ 27.60 $ 30.05 $ 29.70 $ 29.36 $ 30.41
Note: The Company has changed the manner in which it computes statistics for
premium subscribers over the five year period. Therefore, comparable data for
premium service units and premium penetration is not available. Additionally,
1995-statistics include the effects of the acquisition of Twin County Trans
Video, Inc. in May 1995.
COMMUNICATIONS SERVICES
The Communications Services Group presently carries out business primarily
in the Northeastern United States providing telecommunications-related
engineering and technical services. These services are provided out of the
Company's headquarters in Princeton, New Jersey, and regional offices in
Pennsylvania and New Jersey.
The services provided by the Group include telephony engineering; system
integration; operation and management of telecommunications facilities for
large corporate clients, hospitals and universities; and installation of
premises distribution systems in large campus environments. In addition, the
Communications Services Group sells, installs and maintains private branch
exchanges (PBXs) in Pennsylvania and New Jersey. The Group also provides cable
and data engineering, and project management of cable/telecommunications
network construction.
The Group encounters significant competition from interexchange carriers,
regional bell operating companies, independent telephone companies, system
integrators, interconnect companies and small independent consultants. The
competition from various sources results in significant downward pressure on
the prices and margins for the services the Group provides. The Group's cost-
effective operations, competitive pricing, flexibility to meet customer
requirements, and reputation in the telecommunications industry for quality
service have been its primary strengths against the competition.
LONG DISTANCE
The Long Distance Group principally operates in Pennsylvania. The Group
began operations in 1990 by servicing the local service area of the Telephone
Group. In late 1992, the Long Distance Group
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entered the Wilkes-Barre/Scranton territory served by Bell Atlantic--
Pennsylvania. In late 1993, the Long Distance Group established sales offices
in additional markets served by Bell Atlantic--Pennsylvania: Philadelphia,
Pittsburgh, Harrisburg and Allentown. During 1995, the company continued
statewide certification and is now certified in twenty-four states. This
process will increase service availability to new customers.
The Long Distance Group provides switched based services, is a "reseller" of
several types of services and employs the network of several long distance
providers on a wholesale basis. As a result of market share growth, in 1993
the Group leased a long distance switch which allows customers to choose the
Long Distance Group as their long distance provider and dial the common "1+"
to use the service. This switched service enables the Company to provide a
full range of long distance services.
Additionally, in 1992, the Group procured access to AT&T Tariff 12 services
through a series of agreements. The AT&T Tariff 12 arrangement is a regulated
tariff on file with the FCC pursuant to which AT&T services are provided at
specified rates. During 1995, 19% of total revenue was derived from this
source, but due to the lower than expected gross margin rate, the service was
discontinued.
The interexchange (long-distance) carrier market is crowded and competitive.
A key development was the rapid revenue growth by regional and niche-oriented
companies. The top three carriers (AT&T, MCI and Sprint) account for almost
90% of all interexchange carrier revenue. However, that share may decline as
other interexchange carrier revenue grows as a result of increased price
pressure and more aggressive marketing by regional carriers. New
telecommunications legislation passed in February 1996 will allow regional
Bell operating companies into the long distance market which will increase
competition.
In Pennsylvania, the Long Distance Group has mirrored the overall growth
statistics of the regional carriers. The company has shifted its growth
emphasis from residential to business customers. Competition for the mid-sized
business market has come from other similarly situated carriers rather than
the top three. An enhanced product line, and an emphasis on customer service
and service plans that are competitively priced yet simple to understand are
the Long-Distance Group's primary strengths against competition.
OTHER MATTERS
In May 1995, the Company sold its equity position in Northeast Networks,
Inc., an alternative access telephone service provider, and realized a pre-tax
gain of $3,038.
In July 1995, the Company completed the sale of its paging operations and
realized a pre-tax gain of $2,188.
In January 1995, the Company purchased a forty percent equity position in
Megacable, S.A. de C.V., which is currently Mexico's second largest cable
television operator for cash of $84,115. Year end subscriber counts were
177,317 at December 31, 1995 as compared to 167,519 at December 31, 1994. The
Company is exposed to foreign currency translation adjustments resulting from
the translation into U.S. dollars of the financial statements of Megacable,
which utilize the peso as the local and functional currency. Such adjustments
are included as a separate component of common shareholders' equity and
reflected losses of $2,606, net of income taxes, in 1995. The Company is also
exposed to foreign currency transaction losses resulting from transactions of
Megacable which are made in currencies different from its own. The Company's
proportionate share of transaction losses are included in income as they
occur. In 1995, the Company's proportionate share of such loss was $932.
Megacable reduced its exposure to such losses by utilizing a portion of the
Company's cash investment to repay U.S. dollar denominated debt of
approximately $55 million. In 1995, after translation into U.S. dollars,
Megacable
5
reported sales of $20,841, operating income before interest, depreciation and
amortization and income taxes of $8,154 and net income of $5,802.
In 1995, the Company's share of the income of Megacable was $2,696, which
includes foreign currency transaction losses of $932. The Company's investment
in Megacable exceeded its underlying equity in the net assets of Megacable
when acquired by approximately $94,000, which excess is being amortized on a
straight-line basis over 15 years. In 1995, amortization of the Company's
excess purchase price over the net assets of Megacable when acquired was
$5,757. During 1995, the Mexican peso devalued against the U.S. dollar. At
December 31, 1995, the exchange rate was 7.7 pesos/dollar, as compared to
approximately 3.4 pesos/dollar at December 31, 1994. A significant portion of
this devaluation occurred prior to the Company's investment in Megacable. The
Company does not believe that its investment in Megacable has been permanently
impaired in 1995 by this devaluation and has not recorded any impairment
losses as a result. See Note 2 to the 1995 consolidated financial statements--
"Summary of Significant Accounting Policies--Accounting for Impairments."
While this devaluation has leveled off through approximately mid-March 1996,
it is not possible at this time to determine what effect future currency
fluctuations will have on the Company's operating results.
In November 1995, the Company announced that it had engaged Merrill Lynch &
Co. to assist with evaluating strategic options for its various business units
with a view toward enhancing shareholder value. Specifically, the Company
announced that it would evaluate the advisability and feasibility of
separating or restructuring its local telephone business, its cable television
business and its various other communications businesses. In March 1996, the
Company announced that it intends to distribute to its shareholders in a tax-
free spin-off its local telephone operations (the Telephone Group),
communications engineering operations (the Communications Services Group), and
certain other assets. Following the spin-off, the Company intends to combine
its domestic cable television operations with a third party pursuant to a tax-
free stock-for-stock transaction. No assurances can be given that these
transactions will be consummated. Consequently, these operations have not been
accounted for as discontinued operations. The Company has various contingent
fees which will become payable to Merrill Lynch and various other financial
advisors, based upon the form of the restructuring, if any.
Also in March 1996, the Company signed a definitive agreement (the "Stock
Purchase Agreement") for the sale to RCN Corporation ("RCN"), the Company's
controlling shareholder, of the following businesses (collectively,
"Businesses Transferred Under Contractual Arrangement"): (i) C-TEC
International, Inc., a subsidiary of the Company that owns a 40% interest in
Megacable and a $13,088 note payable by Mazon Corporativo, S.A. de C.V.; (ii)
TEC-Air, Inc., which owns a corporate jet aircraft; (iii) Commonwealth Long
Distance Company, which comprises the Company's Long Distance Group; and (iv)
Residential Communications Network, Inc., a start up joint effort with RCN
which plans to provide telecommunications services to the residential sector
("UrbanNet").
