FORM 10-K/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
THE SOLE PURPOSE OF THIS AMENDMENT IS TO CORRECT A TECHNICAL
FORMATTING PROBLEM
(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, 1993
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File No. 01-11053
C-TEC CORPORATION
(Exact name or registrant as specified in its charter)
Pennsylvania 23-2093008
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
46 Public Square, P.O. Box 3000, Wilkes-Barre, PA 18703-3000
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 717-825-1100
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.
X Yes 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
March 1, 1994: 7,962,266 Common Stock
8,547,327 Class B Common Stock
Aggregate market value of Registrant's voting stock held by non-affiliates at
March 1, 1994 computed by reference to closing price as reported by NASDAQ for
Common Stock ($28 per share) and to the bid price as reported for Class B
Common Stock ($32.875 per share), is as follows:
204,751,372 Common Stock
111,856,530 Class B Common Stock
Documents Incorporated by Reference
1. Proxy Statement for 1994 Annual Meeting of Shareholders is incorporated by
reference into Part I and Part III of this Form 10-K.
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
Wilkes-Barre, Pennsylvania. C-TEC is a holding company with wholly-owned
subsidiaries, which are engaged in various aspects of the communications
industry and which are organized into five principal groups - Telephone, Cable
Television, Communications Services, Mobile Services, and Long Distance.
Through its wholly-owned subsidiaries, C-TEC also has ownership interests of
80% in a cable television subsidiary; 79.98% and 93.05% in two cellular
telephone subsidiaries; and 53.55% in an alternative access telephone service
provider.
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, 1993, the Telephone Group
provided service to approximately 211,000 main access lines. Of these 167,000
are residential and 44,000 primarily relate to business. This Group's
operating territory is rural, containing only 38.8 access lines per square
mile as compared to a Pennsylvania average of 151.0 lines per square mile.
The Group's 79 central offices serve an average of 2,500 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.
Today, this Group's greatest competition is for the sale of
telecommunications equipment. This revenue source is not a significant
portion of the Group's business.
Intralata toll bypass and alternative local access telephone
service providers are potential competitive threats, although no significant
competition has occurred to date. Intralata toll and access revenue comprise
a significant portion of the Group's business.
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 224,000 customers and manages cable television systems with an
additional 34,000 customers, ranking it in the top 35 of U.S. multiple system
operators.
During 1993, the Cable Group restructured rates and channel
offerings to comply with the basic rate regulations and to minimize the impact
on revenue of the Cable Television Consumer Protection and Competition Act of
1992 (the "Act").
The future impact of the Act on the Cable Group and the cable
television industry is still unclear. The Cable Group's 1993 operating
results were not significantly impacted by the Act.
The Group's performance is dependent to a large extent on its
ability to obtain and renew its franchise agreements from 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 1993, the Cable Group completed negotiations
with 64 communities resulting in franchise renewals on terms which are
acceptable to the Group. The Cable Group has 369 franchises, 63 of which are
in the 3 year Federal Communications Commission franchise renewal window at
December 31, 1993. No one franchise accounts for more than 10% of the Group's
total revenue.
Competition for the Group's services traditionally has come from a
variety of providers including broadcast television, video cassette recorders
and home satellite dishes. Direct broadcast satellite (DBS) which will allow
a consumer to receive cable programming for a fee once they purchase an 18
inch receiving dish and a set-top terminal for approximately $700 may increase
competition in the future. Two DBS companies are scheduled to launch their
services in April 1994. In addition, recent changes in federal regulation
allow telephone companies to lease their networks to video programmers under
the video dial-tone platform. Also, in 1993, the announced mergers of various
telephone and cable companies heightened the questions about competition in
the future. The current regulatory environment appears to be fostering
competition in cable television by telephone companies, and in telephone by
cable companies, however these regulations are still evolving. The Cable and
Telephone Groups continue to monitor the progress of regulations affecting the
telecommunications industry and are developing a business plan to meet future
competition. It is impossible to predict at this time the impact of these
technological and regulatory developments on the cable television industry in
general or on the Group in particular.
Mobile Services
The Mobile Services Group currently operates cellular telephone
systems in metropolitan service areas (MSAs) and rural areas (RSAs) throughout
eight counties in Northeastern and Central Pennsylvania and 24 counties in
Southeast Iowa ("IA"), serving a total population of 1.5 million. The Group
also operates paging and message management services in Northeastern
Pennsylvania.
The Pennsylvania cellular territory consists of 2 MSA and 3 RSA
service areas. Vanguard Cellular is the primary competitor in the 2 MSA
markets and in 1 RSA market. There is no competition in the other two RSA
markets.
The Iowa cellular territory consists of 1 MSA and 4 RSA markets.
The Iowa market is fragmented in regards to competition. Centel Cellular is
the primary competitor in the MSA market, U.S. Cellular in IA RSA 3, Contel in
IA RSA 4, and CommNet 2000 in IA RSA 6. The IA RSA 11 territory is covered by
two cellular competitors - U.S. West and Centel.
The Group's service territory was increased with the activation of
three new cell sites in Pennsylvania in 1993. The Iowa cellular properties
benefited from four new cell sites in 1993. The Group increased subscribers
by approximately 53% in 1993.
In 1993, the Group introduced a call delivery Supersystem. Through
a key strategic relationship with a neighboring service provider in
Pennsylvania, the Group is now able to offer over 12,000 square miles of
seamless cellular service in major surrounding travel corridors. The
Supersystem allows customers to have calls automatically delivered to their
roaming location in the Supersystem. Callers need only dial the customary
seven-digit cellular phone number to contact the customer; roaming access
numbers and codes are no longer necessary. To be competitive, the Group
eliminated daily roaming charges and reduced roaming rates throughout the
Supersystem area.
Also instrumental in the subscriber growth has been the success of
the Group's venture in the retail arena. The first company-operated retail
location was opened in the fourth quarter of 1992. During 1993, the group
added four additional retail sales booths located in the walkways of shopping
malls ("kiosk") in key population areas in the Pennsylvania market. The
kiosks allow the Group to reach the ever-growing consumer market by being
strategically positioned in major shopping malls, providing added shopping
convenience and a continued marketing presence.
Communication Services
The Communications Services Group presently carries out business
in the Northeastern United States providing telecommunications-related
engineering and technical services. These services are provided out of the
headquarters in Wilkes-Barre, Pennsylvania, and regional offices in
Pennsylvania, New York City and Virginia.
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 has also expanded
its engineering services to include video and data engineering, and
successfully implemented several major projects during 1993. These major
projects were contracts for the construction of integrated voice, video and
data distribution systems for a major university and for a governmental
agency.
The Group encounters major competition from interexchange carriers
(AT&T), 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 and 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 presently operates in two territories. The
Group began operations in 1990 by servicing the local service area of the
Telephone Group. In late 1992, the Long Distance Group entered the
Wilkes-Barre/Scranton territory served by Bell of Atlantic - Pennsylvania.
The primary focus in this market is the business segment.
In late 1993, the Long Distance Group established sales offices in
additional markets served by Bell of Atlantic - Pennsylvania: Philadelphia,
Pittsburgh, Harrisburg and Allentown.
The Group provides several types of services. The primary service
offered is a switched service in which a customer chooses the Long Distance
Group as their long distance provider and dials the common "1+" to use the
service. In addition to providing customers with direct dial long distance
service, equal access also requires the Long Distance Group to offer operator
services - referred to as "0+". This service provides the additional
capabilities of third party billing, and calling card service, among others.
The Group also provides private line service, 800 service and calling card
service. The Long Distance Group is basically a "reseller" of the above
services and employs the networks of several long distance providers on a
wholesale basis. The Group also provides telemarketing services, primarily to
cable companies.
Additionally, the Long Distance Group recognized the need for
access to AT&T services to sell nationwide to large business customers with
multiple locations. 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.
The Group's recent expansion of services includes wholesale
activities in which a complete line of services is offered, including
marketing, billing and collection.
As a result of expansion, in 1993, the Group procured its own long
distance switch. The Northern Telecom DMS-250 switch will enable the Long
Distance Group to provide full service long distance, including, but not
limited to, switched services, private line services, 800 services, operator
services, calling card services and enhanced platform services such as message
delivery and debit card at reduced rates to customers while providing quality
customer service. In conjunction with the switch implementation, the Group
has invested in an improved billing system possessing the capabilities to
provide real time customer service inquiry, toll investigation, trouble
ticketing, immediate customer interface with the local exchange carriers and
direct billing on a "one bill" concept with the local exchange telephone
companies.
The interexchange carrier market is crowded and competitive.
Recent industry surveys indicate an estimated 350-400 interexchange carriers
in operation. A key development was the rapid revenue growth by regional and
niche oriented companies. Although the top three carriers (AT&T, MCI and
Sprint) account for almost 90% of all interexchange carrier revenue, that
share declines as other interexchange carrier revenue grows almost 13%
annually.
Intense competition in the mid-sized business market reflects the
rapid growth of business customer revenue. Estimates indicate the business
market has doubled the growth rate of the residential market. It is the
regional interexchange carriers who have been the major beneficiaries of the
battle for the mid-sized business market. This group has shown triple revenue
growth for this market segment compared to the top three carriers.
The residential market is still dominated by the top three
carriers. However, this domination should decline given increased price
pressure combined with more aggressive marketing by the regional carriers.
Locally, the Long Distance Group has mirrored the overall growth
statistics of the regional carriers. Competition for the mid-sized business
market has come from other similarly situated carriers rather than the top
three. The primary deviation from industry growth trends is seen in the
residential market segment in the Telephone Group's operating territories.
Here the Long Distance Group has continued to hold the predominant market
share. This dominance has not gone unnoticed however, as marketing activities
by the top three carriers have been increasing in the territory. A
combination of value priced products, exceptional customer service and
aggressive marketing activities has been the Group's primary strength against
competition.
Financial information regarding the Registrant's industry segments
is set forth in footnote 14 to the consolidated financial statements included
herein.
As of December 31, 1993, the Company had 1,282 full-time employees
including general office and administrative personnel.
Item 2. Properties.
C-TEC, the holding company, does not own any physical properties.
The Telephone Group owns and maintains in good operating condition switching
centers, cables and wires connecting the telephone company and its customers
with the 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 United States of
America acting through the Rural Electrification Administration, Federal
Financing Bank, and the Rural Telephone Bank. C-TEC Cable Systems of New
York, Inc., ComVideo Systems, Inc., C-TEC Cable Systems of Michigan, Inc. (the
"Cable Television Group") own and maintain in good operating condition
head-end, distribution and subscriber equipment. These properties enable the
Cable Television Group to provide customers with state-of-the-art, reliable
cable television service. Paging Plus, Inc. owns paging and answering service
assets. Cellular Plus of Iowa, Inc., Iowa City Cellular Telephone Company,
Inc., a 93.95% owned subsidiary, Northeast Pennsylvania SMSA Limited
Partnership, a 78.98% owned subsidiary, and C-TEC Cellular Centre County, Inc.
own and maintain cellular electronic equipment which provides cellular
telephone services to designated metropolitan and rural service areas. 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 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 1993 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 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 the definitive proxy statement relating to Registrant's Annual
Meeting of Shareholders, and is hereby specifically incorporated herein by
reference thereto.
Age as of Office and Date Office Held Since:
Name March 1, 1994 Other Positions Held
- ---- ------------- ----------------------------------
Michael Adams 36 Vice President of Technology (since
November 1993); Vice President of
Technology - Mercom, Inc. (since
1993); Vice President of Engineering -
RCN Corporation (since September
1992); Vice President - McCourt
Communications Co., Inc. (since June
1992); 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).
John C. Balan 59 Executive Vice President - Commonwealth
Communications, Inc. (since July
1990); Vice President Marketing and
Sales - Commonwealth Communications,
Inc. (September 1989 - July 1990);
Vice President - Marketing and Sales -
Fairchild Industries (January 1984 -
September 1989).
Richard J. Burnheimer 35 Treasurer (since February 1994); Treasurer -
Mercom, Inc. (since February 1994);
Director of Finance (since February
1992); Assistant Treasurer (December
1987 - February 1994).
Marc C. Elgaway 39 Executive Vice President - Mobile Services
(since April 1989); Vice President -
Mobile Services Group (since July
1988); General Manager - Commonwealth
Communications, Inc. (January 1988 -
July 1988); Senior Manager -
Commonwealth Communications, Inc.
(April 1987 - January 1988); Senior
Manager Planning & Marketing
Strategies - Commonwealth
Communications, Inc. (August 1985 -
April 1987).
Mark Haverkate 39 Vice President of Development (since December
1993); 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 1987 - July 1988).
Kenneth M. Jantz 51 Executive Vice President and Chief Financial
Officer (since February 1994);
Executive Vice President and Chief
Financial Officer - Mercom, Inc.
(since February 1994); Executive Vice
President - Kiewit Industrial Co.
(March 1992 - October 1993); Vice
President and Controller - Morrison
Knudsen Corporation (July 1966 - March
1992).
B. Stephen May 45 Executive Vice President - Long Distance
Group (since July 1993); Corporate
Director of Marketing - Consolidated
Communications, Inc. (1991 - 1993);
Vice President and General Manager -
American Express ISC (1989 - 1991).
Michael J. Mahoney 43 President - C-TEC Corporation (since February
1994); President - Mercom, Inc. (since
February 1994); Executive Vice
President - Cable Television Group
(June 1991 - February 1994); Executive
President of Mercom, Inc., an
affiliate of C-TEC (December 17, 1991
- February 1994); Chief Operating
Officer - Harron Communications Corp.
(April 1983 -December 1990).
Paul W. Mazza 49 Executive Vice-President - Telephone Group
December 1990); Executive Vice
President - Cable Television Group
(September 1981 - November 1990);
Executive Vice President - Mobile
Services Group (February 1986 - July
1988).
John J. Menapace 49 Vice President - Chief Administrative Officer
(since December 1990); Vice President
- Chief Administrative Officer -
Mercom, Inc. (since March 1992); Vice
President Human Resources and
Administration (September 1986 -
December 1990); Director Network
Services - Commonwealth Telephone Co.
(May 1985 - September 1986); Director -
Operations - Commonwealth Telephone
Co. (January 1984 - May 1985); Staff
Services Manager - Commonwealth
Telephone Co. (April 1983 - January
1984).
Raymond B. Ostroski 39 Vice President and General Counsel (since
December 1990); Vice President,
Secretary and General Counsel -
Mercom, Inc. (since December 17,
1991); Corporate Secretary - C-TEC
(since October 1989); Corporate
Counsel C-TEC (August 1988 - December
1990); Assistant Corporate Secretary -
C-TEC (April 1986 - October 1989);
Associate Counsel - C-TEC (August 1985
- August 1988).
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholders
There were approximately 2,258 holders of Registrant's Common Stock
and 979 holders of Registrant's Class B Common Stock on March 1, 1994. The
Company has maintained a no cash dividend policy since 1989. The Company does
not intend to alter this policy in the foreseeable future. Other information
required under Item 5 of Part II is set forth in Note 17 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, 1993, 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.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required under Item 10 of Part III with respect to
the Directors of Registrant is set forth in the definitive proxy statement
relating to Registrant's Annual Meeting of Shareholders to be filed by the
Registrant with the Commission pursuant to Section 14(A) of the 1934 Act and
is hereby specifically incorporated herein by reference thereto.
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.
Item 11. Executive Compensation
The information required under Item 11 of Part III is set forth in
the definitive proxy statement relating to Registrant's Annual Meeting of
Shareholders to be filed by the Registrant with the Commission pursuant to
Section 14(A) of the 1934 Act, and is hereby specifically incorporated herein
by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under Item 12 of Part III is included in
the definitive Proxy Statement relating to Registrant's Annual Meeting of
Shareholders to be filed by Registrant with the Commission pursuant to Section
14(A) of the 1934 Act, and is hereby specifically incorporated herein by
reference thereto.
Item 13. Certain Relationships and Related Transactions
The information required under Item 13 of Part III is included in
the definitive proxy statement to Registrant's Annual Meeting of Shareholders
to be filed by Registrant with the Commission pursuant to Section 14(A) of the
1934 Act, and is hereby specifically incorporated herein by reference thereto.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Report on Form
8-K.
(a)(1) Financial Statements:
Description
Selected Financial Data
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated Statements of Operations for Years Ended
December 31, 1993, 1992 and 1991
Consolidated Statements of Cash Flows for Years Ended
December 31, 1993, 1992 and 1991
Consolidated Balance Sheets - December 31, 1993 and 1992
Consolidated Statements of Common Shareholders Equity
for Years Ended December 31, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Report of Independent Accountants
(a)(2) Financial Statement Schedules:
Description
Condensed Financial Information of Registrant for the
Years Ended December 31, 1993, 1992 and 1991
(Schedule III)
Property, Plant and Equipment for the Years Ended
December 31, 1993, 1992 and 1991 (Schedule V)
Accumulated Depreciation and Amortization of Property,
Plant and Equipment for the Years Ended December
31, 1993, 1992 and 1991 (Schedule VI)
Valuation and Qualifying Accounts and Reserves for the
Years Ended December 31, 1993, 1992 and 1991
(Schedule VIII)
Short Term Borrowings for the Years Ended December 31,
1993, 1992 and 1991 (Schedule IX)
Supplementary Income Statement Information for the
Years Ended December 31, 1993, 1992 and 1991
(Schedule X)
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.
(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 are incorporated herein by
reference to Exhibit 3(a) to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1986, (Commission File No. 0-11053).
(b) By-laws of Registrant, as amended through October 28,
1993. *
(4) Instruments Defining the Rights of Security Holders,
Including Indentures
(a) Telephone Loan Contract dated as of March 1, 1977
between Commonwealth Telephone Company ("CTCo") and the
United States of America, ("USA") acting through the
Administrator of the Rural Electrification
Administration ("REA") is incorporated herein by
reference to Exhibit 4(a) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1980, (Commission File No. 0-1094).
(b) Mortgage Note dated as of June 14, 1977 made by CTCo.
to the Federal Financing Bank ("FFB") is incorporated
herein by reference to Exhibit B to the Form 10-Q
Report of CTCo. for the quarter ended June 30, 1977.
(c) Mortgage and Security Agreement dated as of June 16,
1977 made by and between CTCo. and USA acting through
REA is incorporated herein by reference to Exhibit C
to the Form 10-Q Report of CTCo. for the quarter ended
June 30, 1977.
(d) Telephone Loan Contract Amendment dated as of January
30, 1978 between CTCo., Rural Telephone Bank ("RTB"),
corporation existing under the laws of the USA,
and USA is incorporated herein by reference to
Exhibit 4(d) to the Company's Annual Report on
Form 10-K for the year ended December 31,
1989, (Commission File No. 0-1094).
(e) Evidence of indebtedness dated as of May 26, 1978
issued under Telephone Loan Contract Amendment
identified in 4(d) made by CTCo. to RTB is incorporated
herein by reference to Exhibit 4(e) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1989, (Commission File No. 0-1094).
(f) Supplemental Mortgage and Security Agreement dated as
of May 26, 1978 made by and among CTCo., RTB and USA
acting through the Administrator of REA is
is incorporated herein by reference to Exhibit B
to the Form 10-Q Report of CTCo. for the quarter ended
June 30, 1978.
(g) Telephone Loan Contract Amendment dated as of September
11, 1978 among CTCo., RTB and USA acting through the
Administrator of REA is incorporated herein by
reference to Exhibit 4(g) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1980, (Commission File No. 0-1094).
(h) Mortgage Note dated as of March 19, 1980 made by CTCo.
to RTB is incorporated herein by reference to Exhibit
4(h) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1980, (Commission File No.
0-1094).
(i) Supplement to Supplemental Mortgage and Security
Agreement dated as of March 19, 1980 by and among
CTCo., RTB and USA acting through the Administrator of
REA is incorporated herein by reference to
Exhibit 4(i) to the Company's Annual
Report on Form 10-K for the year ended December 31,
1980, (Commission File No. 0-1094).
(j) 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. 0-110-53).
(k) 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. 0-110-53).
(l) Telephone Loan Contract Amendment, dated as of
September 12, 1989, among CTCo, USA acting through the
Administrator of the REA, and the RTB is incorporated
herein by reference to Exhibit 4(m) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1990, (Commission File No. 0-110-53).
(m) Mortgage Note, dated July 5, 1990 payable to the order
of the RTB is incorporated herein by reference
to Exhibit 4(n) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1990, (Commission File No. 0-110-53).
(n) Supplement to Supplemental Mortgage and Security
Agreement, dated as of July 5, 1990, among CTCo, USA
and the RTB is incorporated
herein by reference to Exhibit 4(o) to the Company's
Annual Report on Form 10-K for the year ended December
31, 1990, (Commission File No. 0-110-53).
(o) Note Purchase Agreement dated as of December 1, 1991
among C-TEC and various purchasers of senior secured
notes is incorporated herein by reference to Exhibit
4(q) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, (Commission File No.
0-110- 53).
(p) Amended and Restated Credit Agreement dated as of March
27, 1992 among C-TEC and a syndicate of banks is
incorporated herein by reference to Exhibit 4(p) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992, (Commission File No. 0-11053).
(q) 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).
(r) 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).
(s) Amendment to 9.52% Senior Secured Note Purchase
Agreement is incorporated herein by reference to
Exhibit 4(s) to the Company's report on form 10-Q for
the quarter ended September 30, 1993, (Commission File
No. 0-11053).
(t) Amendment to Amended and Restated Credit Agreement
dated as of March 27, 1992 is incorporated herein by
reference to Exhibit 4(t) to the Company's report on
Form 10-Q for the quarter ended
September 30, 1993, (Commission File No. 0-11053).
(10) Material Contracts
(a) C-TEC Corporation, 1984 Stock Option and Stock
Appreciation Rights Plan (as amended) is incorporated
herein by reference to Exhibit
10(a) to Form S-8 Registration Statement (as amended)
of Registrant filed with the Commission, Registration
Nos. 2-98305 and 33-5723.
(b) Form of Stock Option Agreement is incorporated herein
by reference to Exhibit 10(b) to Form S-8 Registration
Statements (as amended) of Registrant filed with the
Commission, Registration Nos. 2-98305 and 33-5723.
(c) Form of Stock Option Agreements is incorporated herein
by reference to Exhibit 10(c) to Form S-8 Registration
Statements (as amended) of Registrant filed with the
Commission, Registration Nos. 2-98305 and 33-5723.
(d) 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.
(e) 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).
(11) Computation of Per Share Earnings*
(22) Subsidiaries of the Registrant*
Subsidiaries of Registrant as of December 31,1993.
(24) Consent of Independent Accountants*
(28) 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. 01-110-53).
(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.
(b) Report on Form 8-K
No report on Form 8-K has been filed by Registrant
during the last quarter of the period covered by
this report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
\\s\\ David C. McCourt
------------------------
Date: March 30, 1994 By David C. McCourt,
Chairman and
Chief Executive Officer
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) Articles of Incorporation and By-laws
(b) By-laws of Registrant, as amended
through October 28, 1993
(11) Computation of Per Share Earnings
(22) Subsidiaries of the Registrant
(24) Consent of Independent Accountants
C-TEC Corporation and Subsidiaries
Selected Financial Data
For the Years Ended
December 31, 1993 1992 1991 1990 1989*
---- ---- ---- ---- -----
(Thousands of Dollars Except Per Share Amounts)
Sales $283,987 $256,564 $232,818 $200,383 $161,005
(Loss) Income
from continuing
operations $ (6,649) $ (2,061) $(19,415) $ (9,594) $ 5,787
(Loss) Income per
average common
share from
continuing
operations $ (.40) $ (.13) $ (1.18) $ (.58) $ .35
Dividends per
share** $ - $ - $ - $ - $ .14
Total assets $579,564 $586,366 $596,000 $580,429 $486,850
Long-term debt $409,293 $421,780 $432,482 $364,970 $268,290
- ------
* Operating results have been restated to reflect a disposition accounted
for as discontinued operations.
** Based on average shares of Common Stock and Class B Common Stock.
Management's Discussion and Analysis of Results of Operations
and Financial Condition
(Thousands of dollars, except per share amounts)
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and Notes thereto:
The Company
C-TEC Corporation ("the Company") is a diversified telecommunications
company. The Company is organized into five principal operating groups:
Telephone, Cable Television, Mobile Services, Communications Services, and
Long-Distance Telephone Service.
Operations - 1993 vs 1992
The Company's net loss for 1993 was $6,649 or $.40 per average common
share as compared to a net loss of $2,061 or $.13 per average common share in
1992. Results for 1993 and 1992 include gains on the sale of marketable
equity securities of $1,988 and $6,074, respectively.
Nonrecurring charges of $5,025 were recorded during 1993 associated with
the change in control of the Company in October 1993 from the prior control
group to RCN Corporation, a subsidiary of Peter Kiewit Sons', Inc. The
charges include a provision of $3,150 for employee relocation expenses made in
anticipation of the relocation of certain key corporate and operating group
functions to the Princeton, New Jersey area. The Company is focusing its
market strategy in this area and believes that a greater physical presence is
crucial to the success of planned business opportunities. Asset write downs
are not required and are not included in the provision. The relocation is
anticipated to occur in mid-1994 and will be funded by operations. The
charges also include $1,875 for employee separations related to the change in
control of the Company.
Also negatively impacting 1993 results was the cumulative effect on
prior years of required changes in accounting, principally for postretirement
benefits other than pensions, of $1,163.
The Company's 1993 income tax provision was $7,430 higher than in 1992.
See "Income Taxes".
The change in net income over 1992 by operating group is as follows:
Group Increase (Decrease) %
----- ------------------- -------
Telephone $(3,170) (15.4)%
Cable $(1,708) (12.3)%
Mobile Services $ 2,061 32.3 %
Communications Services $ (539) (41.5)%
Long Distance $(1,463) (138.9)%
Sales increased 10.7% to $283,987 in 1993 as compared to $256,564 in
1992.
The increase in sales by operating group is as follows:
Group Increase (Decrease) %
----- ------------------- -------
Telephone $2,254 1.8%
Cable $8,250 9.7%
Mobile Services $6,124 32.8%
Communications Services $4,880 34.8%
Long Distance $5,938 38.5%
Operations - 1992 vs 1991
The Company's net loss for 1992 was $2,061 or $.13 per average common
share as compared to a net loss of $12,392 or $.75 per average common share in
1991. Included in 1991 was a $7,023 gain on the disposal of the Information
Services Group, a discontinued operation. The Company's loss from continuing
operations in 1992, which included a gain of $6,074 on the sale of marketable
securities, improved by $17,354 or 89.4% ($1.05 per average common share) over
1991.
Except Long Distance, which showed a slight decrease in income, each
business group contributed toward the improvement in continuing operations in
1992.
The improvement, applicable to each operating group is as follows:
Group Increase (Decrease) %
----- ------------------- ------
Telephone $3,450 20.2 %
Cable $6,033 30.3 %
Mobile Services $1,581 19.9 %
Communications Services $2,797 68.3 %
Long Distance $ (127) (13.7)%
Sales were $256,564 in 1992, an increase of 10.2% over 1991 sales of
$232,818. The increase in sales is primarily due to new services and
increased marketing efforts during 1992.
The increase in sales by operating group is as follows:
Group Increase (Decrease) %
----- ------------------- -----
Telephone $3,729 3.1 %
Cable $9,171 12.1 %
Mobile Services $4,694 33.6 %
Communications Services $ (310) (2.2)%
Long Distance $6,383 70.4 %
The Company's share of the income or losses of unconsolidated entities
improved by $1,801. A significant reason for the improvement was the
Company's ability during the year to capably discharge its responsibilities
under its management services agreement with Mercom, Inc., ("Mercom").
C-TEC's share of Mercom's net loss in 1992 was $1,563 lower than in 1991.
Additionally, C-TEC's 1991 share of Mercom's losses included the effect from
prior years of retroactive application of the equity method of accounting.
The Company was required to make this accounting change in December 1991 when
it acquired significant influence over the operating and financial policies of
Mercom.
The Company believes that growth in earnings before interest,
depreciation and amortization, and income taxes (EBIDAT) is a significant
contributor to enhanced long-term shareholder value. Management uses this
measure to assist in the assessment of the availability of resources for
discretionary expenditures such as replacement and modernization of plant;
development of new markets and services for customers; further improvement of
the quality of service; and new investment/joint venture opportunities.
EBIDAT operating results by group are as follows:
Telephone Group
Sales of the Telephone Group increased $2,254 or 1.8% in 1993 and $3,729
or 3.1% in 1992. The 1993 increase was due primarily to higher intrastate
access revenues of $1,994 resulting from a higher volume of minutes combined
with a higher rate per minute. Local network service increased $1,223 or 5.4%
over 1992 due primarily to growth of 3.4% in main access lines and to
increases in custom calling and PASSKEY services. The 1992 increase was
primarily due to rate of return adjustments of $2,596 and interstate toll
revenue settlement adjustments of $1,863.
The Telephone Group's operating expenses, excluding depreciation and
amortization, increased $208 or .33% in 1993 as compared to a decrease of $419
or .66% in 1992. In 1993, the primary increase occurred in central office
software expense due to software upgrades. The most significant decreases for
1992 occurred in central office software expense due to the timing of
installation of related projects and in data processing expenses.
In January 1994, the Company reached a labor contract settlement with
the Communications Workers of America A.F.L.-C.I.O. The new contract will be
in effect through November 1997. Under the new contract, bargaining unit
employees will receive a 6.5% wage increase effective December 1, 1993. Wage
increases will be 3.5%, 3% and 3% on December 1, 1994, 1995, and 1996,
respectively. Also, effective January 1, 1994, bargaining unit employees will
contribute 20% of the premium for their health care coverage. The new
contract is expected to increase employee costs by approximately $450 in 1994
and by approximately $300 from year to year in each succeeding year of the
contract.
Cable Group
Sales of the Cable Group increased $8,250 or 9.7% in 1993 and $9,171 or
12.1% in 1992. The primary reason for the 1993 increase was an increase in
basic revenue of $6,522 due to approximately 6,000 additional subscribers over
1992; to a rate increase effective in mid-first quarter 1993 in the eastern
system; and to the effect of a full year of a rate increase implemented in
October 1992 in the western system. The 1993 rate increase was implemented
prior to the effective date of the Cable Television Consumer Protection and
Competition Act of 1992. In 1992, $7,824 of the increased sales are due to an
increase of approximately 11,000 basic subscribers as well as to basic and
premium rate increases.
Operating expenses, excluding depreciation and amortization, increased
$2,308 or 4.4% in 1993 and $6,654 or 14.4% in 1992. In 1993, higher technical
service costs of $1,076 resulted from higher cable and poleline maintenance
necessitated by a road widening project in New Jersey, higher vehicle
maintenance, and increased overtime due to the severe winter storms.
Additionally, higher programming expense of $1,183 resulted from additional
subscribers and programming rate increases. In 1992, the increase in
operating expenses, excluding depreciation and amortization, was due primarily
to additional programming expense of $2,478 due to additional subscribers and
programming rate increases as well as to higher allocated general corporate
expenses of $3,019.
Mobile Services Group
Sales for the Mobile Services Group increased $6,124 or 32.8% in 1993
and $4,694 or 33.6% in 1992. Successful promotional campaigns, increased
marketing, and favorable customer reaction to retail outlets have resulted in
approximately 10,000 additional subscribers over 1992, which generated higher
access and usage revenue of $3,157 in 1993. Additional cell sites and
increased roaming by other carriers' customers resulted in higher foreign
roaming sales of $1,482. The sales increase in 1992 was largely due to
expanded marketing efforts including reduced phone prices and free phone
promotions. These promotions, along with the effect of a full year of
activity in new cellular operations in certain Iowa and Pennsylvania RSAs
which commenced in 1991, contributed to increases in access and usage revenues
of $2,214. Foreign roaming sales also contributed $1,788 to the increase.
Operating expenses, excluding depreciation and amortization, increased
$6,863 or 43.3% in 1993 and $1,781 or 12.7% in 1992. In 1993, allocated
general corporate expenses increased $2,779. The remaining increase was
primarily due to higher costs of equipment sold, commissions, salaries and
benefits, and roaming expenses.
The 1992 increase was primarily due to higher costs of equipment sold
and commissions.
Communications Services Group
Sales for the Communications Services Group increased $4,880 or 34.8% in
1993 as compared to a decrease of $310 or 2.2% in 1992. The 1993 increase was
primarily due to two large premise distribution systems contracts. In 1992,
the Group experienced a decrease in sales over 1991 as a result of a
concentration on securing less risky, higher margin projects. This focus was
due to a large loss on a major project in 1991.
Operating expenses, excluding depreciation and amortization, increased
$4,909 or 30.7% in 1993, primarily due to costs associated with the two large
contracts previously referred to. In 1992, operating expenses, excluding
depreciation and amortization, decreased $4,776 or 22.9%, due to the focus on
securing less risky, higher margin projects and to the nonrecurrence in 1992
of a $1,382 loss on a major project that occurred in 1991. The Group was
required to complete the work of one of its subcontractors which experienced
financial difficulties. Additionally, in 1992, allocated general corporate
expenses decreased $2,071.
The nature of the Communications Services Group's business is inherently
risky due to project cost estimates, subcontractor performance, and economic
conditions. The operating results of the Group are continually subject to
fluctuations due to its nonrecurring revenue stream, market conditions, and
the effects of competition on margins.
Long Distance Group
Sales for the Long Distance Group increased $5,938 or 38.5% in 1993 and
$6,383 or 70.4% in 1992. Approximately $3,500 of the 1993 increase was due to
increased minutes billed. Additional customers obtained as a result of an
expanded sales force was the primary reason for the increased minutes of use.
Additionally, a new line of business, started in 1992, consisting of an AT&T
product procured under an AT&T tariff agreement from another long-distance
reseller which is sold nationwide to large businesses with multiple locations,
increased $2,279. In 1992, increased market share resulting from equal access
cutovers led to an increase in customers and a 56.4% increase in the volume of
minutes billed. This generated sales increases of $4,910 during 1992. New
products such as calling card, telemarketing services, dedicated sales and
AT&T time resold under a tariff agreement, resulted in increased sales of
approximately $1,431 in 1992.
Operating expenses, excluding depreciation and amortization, increased
$8,005 or 48.2% in 1993 and $6,624 or 66.3% in 1992. The primary components
of the 1993 increase were carrier expense of $2,046 due to increases in billed
minutes, partially offset by a decrease in the average cost per minute; and
expenses associated with the AT&T tariff product of $2,065. In 1992, the
primary components of the increase were carrier expense of $1,922 due to
growth in volume of minutes and access charges of $3,129 due to increases in
minutes and rates.
The Long Distance Group will continue to focus on increasing market
share and expanding its territories and may experience continuing operating
losses as it further develops its business.
Depreciation and Amortization
Depreciation and amortization decreased $2,186 or 2.9% in 1993,
primarily due to reduced amortization expense at the Mobile Services Group of
$5,454, partially offset by increases in depreciation expense of $2,147 and
$1,001 at the Telephone Group and Cable Group, respectively. The decrease in
Mobile Services Group amortization was due to several noncompete agreements
becoming fully amortized. The increase in depreciation at the Telephone and
Cable Groups was due to plant expansion and an increase in the composite
depreciation rate of the Telephone Group from 5.76% in 1992 to 6.26% in 1993.
In 1992, depreciation and amortization expense decreased $2,856 or 3.7%
over 1991, primarily due to a decrease in the composite depreciation rate of
the Telephone Group from 6.69% in 1991 to 5.76% in 1992. This resulted in
lower depreciation expense of $2,740.
Interest Expense
Interest expense decreased $3,117 or 8.4% in 1993 primarily due to lower
interest rates. An interest rate swap entered into in October 1992, which
effectively converted $100,000 of parent company debt from fixed to variable
rate, contributed to lower interest expense of approximately $715 at the parent.