The Businesses Transferred Under Contractual Arrangement are to be sold at
two separate closings. The first closing, involving the sale of UrbanNet, is
expected to take place in April 1996. The purchase price for UrbanNet will be
approximately $17,500 in cash. In addition, after the first closing, the
Company will continue to retain a warrant to purchase approximately 6% of the
common stock of UrbanNet. The second closing, involving the sale of the other
Businesses Transferred Under Contractual Arrangement (the "Other Transferred
Businesses"), is expected to take place in the second half of 1996. The
purchase price for the Other Transferred Businesses will be $100,088 as
adjusted pursuant to the definitive agreement. Such adjustments are expected
to increase the purchase price for the Other Transferred Businesses by
approximately $5,500. The consideration for the Other Transferred Businesses
will be either cash or the Company's common stock (valued at the average
trading price of such stock over the ten trading days ending on the earlier of
June 25, 1996 and the date of the second closing), at the election of RCN. No
assurances can be given that any of these transactions will be consummated.
6
Pursuant to the Stock Purchase Agreement, RCN agreed to certain standstill
arrangements with respect to its equity interest in the company.
The Stock Purchase Agreement provides the Company an option, at its
election, to repurchase any or all of the Businesses Transferred Under
Contractual Arrangement on the terms set forth in the Stock Purchase
Agreement, if the Company does not restructure its domestic cable television
and local telephone operations as provided in the Stock Purchase Agreement by
January 1, 1997, subject to certain exceptions if the Company has taken formal
steps to effect a restructuring at that time. The prices at which the Company
may repurchase the businesses are based on purchase price allocations from the
first and second closing, as adjusted pursuant to the Stock Purchase
Agreement. Although a legal transfer of ownership will occur at the time of
closing the sale of these operations to RCN, management believes that, as a
result of the repurchase option, the risks and other incidents of ownership
have not been transferred to RCN with sufficient certainty to result in a
divestiture for accounting purposes. Therefore, these operations have not been
accounted for as discontinued operations.
Financial information regarding the Registrant's industry segments is set
forth in Note 16 to the consolidated financial statements included herein.
As of December 31, 1995, the Company had 1,549 full-time employees including
general office and administrative personnel.
ITEM 2. PROPERTIES.
C-TEC Corporation, the holding company, does not own any physical
properties. The Telephone Group owns and maintains in generally good operating
condition switching centers, cables and wires connecting the telephone company
and its customers with the Company's switching centers and other telephone
instruments and equipment. These properties enable the Telephone Group to
provide customers with prompt and reliable telephone service. Substantially
all of the properties of the Telephone Group are subject to mortgage liens
held by the National Bank for Cooperatives.
C-TEC Cable Systems of New York, Inc., ComVideo Systems, Inc., C-TEC Cable
Systems of Michigan, Inc., Twin County Trans Video, Inc., and Mercom, Inc.
(the "Cable Television Group") own and maintain in generally good operating
condition head-end, distribution and subscriber equipment. These properties
enable the Cable Television Group to provide customers with reliable cable
television service. Also, SRHC, Inc., owns buildings in Wilkes-Barre and
Dallas, PA.
ITEM 3. LEGAL PROCEEDINGS.
In the normal course of business, there are various legal proceedings
outstanding. In the opinion of management, these proceedings will not have a
material adverse effect on the results of operations or financial condition of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Registrant
during the fourth quarter of the Registrant's 1995 fiscal year.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an un-numbered Item in Part I of this Report in lieu of being
included in the definitive proxy statement relating to the Registrant's Annual
Meeting of Shareholders to be filed by Registrant with the Commission pursuant
to
7
Section 14 (A) of the Securities Exchange Act of 1934 (the "1934 Act").
Information with respect to Executive Officers who are also Directors is set
forth in Part III, Item 10.
EXECUTIVE OFFICERS OF THE REGISTRANT
AGE AS OF OFFICE AND DATE OFFICE HELD SINCE:
NAME MARCH 1, 1996 OTHER POSITIONS HELD
---- ------------- ----------------------------------
Bruce C. Godfrey..... 40 Executive Vice President and Chief Financial
Officer--C-TEC Corporation (since April
1994); Executive Vice President and Chief
Financial Officer--Mercom, Inc. (since April
1994); Director of Megacable, S.A. de C.V.
(since January 1995); Senior Vice President
and Principal--Daniels & Associates (January
1984--April 1994).
Raymond B. Ostroski.. 41 Executive Vice President and General
Counsel--C-TEC Corporation (since February
1995); Corporate Secretary--C-TEC
Corporation, (since October 1989); Executive
Vice President and General Counsel--Mercom,
Inc. (since February 1995); Vice President
and General Counsel--C-TEC Corporation
(December 1990--February 1995); Vice
President and General Counsel--Mercom, Inc.
(December 1991--February 1995); Corporate
Secretary--Mercom, Inc. (December 1991--
December 1994); Corporate Counsel--C-TEC
Corporation (August 1988--December 1990);
Assistant Corporate Secretary--C-TEC
Corporation (April 1986--October 1989);
Associate Counsel--C-TEC Corporation (August
1985--August 1988).
Mark Haverkate....... 41 Executive Vice President of Cable Television
Group (since July 1995) Executive Vice
President of Development--C-TEC Corporation
(February 1995--July 1995); Executive Vice
President of Development--Mercom, Inc.
(since February 1995); Director of
Megacable, S.A. de C.V. (since January
1995); Vice President of Development--C-TEC
Corporation (December 1993--February 1995);
Vice President of Development--Mercom, Inc.
(December 1993--February 1995); Vice
President Cable Television Group (October
1989--December 1993); Director of
Acquisitions and Development (July 1988--
October 1989); Corporate Marketing Manager--
Cable Television Group (May 1981--July
1988).
Kevin M. O'Hare...... 35 Executive Vice President--Long Distance Group
(since March 1995); Network Engineering
Director--ACC Long Distance Corp. (February
1994--March 1995); General Manager--The
Seneca Gorham Telephone Corp. (December
1992--February 1994); General Manager--The
AuSable Valley Telephone Company, an
affiliate of Rochester Telephone Corp.
(February 1990--February 1994);
Sales/Marketing Manager--New York Region,
Rochester Telephone Corp. (February 1988--
February 1990).
8
AGE AS OF OFFICE AND DATE OFFICE HELD SINCE:
NAME MARCH 1, 1996 OTHER POSITIONS HELD
---- ------------- ----------------------------------
Stephen J. Rabbitt..... 47 Executive Vice President--Residential
Communications Network, Inc. (since
September 1991); Executive Vice
President--Cable Television Group (August
1994--September 1995); Executive Vice
President--Mercom, Inc. (since August
1994); Senior Vice President--Crown Media,
Inc. (November 1992--August 1994); Fund
Vice President--Jones Intercable, Inc.
(January 1989--November 1992).