This represents a decrease of approximately 1% in the effective interest rate
on the underlying debt. The interest rate swap agreement reduced interest
expense which otherwise would have been reported for 1993 and for the period
from inception of this agreement in October 1992 through December 31, 1993 by
$900 and $1,084, respectively. Certain parent debt issuance costs were fully
amortized in 1992, resulting in lower interest expense of $918 in 1993.
Additionally, favorable interest rates and lower average outstanding debt
levels at the Cable Group have resulted in lower interest expense of $1,364 at
the Cable subsidiary in 1993.
Other Income (Expense), net
During 1993, other income, net, increased over 1992 due in part to
increased royalty fees of $425 on the sales of cellular software products.
This royalty results from an agreement entered into in connection with the
Company's disposition of its Information Services Group in 1990.
Income Taxes
The primary reason for the increased provision for income taxes in 1993
over 1992 was an increase in the provision for estimated nondeductible
expenses. Estimated nondeductible expenses relate primarily to provisions
made in anticipation of final resolution of the Company's current IRS
examination referred to in Note 13. For an analysis of the change in income
taxes, see the reconciliation of the effective income tax rate in footnote 12
to the 1993 consolidated financial statements.
Cumulative Effect of Accounting Principle Changes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 - "Employers' Accounting for Postretirement
Benefits Other Than Pensions" ("SFAS 106") and Statement of Financial
Accounting Standards No. 109 - "Accounting for Income Taxes" ("SFAS 109").
The Company elected immediate recognition of these standards which resulted in
a charge to earnings of $1,448, net of income tax benefits, for accounting
changes related to postretirement health care and life insurance benefits and
a credit to earnings of $285 for accounting changes related to income taxes.
The adoption of these standards did not have a material impact on the
Company's financial position. SFAS 106 and SFAS 109 are not expected to have
a material impact on the Company's financial position or results of operations
in the future. See Notes 10 and 12 to the Company's 1993 consolidated
financial statements for additional information about these accounting
changes.
Liquidity and Capital Resources
December 31,
---------------------
1993 1992
---- ----
Cash and Temporary Cash Investments $60,182 $58,837
Working Capital $39,078 $40,928
Long-Term Debt (including current maturities) $415,949 $426,249
Year Ended December 31,
-----------------------
1993 1992
---- ----
Net Cash Provided by Operating Activities $68,781 $65,250
Investing Activities:
Additions to property, plant, and equipment $59,142 $51,207
Investments and Acquisitions 2,269 3,191
------- -------
$61,411 $54,398
The Company's net cash provided by operating activities continued to
exceed additions to property, plant, and equipment. Net cash provided by
operating activities represented 116.3% and 127.4% of additions to property,
plant, and equipment for the years ended December 31, 1993 and 1992,
respectively. Since the nature of the Company's businesses is capital
intensive, management believes that the Company's ability to generate cash in
excess of capital additions is a significant factor in providing discretionary
resources for acquisitions and other investment opportunities as well as to
meet scheduled debt payments. The Company is investigating several potential
additional business opportunities, which may require significant capital
expenditures and/or additional borrowings. Management is reviewing debt and
equity financing alternatives, including refinancing a portion of existing
long-term borrowings, to better position the Company to react quickly to
future expansion opportunities which meet its business objectives.
The following table, which should be read in conjunction with Note 7 to
the consolidated financial statements, reflects the Company's available credit
facilities at December 31, 1993:
Amount
Credit Facility Available Terms
--------------- --------- -----------------
Parent Credit Agreement $50,000 Expires 6/1/94
Cable Group Revolving
Secured Credit Agreement $11,000 Expires 9/30/96
Parent line of credit $10,000 Available upon two
weeks' notification;
cancelable at option
of bank
Parent line of credit $ 2,000 Cancelable at option
of bank
Cable Group line of credit $ 1,480 Cancelable at option
of bank
Pursuant to the terms of mortgage notes payable to the United States of
America through the Rural Electrification Administration, Federal Financing
Bank, and the Rural Telephone Bank, the Telephone Group is restricted as to
the amount of dividends and other distributions of capital which may be paid
to the Company. As of December 31, 1993, the Telephone Group had cash and
temporary cash investments aggregating $39,827. The maximum allowable
distribution to the Company was approximately $974 at December 31, 1993. The
portion of the Telephone Group's cash and temporary cash investments which is
restricted from the Company's use is unrestricted in use for operations of the
Telephone Group.
The Company has adequate resources to meet its short term obligations,
including any liability which may arise as a result of the IRS audit referred
to in Note 13. Management estimates that the Company will continue to
generate cash from operations in order to meet its long-term obligations.
The Company has maintained a no cash dividend policy since 1989.
Management does not intend to alter this policy in the foreseeable future.
Effects of Inflation
Management believes that the Company provides its services in a highly
efficient manner and thereby limits inflationary impact. The Company's costs
and expenses, excluding nonrecurring charges, increased 7.9% in 1993 as
compared to an increase in sales of 10.7% in 1993. Although the Company has
controlled its costs, a significant portion of its sales are subject to
current rate-making practices in the telephone industry. Additionally, the
Cable Television Consumer Protection and Competition Act of 1992 has regulated
a significant portion of the Cable Group's sales. This regulation causes the
effects of inflation to be borne to a large extent by the Company's
stockholders. However, the Company's obligations to holders of fixed rate
debt and preferred stock are limited to historical amounts and rates. As a
result, the negative impact on sales caused by regulation is reduced by the
lack of inflationary impact on the Company's fixed rate debt and preferred
stock.
Financial Condition
As of January 1, 1993, the Company adopted SFAS 109. SFAS 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
The current deferred tax asset as of December 31, 1993 relates principally to
accruals for nonrecurring charges.
The Telephone Group was required to account for its adoption of SFAS
109 in conjunction with accounting principles for regulated entities. As a
result, the Telephone Group recorded certain regulatory assets and
liabilities, the unamortized balances of which are approximately $3,956 and
$8,656, respectively, at December 31, 1993. The unamortized regulatory
asset is included in deferred charges and the unamortized regulatory
liability is included in other deferred credits in the Company's
consolidated balance sheet at December 31, 1993.
The increase in prepaid taxes is primarily due to an overpayment of AMT
in 1993.
The net decrease in accounts payable and accrued expenses is primarily
due to a decrease of $3,713 at the Telephone Group partially offset by an
increase of $1,371 at the Long Distance Group. The decrease in Telephone
Group payables and accruals is primarily due to a decrease in construction
projects in progress at December 31, 1993 as compared to December 31, 1992.
The increase in Long Distance Group payables and accruals is primarily related
to an increase in the overall level of operating expenses during the year
associated with the sales increases and the expansion of the Long Distance
business segment.
Impact of Future Accounting Changes
Future accounting changes for certain investments in debt and equity
securities and postemployment benefits are not expected to have a material
impact on the financial condition or results of operations of the Company.
See Notes 4 and 10 to the 1993 consolidated financial statements for a further
discussion of these new accounting standards.
REGULATORY ISSUES
CABLE TELEVISION CONSUMER PROTECTION
AND COMPETITION ACT
The Cable Television Consumer Protection and Competition Act of 1992
(the "Act"), enacted on October 5, 1992 and effective April 3, 1993, regulates
the cable television industry.
Basic Rate Regulation
The most significant provision of the Act requires the FCC to establish
rules to ensure that rates for basic services are reasonable for subscribers
in areas without effective competition. Basic service is the level of
programming which must be subscribed to in order to receive access to any
other tier of service. The basic service tier must, at a minimum, include all
"must-carry" channels, any public, educational, or governmental access
channels required by the franchisor, and all television signals other than
non-local satellite-delivered superstations. The FCC must determine whether
each cable system is subject to effective competition.
Effective competition is defined by the Act to exist if: (1) fewer
than 30 percent of the households in the franchise area subscribe to the
service of the current cable system; (2) the franchise area is served by at
least two unaffiliated multichannel video programming distributors, each of
which offers programming to at least 50 percent of the households and is
subscribed to by at least 15 percent of such households; or (3) a multichannel
video operator owned by a franchise authority offers service to at least 50
percent of the households in the franchise area. The FCC has announced that
for those systems not subject to effective competition, rates will be
regulated jointly by the FCC and state and local governments. The FCC has
delegated the responsibility of regulation of the basic service tier to the
applicable local franchise authority. In order to regulate rates, such
authority must be certified by the FCC. In order to be certified, the
authority must apply for certification, have the legal authority to regulate,
and the franchise area must lack effective competition. A franchise authority
may choose not to regulate rates. A local franchise authority that is
certified must apply the FCC's benchmark formula. A local franchise authority
that lacks the legal authority to regulate or the personnel to administer the
regulation may request the FCC to regulate basic rates.
The FCC has broad authority in adopting regulations to ensure that
rates are reasonable. The Act permits the FCC to determine what is a
"reasonable profit" for the cable operator. The factors which the FCC must
take into account in making this determination include, among other things,
rates for cable systems subject to effective competition; direct costs of
obtaining and providing basic tier service; capital and operating costs of the
cable operators, including programming costs; advertising revenues received by
the cable operator from basic tier service programming; and certain franchise
expenses. The FCC must establish criteria for determining whether rates for
service other than basic tier are reasonable and must develop procedures for
resolution of complaints and refund of rates determined to be unreasonable.
On April 1, 1993, the FCC adopted its initial rules regulating cable
television rates. All cable television rates except pay per-view and premium
channels are frozen until May 15, 1994. Retiering and unbundling of services
are permitted as long as the overall rate per subscriber is not increased.
Rates for basic and tiered services are subject to benchmarks. A cable system
with rates above the benchmark will be required to roll back its rates to the
systems rates as of September 30, 1992, plus an allowance for inflation since
then. If the September 30, 1992 rate exceeds the benchmark, the maximum rate
reduction is ten percent of the rates in effect at September 30, 1992. A
system with rates above the benchmark may utilize a cost-of-service showing to
justify its rates and avoid the rate reduction.
Equipment charges for basic tier service are also subject to rollback
to the level representing the cost of the equipment including a reasonable
profit (to be determined by the local franchise authority). In cases where
equipment has been included as part of a service tier at no additional cost,
it must be unbundled and a separate charge will be allowed.
Following the expiration of the rate freeze, tier increases may be
effective without franchise authority approval, however, such increases are
subject to rollback and refund based on complaints. Basic rate increases are
subject to a 30 day notice and review by the franchise authority, which has
the option to defer the increase for 90 days for further review or for 150
days if the operators rates are above the benchmark and the operator desires
to make a cost-of-service showing.
On February 22, 1994, the FCC announced that it would be issuing
additional criteria relative to its rate regulation. Among the issues to be
addressed in the final text order to be issued in the near future are: (1) a
reduction of the existing rate benchmarks by an average of 7%; (2) whether a
la carte services enhance subscriber choice or are an evasion of the FCC's
rate regulation; (3) the rules required in order to file cost-of-service
showings in order to justify rates above the applicable benchmark; and (4)
permission for cable operators to raise rates going forward based on channel
increases to reflect programming costs and a 7.5 percent markup on programming
costs. The effective date of these changes is expected to be May 15, 1994.
Anti-Buy Through
The Act prohibits cable operators from requiring subscribers to buy any
level of service other than basic tier to receive programming offered on a
per-channel or per-program basis.
Must-Carry
Cable operators are required by the Act to carry the signals of
qualified local commercial and non-commercial television stations which demand
carriage.
Retransmission Consent
The FCC requires cable operators to negotiate licenses with the local
commercial television stations whose programming the operator desires the
right to carry but which do not demand carriage.
Other Provisions
Other regulations under the Act include: (1) cable operators customer
service requirements; (2) limitations on indecent and objectionable
programming; (3) resolution of complaints relative to unreasonable rates; (4)
signal quality; (5) disposition of home wiring; (6) limitations on ownership
of cable systems; and (7) consumer electronics equipment compatibility.
Various legal proceedings by other cable operators have commenced
regarding the constitutionality of several of the Act's provisions.
Impact to the Company
In determining the impact of the initial FCC basic rate benchmark rules
on a company's current system revenues, cable companies were permitted, prior
to September 1, 1993, to restructure their rates and channel offerings as long
as the overall rate per subscriber was not increased. Management does not
believe that the Company's current restructured rates will be significantly
affected by the initial rate regulation because its systems are below the
initial FCC benchmarks and the average rate per subscriber did not increase
after the restructuring, based on operating results which have occurred
subsequent to the effective date. The Company continues to evaluate the
potential impact which rate regulation will have on future rate increases.
While it is likely that lower margins will exist due to the financial impact
to the Company of other provisions of the Act, including increased operating
expenses related to retransmission consent prior to October 6, 1994, and to
increased costs associated with customer service and technical standards,
management does not believe it is possible at this time to quantify the
financial impact of this new regulatory environment on future operating
results until regulators have completed their review of the Company's
implementation of the Act and the regulations thereunder.
In November 1993, the FCC issued letters of inquiry to the Company and
other cable operators to investigate the way in which regulated program
services were moved to unregulated a la carte offerings and whether these and
other changes were in compliance with the Act. The Company believes that it
is in full compliance with the Act and believes that the impact, if any, on
the consolidated financial position of the Company as of December 31, 1993
will not be material. The Company has responded to the letters of inquiry;
however, FCC officials have not indicated when the investigation will be
completed or whether any action is warranted.
PENNSYLVANIA PUBLIC UTILITY COMMISSION
The Company's local exchange telephone subsidiary, Commonwealth
Telephone Company ("CTCo"), is subject to a rate-making process regulated by
the Pennsylvania Public Utility Commission. Consequently, the ability of the
Telephone Group to generate increased income is largely dependent on its
ability to increase its subscriber base, obtain higher message volumes and
control its expenses.
The Company's Telephone Group follows the accounting for regulated
enterprises prescribed by Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"). SFAS
71 recognizes the economic effect of rate regulation by recording costs and a
return on investment as such amounts are recovered through rates authorized by
regulatory authorities. The Telephone Group annually reviews the continued
applicability of SFAS 71 based upon the current regulatory and competitive
environment and currently expects to follow the accounting prescribed by SFAS
71 in the foreseeable future. In 1993, the Telephone Group adopted Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions" ("SFAS 106"). SFAS 106 requires
accrual accounting for all postretirement benefits other than pensions. Under
this prescribed accrual method, the Telephone Group's obligation for these
postretirement benefits is fully accrued by the date employees obtain full
eligibility for such benefits. The Telephone Group elected, for financial
reporting purposes, to recognize immediately the cumulative effect on prior
years of the change in accounting for postretirement benefits. The
Pennsylvania Public Utility Commission has not authoritatively approved the
recognition of post retirement benefit costs in excess of pay-as-you-go
amounts. Accordingly, because of the uncertainty as to the timing and extent
of recovery, the Telephone Group has not recorded a regulatory asset. Also,
in 1993 the Telephone Group adopted Statement of Financial Accounting Standard
No. 109, "Accounting for Income Taxes" ("SFAS 109"), which requires the
determination of deferred taxes using the liability method.
In accordance with SFAS 71, the effects of the adoption of SFAS 109
on the Company's regulated subsidiary were deferred on the balance sheet as
regulatory assets and liabilities which aggregated approximately $3,900 and
approximately $8,700, respectively, at December 31, 1993 and which
represent the anticipated future regulatory recognitiion of SFAS 109
adjustments.
The regulatory assets recognize temporary differences for which
deferred taxes had not been provided and an increase in the deferred state
tax liability which resulted from an increase in Pennsylvania state income
tax rates subsequent to the dates the deferred taxes were recorded.
The regulatory liabilities represent a reduced deferred tax
liability resulting from decreases in federal income tax rates subsequent to
the dates the deferred taxes were recorded and a deferred tax benefit
associated with the temporary differences resulting from accounting for
investment tax credits using the deferred method.
If the Company were required to discontinue the application of
accounting principles for regulated entities (SFAS 71), the impact on the
financial statements would be to write off the regulatory assets and
liabilities referred to above.
During 1993, the Pennsylvania Public Utility Commission ("PPUC"),
conducted an investigation of the appropriateness of CTCo's transactions with
affiliates, as well as analyzed the earnings of CTCo. Among other things,
under the terms of an agreement reached with the PPUC concerning this
investigation, CTCo will provide its residential customers touch-tone service
free of charge beginning February 1, 1994. The agreement also states that,
barring unforeseen regulatory changes, CTCo will not increase basic service
rates prior to January 1, 1997. The Company has not increased basic rates
since 1978. The PPUC has also required the Company to permit only income
taxes actually paid to be recognized as a cost of service. Accordingly,
subsequent to December 31, 1993, the Company will not record deferred income
taxes on certain temporary differences. These matters are not expected to
have a material effect on the consolidated results of operations or financial
condition of the Company.
Environmental Matters
The Company is not a manufacturer or facilitator of hazardous waste,
therefore C-TEC generates minimal hazardous waste. The most significant
portion of the Company's environmental exposure comes from batteries and
cleaning fluids which are removed by licensed chemical transporters. Due to
the growing concern that the boundaries of the corporate liability are being
expanded with respect to environmental liabilities, the Company has
established a Hazardous Waste Committee for the purpose of preparing and
obtaining approval of corporate wide procedures relative to the use, handling,
and disposal of hazardous waste. The committee has begun to establish
corporate wide policies and procedures; develop programs to control and
monitor waste disposal; and monitor environmental legislation and its
application to the Company. The Company generally records estimated costs of
environmental liabilities upon discovery and reviews environmental exposures
for accounting purposes at least quarterly. The Company has recorded reserves<PAGE>
of approximately $56 representing its estimate of the costs to remediate
certain exposures. The Company does not believe any additional environmental
liabilities would be significant. The Company is not a party to any
environmental litigation.