Michael A. Adams....... 38 Executive Vice President--Communications
Services Group (since September 1994);
Vice President of Technology (November
1993--September 1994); Vice President of
Engineering--RCN Corporation (September
1992--October 1993); Vice President--
McCourt Communications Co., Inc. (June
1992--October 1993); Vice President of
Business Development--McCourt/Kiewit
International (May 1991--June 1992);
Managing Director--McCourt Cable &
Communications, Ltd. (October 1990--June
1992); Director of Operations--MFS/McCourt
(January 1990--October 1990); Vice
President of Engineering--McCourt Cable
Systems, Inc. (June 1982--January 1990).
Malcolm M. Burnside.... 51 Vice President, Regulatory and Public
Affairs (since April 1994); Vice
President, Regulatory and Public Affairs--
Telephone Group (November 1984--April
1994).
John D. Filipowicz..... 37 Vice President and Assistant General
Counsel--C-TEC Corporation (since February
1995); Assistant Corporate Secretary--C-
TEC Corporation (since December 1994);
Corporate Secretary--Mercom, Inc. (since
December 1994); Corporate Counsel--C-TEC
Corporation (December 1990--February
1995); Associate Counsel--C-TEC
Corporation (August 1988--November 1990).
Michael I. Gottdenker.. 31 Executive Vice President--Telephone Group
(since September 1995); Vice President of
New Business Development--Revlon Consumer
Products Corporation (1994--1995); General
Manager--State Beauty Supply (1993--1994);
Director of Corporate Finance--Revlon
(1992--1993); Associate, Real Estate
Finance Department--Salomon Brothers Inc.
(1988--1991); Financial Analyst, Corporate
Finance Department--Salomon Brothers Inc.
(1986-1988).
Ralph S. Hromisin...... 35 Vice President and Corporate Controller--C-
TEC Corporation (since August 1994);
Director of Corporate Accounting--C-TEC
Corporation (March 1992--August 1994);
Various positions, most recently Audit
Manager--Parente, Randolph, Orlando, Carey
& Associates, CPAs (November 1982--March
1992).
9
AGE AS OF OFFICE AND DATE OFFICE HELD SINCE:
NAME MARCH 1, 1996 OTHER POSITIONS HELD
---- ------------- ----------------------------------
Timothy J. Stoklosa.. 35 Vice President of Finance (since May 1995);
Treasurer--C-TEC Corporation (since August
1994); Manager of Mergers and
Acquisitions--Peter Kiewit Sons', Inc.
(October 1991--August 1994); Senior
Financial Analyst of Corporate
Development--Citizens Utilities Co.
(February 1990--October 1991); Assistant
Vice President--CH Financial, Inc. (January
1988--February 1990); Consultant--Deloitte
Haskins & Sells (September 1984--January
1988).
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
There were approximately 2,019 registered holders of Registrant's Common
Stock and 815 registered holders of Registrant's Class B Common Stock on
February 29, 1996. The Company has maintained a no cash dividend policy since
1989. The Company does not intend to alter this policy in the foreseeable
future except possibly in connection with its proposed restructuring. Other
information required under Item 5 of Part II is set forth in Note 20 to the
consolidated financial statements included in Part IV Item 14(a)(1) of this
Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA.
Information required under Item 6 of Part II is set forth in Part IV Item
14(a)(1) of this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Information required under Item 7 of Part II is set forth in Part IV Item
14(a)(1) of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and supplementary data required under
Item 8 of Part II are set forth in Part IV Item 14(a)(1) of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
During the two years preceding December 31, 1995, there has been neither a
change of accountants of the Registrant nor any disagreement on any matter of
accounting principles, practices or financial statement disclosure.
10
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information as of February 29, 1996, including beneficial ownership of C-TEC
Common Stock and C-TEC Class B Stock for the current Directors is set forth
below:
DIRECTOR
NAME OF DIRECTOR AGE SINCE
- ---------------- --- --------
James Q. Crowe..... 46 Chairman of the Board, Chief Executive 1993
Officer and Director, MFS Communications
Company, Inc. ("MFSCC"); and Director, Kiewit
Diversified Group ("KDG"); Peter Kiewit
Sons', Inc. ("PKS") and California Energy
Company, Inc. ("CECI"). Mr. Crowe does not
own any Company securities.
Stuart E. Graham... 50 Chairman, President and Chief Executive 1990
Officer, Skanska Engineering and
Construction, Inc.; and President and Chief
Executive Officer of Slattery Associates,
Inc. Mr. Graham owns 5,200 shares of C-TEC
Class B Common Stock, $1 par value per share
("C-TEC Class B Stock").
Frank M. Henry..... 62 President, Frank Martz Coach Company; 1980
President, Gold Line, Inc.; Director, First
Fidelity Bancorporation and First Fidelity
Bank, N.A. Mr. Henry owns 41,040 shares of C-
TEC Common Stock, $1 par value per share ("C-
TEC Common Stock"), and 23,097 shares of C-
TEC Class B Stock.
Richard R. Jaros... 44 Executive Vice President, Chief Financial 1993
Officer and Director, PKS; Director, MFSCC
and CECI; Director of Megacable, S.A. de C.V.
(since January 1995). Mr. Jaros does not own
any Company securities.
Robert E. Julian... 56 Director, PKS; and Director, MFSCC. Mr. 1993
Julian does not own any Company securities.
Daniel E. Knowles.. 66 Personnel Consultant; retired Vice President 1995
of Personnel and Administration, Grumman
Corporation. Mr. Knowles owns 500 shares of
C-TEC Common Stock.
Michael J. Maho- 45 Director of the Company (since May 1995); 1995
ney............... President and Chief Operating Officer--C-TEC
Corporation (since February 1994); President
and Chief Operating Officer--Mercom, Inc.
(since February 1994); Director of Megacable,
S.A. de C.V. (since January 1995); Executive
Vice President--Cable Television Group (June
1991-February 1994); Executive Vice President
of Mercom, Inc., (December 17, 1991-February
1994); Chief Operating Officer--Harron
Communications Corp. (April 1983-December
1990). Mr. Mahoney owns 10,425 shares of C-
TEC Common Stock.
11
DIRECTOR
NAME OF DIRECTOR AGE SINCE
- ---------------- --- --------
David C. McCourt... 39 Chairman of the Board of Directors, Chief 1993
Executive Officer and Director of the Company
since October 1993; President, Chief
Executive Officer and Director, RCN
Corporation ("RCN"); Chairman and Chief
Executive Officer, Mercom Inc.; Director of
Megacable, S.A. de C.V. (since January 1995);
President and Director, Metropolitan Fiber
Systems/McCourt, Inc.; and Director, MFSCC,
MFS Telecom, Inc. and Cable Satellite Public
Affairs Network ("C-SPAN"). Mr. McCourt owns
6,000 shares of C-TEC Class B Stock and
11,854 shares of C-TEC Common Stock and
disclaims beneficial ownership of ten (10)
shares of C-TEC Common Stock which are owned
by his children and for which his spouse is
custodian.
David C. Mitchell.. 54 Retired Corporate Executive Vice President 1993
and Director of Rochester Telephone
Corporation; Director of Megacable, S.A. de
C.V. (since January 1995); Regional Director,
Marine Midland Bank. Mr. Mitchell owns 2,300
shares of C-TEC Common Stock.