CONSOLIDATED STATEMENTS OF CASH FLOWS
C-TEC Corporation and Subsidiaries
For the Years Ended December 31, 1993 1992 1991
---- ---- ----
(Thousands of Dollars)
Cash Flows from Operating Activities
Net loss $ (6,649) $ (2,061) $(12,392)
Cumulative effect of accounting
principle changes 1,163 - -
Depreciation and amortization 73,103 75,289 78,145
Deferred income taxes and investment
tax credits, net 660 (940) (4,683)
Gain on sale of marketable equity
securities (1,988) (6,074) -
Net change in certain
assets and liabilities 1,792 (1,990) 7,188
Provision for losses on
accounts receivable 1,341 1,111 2,031
Equity in (income) loss
of unconsolidated entities (227) (70) 1,731
Other (414) (15) (2,200)
------- ------- -------
Net cash provided by operating activities 68,781 65,250 69,820
------- ------- -------
Cash Flows from Investing Activities
Additions to property, plant & equipment (59,142) (51,207) (55,050)
Acquisitions (2,189) (871) (20,606)
Investment in non-current marketable
securities (80) (2,320) -
Proceeds from sale of marketable equity
securities 2,063 6,483 -
Other 1,847 2,689 4,647
------- ------- -------
Net cash used in investing activities (57,501) (45,226) (71,009)
------- ------- -------
Cash Flows from Financing Activities
Net short-term repayments - - (36,626)
Increase (decrease) in minority interest 196 110 (145)
Redemption of long-term debt (35,332) (28,666) (174,720)
Redemption of preferred stock (19) (19) (19)
Proceeds from the issuance of common stock 187 22 129
Issuance long-term debt 25,033 17,876 238,149
Purchase of treasury stock - (146) -
------- ------- -------
Net cash (used in) provided by
financing activities (9,935) (10,823) 26,768
------- ------- -------
Net increase in cash and
temporary cash investments 1,345 9,201 25,579
Cash and temporary cash investments
at beginning of year 58,837 49,636 24,057
------- ------- -------
Cash and temporary cash investments
at end of year $60,182 $58,837 $49,636
======= ======= =======
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
C-TEC Corporation and Subsidiaries
For the Years Ended December 31, 1993 1992 1991
---- ---- ----
(Thousands of Dollars)
Changes in Certain Assets and Liabilities
Accounts receivable and unbilled revenues $(1,461) $(4,573) $(1,187)
Material and supply inventory 192 (892) 1,176
Income taxes receivable - 132 4,974
Accounts payable (5,827) 5,753 (2,255)
Accrued expenses 3,770 (3,387) 4,842
Accrued taxes 5,846 996 1,735
Other, net (728) (19) (2,097)
------- ------- -------
Net change in certain
assets and liabilities $1,792 $(1,990) $ 7,188
======= ======= =======
Supplemental Disclosures of
Cash Flow Information
Cash paid during the year for:
Interest (net of amounts capitalized) $33,994 $37,053 $37,595
Income taxes $2,492 $ 3,512 $ 2,469
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
C-TEC Corporation and Subsidiaries
For the Years Ended December 31, 1993 1992 1991
---- ---- ----
(Thousands of Dollars
Except Per Share Amounts)
Sales $ 283,987 $ 256,564 $ 232,818
---------- ---------- ----------
Costs and Expenses 244,421 226,483 221,225
Nonrecurring Charges 5,025 - -
---------- ---------- ----------
Operating Income 34,541 30,081 11,593
---------- ---------- ----------
Interest income 1,609 2,178 1,801
Interest expense (34,204) (37,321) (37,472)
Gain on sale of marketable equity
securities 1,988 6,074 -
Other income(expense),net 1,408 291 685
---------- ---------- ----------
Income(Loss) Before Income Taxes 5,342 1,303 (23,393)
---------- ---------- ----------
Provision (benefit) for income taxes 10,714 3,284 (5,486)
========== ========== ==========
Loss Before Minority Interest and
Equity in Unconsolidated Entities (5,372) (1,981) (17,907)
---------- ---------- ----------
Minority interest in (income) loss of
consolidated entities (341) (150) 223
Equity in income (loss) of unconsolidated
entities 227 70 (1,731)
---------- ---------- ----------
Loss from Continuing Operations
Before Cumulative Effect of Accounting
Principle Changes (5,486) (2,061) (19,415)
Cumulative effect on prior years of
changes in accounting principles for:
Postretirement benefits other
than pensions (1,448) - -
Income taxes 285 - -
---------- ---------- ----------
Loss from Continuing Operations (6,649) (2,061) (19,415)
Gain on disposal of
discontinued operation - - 7,023
---------- ---------- ----------
Net Loss $ (6,649) $ (2,061) $ (12,392)
========== ========== ==========
(Loss) Earnings Per Average Common Share
Loss from continuing operations before
cumulative effect of accounting
principle changes $ (.33) $ (.13) (1.18)
Cumulative effect on prior years of
changes in accounting principles (.07) - -
Gain on disposal of discontinued operation - - .43
---------- ---------- ----------
Net Loss $ (.40) $ (.13) $ (.75)
========== ========== ==========
Average Common Shares Outstanding 16,506,494 16,490,628 16,482,733
========== ========== ==========
See accompanying notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
C-TEC Corporation and Subsidiaries
December 31, 1993 1992
---- ----
(Thousands of Dollars)
ASSETS
Current Assets
Cash and temporary cash investments $ 60,182 $ 58,837
Accounts receivable, net of reserve for
doubtful accounts of $679 in 1993 and
$559 in 1992 32,592 32,810
Unbilled revenues 1,466 1,128
Material and supply inventory, at average cost 3,776 3,968
Prepayments and other 3,040 2,247
Deferred income taxes 2,125 -
-------- --------
Total current assets 103,181 98,990
-------- --------
Property, Plant and Equipment
Telephone plant 381,411 361,590
Cable plant 176,297 163,552
Cellular plant 25,513 21,967
Other property, plant and equipment 11,219 8,206
-------- --------
Total property, plant and equipment 594,440 555,315
Accumulated depreciation 250,632 227,395
-------- --------
Net property, plant and equipment 343,808 327,920
-------- --------
Investments 16,253 15,263
-------- --------
Intangible Assets, net 106,677 137,418
-------- --------
Deferred Charges 9,645 6,775
-------- --------
Total Assets $579,564 $586,366
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt
and preferred stock $ 6,675 $ 4,488
Accounts payable 13,498 19,325
Advance billings and customer deposits 7,698 7,633
Accrued taxes 11,295 5,449
Accrued interest 6,431 6,221
Accrued expenses 18,506 14,946
-------- --------
Total current liabilities 64,103 58,062
-------- --------
Long-Term Debt 409,293 421,780
-------- --------
CONSOLIDATED BALANCE SHEETS
C-TEC Corporation and Subsidiaries
December 31, 1993 1992
---- ----
(Thousands of Dollars)
Deferred Credits
Deferred income taxes 29,116 31,692
Deferred investment tax credits 1,849 2,734
Other 12,545 3,072
-------- --------
Total deferred credits 43,510 37,498
-------- --------
Minority Interest 2,019 1,908
-------- --------
Redeemable Preferred Stock 276 294
-------- --------
Common Shareholders' Equity 60,363 66,824
-------- --------
Commitments and Contingencies
-------- --------
Total Liabilities and Shareholders' Equity $579,564 $586,366
======== ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
C-TEC CORPORATION AND SUBSIDIARIES
COMMON STOCK ISSUED
----------------------------------------------
COMMON CLASS B ADDITIONAL
----------------- ----------------- PAID-IN
(THOUSANDS OF DOLLARS) SHARES PAR VALUE SHARES PAR VALUE CAPITAL
------ --------- ------ --------- -------
BALANCE, DECEMBER 31, 1990 8,136,984 $8,137 8,794,537 $8,795 $22,408
NET LOSS - - - - -
COMMON STOCK ISSUED
(NOTE 9A)
INCENTIVE STOCK OPTIONS - - 18,000 18 (142)
TREASURY STOCK TRANSACTIONS
(AT COST)
INCENTIVE STOCK OPTIONS - - (18,000) (18) -
CANCELLED (44,086) (45) (1,001)
CONVERSIONS (2,692) (3) 2,692 3 -
OTHER - - - - -
--------- ------ --------- ------ -------
BALANCE, DECEMBER 31, 1991 8,134,292 8,134 8,753,143 8,753 21,265
NET LOSS - - - - -
COMMON STOCK ISSUED
(NOTE 9A)-
STOCK REPURCHASES - - (12,595) (12) -
INCENTIVE STOCK OPTIONS - - 3,000 3 (38)
TREASURY STOCK TRANSACTIONS
(AT COST)
STOCK REPURCHASES - - 12,595 12 -
INCENTIVE STOCK OPTIONS - - (3,000) (3) -
CONVERSIONS 672 1 (672) (1) -
--------- ------ --------- ------ -------
BALANCE, DECEMBER 31, 1992 8,134,964 8,135 8,752,471 8,752 21,227
NET LOSS - - - - -
COMMON STOCK ISSUED
(NOTE 9A)-
INCENTIVE STOCK OPTIONS - - 26,000 26 (592)
TREASURY STOCK TRANSACTIONS
(AT COST)
INCENTIVE STOCK OPTIONS - - (26,000) (26) -
CONVERSIONS 2,901 3 (2,901) (3) -
========= ====== ========= ====== =======
BALANCE, DECEMBER 31, 1993 8,137,865 $8,138 8,749,570 $8,749 $20,635
========= ====== ========= ====== =======
<PAGE> 42A
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
C-TEC CORPORATION AND SUBSIDIARIES
RETAINED TREASURY
EARNINGS STOCK OTHER TOTAL
--------- -------- ------- --------
BALANCE, DECEMBER 31, 1990 $49,231 $(7,300) $(3,339) $77,932
NET LOSS (12,392) - - (12,392)
COMMON STOCK ISSUED (NOTE 9A)-
INCENTIVE STOCK OPTIONS - - - (124)
TREASURY STOCK TRANSACTIONS
(AT COST)
INCENTIVE STOCK OPTIONS - 272 - 254
CANCELLED - 1,046 - -
CONVERSIONS - - - -
OTHER - - 3,339 3,339
------- ------- ------- -------
BALANCE, DECEMBER 31, 1991 36,839 (5,982) - 69,009
NET LOSS (2,061) - - (2,061)
COMMON STOCK ISSUED (NOTE 9A)-
STOCK REPURCHASES - - - (12)
INCENTIVE STOCK OPTIONS - - - (35)
TREASURY STOCK TRANSACTIONS
(AT COST)
STOCK REPURCHASES - (146) - (134)
INCENTIVE STOCK OPTIONS - 60 - 57
CONVERSIONS - - - -
------- ------- ------- -------
BALANCE, DECEMBER 31, 1992 34,778 (6,068) - 66,824
NET LOSS (6,649) - - (6,649)
COMMON STOCK ISSUED (NOTE 9A)-
INCENTIVE STOCK OPTIONS - - - (566)
TREASURY STOCK TRANSACTIONS
(AT COST)
INCENTIVE STOCK OPTIONS - 780 - 754
CONVERSIONS - - - -
------- ------- ------- -------
BALANCE, DECEMBER 31, 1993 $28,129 $(5,288) - $60,363
======= ======= ======= =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
C-TEC Corporation and its wholly and majority owned subsidiaries (the
Company), after elimination of significant intercompany accounts and
transactions. The Company's operations are divided into five principal
groups: Telephone, Cable Television, Communications Services, Mobile Services,
and Long Distance. Investments accounted for by the equity method include
cellular partnerships, an alternative access telephone service provider, and a
cable company.
Earnings (loss) Per Share
Earnings (loss) per share amounts are based on the weighted
average number of common shares outstanding including Class B Common. No
effect is given to antidilutive securities.
Cash Flows
For purposes of reporting cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be temporary cash investments.
Property, Plant and Equipment
Telephone plant reflects the original cost of construction,
including payroll and related costs such as taxes, pensions and other fringe
benefits, and certain general administrative costs.
Depreciation on telephone plant is based on the estimated
remaining lives of the various classes of depreciable property and
straight-line composite rates. The average rates were 6.26%, 5.76% and 6.69%
in 1993, 1992, and 1991, respectively. At the time property is retired, the
original cost, plus cost of removal, less salvage, is charged to accumulated
depreciation.
Cable television plant includes the original cost of construction
and certain capitalized costs, including interest incurred prior to receipt of
the first subscriber revenue.
Depreciation on cable plant is provided on the straight-line
method based on the estimated useful lives of the various classes of
depreciable property. The average estimated useful lives of depreciable cable
plant are:
Building 25 - 45 years
Cable Television Distribution
Equipment 8 - 22.5 years
Other Equipment 4 - 10 years
Gain or loss is recognized on major retirements and dispositions. Major
replacements and betterments are capitalized.
Depreciation on cellular and other property, plant and equipment
is provided on the straight-line basis over the useful lives of the property
ranging from 2 to 27 years. Gain or loss is recognized on major retirements
and dispositions.
Repairs of all property, plant and equipment and minor
replacements and renewals are charged to expense as incurred.
Intangible Assets and Deferred Charges
Intangible assets consist primarily of amounts allocated upon
purchase of assets of existing operations and include the excess of cost over
fair value of net tangible assets. Intangible assets are amortized on a
straight-line basis over the expected period of benefit, which does not exceed
40 years.
Deferred charges principally include costs incurred to obtain
financing, prepaid pension cost and the regulatory asset established by the
Telephone subsidiary in connection with the requirements of standards of
accounting for income taxes. Debt issuance costs are amortized on the
straight-line basis over the term of the financing acquired. Amortization of
debt issuance costs is included in interest expense in the consolidated
statements of operations.
Revenue Recognition
Telephone network access and long-distance service revenues are
derived from access charges, toll rates and settlement arrangements.
Interstate access charges are subject to a pooling process with the National
Exchange Carrier Association (N.E.C.A.). Final interstate revenues are based
on nationwide average costs applied to certain demand quantities.
Revenues from basic and premium cable programming services are
recorded in the month the service is provided.
Cellular air time is recorded as revenue when earned. Telephone
equipment sales are recorded at the time the equipment is delivered to the
customer.
Long distance telephone service revenues are recorded based on
minutes of traffic processed and contracted fees.
Long-term contracts of the Communications Services Group are
accounted for on the percentage-of-completion method. Estimated sales and
earnings are recognized as equipment is installed or contract services
rendered, with estimated losses, if any, charged to income currently.
Income Taxes
The Company and its subsidiaries report income for federal income
tax purposes on a consolidated basis.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 - "Accounting for Income Taxes". The
statement requires the use of an asset and liability approach for financial
accounting and reporting for income taxes. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized. Through December 31, 1992, income taxes were
accounted for under the deferral method of APB Opinion No. 11.
Investment tax credits for the Telephone and Cable Groups have
been deferred in prior years and are being amortized over the average lives of
the applicable property. The Telephone Group amortizes excess deferred taxes
over the remaining life of the plant which gave rise to the excess.
The Company's federal income tax returns are subject to review by
the Internal Revenue Service. Management believes that it has made adequate
provision for income taxes that may become payable with respect to open tax
years.
Financial Instruments
The Company enters into interest rate swap agreements in the
management of interest rate exposure. The difference to be paid or received
on these agreements is accrued as interest rates change and is recognized over
the respective payment periods during the lives of the agreements.
2. Business Combinations
During 1991, the Company acquired additional cable properties
serving subscribers in Michigan and New Jersey, for $5,065.
In January 1991, the company completed the purchase of an Iowa RSA
cellular license for $15,541.
These transactions were accounted for under the purchase method of
accounting and the results of operations were not significant to the
consolidated financial statements.
In April 1993, the Company acquired a controlling interest in
Northeast Networks, Inc. ("NNI"), an alternative access telephone service
provider in Westchester County, New York. The Company made an investment in
NNI during 1993 of $1,896. The Company accounts for its investment under the
equity method since the results are not materially different from
consolidation.
In late 1990, the Company signed a definitive agreement for the
sale of assets of the Information Services Group and the Company's corporate
data processing function. This disposition was recorded at an after-tax gain
of $7,023 in 1991. The agreement also provides a minimum royalty fee of
$3,600 on cellular software products sold through January 1, 1998.
4. Investments
The Company's investments reflected on the accompanying
consolidated balance sheets at December 31 are as follows:
1993 1992
------- -------
Mercom, Inc. Common Stock $ 3,920 $ 4,674
Rural Telephone Bank Stock 7,548 7,548
Cellular and Other Partnerships 3,132 2,955
Northeast Networks, Inc. 1,642 -
Other Stock Investments 11 86
------- -------
Total Investments $16,253 $15,263
Investments carried at equity consist of the following at
December 31:
Percentage Owned
-------------------
1993 1992
------- ------
Cellular and Other Partnerships 28%-50% 28%-50%
Mercom, Inc. 43.63% 42.46%
Northeast Networks, Inc. 53.70% --
During 1991, the Company obtained significant influence over the
operating and financial policies of Mercom, Inc. Accordingly, the Company
changed from the cost to the equity method to account for this investment and
recorded the Company's proportionate share of losses and amortization of
excess cost over net assets for $834, $841, and $2,404 in 1993, 1992, and
1991, respectively. At December 31, 1993 and 1992, the Company's investment
in Mercom, Inc. exceeded its underlying equity in the net assets of Mercom,
Inc. by $10,884 and $10,660, respectively, which excess is being amortized on
a straight-line basis over 15 years.
The following table reflects the summarized financial position and
results of operations of Mercom, Inc.:
1993 1992 1991
---- ---- ----
Assets $ 22,244 $ 23,873 $ 26,657
Liabilities $ 34,782 $ 36,175 $ 37,815
Stockholders' Deficit $(12,538) $(12,302) $(11,158)
Sales $ 12,606 $ 11,986 $ 11,041
Net Loss $ (236) $ (1,144) $ (7,784)
At December 31, 1993, the quoted market value of the Company's
investment in Mercom, Inc. exceeded the carrying value by approximately $250.
Certain conversion features of the Rural Telephone Bank stock
permit the stock to be converted to another class of stock upon which
dividends have historically been paid. Since the stock is not readily
marketable, the Company believes that future cash flows resulting from
anticipated dividend payments and proceeds from the future retirement of the
stock support the carrying value at December 31, 1993 and 1992.
In 1992, other stock investments consisted primarily of
investments in marketable equity securities of a cable programming company.