Eugene Roth........ 60 Partner, Rosenn, Jenkins and Greenwald 1989
(Attorneys); and Director, Pennsylvania
Regional Board of First Fidelity Bank, N.A.
Mr. Roth has sole voting and investment power
with respect to 357 shares of C-TEC Common
Stock and 396 shares of C-TEC Class B Stock
and shares voting and investment power with
respect to 5,957 shares of C-TEC Class B
Stock.
Walter Scott, Jr... 64 Chairman, President, Chief Executive Officer 1993
and Director, PKS; and Director, MFSCC, CECI,
Berkshire Hathaway Inc., Burlington
Resources, Inc., California Energy, ConAgra,
Inc., MFS Communications and Valmont
Industries, Inc. Mr.Scott does not own any
Company securities.
Thomas C. Stortz... 44 Vice President and General Counsel, Kiewit 1993
Construction Group, Inc. Mr. Stortz does not
own any Company securities.
- --------
The Board of Directors is divided into three classes. David C. McCourt,
David C. Mitchell, Daniel E. Knowles and Walter Scott, Jr. are members of
Class I with terms expiring in 1997. Thomas C. Stortz, Robert E. Julian, Frank
M. Henry and Eugene Roth are members of Class II with terms expiring in 1998.
James Q. Crowe, Stuart E. Graham, Richard R. Jaros and Michael J. Mahoney are
members of Class III with terms expiring in 1996.
The information required under Item 10 of Part III with respect to the
executive officers of the Registrant is set forth at the end of Part I hereof.
12
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended December 31,
1993, 1994 and 1995, the cash compensation, as well as certain other
compensation, paid or accrued to the named executive officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------- --------------------------------
AWARDS PAYOUTS
---------- ----------
(1) (4) SECURITIES
OTHER RESTRICTED UNDERLYING (1) (2)
NAME AND ANNUAL STOCK OPTIONS LTIP ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMP($) AWARDS($) (#) PAYOUTS($) COMPENSATION ($)
-------- ---- --------- -------- ------- ---------- ---------- ---------- ----------------
David C. McCourt........ 1995 397,885 700,000 -- 220,000 250,000 -- 5,612
Chairman of the 1994 375,000 500,000 -- -- 250,000 -- 387
Board and C.E.O. 1993 64,904 N/A N/A N/A N/A N/A 28
Michael J. Mahoney...... 1995 222,462 100,000 -- 65,000 -- -- 5,952
President and 1994 190,719 125,000 -- -- 100,000 -- 5,585
Chief Operating Officer 1993 141,231 83,504 -- -- -- 293,902 5,135
Bruce C. Godfrey........ 1995 183,731 150,000 -- 67,000 -- -- 4,790
E.V.P. and 1994 128,154 53,500 -- -- 70,000 -- 165
Chief Financial Officer 1993 N/A N/A N/A N/A N/A N/A N/A
Raymond B. Ostroski..... 1995 147,885 60,000 -- 42,000 35,000 -- 5,099
E.V.P., General 1994 122,335 43,750 -- -- 35,000 -- 4,427
Counsel and Corporate 1993 91,615 53,503 -- -- -- 137,296 3,199
Secretary
Mark Haverkate.......... 1995 137,952 100,000 -- 35,168 35,000 -- 5,058
E.V.P.--Cable 1994 113,676 24,795 -- -- 25,000 -- 4,507
Television Group 1993 (3) (3) (3) (3) (3) (3) (3)
- --------
(1) The only type other Annual Compensation for each of the named executive
officers was in the form of perquisites and was less than the level
required for reporting.
(2) Includes the following amounts for the last fiscal year: (i) David
McCourt: $530--Company paid life insurance; $5,082--401(k) Company match;
(ii) Bruce Godfrey: $510--Company paid life insurance; $4,280--401(k)
Company match; (iii) Michael J. Mahoney: $870--Company paid life
insurance; $5,082--401(k) Company match; (iv) Raymond Ostroski: $600--
Company paid life insurance; $4,499--401(k) Company match; (v) Mark
Haverkate: $861--Company paid life insurance; $4,197--401(k) Company
match. Does not include $16,747 paid to certain senior officers listed for
relocation expenses incurred in moving said senior officers and their
families to the Company's new executive offices in Princeton, New Jersey.
Includes the following amounts for the 1994 fiscal year: (i) David McCourt:
$387--Company paid life insurance; (ii) Bruce Godfrey: $165--Company paid
life insurance; (iii) Michael J. Mahoney: $503--Company paid life
insurance; $5,082--401(k) Company match; (iv) Raymond B. Ostroski; $390--
Company paid life insurance; $4,037--401(k) Company match; (v) Mark
Haverkate: $756--Company paid life insurance; $3,751--401(k) Company match.
Does not include $686,685 paid to certain senior officers listed for
relocation expenses incurred in moving said senior officers and their
families to the Company's new executive offices in Princeton, New Jersey.
Includes the following amounts for the 1993 fiscal year: (i) David McCourt:
$28--Company paid life insurance; (ii) Michael J. Mahoney: $474--Company
paid life insurance; $4,661--401(k) Company match; (iii) Raymond B.
Ostroski; $176--Company paid life insurance; $3,023--401(k) Company match.
(3) The information is not required since the named executive was not an
executive officer during 1993.
13
(4) Represents the market value on the date of grant of restricted stock
awards. Additional information with respect to restricted stock awards is
as follows as of December 31, 1995:
AGGREGATE
SHARES VALUE ($)
-------- ---------
David C. McCourt............................................. 5,992.86 185,779
Michael J. Mahoney........................................... 1,815.34 56,276
Bruce C. Godfrey............................................. 1,850.56 57,367
Raymond B. Ostroski.......................................... 1,169.30 36,248
Mark Haverkate............................................... 988.38 30,640
As of December 31, 1995, all restricted stock awards were represented by
share units. All restricted shares awarded as of December 31, 1995 vest in
December 1998. Vesting of restricted shares is accelerated upon a change in
control of the Company. Dividends are paid on restricted shares.
POTENTIAL REALIZABLE
VALUE AT
% OF ASSUMED ANNUAL
# OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMP. IN OR BASE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YR. 1995 PRICE DATE 5% ($) 10% ($)
---- ---------- --------------- -------- ---------- ---------- ----------
David McCourt........... 250,000 39.78% $21.13 01/20/05 $3,321,350 $8,416,952
Michael Mahoney......... -- 0.00% -- -- -- --
Bruce Godfrey........... -- 0.00% -- -- -- --
Raymond Ostroski........ 35,000 5.57% 22.75 05/15/05 500,757 1,269,017
Mark Haverkate.......... 35,000 5.57% 23.56 09/14/05 518,642 1,314,339
C-TEC OPTIONS/SAR GRANTS IN FISCAL YEAR 1995
- --------
(1) Said options become exercisable (subject to acceleration upon a change in
control) in cumulative annual increments of 20% from the original date of
grant.
C-TEC AGGREGATED OPTIONS EXERCISES IN FISCAL YEAR 1995 AND FY-END OPTION
VALUES
VALUE OF
UNEXERCISED
# OF SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS/SAR'S OPTIONS/SARS
ACQUIRED AT FY-END AT FY-END
NAME ON EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/ UNEXERCIABLE
---- ----------- -------------- -------------------------- -------------------------
David McCourt........... 0 $ 0 50,000/500,000 $425,000/$4,168,750
Michael Mahoney......... 0 0 20,000/100,000 $110,000/$ 440,000
Bruce Godfrey........... 0 0 14,000/ 70,000 $ 77,000/$ 308,000
Raymond Ostroski........ 0 0 7,000/ 70,000 $ 38,500/$ 442,750
Mark Haverkate.......... 0 0 5,000/ 60,000 $ 27,500/$ 370,313
PENSION BENEFITS
The following table shows the estimated annual benefits payable upon
retirement for the named executive officers based upon the compensation and
years of service classifications indicated under the Company's pension plan.
YEARS OF SERVICE
---------------------------------------
AVERAGE COMPENSATION 15 20 25 30 35
- -------------------- ------- ------- ------- ------- -------
$125,000................................ $23,018 $30,690 $38,363 $46,035 $53,708
$150,000-$500,000....................... 28,080 37,440 46,800 56,160 65,520
14
Pensions are computed on a straight life annuity basis and are not reduced
for social security or other offset amounts. Participants receive a pension
based upon average compensation multiplied by the number of years of service.
Average compensation is computed on the basis of the average of the employee's
highest five (5) consecutive annual base salaries in the ten (10) years
immediately preceding retirement. The compensation covered by this plan is
generally based upon the compensation disclosed as salary in the "Summary
Compensation Table."
DIRECTOR'S COMPENSATION
Non-employee Directors of the Company receive a retainer of $900 per month
and are paid $1,000 for each board meeting attended. The Committee Chairmen and
other committee members are paid $500 and $300, respectively, for each
committee meeting attended. In fiscal 1995, Stuart E. Graham, Frank M. Henry,
David C. Mitchell, Daniel E. Knowles and Eugene Roth were paid $17,400,
$18,400, $19,200, $18,l00 and $18,400, respectively, for the foregoing
services. Compensation for director services rendered by Directors not employed
as executive officers of the Company but employed as executive officers at PKS
and MFSCC totaled $66,600(1) and $14,800(2), respectively, in 1995.
- --------
(1) Messrs. Jaros, Julian, Scott, and Stortz.
(2) Mr. Crowe
OTHER RELATED INFORMATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Eugene Roth, Stuart E. Graham
and Daniel E. Knowles.
Eugene Roth is a partner in Rosenn, Jenkins and Greenwald, which serves as
counsel to the Company from time to time.
Peter Kiewit Sons', Inc., the Company's controlling shareholder, and/or its
affiliates have a substantial stock ownership in California Energy Company,
Inc., RCN Corporation and the Company. Many of the companies share mutual
director representation on their respective boards.
Although members of the current Compensation Committee do not serve on any
Kiewit-related compensation committees, Robert E. Julian is a Director at PKS.
James Q. Crowe and Richard R. Jaros, members of the Company's Executive
Committee, are on the Compensation Committee of California Energy Company, Inc.
For information regarding certain potential or completed transactions between
the Company, including its subsidiaries and other affiliates of Peter Kiewit
Sons', Inc., see "Certain Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
No named executive officer or Director beneficially owned, as of February 29,
1996, more than one percent (1%) of either the outstanding Common Stock or
Class B Stock of Company. The named executive officers who beneficially owned
securities of the Company as of such date are David C. McCourt (6,000 shares of
C-TEC Class B Stock and 11,854 shares of C-TEC Common Stock of which he shares
voting and investment power with his spouse; Mr. McCourt disclaims beneficial
ownership of the ten (10) shares of C-TEC Common Stock for which his spouse is
custodian for his minor children), Michael J. Mahoney (10,425 Shares of C-TEC
Common Stock), Raymond B. Ostroski (1,000 Shares of C-TEC Class B Stock and
3,693 shares of Common Stock), Mark Haverkate (15,673 shares of C-TEC Common
Stock and 796 shares of C-TEC Class B Stock) and Bruce C. Godfrey (7,922 shares
of C-TEC Common Stock). Nominees, directors and executive officers as a group
(the "Group") beneficially owned 93,703 shares of C-TEC Common Stock and 42,446
shares of C-TEC Class B Stock, representing less than one percent (1%) of each
class of stock. The Group, after giving effect to the conversion of C-TEC Class
B Stock into C-TEC Common Stock, owned 118,664 shares of C-TEC Common Stock,
representing less than one percent of such class. The information set forth
above and in Part III Item 10,
15
does not give effect to the ownership of Company securities by RCN
Corporation. Certain executive officers and directors of the Company are
directly or indirectly affiliated with RCN Corporation. For information with
respect to the beneficial ownership of securities by RCN Corporation, see
"Security Ownership of Certain Beneficial Owners." C-TEC Corporation has
adopted the Executive Stock Purchase Plan (the "Plan") to provide a means by
which key employees may elect to defer receipt of up to 20% of their total
cash compensation. Under the Plan, deferred compensation is credited to
participants' accounts as C-TEC Common Stock share units and the Company
issues a restricted stock award matching the share units credited on a share-
for-share basis. The units of common stock obtained through the Plan are
currently cash only rights unless and until the Plan is approved by
Shareholders and as of the date hereof, all restricted stock awards are
represented by share units. As of February 29, 1996, Messrs. McCourt, Mahoney,
Godfrey, Ostroski, and Haverkate owned 7,786, 2,751, 2,663, 1,744, and 1,579
units, respectively. The above information includes C-TEC Corporation's
matching restricted stock awards.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of shares of C-TEC Common Stock and C-TEC Class B Stock
of the Company by any person or group known to the Company to be a beneficial
owner of more than five percent of either class of shares. The "Total" columns
are unlikely to represent the sum of the related columns because most forms of
ownership require that the same shares be disclosed in two of the columns.
Because the shares of C-TEC Class B Stock are convertible at the option of
the holder into shares of C-TEC Common Stock on a one-for-one basis at any
time and from time to time, the "Assuming Conversion" columns in the C-TEC
Common Stock table reflect the total shares of C-TEC Common Stock which would
be beneficially owned upon conversion by each group, as well as the related
percentage beneficially owned by such group assuming no other conversions. The
"Percent of Class" columns represent ownership not voting interest. Shares of
C-TEC Common Stock have one vote per share and shares of C-TEC Class B Stock
have 15 votes per share. In addition, shares of both classes can be voted
cumulatively with respect to the election of directors.
C-TEC COMMON STOCK
ASSUMING
WITHOUT CONVERSION CONVERSION
------------------------------------------------------ -------------------
SHARED
SOLE SOLE SHARED INVEST- PERCENT PERCENT
VOTING INVESTMENT VOTING MENT OF CLASS OF CLASS
POWER POWER POWER POWER TOTAL APPROX. TOTAL APPROX.