During 1993, the Company sold $75 of its other stock investments for $2,063
and realized a gain of $1,988. During 1992, the Company sold $409 of its
other stock investments for $6,483 and realized a gain of $6,074.
During 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115 - "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
is effective for fiscal years beginning after December 15, 1993. SFAS 115
will not have a material effect on the Company's financial position or
results of operations based on its existing investment portfolio.
5. Intangible Assets
Intangible assets consist of the following at December 31:
Period 1993 1992
------ ---- ----
Cable television franchise
and subscriber lists 1.2-19.3 years $105,237 $105,504
Cable noncompete agreements 5 years 74,313 74,313
Cellular licenses 10 years 38,602 38,602
Cellular noncompete agreements 2-5 years 14,200 14,200
Cable goodwill 1.2-40 years 4,106 4,106
Cellular goodwill 5-25 years 8,478 8,624
Other intangibles 6 mos-19.4 years 3,036 3,137
------- -------
Total 247,972 248,486
Less accumulated amortization 141,295 111,068
------- -------
Intangible assets, net $106,677 $137,418
Amortization expense charged to operations in 1993, 1992 and 1991
was $25,867, $26,227, and $26,437 respectively.
6. Deferred Charges
Deferred charges consist of the following at December 31:
1993 1992
---- ----
Regulatory asset of Telephone subsidiary $3,957 -
Cable unamortized debt issuance costs 1,017 $1,257
Parent unamortized debt issuance costs 456 687
Prepaid pension cost 2,984 2,852
Other 1,231
------ ------
Total $9,645 $6,775
7. Debt
a. Long-Term Debt
The long-term debt outstanding at December 31, 1993 and 1992 is as
follows:
1993 1992
---- ----
Long-term debt
Mortgage notes payable to the United
States of America --
Rural Electrification Administration
(REA) --
2% due 1993 to 2003 $ 372 $ 415
Federal Financing Bank (FFB) --
12.177% due 2001 155 165
8.36% due 2009 2,659 2,715
7.693% due 2012 11,138 11,346
Rural Telephone Bank (RTB) --
5% due 2009 25,544 26,610
5.43% due 2009 29,318 30,494
6.14% due 2009 5,710 5,925
6.05% due 2009 3,004 -
7% due 2012 1,729 1,773
6.5% due 2013 17,120 17,553
7% due 2015 39,287 40,068
Senior Secured Notes
9.65% due 1999 150,000 150,000
Senior Secured Notes
9.52% due 2001 100,000 100,000
Revolving Credit Agreements 28,000 36,000
Other 1,913 3,185
-------- --------
Total 415,949 426,249
Due within one year (6,656) (4,469)
-------- --------
Total Long-Term Debt $409,293 $421,780
During 1990, the Telephone Group entered into an agreement with the
RTB that provides for borrowings up to $89,996. The Telephone Group has
borrowed $67,182 under this agreement. In 1990, in accordance with the
terms of the agreement, this Group was required to make an investment in
RTB stock equal to approximately 5% of the total available borrowing
amount. Principle and interest are payable monthly.
The Telephone Group has other borrowings with the United States of
America through the REA, FFB and RTB under various mortgage notes and
security agreements. In accordance with these agreements, quarterly
sinking fund payments are being made on all notes and portions of amounts
borrowed have been used to purchase common stock of the RTB.
Substantially all the assets of the Telephone Group are subject to
the liens of the various security agreements described above. In addition,
the Telephone Group is restricted as to the amount of dividends that may be
distributed, the amount of any investment in an affiliated company, and the
redemption of capital stock.
In prior years, the Cable Group entered into agreements with several
industrial development agencies regarding the use of proceeds from the
issuance of industrial development revenue bonds. The funds were used to
finance the construction of certain cable facilities. These bonds were
effectively retired in 1992 when the Company purchased the bonds at face
value. No gain or loss was recognized on the transaction.
In 1989, in order to complete the August 29, 1989 Michigan cable
television acquisition, the Cable Group entered into a private placement of
Senior Secured Notes for $150,000 and a $70,000 Revolving Secured Credit
Agreement, which the Company voluntarily reduced to $60,000 in 1990 and
which, in accordance with its terms, was reduced to $39,000 as of December
31, 1993. The Senior Secured Notes and the Revolving Secured Credit
Agreement are collateralized by the stock of the Cable Group subsidiaries.
On September 1, 1996 and on each September 1 thereafter, a mandatory
principal repayment is required on the Senior Secured Notes. The Senior
Secured Notes and Revolving Secured Credit Agreement contain restrictive
covenants which, among other things, require maintenance of a specified
debt to cash flow ratio.
As noted, The Cable Group Revolving Secured Credit Agreement with a
group of commercial banks referred to in the previous paragraph provides
revolving credit borrowings up to $39,000 as of December 31, 1993. The
total commitments are reduced on a quarterly basis through maturity in
September 1996. These quarterly reductions escalate on an annual basis.
Interest is paid based on Prime, LIBOR or CD Rates, depending on the type
of loan and terms of the agreement. A fee of 3/8% per annum is required on
the unused portion of the available commitment ($11,000 at December 31,
1993). The Cable Group had borrowings of $28,000 (4.24% weighted average
interest rate) and $36,000 (4.61% weighted average interest rate) as of
December 31, 1993 and 1992, respectively, under this agreement.
In March 1991, the Company entered into a $95,000 Credit Agreement
with a syndicate of banks that provided revolving credit borrowings through
June 30, 1992. This agreement contained restrictive covenants, including
the maintenance of a specified debt to cash flow ratio. Interest was paid
based on Prime, LIBOR or CD Rates, depending on the type of loan and terms
of the agreement. This revolver was subsequently reduced to $50,000 in
December 1991.
In March 1992, this Credit Agreement was amended and restated. The
more significant amendments to the Credit Agreement extend the revolving
credit period through June 1, 1994 at which time the outstanding balance
converts to a term loan with mandatory quarterly reductions through June 1,
1997. The specified debt to cash flow ratios were also increased through
December 1993, with certain reductions thereafter to final maturity.
The Company pays a commitment fee of 1/2% per annum on the unused
portion of the available commitment. There were no borrowings outstanding
under this agreement as of December 31, 1993.
In December 1991, the Company entered into a private placement of
Senior Secured Notes for $100,000 at 9.52% due 2001. Proceeds were
utilized to prepay revolver borrowings outstanding on the closing date.
This agreement contains restrictive covenants, including maintenance of a
specified debt to cash flow ratio. On December 1, 1996, and on each
December 1 thereafter, a mandatory principal repayment is required on the
Senior Secured Notes.
The Credit Agreement and the Senior Secured Notes are collateralized
by a pledge of the stock of the telephone and mobile services subsidiaries.
The Cable Group was obligated for an 8.45% loan collateralized by
the assets of Home Link, the Company's 80% owned cable subsidiary. This
loan was repaid during 1992.
Maturities and sinking fund requirements on long-term debt for each
year ending December 31, 1994 through 1998 are as follows:
Year Aggregate Amounts
---- -----------------
1994 $ 6,656
1995 20,299
1996 52,794
1997 65,795
1998 66,126
At December 31, 1993, the Company had an outstanding interest rate
swap agreement which expires in December 1994. Under the agreement, the
Company receives a fixed rate of 9.52% on $100,000 and pays a floating rate
of LIBOR plus 502 basis points (8.52% at December 31, 1993), as determined
in six-month intervals. The transaction effectively changes the Company's
interest rate exposure on the $100,000 underlying debt from a fixed-rate to
a floating-rate basis.
b. Short-Term Debt
At December 31, 1993, the Company had an unused committed line
of credit that provided for borrowings of up to $2,000 at prime (6% at
December 31, 1993). The Company also had a $10,000 uncommitted line of
credit with a bank that was available upon two weeks' notification. In
addition, the Cable Group had an unused line of credit for $1,480 at prime
(6% at December 31, 1993). Short-term unsecured borrowings may be made
under these lines of credit. All unused lines of credit are cancelable at
the option of the banks.
There are no commitment or facility fees associated with
maintaining availability of the above mentioned lines of credit.
8. Redeemable Preferred Stock
The preferred stock of the telephone subsidiary is redeemable in
whole or in part at the Company's option upon 30 days' notice at its
optional redemption prices. Such prices are not significantly different
from par value. Preferred stock is entitled, in voluntary liquidation, to
an amount equal to the optional redemption price and, in involuntary
liquidation, to par value plus accrued dividends. The redeemable preferred
stock outstanding at December 31, 1993 and 1992 is as follows:
1993 1992 1993 1992
---- ---- ---- ----
Number of
Shares Outstanding
------------------
Redeemable Preferred Stock
Cumulative, $100 par value,
authorized 102,343 shares in
1993 and 102,531 shares in
1992
Series C, 5%, due 2005 1,320 1,430 $132 $143
Series E, 5-1/4%, due 2008 825 880 83 88
Series F, 5-1/2%, due 2029 800 823 80 82
----- ----- ---- ----
Total 2,945 3,133 295 313
Due within one year (19) (19)
--- ----
Total preferred stock $276 $294
In addition, the Series C, E, and F Preferred Stock of the telephone
subsidiary include provisions for a mandatory sinking fund sufficient to
retire approximately 188 shares each year at par plus accrued dividends.
Sinking fund requirements for each year ending December 31, 1994 through
1998 are approximately $19. In 1993 and 1992, 188 shares were redeemed
each year.
9. Common Shareholders' Equity
a. Common Stock
Common shareholders' equity at December 31, 1993 and
1992 is as follows:
Number of
Shares Outstanding
------------------
Common Shareholders' Equity 1993 1992 1993 1992
- --------------------------- ---- ---- ---- ----
Common Stock, $1 par value,
authorized 35,000,000
shares, issued 8,137,865 in
1993 and 8,134,964 in 1992 7,962,266 7,959,365 $ 8,138 $ 8,135
Class B Stock, $1 par value,
authorized 8,753,203 shares,
issued 8,749,570 in 1993
and 8,752,471 in 1992 8,547,327 8,524,228 $ 8,749 $ 8,752
---------- ---------- ------- -------
Total Common Stock 16,509,593 16,483,593 16,887 16,887
Additional Paid-in Capital 20,635 21,227
Retained Earnings 28,129 34,778
Treasury Stock at cost,
175,599 shares of Common Stock
and 202,243 shares of Class B
Stock in 1993; 175,599 shares
of Common Stock and 228,243
shares of Class B Stock in 1992 (5,288) (6,068)
------ ------
Total common shareholders'equity $60,363 $66,824
On April 26, 1984, the shareholders adopted the Company's 1984 Stock
Option and Stock Appreciation Rights Plan (the Plan). The Plan provides
for the grant of Stock Options (options) and Stock Appreciation Rights
(SARs) to key employees of the Company. Up to 450 shares of stock and up to
90,000 SARs may be issued under the Plan.
The options and SARs may not be exercised before one year from the
date of grant and may not be exercised after an employee's employment
terminates for any reason other than death, unless provided otherwise at
the time of grant. Generally, the options and SARs are to be granted
within ten years from the date of the adopted Plan.
During 1988, the Board of Directors made certain revisions to the
Plan. The amended Plan provides for the grant of both Nonqualified and
Incentive Stock Options and SARs. The Board of Directors determines the
option price at the date of grant. The Incentive Stock Options are not
exercisable before one year or after five years from date of grant in the
case of a ten percent shareholder; or before one year or after ten years
from date of grant in all other cases.
Incentive Stock Options, none of which were outstanding as of
December 31, 1993, are primarily granted to executive officers of the
Company and may only be exercised on a quarterly basis during a ten-day
window period.
Costs (credits) associated with SARs were $132, ($152), and ($38) in
1993, 1992 and 1991, respectively.
Transactions involving the Plan are summarized as follows:
Option Shares 1993 1992 1991
- ------------- ---- ---- ----
Outstanding, January 1 26,000 29,000 50,000
Granted 0 0 0
Cancelled 0 0 (3,000)
Exercised (at $7.20) (26,000) (3,000) (18,000)
------- ------ -------
Outstanding, December 31 0 26,000 29,000
(at $7.20)
------- ------ -------
Exercisable, December 31 0 26,000 9,000
------- ------ -------
Stock Appreciation Rights
------- ------ -------
Outstanding, January 1 52,000 58,000 100,000
Granted 0 0 0
Cancelled 0 0 (6,000)
Exercised (52,000) (6,000) (36,000)
------- ------ -------
Outstanding, December 31 0 52,000 58,000
(at $8.00)
------- ------ -------
Exercisable, December 31 0 52,000 18,000
------- ------ -------
b. Retained Earnings
Pursuant to the terms of mortgage notes and security agreements
(see Note 7) and preferred stock, there are restrictions as to the amount
of dividend payments that can be paid by the telephone subsidiary to the
Company. As of December 31, 1993, the maximum allowable distribution was
approximately $974.
10. Pensions and Employee Benefits
Substantially all of the Company's employees are included in a
trusteed noncontributory defined benefit pension plan. Upon retirement,
employees are provided a monthly pension based on length of service and
compensation. The Company funds pension costs to the extent necessary to
meet the minimum funding requirements of ERISA. No contributions were
required or made for the years ended December 31, 1993, 1992 and 1991.
Pension credit for 1993, 1992 and 1991 is as follows:
1993 1992 1991
---- ---- ----
Benefits earned during the year
(service cost) $1,505 $1,429 $1,148
Interest cost on projected
benefit obligation 2,431 2,259 2,051
Actual return on plan assets (10,187) (2,284) (6,690)
Other components - net 6,120 (1,844) 3,110
------- ------ ------
Net periodic pension credit $ (131) $ (440) $ (381)
------- ------ ------
The Company's pension plan has assets in excess of the accumulated
benefit obligations. Plan assets include equity, cash, and fixed income
securities. Plan assets include common stock of the Company of
approximately $11,443 and $5,109 at December 31, 1993 and 1992,
respectively.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31, 1993
and 1992.
December 31, 1993 1992
- ------------ ---- ----
Plan assets at fair value $54,660 $45,834
------- -------
Actuarial present value of
benefit obligations:
Accumulated benefit obligation:
Vested 27,937 26,222
Nonvested 1,043 895
------- -------
Total 28,980 27,117
Effect of increases in
compensation 7,416 7,133
------- -------
Plan assets in excess of projected
benefit obligation 18,264 11,584
Unrecognized transition asset (5,540) (6,094)
Unrecognized prior service cost 1,476 1,677
Unrecognized net gain (11,216) (4,315)
------- -------
Prepaid pension cost $ 2,984 $ 2,852
------- -------
Prepaid pension cost is included in deferred charges on the
accompanying consolidated balance sheets.
The following assumptions were used in the determination of the
projected benefit obligation and net periodic pension credit:
December 31, 1993 1992 1991
- ------------ ---- ---- ----
Discount rate 7.0% 7.0% 7.25%
Expected long-term rate of
return on plan assets 8.0% 8.0% 8.0%
Long-term rate of compensation
increases 6.0% 6.0% 6.5%
The Company sponsors a 401(k) savings plan covering substantially
all employees who are not covered by collective bargaining agreements.
Contributions made by the Company to the 401(k) plan are based on a
specified percentage of employee contributions. Contributions charged to
expense were $619, $524, and $449, in 1993, 1992, and 1991, respectively.
For employees retiring prior to 1993, the Company provides certain
postretirement medical benefits. The Company also provides postretirement
life insurance benefits to substantially all employees. In 1993, the
Company adopted Statement of Financial Accounting Standards No. 106 -
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
("SFAS 106"). SFAS 106 requires the cost of postretirement benefits to be
accrued during the service lives of employees. Previously these benefits
were accounted for on a pay-as-you-go basis. The Company elected to
immediately recognize the cumulative effect on prior years of the change in
accounting for postretirement benefits of $1,448, which is net of income
tax benefits of $1,052. The Company continues to fund these benefits on a
pay-as-you-go basis.
Since the Pennsylvania Public Utility Commission only allows benefit
premiums to be included in rates on a pay-as-you-go basis, the telephone
subsidiary records its liability for postretirement benefits other than
pensions in accordance with Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation" without
recording a corresponding regulatory asset.
The net periodic cost for postretirement health care and life
insurance benefits during the year ended December 31, 1993 included the
following components:
1993
----
Service cost $ 6
Interest cost 173
----
Net periodic postretirement benefit cost $179
The pay-as-you-go benefit premium expenditures for postretirement
benefits were $189 and $206 in 1992 and 1991, respectively.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31:
1993
------
Accumulated postretirement benefit obligation:
Retirees and dependents $2,411
Fully eligible active plan participants 100
------
Total obligation 2,511
Plan assets 0
------
Accrued postretirement benefit liability $2,511
The accrued postretirement benefit liability is included in other
deferred credits in the accompanying consolidated balance sheet at December
31, 1993.
The discount rate used in determining the accumulated postretirement
benefit obligation was 7%. The assumed health care cost trend rate used in
measuring the accumulated postretirement benefit obligation was 14.5% for
1993 declining over an eighteen year period to an ultimate rate of 6%.
The effect of increasing the assumed health care cost trend rate
by one percentage point would be to increase the accumulated postretirement
benefit obligation as of December 31, 1993 by approximately $80 and increase
the net periodic postretirement benefit cost by approximately $6 in 1993.
The Company also has a non-qualified supplemental pension plan
covering certain former employees which provide for incremental pension
payments from the Company to the extent that income tax regulations limit the
amount payable from the Company's defined benefit pension plan. The projected
benefit obligation relating to such unfunded plans was approximately $1,127 at
December 31, 1993. Pension expense for the plans was $960, $25, and $25
in 1993, 1992 and 1991, respectively.
During the fourth quarter of 1992, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" which is effective for
fiscal years beginning after December 15, 1993. This standard will require
accrual accounting rather than the current pay-as-you-go method for certain
self-insured postemployment benefits. Because the limited covered benefits
which the Company provides are generally insured, this new standard is not
expected to have a material effect on the Company's financial position or
results of operation.
11. Nonrecurring Charges
During the fourth quarter of 1993, the Company recorded
nonrecurring charges aggregating $5,025. The primary components of the
charges are expected costs of $3,150 for employee relocations and $1,875 for
separations related to the change in control of the company and relocation of
certain key corporate and operating functions to the Princeton, New Jersey
area.
12. Income Taxes
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109 - "Accounting for Income Taxes"
("SFAS 109"). The cumulative effect on prior years of the change to this new
standard is reported in the 1993 consolidated statement of operations.
Prior years' financial statements have not been restated to apply the
provisions of SFAS 109.
The adoption of SFAS 109 changes the Company's method of
accounting for income taxes from the deferred approach to an asset and
liability approach. The asset and liability approach requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between financial reporting basis and
tax basis of assets and liabilities. Since the Pennsylvania Public Utility
Commission has not adopted SFAS 109 for rate-making purposes, the Company's
telephone subsidiary accounts for SFAS 109 in conjunction with SFAS 71.
Therefore, the telephone company records deferred taxes for temporary
differences previously flowed through; unamortized ITC balances; and the
effects of rate changes by establishing corresponding regulatory assets and
liabilities, which amounted to $3,956 and $8,656, respectively, at December
31, 1993. Included in the regulatory asset is $1,494 related to the increase
in federal tax rates from 34% to 35% in 1993. The regulatory asset is
included in deferred charges and the regulatory liability is included in other
deferred credits in the December 31, 1993 consolidated balance sheet.
The Provision (Benefit) for Income Taxes Consists of the
Following:
1993 1992 1991
---- ---- ----
Currently payable (refundable) -
Federal $7,377 $1,601 $ 879
State 2,677 2,623 3,392
------ ----- -----
Total current 10,054 4,224 4,271
Deferred, net
Federal (490) (1,273) (4,226)
State 2,035 1,495 760
----- ----- ------
Total deferred 1,545 222 (3,466)
Investment tax credits,
net of amortization (885) (1,162) (1,217)
---- ------ ------
Provision (benefit)
for income taxes $10,714 $3,284 $ (412)
The Provision (Benefit) for Income Taxes is Reflected in the Consolidated
Statements of Operations as Follows:
1993 1992 1991
---- ---- ----
Provision (benefit) for
income taxes $ 10,714 $ 3,284 $ (5,486)
Provision from
discontinued operations - - 5,074
------- -------- --------
Total provision (benefit)
for income taxes $ 10,714 $ 3,284 $ (412)
The following is a reconciliation of income taxes at the applicable U.S.
Federal Statutory rate with income taxes recorded by the Company:
1993 1992 1991
---- ---- ----
Income (loss) before provision
(benefit) for income taxes
and cumulative effect of
accounting principle changes $5,228 $ 1,223 $ (12,804)
Federal tax provision (benefit)
at statutory rate $1,778 $ 416 $ (4,353)
Increase (reduction) due to:
State income taxes, net of
federal benefit 2,936 2,626 2,717
Depreciation (flow-through) - 151 425
Amortization of investment
tax credits (885) (1,162) (1,217)
Benefit of rate differential
applied to reversing timing
differences (337) (420) (420)
Estimated nondeductible expenses 6,329 1,121 962
Dividends received deductions (14) (28) (11)
Nondeductible goodwill 547 594 612
Rate differential due to
net operating loss
carryback 512 - 63
Equity in unconsolidated entities (388) 286 817
Tax-exempt interest income (435) (67)
Changes in federal tax rates 50 - -
Other, net 186 135 60
------- ------- -------
Provision (benefit) for
income taxes $10,714 $ 3,284 $ (412)
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31, 1993 are as
follows:
Deferred Tax Deferred Tax
Assets Liabilities
------------ ------------
Net operating loss carryovers $25,785 $ -
Alternative minimum tax credits 11,052 -
Regulatory liability - deferred taxes 2,260 -
Benefit plans 1,940 1,280
Property, plant and equipment 1,785 57,670
Intangible assets 66 3,453
Accruals for nonrecurring charges 1,235 -
Prior Business Combinations - 1,890
All other 1,406 2,113
------- -------
Subtotal 45,529 66,406
Valuation allowance (6,114) -
------- -------
Total deferred taxes $39,415 $66,406
In the opinion of management, based on the future reversal of
existing taxable temporary differences, primarily depreciation, and its
expectations of future operating results, the Company will more likely than
not be able to realize substantially all of its deferred tax assets.
Of the total valuation allowance, $5,466 has been recorded to
offset deferred tax assets related to state and federal net operating loss
carryforwards generated by certain subsidiaries.
The net change in the valuation allowance for deferred tax assets
during 1993 was an increase of $5,406.
In 1992 and 1991, provision (benefit) for deferred income taxes of
$222 and ($3,466), respectively, were provided for significant timing
differences in recognition of revenue and expense for tax and financial
statement purposes. These items consisted primarily of the following: 1992 -
$1,255 for depreciation; ($971) for capitalization requirements; ($977) for
alternative minimum tax; $741 for amortization of subscriber lists; ($413) for
amortization of excess deferred taxes; $589 for adjustment to prior years; and
($500) for provision for estimated expenses; and 1991 - $652 for depreciation;
($540) for amortization of excess deferred taxes; ($634) for alternative
minimum tax and ($2,946) for benefit of reversal of previously established
deferred taxes.
The Company has federal income tax operating loss carryforwards of
$52,358 which begin to expire in 2006.
A cable television subsidiary has unused net operating loss and
investment tax credit carryforwards of approximately $2,686 and $342,
respectively, at December 31, 1993, which arose prior to acquisition.
These carryforwards expire beginning in 1995 through 1997. In addition, a
Mobile Services subsidiary has net operating loss carryforwards of $1,753
which also arose prior to acquisition. These carryforwards expire
beginning in 2003 through 2005. This subsidiary also has a net operating
loss carryforward of $605 which is subject to statutory limitations and, if
utilized, will be used to reduce the intangible assets acquired.
In 1993, 1992 and 1991 the Company was liable for federal and
state Alternative Minimum Tax (AMT) in the amount of $1,840, $174, and
$255, respectively. At December 31, 1993, the cumulative minimum tax
credits are $11,052. This amount can be carried forward indefinitely to
reduce regular tax liabilities that exceed the AMT in future years.
Estimated nondeductible expenses relate primarily to provisions
made in anticipation of final resolution of the Company's current IRS
examination referred to in Note 13. Additionally, management estimates
that final resolution of the Company's IRS examination discussed further in
Note 13 may reduce net operating loss carryforwards by approximately
$24,800 and increase cumulative minimum tax credits by approximately $4,900.
13. Commitments and Contingencies
a. The Company had various purchase commitments at December 31, 1993
related to its 1994 construction budget.
b. Total rental expense, primarily for pole rentals, was $4,006,
$3,818, and $4,043 in 1993, 1992, and 1991, respectively. At December 31,
1993, rental commitments under noncancelable leases, excluding annual pole
rental commitments of approximately $3,034 which are expected to continue
indefinitely, are as follows:
Year Aggregate Amounts
---- -----------------
1994 $ 1,063
1995 $ 937
1996 $ 695
1997 $ 414
1998 $ 327
After 1998 $ 309
c. In 1992, the Company entered into a restated data processing
agreement for the provision to the Company of data processing services and
products including the general management of the Company's data processing
operations and installation and enhancement of software systems. The Company
pays a monthly fee of $322, with provision for monthly increases based on
increases in usage of services over base volumes and for annual increases
based on increases in the Consumer Price Index. The Company provides certain
facilities and data processing equipment to its service provider at no charge
as part of this agreement. The agreement expires December 1997.
d. In September 1993, the Company received a Notice of Deficiency
from the Internal Revenue Service relating to the examination of the Company's
consolidated federal income tax returns for 1989, 1990, and 1991. The most
significant of these adjustments relate to the disallowance of the claimed
amortization of certain intangible assets. Through December 1993,
approximately $90,343 in amortization of these assets has been deducted for
tax purposes. Management believes that its position is supportable and
intends to vigorously oppose these adjustments. Management has filed a
petition for redetermination of the deficiencies and additions to tax as set
forth in the Notice of Deficiency. In the opinion of management, adequate
provision has been made for all income taxes and interest which may ultimately
be due as a result of the proposed adjustments. Management believes that the
ultimate resolution of this matter will not have a material adverse effect on
the financial position of the Company.
e. During 1993, the Pennsylvania Public Utility Commission ("PPUC")
conducted an investigation of the appropriateness of Commonwealth Telephone
Company's ("CTCo") transactions with affiliates and analyzed the earnings of
CTCo. Among other things, under the terms of an agreement reached with the
PPUC concerning this investigation, CTCo will provide its residential
customers touch-tone service free of charge beginning February 1, 1994. The
agreement also states that, barring unforeseen regulatory changes, CTCO will
not increase basic service rates prior to January 1, 1997. The PPUC has also
required the Company to permit only income taxes actually paid to be
recognized as a cost of service. Accordingly, subsequent to December 31, 1993
the Company will not record deferred income taxes on certain temporary
differences.
f. In November 1992, the Company committed to invest up to
$3,500 in Northeast Networks, Inc., ("NNI"), an alternative access telephone
service provider in Westchester County, New York. As of December 31, 1993,
the Company had invested $2,000. In return for its investment, the Company
acquired a majority ownership interest and will have majority representation
on NNI's board of directors until the Company's original investment, plus a
return thereon, has been recovered.
g. During 1992, the Telephone Group entered into various
software licensing agreements which will enable it to provide enhanced
services to customers. Future obligations under these agreements are $263 and
$792 for the years ended December 31, 1994 and 1995, respectively and $592 for
each of the years ended December 31, 1996, 1997 and 1998.
h. In November 1993, the Federal Communications Commission ("FCC")
issued letters of inquiry to the Company and other cable operators to
investigate the way in which regulated program services were moved to
unregulated a la carte offerings and whether these and other service changes
were in compliance with the Cable Television Consumer Protection and
Competition Act of 1992. The Company believes that it is in full compliance
with the Act and that the impact, if any, on the consolidated financial
position of the Company as of December 31, 1993 will not be material. The
Company has responded to the letters of inquiry; however FCC officials have
not indicated when the investigation will be completed or whether any action
is warranted.
14. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company's operations are classified into five principal segments:
Telephone, Cable Television, Communications Services, Mobile Services, and
Long Distance. Intersegment sales are not significant and are eliminated in
the segment information presented.
[CAPTION]
Cable Communications
Telephone Television Services
--------- ---------- ------------
1993
- ----
Sales $125,293 $93,550 $18,895
Operating income (loss) before
depreciation and amortization 72,465 44,328 (649)
Depreciation and amortization 22,752 41,709 379
Operating income (loss) 49,713 2,619 (1,028)
Interest income
Interest expense
Gain on sale of marketable
equity securities
Other income, net
Income before income taxes
Additions to property, plant
and equipment $37,384 $14,935 $1,025
Identifiable assets $299,941 $182,504 $6,560
1992
- ----
Sales $123,039 $85,299 $14,015
Operating income (loss) before
depreciation and amortization 72,285 40,937 (891)
Depreciation and amortization 20,606 40,708 212
Operating income (loss) 51,679 229 (1,103)
Interest income
Interest expense
Gain on sale of marketable
equity securities
Other income, net
Income before income taxes
Additions to property, plant
and equipment $ 28,190 $ 17,263 $123
Identifiable assets $289,544 $209,190 $5,259
1991
- ----
Sales $119,310 $76,128 $14,325
Operating income (loss) before
depreciation and amortization 67,057 35,401 (3,287)
Depreciation and amortization 23,346 39,862 203
Operating income (loss) 43,711 (4,461) (3,490)
Interest income
Interest expense
Other income, net
Loss before income taxes
Additions to property, plant
and equipment $39,684 $11,159 $96
Identifiable assets $271,899 $232,393 $7,516
Mobile Long Parent
Services Distance and Other Consolidated
-------- -------- --------- ------------
1993
- ----
Sales $24,810 $21,383 $56 $283,987
Operating income (loss) before
depreciation and amortization 5,590 (3,232) (10,858) 107,644
Depreciation and amortization 7,134 426 703 73,103
Operating income (loss) (1,544) (3,658) (11,561) 34,541
Interest income 1,609
Interest expense 34,204
Gain on sale of marketable
equity securities 1,988
Other income, net 1,408
Income before income taxes 5,342
Additions to property, plant
and equipment $3,728 $975 $1,095 $59,142
Identifiable assets $60,766 $4,627 $25,166-* $579,564
1992
- ----
Sales $18,687 $15,445 $79 $256,564
Operating income (loss) before
depreciation and amortization 3,552 (1,163) (9,350) 105,370
Depreciation and amortization 12,588 349 826 75,289
Operating income (loss) (9,036) (1,512) (10,176) 30,081
Interest income 2,178
Interest expense 37,321
Gain on sale of marketable
equity securities 6,074
Other income, net 291
Income before income taxes $1,303
Additions to property, plant
and equipment $3,584 $195 $1,852 $51,207
Identifiable assets $63,372 $3,887 $15,114-* $586,366
1991
- ----
Sales $13,993 $9,062 $- $232,818
Operating income (loss) before
depreciation and amortization 1,442 (888) (9,987) 89,738
Depreciation and amortization 13,405 428 901 78,145
Operating income (loss) (11,963) (1,316) (10,888) 11,593
Interest income 1,801
Interest expense 37,472
Other income, net 685
Loss before income taxes $(23,393)
Additions to property, plant
and equipment $3,963 $106 $42 $55,050
Identifiable assets $71,745 $1,926 $10,521-* $596,000
- ------
* Includes the net investment in Mercom, Inc. for $3,920, $4,674 and $3,194 in
1993, 1992 and 1991, respectively. Also includes the net investment in
Northeast Networks, Inc. for $1,642 in 1993.
15. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
a. Cash and temporary cash investments
The carrying amount approximates fair value because
of the short maturity of these instruments.
b. Long-term investments
Long-term investments consist primarily of investments
accounted for under the equity method for which disclosure
of fair value is not required and Rural Telephone Bank
("RTB") Stock. It was not practicable to estimate the fair
value of the RTB Stock because there is no quoted market
price for the stock, it is issued only at par, can be held
only by recipients of RTB loans and therefore, is transferable only
if the underlying loan is also transferred.
c. Long-term debt
The fair value of fixed rate long-term debt was estimated
based on the Company's current incremental borrowing rate for debt
of the same remaining maturities. The fair value
of floating rate long-term debt is considered to be equal to
carrying value since the debt reprices at least every six months
and the Company believes that its credit risk has not changed from
the time the floating rate debt was borrowed and therefore, would
obtain similar rates in the current market.
d. Interest rate swap
The Company's interest rate swap agreement effectively
exchanges a portion of the Company's interest rate exposure from a
fixed rate to a floating rate basis. The interest rate swap
reprices on six-month intervals and the Company believes that its
credit risk has not changed since the date of the agreement and
therefore that the floating rates in effect at December 31, 1993
and 1992 under the agreement are the same rates at which a similar
agreement could have been entered into at those dates. The
carrying amount in the following table represents interest accrued
on debt underlying the agreement at December 31, 1993 and 1992,
which is equal to its fair value.
The estimated fair value of the Company's financial instruments
are as follows at December 31:
1993 1992
-------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Financial assets:
Cash and temporary cash
investments $60,182 $60,182 $58,837 $58,837
Financial liabilities:
Fixed rate long-term debt:
REA, FFB and RTB
obligations $136,036 $122,685 $137,064 $115,592
Senior Secured Notes - 9.65% $150,000 $167,767 $150,000 $155,228
Senior Secured Notes - 9.52% $100,000 $109,714 $100,000 $101,904
Floating rate long-term debt:
Revolving Credit Agreement $ 28,000 $ 28,000 $ 36,000 $ 36,000
Other $ 1,913 $ 1,913 $ 3,185 $ 3,185
Unrecognized financial
instruments:
Interest rate swap $ 749 $ 749 $ 636 $ 636
16. Off Balance Sheet Risk and Concentration of Credit Risk
The Company is a party to an interest rate contract used to
manage the risk associated with changing interest rates as described in
Notes 7 and 15. The counterparty to this contract is a major international
financial institution. The Company is exposed to economic losses in the
event of nonperformance by this counterparty; however, it does not
anticipate such nonperformance.
Certain financial instruments potentially subject the Company
to concentrations of credit risk. These financial instruments consist
primarily of trade receivables and cash and temporary cash investments.
The Company places its cash and temporary cash investments with
high credit quality financial institutions and limits the amount of credit
exposure to any one financial institution. The Company does, however
maintain unsecured cash and temporary cash investment balances in excess of
federally insured limits.
Concentrations of credit risk with respect to receivables are
limited due to a large, geographically dispersed customer base.
17. Quarterly Information (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1993
Sales $67,943 $70,287 $73,556 $72,201
Operating income 8,684 10,195 10,859 4,803
Loss Before Cumulative
Effect of Accounting
Principle Changes (95) 374 632 (6,397)
Net Income (Loss) (1,258)** 374 632 (6,397)**
Income (Loss) Per
Average Common Share
Before Cumulative Effect
of Accounting
Principle Changes $ (.01)** $ .02 $ .04 $ (.39)**
Net Income (Loss Per
Average Common Share $ (.08) $ .02 $ .04 $ (.39)
------- ------- ------- -------
Common Stock *
Market Price
High $17.75 $25.00 $28.00 $33.50
Low $13.50 $15.75 $23.50 $23.75
Class B Stock *
Bid Price
High $17.50 $26.50 $29.25 $35.25
Low $14.00 $15.75 $25.50 $29.25
1992
- ----
Sales $60,349 $62,012 $65,064 $69,139
Operating income 5,138 6,647 7,958 10,338
Net Income (Loss) (3,408) (2,256) 2,117 1,486
Net Income (Loss)
Per Average Common Share $ (.21) $ (.14) $ .13 $ .09
------- ------- ------- -------
Common Stock *
Market Price
High $16.25 $15.00 $14.00 $15.25
Low $14.50 $10.75 $ 9.75 $10.00
Class B Stock *
Bid Price
High $18.375 $16.50 $16.00 $16.25
Low $ 16.25 $13.50 $13.00 $14.00
------- ------- ------- -------
- ------
* The Company's stock prices are quoted from the National Association of
Securities Dealers, Inc. monthly statistical report.