--------- ---------- ------ ------- --------- -------- ---------- --------
RCN Corporation(1)...... 8,226,262 8,226,262 0 0 8,226,262 42.6% 13,320,485 69%
Mario J. Gabelli Group
(2).................... 1,813,150 1,921,800 0 0 1,921,800 9.9% 2,718,813 14.1%
C-TEC CLASS B STOCK
RCN Corporation......... 5,094,223 5,094,223 0 0 5,094,223 60.82%
Mario J. Gabelli Group
(2).................... 797,013 797,013 0 0 797,013 9.80%
- --------
(1) PKS is the sole stockholder of Kiewit Diversified Group, Inc., which holds
90% of the stock of RCN. David C. McCourt owns the remaining 10% of the
stock of RCN. The address for each of RCN, KDG and PKS is 1000 Kiewit
Plaza, Omaha, Nebraska 68131.
(2) Based on information obtained from Schedule 13Ds and amendments thereto
for the C-TEC Common Stock and the C-TEC Class B Stock filed through
February 29, 1995, with the Commission by Mario J. Gabelli, together with
GAMCO Investors, Inc., Gabelli Funds, Inc., Gabelli Performance
Partnership, Gabelli International II Limited and Gabelli & Co., each of
whose address in One Corporate Center, Rye, New York 10580-1434.
16
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND CERTAIN CONCERNS
David C. McCourt, Chairman, Chief Executive Officer and Director of the
Company, is a Director of C-SPAN. In 1995, the Company paid $131,784 to C-SPAN
for programming services.
Frank M. Henry, a Director of the Company, is a principal in Martz Travel
and Frank Martz Coach Company which perform certain travel and related
services for the Company. In 1995, the Company paid $40,438 to Martz Travel
and Frank Martz Coach Company for such services.
Frank M. Henry, together with his spouse, owns a 50% partnership interest in
Frank M. Henry Associates, which leases office space to the Company under an
amended lease which expires May 31, 1996. A total of $313,743 was paid by the
Company to Frank M. Henry Associates for rent, utility, parking and
maintenance services for 1995.
Eugene Roth, a Director of the Company, is a partner in Rosenn, Jenkins and
Greenwald which serves as counsel for the Company from time to time.
David C. Mitchell, a director of the Company, serves as a consultant to the
Company and was paid $148,125 by the Company in 1995.
In January 1996 the Company purchased from RCN a $13,088 note payable by
Mason Corporativo, S.A. de C.V. at face value.
In December 1995, the Company acquired from RCN all the issued and
outstanding shares of common stock of RCN Holdings, Inc. ("Holdings").
Holdings was a wholly owned subsidiary of RCN that owned 128,198 shares of
Common Stock of the Company and 3,582,406 shares of Class B Stock of the
Company. RCN is the Company's controlling shareholder and is controlled by
Kiewit Diversified Group, which is a wholly owned subsidiary of Peter Kiewit
Sons, Inc. The consideration for the acquisition was newly issued shares of
Common Stock and Class B Stock, respectively, equal to the number of shares of
Common Stock and Class B Stock held by Holdings. At the same time as the
Company consummated this transaction, RCN agreed, subject to certain terms and
conditions, to reduce its voting interest in the Company if such reduction is
necessary to facilitate a tax-free restructuring of the Company through a
spin-off of certain businesses and a merger of its remaining businesses with
an undetermined third party.
The Company believes that all transactions described herein were on terms at
least as favorable to the Company as would have been available from an
unrelated third party in an arm's-length transaction.
See Part I, Item 1, "Other Matters" for a description of the terms of a
definitive agreement for the sale to RCN of certain of the Company's
businesses.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K.
ITEM 14 (a)(1) Financial Statements:
Consolidated Statements of Operations for Years Ended December 31, 1995,
1994 and 1993
Consolidated Statements of Cash Flows for Years Ended December 31, 1995,
1994 and 1993
Consolidated Balance Sheets--December 31, 1995 and 1994
Consolidated Statements of Common Shareholders' Equity for Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Report of Independent Accountants
ITEM 14 (a)(2) Financial Statement Schedules:
Description
Condensed Financial Information of Registrant for the Years Ended December
31, 1995, 1994 and 1993 (Schedule I)
17
Valuation and Qualifying Accounts and Reserves for the Years Ended December
31, 1995, 1994 and 1993 (Schedule II)
All other financial statement schedules not listed have been omitted since
the required information is included in the consolidated financial statements
or the notes thereto, or are not applicable or required.
ITEM 14 (a)(3) Exhibits
Exhibits marked with an asterisk are filed herewith and are listed in the
index to exhibits of this Form 10-K. The remainder of the exhibits have been
filed with the Commission and are incorporated herein by reference.
(3) Articles of Incorporation and By-laws
(a) Articles of Incorporation of Registrant as amended and restated April
24, 1986 and as further amended on November 25, 1991 are incorporated by
reference to Exhibit 3(a) to the Company's annual report on Form 10-K for the
year ended December 31, 1994, (Commission File No. 0-11053).
(b) Amendment to Articles of Incorporation dated September 21, 1995.*
(c) By-laws of Registrant, as amended through October 28, 1993 are
incorporated herein by reference to Exhibit 3(b) to the Company's annual
report on Form 10-K for the year ended December 31, 1993, (Commission File No.
0-11053).
(d) Amendments to By-laws of Registrant (Article I, Section 1 and Article
II, Section 4) dated as of December 13, 1994 are incorporated by reference to
the Company's report on Form 10-K for the year ended December 31, 1994,
(Commission File No. 0-11053).
(4) Instruments Defining the Rights of Security Holders, Including Indentures
(a) Senior Secured Note Purchase Agreement dated as of July 31, 1989 among
C-TEC Cable Systems, Inc., C-TEC, and various purchasers of the Senior Secured
Notes is incorporated herein by reference to Exhibit 4(j) to the Company's
Annual Report on Form 10-K for the year ended December 31, 1989, (Commission
File No. 0-11053).
(b) Revolving Secured Credit Agreement dated as of July 31, 1989 among C-TEC
Cable Systems, Inc., C-TEC and a group of commercial banks is incorporated
herein by reference to Exhibit 4(k) to the Company's Annual Report on Form 10-
K for the year ended December 31, 1989, (Commission File No. 0-11053).
(c) Amendment to 9.65% Senior Secured Note Purchase Agreement is
incorporated herein by reference to Exhibit 4(q) to the Company's report on
Form 10-Q for the quarter ended September 30, 1993, (Commission File No. 0-
11053).
(d) Amendment to Credit Agreement dated as of July 31, 1989 is incorporated
herein by reference to Exhibit 4(r) to the Company's report on Form 10-Q for
the quarter ended September 30, 1993, (Commission File No. 0-11053).
(e) Loan Agreement dated as of March 29, 1994, made by and between
Commonwealth Telephone Company and the National Bank for Cooperatives is
incorporated herein by reference to the Company's report on Form 10-Q for the
quarter ended March 31, 1994, (Commission File No. 0-11053).
(10) Material Contracts
(a) C-TEC Corporation, 1994 Stock Option Plan is incorporated herein by
reference to the Company's report on Form 10-Q for the quarter ended March 31,
1994, (Commission File No. 0-11053).
18
(b) C-TEC Corporation, Common-Wealth Builder Employee Savings Plan is
incorporated herein by reference to Exhibit 28(b) to Form S-8 Registration
Statements (as amended) of Registrant filed with the Commission, Registration
No. 2-98306 and 33-13066.
(c) Performance Incentive Compensation Plan is incorporated herein by
reference to Exhibit 10(g) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1986, (Commission File No. 0-11053).