** Loss for the first quarter of 1993 was restated for an adjustment,
recorded in the fourth quarter of 1993, of $338 to the cumulative effect
on prior years for required changes in accounting for income taxes.
(1) Net income for the first quarter of 1993 was favorably impacted by $1,312
for a gain, net of taxes, on the sale of marketable securities.
(2) Net income for the first quarter of 1993 was unfavorably impacted by
$1,163 related to required changes in accounting for postretirement
benefits other than pensions of $(1,448) and income taxes of $285.
(3) Sales for the first and second quarters of 1993 were restated to conform
with the 1992 method of reporting home roaming revenue of the Mobile
Services Group. This change increased both sales and costs of sales by
$547 and $601 for the first and second quarters of 1993, respectively.
Similar restatements were not required for the third and fourth quarters
of 1993.
(4) Net income for the fourth quarter of 1993 was unfavorably impacted by $808
associated with interstate toll revenue settlement adjustments.
(5) Net income for the fourth quarter of 1993 was unfavorably impacted by
nonrecurring charges of $5,025, before income taxes, associated with
employee separations and relocations as a result of the change in control
of the Company.
(6) Net income for the fourth quarter of 1992 was unfavorably impacted by
$1,759 associated with interstate toll revenue settlement adjustments.
Included in this amount are $273, $290, $257, and $791 relating to the
first, second and third quarters of 1992 and primarily the year 1991,
respectively.
(7) Net income from the third and fourth quarters of 1992 was favorably
impacted by $2,016 and $1,993, respectively, for gains, net of taxes, on
the sale of marketable securities.
18. Subsequent Events
In January 1994, the Company sold the assets of its Pennsylvania
cable systems. The Company expects to realize a gain on the transaction.
On February 21, 1994, the Board of Directors approved the Company's
1994 Stock Option Plan (the "Plan"). The Plan provides for the grant of up to
1,350,000 shares of Common Stock to non-bargaining unit employees of the
Company. Options will generally become exercisable in cumulative annual
increments of twenty percent commencing one year from the date of grant.
Generally, the options are to be granted within ten years from the date of the
adopted plan. This plan is subject to the approval of the Company's
shareholders.
REPORT TO INDEPENDENT ACCOUNTANTS
To the Shareholders of C-TEC Corporation:
We have audited the consolidated financial statements and the
financial statement schedules of C-TEC Corporation and Subsidiaries listed in
Item 14(a) of this Form 10-K. These financial statements and financial
statements schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion of these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of C-TEC
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
As discussed in notes 1, 10 and 12 to the consolidated financial
statements, effective January 1, 1993, the Company changed its methods of
accounting for income taxes and postretirement benefits other than pensions.
/s/ Coopers & Lybrand
- --------------------------
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1994
SCHEDULE III
C-TEC CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
---- ---- ----
(THOUSANDS OF DOLLARS
EXCEPT PER SHARE AMOUNTS)
INCOME:
MANAGEMENT FEE CHARGES TO AFFILIATES $8,982 $10,648 $21,856
INTEREST INCOME FROM SUBSIDIARIES - - 946
INTEREST INCOME-OTHER - - 87
OTHER - - 137
------ ------ ------
TOTAL INCOME 8,982 10,648 23,026
EXPENSES:
INTEREST EXPENSE ON NOTES PAYABLE TO BANKS 8,981 10,648 10,439
INTEREST EXPENSE ON NOTES PAYABLE
TO SUBSIDIAIRES - - 216
GENERAL & ADMINISTRATIVE EXPENSES 53 - 12,612
------ ------ ------
TOTAL EXPENSES 9,034 10,648 23,267
(LOSS) BEFORE INCOME TAXES, EQUITY IN
NET LOSS OF SUBSIDIARIES, CUMULATIVE EFFECT
OF ACCOUNTING PRINCIPLE CHANGES, AND
GAIN ON DISPOSAL (52) - (241)
(BENEFIT)PROVISION FOR INCOME TAXES (135) 769 875
------ ------ ------
INCOME (LOSS) BEFORE EQUITY IN NET LOSS
OF SUBSIDIARIES,
CUMULATIVE EFFECT OF ACCOUNTING PRINCIPLE
CHANGES, AND GAIN ON DISPOSAL 83 (769) (1,116)
NET LOSS OF SUBSIDIARIES (6,950) (1,292) (18,299)
------ ------ -------
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING
PRINCIPLE CHANGES AND GAIN ON DISPOSAL (6,867) (2,061) (19,415)
------ ------ -------
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGES
IN ACCOUNTING PRINCIPLES FOR INCOME TAXES 218 - -
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS - - 7,023
------ ------ -------
NET LOSS ($6,649) ($2,061) ($12,392)
======= ======= ========
EARNINGS (LOSS)PER AVERAGE COMMON SHARE:
LOSS FROM CONTINUING OPERATIONS ($0.33) ($0.13) ($1.18)
CUMULATIVE EFFECT OF ACCOUNTING
PRINCIPLE CHANGES (0.07) - -
GAIN ON DISPOSAL OF DISCONTINUED OPERATION - - $0.43
NET LOSS ($0.40) ($0.13) ($0.75)
======= ========== ==========
AVERAGE COMMON SHARES OUTSTANDING 16,506,494 16,490,628 16,482,733
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Effective December 6, 1991, C-TEC Corporation was reorganized.
This reorganization resulted in the formation of C-TEC Properties, Inc., C-TEC
Telephone Properties, Inc. and C-TEC Financial Services, Inc. In addition, as
a result of the restructuring, C-TEC Services, Inc. (formerly C-TEC Management
Information Services, Inc.) holds the assets and liabilities formerly held by
C-TEC Corporation and performs all of the functions formerly performed by
C-TEC Corporation other than investments in affiliates, cash, bank debt, and
consolidated income taxes. C-TEC Services, Inc. also provides all
administrative and managerial support formerly performed by C-TEC Corporation.
C-TEC CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
DECEMBER 31, 1993 1992
---- ----
ASSETS
CURRENT ASSETS:
CASH AND TEMPORARY CASH INVESTMENTS $ - $ -
NOTES RECEIVABLE FROM SUBSIDIARIES - -
ACCOUNTS RECEIVABLE FROM SUBSIDIARIES - -
INCOME TAXES RECEIVABLE - -
PREPAYMENTS AND OTHER - -
------- -------
TOTAL CURRENT ASSETS - -
INVESTMENT IN SUBSIDIARIES (STATED AT EQUITY) 165,561 178,477
PROPERTY, PLANT & EQUIPMENT - -
DEFERRED CHARGES - -
------- -------
$165,561 $178,477
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
DEMAND NOTES PAYABLE TO BANKS $ - $ -
NOTES PAYABLE TO SUBSIDIARIES - -
ACCOUNTS PAYABLE TO SUBSIDIARIES 4,226 7,847
ACCRUED LIABILITIES AND OTHER 972 3,806
------- -------
TOTAL CURRENT LIABILITIES 5,198 11,653
LONG-TERM DEBT 100,000 100,000
------- -------
TOTAL LIABILITIES 105,198 111,653
------- -------
SHAREHOLDERS' EQUITY
COMMON STOCK, PAR VALUE $1, AUTHORIZED
35,000,000 SHARES, ISSUED 8,137,865 SHARES
IN 1993 AND 8,134,964 IN 1992 8,138 8,135
CLASS B STOCK, PAR VALUE $1, AUTHORIZED
8,753,203 SHARES, ISSUED 8,749,570 SHARES
IN 1993 AND 8,752,471 IN 1992 8,749 8,752
------- -------
TOTAL COMMON STOCK 16,887 16,887
ADDITIONAL PAID IN CAPITAL 20,635 21,227
RETAINED EARNINGS 28,129 34,778
------- -------
TOTAL 65,651 72,892
TREASURY STOCK AT COST, 377,842 SHARES
IN 1993 AND 403,842 SHARES IN 1992 (5,288) (6,068)
------- -------
TOTAL SHAREHOLDERS' EQUITY 60,363 66,824
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $165,561 $178,477
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
C-TEC CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1993 1992 1991
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
NET (LOSS) INCOME ($6,649) ($2,061) ($12,392)
DEPRECIATION AND AMORTIZATION 0 0 286
CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGES (218) 0 0
DEFERRED INCOME TAXES AND INVESTMENT
TAX CREDITS, NET 620 (231) (976)
NET DECREASE (INCREASE) IN CERTAIN
ASSETS AND LIABILITIES (3,456) 9,008 5,984
EQUITY IN LOSS (INCOME) OF SUBSIDIARIES 6,950 1,361 11,276
OTHER 0 0 2,083
------- ------- -------
NET CASH FLOW PROVIDED BY
OPERATING ACTIVITIES (2,753) 8,077 6,262
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT 0 0 (12)
DIVIDENDS FROM SUBSIDIARIES 10,948 12,071 18,098
CAPITAL CONTRIBUTIONS TO SUBSIDIARIES (8,382) (16,338) (82,428)
OTHER 0 0 (77)
------- ------ -------
NET CASH USED IN INVESTING ACTIVITIES 2,566 (4,267) (64,419)
------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET SHORT TERM (REPAYMENTS) BORROWINGS 0 0 (36,626)
REDEMPTION OF LONG TERM DEBT 0 0 (148,000)
ISSUANCE OF LONG TERM DEBT 0 0 189,000
PROCEEDS FROM THE ISSUANCE OF COMMON STOCK 187 22 129
DIVIDENDS PAID - - -
PURCHASE OF TREASURY STOCK 0 (146) -
INCREASE (DECREASE) IN NOTES
PAYABLE TO AFFILIATES 0 (3,686) 900
DECREASE (INCREASE) IN NOTES RECEIVABLE
FROM AFFILIATES 0 0 52,069
OTHER - - -
------- ------- -------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES 187 (3,810) 57,472
------- ------- -------
(DECREASE) INCREASE IN CASH AND TEMPORARY
CASH INVESTMENTS (0) 0 (685)
------- ------ ------
CASH AND TEMPORARY CASH INVESTMENTS
AT BEGINNING OF YEAR 0 0 685
------- ------ -------
CASH AND TEMPORARY CASH INVESTMENTS AT END
OF YEAR ($0) $0 $0
======= ======= =======
COMPONENTS OF NET DECREASE(INCREASE)
IN CERTAIN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE $0 $0 ($3,172)
INCOME TAXES RECEIVABLE 0 0 (420)
ACCOUNTS PAYABLE (3,621) 7,847 5,069
PREPAYMENTS 0 0 (13)
ACCRUED EXPENSES 165 1,161 (2,458)
------- ------- -------
NET DECREASE(INCREASE) IN CERTAIN
ASSETS AND LIABILITIES ($3,456) $9,008 ($994)
======= ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULE V
C-TEC CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
BALANCE AT ADDITIONS
THE BEGINNING AT COST (A)
CLASSIFICATION OF PERIOD (NOTES 1 & 2)
- -------------- ------------- -------------
TELEPHONE PLANT
LAND $1,604 $11
VEHICLES 7,750 1,238
WORK EQUIPMENT 2,489 191
BUILDINGS 22,279 347
FURNITURE AND OFFICE EQUIPMENT 4,328 1,049
CENTRAL OFFICE SWITCHING/TRANSMISSION 138,173 23,856
STATION APPARATUS 2,280 560
CUSTOMER PREMISE WIRING 1 -
PRIVATE BRANCH EXCHANGE 6 -
PUBLIC TERMINAL EQUIPMENT 1,447 73
OTHER TERMINAL EQUIPMENT 1,503 85
TELEPHONE DISTRIBUTION PLANT 171,400 12,548
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE 353,260 39,958
TELEPHONE PLANT HELD FOR FUTURE USE 503 270
TELEPHONE PLANT UNDER CONSTRUCTION 6,120 (4,169)
TELEPHONE PLANT ACQUISITION ADJUSTMENT 1,409 -
NON OPERATING PLANT 298 1,326
------- -------
TOTAL TELEPHONE PLANT $361,590 $37,385
======= =======
OTHER PROPERTY AND EQUIPMENT
LAND $1,310 $1
BUILDINGS 4,719 101
MACHINERY AND SHOP EQUIPMENT 4,209 708
LEASEHOLDS AND IMPROVEMENTS 2,109 571
FURNITURE AND OFFICE EQUIPMENT 6,071 2,746
VEHICLES 5,009 968
HEAD-END SYSTEM 10,576 1,000
TRUCK AND DISTRIBUTION SYSTEM 137,454 13,848
CABLE TELEVISION PLANT UNDER CONSTRUCTION 2,487 (1,399)
CELLULAR PLANT 19,779 3,212
------- -------
$193,724 $21,757
======= =======
CLASSIFICATION RETIREMENTS ACQUISITIONS
- -------------- ----------- ------------
TELEPHONE PLANT
LAND $0 $ -
VEHICLES 1,173 -
WORK EQUIPMENT 43 -
BUILDINGS 96 -
FURNITURE AND OFFICE EQUIPMENT 139 -
CENTRAL OFFICE SWITCHING/TRANSMISSION 11,430 -
STATION APPARATUS 359 -
CUSTOMER PREMISE WIRING 1 -
PRIVATE BRANCH EXCHANGE 0 -
PUBLIC TERMINAL EQUIPMENT 0 -
OTHER TERMINAL EQUIPMENT 11 -
TELEPHONE DISTRIBUTION PLANT 3,044 -
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE 16,296 -
TELEPHONE PLANT HELD FOR FUTURE USE - -
TELEPHONE PLANT UNDER CONSTRUCTION - -
TELEPHONE PLANT ACQUISITION ADJUSTMENT - -
NON OPERATING PLANT 3 -
------- -------
TOTAL TELEPHONE PLANT $16,299 -
======= =======
OTHER PROPERTY AND EQUIPMENT
LAND - $0
BUILDINGS - 0
MACHINERY AND SHOP EQUIPMENT 190 0
LEASEHOLDS AND IMPROVEMENTS 269 0
FURNITURE AND OFFICE EQUIPMENT 84 0
VEHICLES 96 0
HEAD-END SYSTEM 90 295
TRUCK AND DISTRIBUTION SYSTEM 2,332 192
CABLE TELEVISION PLANT UNDER CONSTRUCTION - 0
CELLULAR PLANT 57 0
------- -------
$3,116 $488
======= =======
BALANCE AT
OTHER CHARGES THE END
CLASSIFICATION AND CREDITS OF PERIOD
- -------------- ------------- ----------
TELEPHONE PLANT
LAND - $1,615
VEHICLES (93) 7,722
WORK EQUIPMENT - 2,637
BUILDINGS - 22,530
FURNITURE AND OFFICE EQUIPMENT (3) 5,235
CENTRAL OFFICE SWITCHING/TRANSMISSION - 150,599
STATION APPARATUS - 2,481
CUSTOMER PREMISE WIRING - 0
PRIVATE BRANCH EXCHANGE - 6
PUBLIC TERMINAL EQUIPMENT - 1,520
OTHER TERMINAL EQUIPMENT - 1,577
TELEPHONE DISTRIBUTION PLANT (1,057) 179,847
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE (1,153) 375,769
TELEPHONE PLANT HELD FOR FUTURE USE - 773
TELEPHONE PLANT UNDER CONSTRUCTION - 1,951
TELEPHONE PLANT ACQUISITION ADJUSTMENT (112)(B) 1,297
NON OPERATING PLANT - 1,621
------- -------
TOTAL TELEPHONE PLANT $(1,265) $381,411
======= =======
OTHER PROPERTY AND EQUIPMENT
LAND 0 1,311
BUILDINGS 0 4,821
MACHINERY AND SHOP EQUIPMENT 0 4,727
LEASEHOLDS AND IMPROVEMENTS 0 2,412
FURNITURE AND OFFICE EQUIPMENT 0 8,734
VEHICLES 0 5,882
HEAD-END SYSTEM (24) 11,758
TRUCK AND DISTRIBUTION SYSTEM (17) 149,144
CABLE TELEVISION PLANT UNDER CONSTRUCTION 216 1,305
CELLULAR PLANT 0 22,935
------- -------
$176 $213,029
======= =======
- ------
(A) SIGNIFICANT EXPANSION AND IMPROVEMENT OF PLANT TO ACCOMODATE INCREASING
DEMAND AND TO IMPROVE SERVICE.
(B) REPRESENTS AMORTIZATION OF TELEPHONE PLANT ACQUISITION ADJUSTMENT.
NOTE: 1. ROUTINE TRANSFERS BETWEEN THE CLASSIFICATIONS LISTED ARE INCLUDED
IN THE ADDITIONS COLUMN. ADDITIONS SHOWN ALSO INCLUDED THE ORIGINAL COST
(ESTIMATED, IF NOT KNOWN) OF OTHER REUSED MATERIAL.