(d) C-TEC Corporation 1994 Stock Option Plan, as amended, is incorporated
herein by reference to Form S-8 Registration Statement of Registrant filed
with the Commission, Registration No. 33-64563.
(e) C-TEC Corporation Executive Stock Purchase Plan is incorporated herein
by reference to Form S-8 Registration of Registrant filed with the Commission,
Registration No. 33-64677.
(f) Merger Agreement dated September 23, 1994 among C-TEC Cable Systems,
Inc., C-TEC Cable Systems of Pennsylvania, Twin County Trans Video, Inc., Bark
Lee Yee, Stella C. Yee, Susan C. Yee, Raymond C. Yee, Kenneth C. Yee and
Robert G. Tallman as trustee for that certain trust created pursuant to a
trust agreement dated December 17, 1992 is incorporated herein by reference to
Exhibit 10 to the Company's report on Form 8-K dated November 10, 1994,
(Commission File No. 0-11053).
(g) Amendment Agreement dated as of March 30, 1995 and Second Amendment
Agreement dated as of May 15, 1995 to Merger Agreement dated September 23,
1994 among C-TEC Cable Systems, Inc., C-TEC Cable Systems of Pennsylvania,
Inc., Twin County Trans Video, Inc., Bark Lee Yee, Stella C. Yee, Susan C.
Yee, Raymond C. Yee, Kenneth C. Yee and Robert G. Tallman as trustee for that
certain trust created pursuant to a trust agreement dated December 17, 1992 is
incorporated herein by reference to the Company's report on Form 8-K dated
June 1, 1995 (Commission File No. 0-11053).
(h) Subscription Agreement among Megacable, S.A. de C.V. and C-TEC
International, Inc. dated as of January 19, 1995 is incorporated herein by
reference to the Company's report on Form 8-K dated February 8, 1994
(Commission File No. 0-11053).
(i) Stock Purchase Agreement dated as of March 27, 1996 between RCN
Corporation and C-TEC Corporation.*
(j) Exchange Agreement Among RCN Corporation, RCN Holdings, Inc. and C-TEC
Corporation dated as of December 28, 1995 and Side Letter dated as of December
28, 1995.*
(11) Computation of Per Share Earnings*
(21) Subsidiaries of the Registrant*
Subsidiaries of Registrant as of December 31, 1995.
(23) Consent of Independent Accountants*
(24) Powers of Attorney*
(27) Financial Date Schedule*
(99) Additional Exhibits*
(a) Undertakings to be incorporated by reference into Form S-8 Registration
Statement Nos. 2-98305, 33-5723, 2-98306 and 33-13066 are incorporated herein
by reference to Exhibit 28(a) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1987, (Commission File No. 01-11053).
19
Item 14 (b) Report on Form 11-K with respect to the Common-Wealth Builder
Plan will be filed as an amendment to this report on Form 10-K.
Item 14 (c) Report on Form 8-K
The Company filed a Form 8-K on November 21, 1995 and a Form 8-K/A on
November 28, 1995 to file a description of the Company's Common Stock in
connection with the filing of a Form S-8 Registration Statement No. 33-
64563 which amended the Company's 1994 Stock Option Plan.
20
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15D 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.
C-TEC Corporation
Date: April 1, 1996
By /s/ David C. McCourt
----------------------------------
DAVID C. MCCOURT, CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE AND ACCOUNTING OFFICERS:
/s/ David C. McCourt Chairman and Chief April 1, 1996
- ------------------------------------- Executive Officer
DAVID C. MCCOURT
/s/ Michael J. Mahoney President and Chief April 1, 1996
- ------------------------------------- Operating Officer
MICHAEL J. MAHONEY
/s/ Bruce C. Godfrey Executive Vice April 1, 1996
- ------------------------------------- President and Chief
BRUCE C. GODFREY Financial Officer
/s/ Ralph S. Hromisin Vice President and April 1, 1996
- ------------------------------------- Corporate
RALPH S. HROMISIN Controller
DIRECTORS:
/s/ David C. McCourt April 1, 1996
- -------------------------------------
DAVID C. MCCOURT
/s/ James Q. Crowe April 1, 1996
- -------------------------------------
JAMES Q. CROWE
/s/ Walter E. Scott, Jr. April 1, 1996
- -------------------------------------
WALTER E. SCOTT, JR.
21
SIGNATURE DATE
--------- ----
/s/ Richard R. Jaros April 1, 1996
- -------------------------------------
RICHARD R. JAROS
/s/ Robert E. Julian April 1, 1996
- -------------------------------------
ROBERT E. JULIAN
/s/ Thomas C. Stortz April 1, 1996
- -------------------------------------
THOMAS C. STORTZ
/s/ David C. Mitchell April 1, 1996
- -------------------------------------
DAVID C. MITCHELL
/s/ Frank M. Henry April 1, 1996
- -------------------------------------
FRANK M. HENRY
/s/ Daniel E. Knowles April 1, 1996
- -------------------------------------
DANIEL E. KNOWLES
/s/ Eugene Roth April 1, 1996
- -------------------------------------
EUGENE ROTH, ESQUIRE
/s/ Stuart E. Graham April 1, 1996
- -------------------------------------
STUART E. GRAHAM
22
SCHEDULE I
C-TEC CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
(THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS)
Income:
Management fee charges to affiliates..... -- $14,529 $ 8,982
Interest income--other................... 8 -- --
---------- ---------- ----------
Total income........................... 8 14,529 8,982
---------- ---------- ----------
Expenses:
Interest expense on notes payable to
banks................................... -- 9,540 8,981
General & administrative expenses........ 8 32 53
---------- ---------- ----------
Total expenses......................... 8 9,572 9,034
---------- ---------- ----------
Income (loss) from continuing operations
before income taxes, equity in net loss of
subsidiaries, extraordinary item, and
cumulative effect of accounting principle
changes................................... -- 4,957 (52)
(Benefit) provision for income taxes....... (10) 3,130 (135)
---------- ---------- ----------
Income (loss) from continuing operations
before equity in net loss of subsidiaries,
extraordinary item, and cumulative effect
of accounting principle changes........... 10 1,827 83
Net income (loss) of subsidiaries.......... 22,716 (2,239) (3,880)
---------- ---------- ----------
Income (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting principle changes.... 22,726 (412) (3,797)
Gain on disposal of discontinued
operations................................ 278 74,768 --
Income (loss) from discontinued
operations................................ 275 596 (3,070)
---------- ---------- ----------
Income (loss) before extraordinary item and
cumulative effect of accounting principle
changes................................... 23,279 74,952 (6,867)
Extraordinary item--debt prepayment
penalty................................... -- (3,236) --
Cumulative effect on prior years of changes
in accounting principles for income
taxes..................................... -- -- 218
---------- ---------- ----------
Net income (loss).......................... $23,279 $71,716 $(6,649)
========== ========== ==========
Earnings (loss) per average common share:
Income (loss) from continuing operations
before extraordinary item and cumulative
effect of accounting principle changes.. 0.83 (0.02) (0.23)
Gain on disposal of discontinued
operations.............................. 0.01 4.38 0.00
Income (loss) from discontinued
operations.............................. 0.01 0.03 (0.18)
---------- ---------- ----------
Income (loss) before extraordinary item
and cumulative effect of accounting
principle changes....................... 0.85 4.39 (0.41)
Extraordinary item--debt prepayment
penalty................................. 0.00 (0.19) 0.00
Cumulative effect on prior years of
changes in accounting principles for
income taxes............................ 0.00 0.00 0.01
---------- ---------- ----------
Net loss................................. 0.85 4.20 (0.40)
========== ========== ==========
Average common shares outstanding.......... 27,445,167 17,078,842 16,506,494
========== ========== ==========
1
C-TEC CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
DECEMBER 31,
------------------
1995 1994
-------- --------
ASSETS
Current Assets:
Prepayments and other.................................... $ 168 --
-------- --------
Total Current Assets................................. 168 --
Investment in subsidiaries (stated at equity).............. 417,043 360,475
-------- --------
$417,211 $360,475
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable to subsidiaries......................... $ 5,055 $ 8,104
Accrued liabilities and other............................ 22 2,957
-------- --------
Total current liabilities............................ 5,077 11,061
Long-term debt............................................. -- --
-------- --------
Total liabilities.................................... 5,077 11,061
-------- --------
Redeemable preferred stock................................. 39,493 --
Shareholders' Equity
Common stock, par value $1, authorized 35,000,000 shares,
issued 19,389,929 shares in 1995 and 19,074,448 shares
in 1994................................................. 19,390 19,075
Class B stock, par value $1, authorized 8,753,203 shares,
issued 12,143,684 shares in 1995 and 8,748,561 in 1994.. 12,144 8,748
-------- --------
Total common stock................................... 31,534 27,823
Additional paid in capital............................... 358,655 227,034
Retained earnings........................................ 123,124 99,845
-------- --------
Total................................................ 513,313 354,702
Treasury stock at cost, 377,842 shares in 1995 and
1994.................................................. (5,288) (5,288)
Common stock of parent held by subsidiary, 128,198
shares of Common stock and 3,582,406 shares of Class B
stock................................................. (135,384) --
-------- --------
Total shareholders' equity........................... 372,641 349,414
-------- --------
Total liabilities and shareholders' equity........... $417,211 $360,475
======== ========
2
C-TEC CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1995 1994 1993
- -------------------------------- -------- --------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME............................. $ 23,279 $ 71,716 $(6,649)
CUMULATIVE EFFECT OF ACCOUNTING PRINCIPLE
CHANGES...................................... 0 0 (218)
DEFERRED INCOME TAXES AND INVESTMENT TAX
CREDITS, NET................................. 0 (170) 620
EXTRAORDINARY ITEM............................ 0 4,978 0
NET DECREASE (INCREASE) IN CERTAIN ASSETS AND
LIABILITIES.................................. (6,152) 6,033 (3,456)
EQUITY IN LOSS (INCOME) OF SUBSIDIARIES....... (23,270) (73,239) 6,950
-------- --------- -------
NET CASH FLOW PROVIDED BY OPERATING
ACTIVITES.................................... (6,143) 9,318 (2,753)
-------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
DIVIDENDS FROM SUBSIDIARIES................... 10,000 39,791 10,948
CAPITAL CONTRIBUTIONS TO SUBSIDIARIES......... (3,805) (161,466) (8,382)
-------- --------- -------
NET CASH USED IN INVESTING ACTIVITIES......... 6,195 (121,675) 2,566
-------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
REDEMPTION OF LONG TERM DEBT.................. 0 (100,000) 0
PROCEEDS FROM THE ISSUANCE OF COMMON STOCK.... (52) 217,335 187
DEBT PREPAYMENT PENALTY....................... 0 (4,978) 0
-------- --------- -------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES................................... (52) 112,357 187
-------- --------- -------
(DECREASE) INCREASE IN CASH AND TEMPORARY CASH
INVESTMENTS.................................. 0 (0) 0
-------- --------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF YEAR............................ 0 0 0
-------- --------- -------
CASH AND TEMPORARY CASH INVESTMENTS AT END OF
YEAR......................................... $ 0 $ (0) $ 0
======== ========= =======
COMPONENTS OF NET DECREASE (INCREASE) IN CERTAIN
ASSETS AND LIABILITIES:
ACCOUNTS PAYABLE.............................. (3,049) 3,878 (3,621)
PREPAYMENTS................................... (168) 0 0
ACCRUED EXPENSES.............................. (2,935) 2,155 165
-------- --------- -------
NET DECREASE (INCREASE) IN CERTAIN ASSETS AND
LIABILITIES.................................... $ (6,152) $ 6,033 $(3,456)
======== ========= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
The Company made a noncash capital contribution of $39,493 to a subsidiary
when it issued its redeemable preferred stock as part of the consideration for
an acquisition made by that subsidiary.
3
SCHEDULE II
C-TEC CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(THOUSANDS OF DOLLARS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ -------------------- ---------- ----------
ADDITIONS
--------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING OF TO COSTS TO OTHER END OF
DESCRIPTION PERIOD AND EXPENSE ACCOUNTS DEDUCTIONS PERIOD
- ----------- ------------ ----------- -------- ---------- ----------
ALLOWANCE FOR DOUBTFUL
ACCOUNTS--DEDUCTED FROM
ACCOUNTS RECEIVABLE IN
THE CONSOLIDATED
BALANCE SHEETS.
1995.................. $1,393 $2,093 ($592) $1,101 $1,793
1994.................. $ 679 $1,906 ($276) $ 917 $1,393
1993.................. $ 559 $1,341 $ 85 $1,306 $ 679
ALLOWANCE FOR
INVENTORY--DEDUCTED
FROM MATERIAL AND
SUPPLY INVENTORY IN THE
CONSOLIDATED BALANCE
SHEETS.
1995.................. $ 235 $ 258 $ 283 $ 540 $ 237
1994.................. $ 30 $ 349 ($14) $ 129 $ 235
1993.................. $ 25 $ 226 ($10) $ 211 $ 30
ALLOWANCE FOR DEFERRED
TAX ASSETS--DEDUCTED
FROM DEFERRED TAX
ASSETS IN THE
CONSOLIDATED BALANCE
SHEETS.
1995.................. $5,590 $2,704 $ 0 $3,830 $4,464
1994.................. $6,114 $1,285 $ 0 $1,809 $5,590
1993.................. $6,114 $ 0 $ 0 $ 0 $6,114
4
FORM 10-K
INDEX TO EXHIBITS
Certain exhibits to this report on Form 10-K have been incorporated by
reference. For a list of these and all exhibits, see Item 14(a)(3) hereof.
The following exhibits are being filed herewith.
EXHIBIT NO.
(3)(b) Amendment to Articles of Incorporation dated September 21, 1995
(10)(i) Stock Purchase Agreement dated as of March 27, 1996 between RCN
Corporation and C-TEC Corporation
(10)(j) Exchange Agreement Among RCN Corporation, RCN Holdings, Inc. and C-
TEC Corporation dated as of December 28, 1995 and Side Letter dated as of
December 28, 1995
(11) Computation of Per Share Earnings
(21) Subsidiaries of the Registrant
(23) Consent of Independent Accountants
(24) Directors' Powers of Attorney
(27) Financial Data Schedule