2. A RECONCILIATION TO AMOUNT SHOWN AS PROPERTY, PLANT AND EQUIPMENT
ADDITIONS IN THE CONSOLIDATED STATEMENTS OF CASH FLOWS INCLUDED IN C-TEC'S
1993 ANNUAL REPORT IS AS FOLLOWS:
TOTAL TELEPHONE PLANT ADDITIONS $37,385
OTHER PROPERTY AND EQUIPMENT ADDITIONS 21,757
TOTAL PROPERTY, PLANT & EQUIPMENT ADDITIONS $59,142
C-TEC CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(THOUSANDS OF DOLLARS)
BALANCE AT ADDITIONS
THE BEGINNING AT COST (A)
CLASSIFICATION OF PERIOD (NOTES 1 & 2)
- -------------- ------------- -------------
TELEPHONE PLANT
LAND $1,584 $75
VEHICLES 7,594 1,058
WORK EQUIPMENT 2,387 161
BUILDINGS 27,311 413
FURNITURE AND OFFICE EQUIPMENT 4,152 266
CENTRAL OFFICE SWITCHING/TRANSMISSION 133,004 13,380
STATION APPARATUS 2,204 380
CUSTOMER PREMISE WIRING 11,725 -
PRIVATE BRANCH EXCHANGE 6 -
PUBLIC TERMINAL EQUIPMENT 1,375 79
OTHER TERMINAL EQUIPMENT 2,222 39
TELEPHONE DISTRIBUTION PLANT 164,497 11,224
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE 358,061 27,075
TELEPHONE PLANT HELD FOR FUTURE USE 128 -
TELEPHONE PLANT UNDER CONSTRUCTION 5,006 1,114
TELEPHONE PLANT ACQUISITION ADJUSTMENT 1,521 -
NON OPERATING PLANT 634 -
------- -------
TOTAL TELEPHONE PLANT $365,350 $28,189
======= =======
OTHER PROPERTY AND EQUIPMENT
LAND $1,247 $10
BUILDINGS 2,205 1,191
MACHINERY AND SHOP EQUIPMENT 3,819 947
LEASEHOLDS AND IMPROVEMENTS 2,038 80
FURNITURE AND OFFICE EQUIPMENT 5,583 515
VEHICLES 4,923 2,742
HEAD-END SYSTEM 10,061 460
TRUCK AND DISTRIBUTION SYSTEM 124,199 13,681
CABLE TELEVISION PLANT UNDER CONSTRUCTION 1,998 197
CELLULAR PLANT 17,063 3,196
------- -------
$173,136 $23,018
======= =======
CLASSIFICATION RETIREMENTS ACQUISITIONS
- -------------- ------------ ------------
TELEPHONE PLANT
LAND $0 $ -
VEHICLES 874 -
WORK EQUIPMENT 60 -
BUILDINGS 198 -
FURNITURE AND OFFICE EQUIPMENT 56 -
CENTRAL OFFICE SWITCHING/TRANSMISSION 9,666 -
STATION APPARATUS 326 -
CUSTOMER PREMISE WIRING 11,724 -
PRIVATE BRANCH EXCHANGE 0 -
PUBLIC TERMINAL EQUIPMENT 7 -
OTHER TERMINAL EQUIPMENT 757 -
TELEPHONE DISTRIBUTION PLANT 3,072 -
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE 26,740 -
TELEPHONE PLANT HELD FOR FUTURE USE - -
TELEPHONE PLANT UNDER CONSTRUCTION - -
TELEPHONE PLANT ACQUISITION ADJUSTMENT - -
NON OPERATING PLANT - -
------- -------
TOTAL TELEPHONE PLANT $26,740 -
======= =======
OTHER PROPERTY AND EQUIPMENT
LAND - $0
BUILDINGS - 0
MACHINERY AND SHOP EQUIPMENT 553 0
LEASEHOLDS AND IMPROVEMENTS 13 0
FURNITURE AND OFFICE EQUIPMENT 4 0
VEHICLES 2,656 0
HEAD-END SYSTEM 0 55
TRUCK AND DISTRIBUTION SYSTEM 496 197
CABLE TELEVISION PLANT UNDER CONSTRUCTION - 0
CELLULAR PLANT 276 0
------- -------
$3,997 $253
======= =======
BALANCE AT
OTHER CHARGES THE END
CLASSIFICATION AND CREDITS OF PERIOD
- -------------- ------------- -----------
TELEPHONE PLANT
LAND ($55) $1,604
VEHICLES (28) 7,750
WORK EQUIPMENT 1 2,489
BUILDINGS (5,247)(D) 22,279
FURNITURE AND OFFICE EQUIPMENT (34) 4,328
CENTRAL OFFICE SWITCHING/TRANSMISSION 1,455 138,173
STATION APPARATUS 22 2,280
CUSTOMER PREMISE WIRING - 1
PRIVATE BRANCH EXCHANGE - 6
PUBLIC TERMINAL EQUIPMENT 0 1,447
OTHER TERMINAL EQUIPMENT (1) 1,503
TELEPHONE DISTRIBUTION PLANT (1,249) 171,400
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE (5,136) 353,260
TELEPHONE PLANT HELD FOR FUTURE USE 375(C) 503
TELEPHONE PLANT UNDER CONSTRUCTION - 6,120
TELEPHONE PLANT ACQUISITION ADJUSTMENT (112)(B) 1,409
NON OPERATING PLANT (336) 298
------- -------
TOTAL TELEPHONE PLANT $(5,209) $361,590
======= ========
OTHER PROPERTY AND EQUIPMENT
LAND $53(E) $1,310
BUILDINGS 1,322(E) 4,719
MACHINERY AND SHOP EQUIPMENT (4) 4,209
LEASEHOLDS AND IMPROVEMENTS 3 2,109
FURNITURE AND OFFICE EQUIPMENT (23) 6,071
VEHICLES 0 5,009
HEAD-END SYSTEM - 10,576
TRUCK AND DISTRIBUTION SYSTEM (127) 137,454
CABLE TELEVISION PLANT UNDER CONSTRUCTION 292 2,487
CELLULAR PLANT (203) 19,779
------- -------
$1,314 $193,725
======= ========
- ------
(A) SIGNIFICANT EXPANSION AND IMPROVEMENT OF PLANT TO ACCOMODATE INCREASING
DEMAND AND TO IMPROVE SERVICE.
(B) REPRESENTS AMORTIZATION OF TELEPHONE PLANT ACQUISITION ADJUSTMENT.
(C) REPRESENTS TRANSFERS BETWEEN OTHER PROPERTY AND EQUIPMENT, MATERIALS AND
SUPPLIES AND TELEPHONE PLANT.
(D) REPRESENTS TRANSFERS BETWEEN OTHER PROPERTY AND EQUIPMENT, MATERIALS AND
SUPPLIES AND TELEPHONE PLANT AND INTERCOMPANY TRANSFER OF ASSETS.
(E) REPRESENTS INTERCOMPANY TRANSFER OF ASSETS.
NOTE: 1. ROUTINE TRANSFERS BETWEEN THE CLASSIFICATIONS LISTED ARE INCLUDED
IN THE ADDITIONS COLUMN. ADDITIONS SHOWN ALSO INCLUDED THE ORIGINAL COST
(ESTIMATED, IF NOT KNOWN) OF OTHER REUSED MATERIAL.
2. A RECONCILIATION TO AMOUNT SHOWN AS PROPERTY, PLANT AND EQUIPMENT
ADDITIONS IN THE CONSOLIDATED STATEMENTS OF CASH FLOWS INCLUDED IN C-TEC'S
1992 ANNUAL REPORT IS AS FOLLOWS:
TOTAL TELEPHONE PLANT ADDITIONS $28,189
OTHER PROPERTY AND EQUIPMENT ADDITIONS 23,018
TOTAL PROPERTY, PLANT & EQUIPMENT ADDITIONS $51,207
C-TEC CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(THOUSANDS OF DOLLARS)
BALANCE AT ADDITIONS
THE BEGINNING AT COST (A)
CLASSIFICATION OF PERIOD (NOTES 1 & 2)
- -------------- ------------- -------------
TELEPHONE PLANT
LAND $1,515 $74
VEHICLES 7,263 610
WORK EQUIPMENT 2,499 108
BUILDINGS 26,516 1,233
FURNITURE AND OFFICE EQUIPMENT 4,242 388
CENTRAL OFFICE SWITCHING/TRANSMISSION 122,018 23,865
STATION APPARATUS 2,135 408
CUSTOMER PREMISE WIRING 11,725 -
PRIVATE BRANCH EXCHANGE 59 -
PUBLIC TERMINAL EQUIPMENT 1,420 72
OTHER TERMINAL EQUIPMENT 2,270 73
TELEPHONE DISTRIBUTION PLANT 153,371 14,196
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE 335,033 41,027
TELEPHONE PLANT HELD FOR FUTURE USE 2,398 -
TELEPHONE PLANT UNDER CONSTRUCTION 6,349 (1,343)
TELEPHONE PLANT ACQUISITION ADJUSTMENT 1,633 -
NON OPERATING PLANT 504 -
------- -------
TOTAL TELEPHONE PLANT $345,917 $39,684
======= =======
OTHER PROPERTY AND EQUIPMENT
LAND $1,231 $16
BUILDINGS 2,071 233
MACHINERY AND SHOP EQUIPMENT 3,482 871
LEASEHOLDS AND IMPROVEMENTS 1,973 64
FURNITURE AND OFFICE EQUIPMENT 7,287 385
VEHICLES 4,789 208
HEAD-END SYSTEM 9,251 541
TRUCK AND DISTRIBUTION SYSTEM 114,378 8,662
CABLE TELEVISION PLANT UNDER CONSTRUCTION 2,444 879
CELLULAR PLANT 14,344 3,507
------- -------
$161,250 $15,366
======= =======
ACQUISITIONS
CLASSIFICATION RETIREMENTS (NOTE 3)
- -------------- ----------- ------------
TELEPHONE PLANT
LAND $5 $ -
VEHICLES 234 -
WORK EQUIPMENT 236 -
BUILDINGS 376 -
FURNITURE AND OFFICE EQUIPMENT 494 -
CENTRAL OFFICE SWITCHING/TRANSMISSION 13,883 -
STATION APPARATUS 235 -
CUSTOMER PREMISE WIRING - -
PRIVATE BRANCH EXCHANGE 53 -
PUBLIC TERMINAL EQUIPMENT 117 -
OTHER TERMINAL EQUIPMENT 121 -
TELEPHONE DISTRIBUTION PLANT 1,687 -
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE 17,441 -
TELEPHONE PLANT HELD FOR FUTURE USE - -
TELEPHONE PLANT UNDER CONSTRUCTION - -
TELEPHONE PLANT ACQUISITION ADJUSTMENT - -
NON OPERATING PLANT 36 -
------- -------
TOTAL TELEPHONE PLANT $17,477 -
======= =======
OTHER PROPERTY AND EQUIPMENT
LAND - $0
BUILDINGS - 10
MACHINERY AND SHOP EQUIPMENT 534 0
LEASEHOLDS AND IMPROVEMENTS (1) 5
FURNITURE AND OFFICE EQUIPMENT 2,046 3
VEHICLES 75 0
HEAD-END SYSTEM 141 410
TRUCK AND DISTRIBUTION SYSTEM 1,163 2,322
CABLE TELEVISION PLANT UNDER CONSTRUCTION - (795)
CELLULAR PLANT 2 0
------- -------
$3,960 $1,955
======= =======
BALANCE AT
OTHER CHARGES THE END
CLASSIFICATION AND CREDITS OF PERIOD
- -------------- ------------- ----------
TELEPHONE PLANT
LAND $0 $1,584
VEHICLES (45) 7,594
WORK EQUIPMENT 16 2,387
BUILDINGS (62) 27,311
FURNITURE AND OFFICE EQUIPMENT 16 4,152
CENTRAL OFFICE SWITCHING/TRANSMISSION 1,004 133,004
STATION APPARATUS (104) 2,204
CUSTOMER PREMISE WIRING - 11,725
PRIVATE BRANCH EXCHANGE - 6
PUBLIC TERMINAL EQUIPMENT 0 1,375
OTHER TERMINAL EQUIPMENT 0 2,222
TELEPHONE DISTRIBUTION PLANT (1,383) 164,497
LEASEHOLDS AND IMPROVEMENTS - -
------- -------
TOTAL TELEPHONE PLANT IN SERVICE (558) 358,061
TELEPHONE PLANT HELD FOR FUTURE USE (2,270)(C) 128
TELEPHONE PLANT UNDER CONSTRUCTION - 5,006
TELEPHONE PLANT ACQUISITION ADJUSTMENT (112)(B) 1,521
NON OPERATING PLANT 166 634
------- -------
TOTAL TELEPHONE PLANT $(2,774) $365,350
======= =======
OTHER PROPERTY AND EQUIPMENT
LAND - $1,247
BUILDINGS (109) 2,205
MACHINERY AND SHOP EQUIPMENT - 3,819
LEASEHOLDS AND IMPROVEMENTS (5) 2,038
FURNITURE AND OFFICE EQUIPMENT (46) 5,583
VEHICLES 1 4,923
HEAD-END SYSTEM - 10,061
TRUCK AND DISTRIBUTION SYSTEM - 124,199
CABLE TELEVISION PLANT UNDER CONSTRUCTION (530) 1,998
CELLULAR PLANT (786) 17,063
------- -------
$(1,475) $173,136
======= =======
- ------
(A) SIGNIFICANT EXPANSION AND IMPROVEMENT OF PLANT TO ACCOMODATE INCREASING
DEMAND AND TO IMPROVE SERVICE.
(B) REPRESENTS AMORTIZATION OF TELEPHONE PLANT ACQUISITION ADJUSTMENT.
(C) REPRESENTS TRANSFERS BETWEEN OTHER PROPERTY AND EQUIPMENT, MATERIALS AND
SUPPLIES AND TELEPHONE PLANT.
NOTE: 1. ROUTINE TRANSFERS BETWEEN THE CLASSIFICATIONS LISTED ARE INCLUDED
IN THE ADDITIONS COLUMN. ADDITIONS SHOWN ALSO INCLUDED THE ORIGINAL COST
(ESTIMATED, IF NOT KNOWN) OF OTHER REUSED MATERIAL.
2. A RECONCILIATION TO AMOUNT SHOWN AS PROPERTY, PLANT AND EQUIPMENT
ADDITIONS IN THE CONSOLIDATED STATEMENTS OF CASH FLOWS INCLUDED IN C-TEC'S
1991 ANNUAL REPORT IS AS FOLLOWS:
TOTAL TELEPHONE PLANT ADDITIONS $39,684
OTHER PROPERTY AND EQUIPMENT ADDITIONS 15,366
TOTAL PROPERTY, PLANT & EQUIPMENT ADDITIONS $55,050
3. SEE NOTE 2 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SCHEDULE VI
C-TEC CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS RETIREMENTS
------------------ ------------
BALANCE AT CHARGED CHARGED COST OF BALANCE
BEGINNING OF TO TO OTHER PROP RETIRED OTHER AT END OF
DESCRIPTION PERIOD INCOME ACCOUNTS LESS SALVAGE CHARGES PERIOD
<S> <C> <C> <C> <C> <C> <C>
1993:
TELEPHONE PLANT $157,306 $22,978 - $15,792 ($794) $163,699
OTHER PROPERTY,
PLANT, EQUIPMENT $70,090 $19,605 - $2,647 ($115) $86,934
TOTAL $227,395 $42,583 - $18,439 ($908) $250,632
1992:
TELEPHONE PLANT $165,852 $20,733 - $28,898 ($382) $157,306
OTHER PROPERTY,
PLANT, EQUIPMENT $54,861 $18,173 - $2,752 ($192) $70,090
TOTAL $220,713 $38,906 - $31,649 ($573) $227,395
1991:
TELEPHONE PLANT $161,040 $23,314 - $17,110 ($1,392) $165,852
OTHER PROPERTY,
PLANT, EQUIPMENT $39,454 $17,366 - $1,274 ($685) $54,861
TOTAL $200,494 $40,680 - $18,384 ($2,077) $220,713
</TABLE>
SCHEDULE VIII
C-TEC CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING OF TO COSTS TO OTHER END OF
DESCRIPTION PERIOD AND EXPENSE ACCOUNTS DEDUCTIONS PERIOD
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS-
DEDUCTED FROM ACCOUNTS RECEIVABLE
IN THE CONSOLIDATED BALANCE SHEETS.
1993 $559 $1,341 $85 $1,306 $679
1992 $381 $1,111 $69 $1,002 $559
1991 $565 $2,031 $249 $2,464 $381
ALLOWANCE FOR INVENTORY-
DEDUCTED FROM MATERIAL AND SUPPLY
INVENTORY IN THE CONSOLIDATED
BALANCE SHEETS.
1993 $25 $226 ($10) $211 $30
1992 $90 $275 ($47) $293 $25
1991 $305 $77 $47 $338 $90
ALLOWANCE FOR DEFERRED TAX ASSETS-
DEDUCTED FROM DEFERRED TAX ASSETS
IN THE CONSOLIDATED BALANCE SHEETS.
1993 $708 $0 $5,406 $0 $6,114
1992 $0 $0 $0 $0 $0
1991 $0 $0 $0 $0 $0
</TABLE>
- ------
* Represents valuation allowance as of initial adoption of Statement of
Financial Accounting Standards No. 109 on January 1, 1993.
SCHEDULE IX
C-TEC CORPORATION AND SUBSIDIARIES
SHORT TERM BORROWINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
(NOTE 1) (NOTE 1) (NOTE 1)
BALANCE WEIGHTED MAX AMOUNT AVERAGE AMOUNT WEIGHTED AVG
AT END AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
DESCRIPTION OF YEAR INTEREST RATE DURING THE YEAR DURING THE YEAR DURING THE YEAR
- ------------ -------- ------------- --------------- --------------- ---------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
1993
NOTES PAYABLE
TO BANKS - - $1,106 $225 6.00%
1992
NOTES PAYABLE
TO BANKS - - $1,258 $473 6.28%
1991
NOTES PAYABLE
TO BANKS - - $31,348 $7,188 8.69%
</TABLE>
- ------
NOTE: (1) BASED ON MONTH-END BALANCES
SCHEDULE X
C-TEC CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
CHARGED TO
COSTS AND EXPENSES
-----------------------------
1993 1992 1991
---- ---- ----
MAINTENANCE AND REPAIRS $23,579 $22,126 $21,898
AMORTIZATION OF INTANGIBLES $30,520 $36,132 $37,001
TAXES, OTHER THAN PAYROLL
AND INCOME $6,097 $5,436 $5,747
ADVERTISING, PRE-OPERATING COSTS AND SIMILAR DEFERRALS ARE LESS THAN 1% OF
TOTAL REVENUES AND SALES.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the application of our report dated March 4,
1994, included in the annual report on Form 10-K of C-TEC Corporation for the
year ended December 31, 1993, to the amended consolidated statements of common
shareholders' equity for the years ended December 31, 1993, 1992 and 1991 and
amended footnote nos. 4, 7, 9, 11 and 12 which are included in this amendment
on Form 10-K/A.
/s/ Coopers & Lybrand L.L.P.
---------------------------
COOPERS & LYBRAND L.L.P.
Philadelphia, PA
November 28, 1994
