<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
--
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-11053
C-TEC CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2093008
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
105 Carnegie Center
Princeton, New Jersey 08540-6215
(Address of principal executive offices)
(Zip Code)
(609) 734-3700
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock ($1.00 par value), as of September 30, 1995.
Common Stock 19,085,364
Class B Common Stock 8,359,803
<PAGE>
C-TEC CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations-
Quarters and Nine Months Ended September 30,1995 and 1994
Condensed Consolidated Balance Sheets-
September 30, 1995 and December 31, 1994
Condensed Consolidated Statements of Cash Flows-
Nine Months Ended September 30, 1995 and 1994
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Events
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
SALES $85,044 $70,206 $237,417 $200,156
COSTS & EXPENSES, EXCLUDING
DEPRECIATION AND AMORTIZATION 53,037 43,444 151,110 120,000
DEPRECIATION AND AMORTIZATION 19,324 15,757 48,668 48,957
-------- -------- -------- --------
OPERATING INCOME 12,683 11,005 37,639 31,199
INTEREST & DIVIDEND INCOME 3,297 1,239 11,800 2,448
INTEREST EXPENSE (7,072) (8,740) (19,914) (24,994)
GAIN ON SALE OF PENNSYLVANIA
CABLE PROPERTIES - - - 893
GAIN ON SALE OF INVESTMENT IN
NORTHEAST NETWORKS, INC. - - 2,890 -
OTHER INCOME (EXPENSE), NET 133 (217) 677 380
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 9,041 3,287 33,092 9,926
PROVISION FOR INCOME TAXES 2,776 1,559 9,642 4,676
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST AND
EQUITY IN UNCONSOLIDATED ENTITIES 6,265 1,728 23,450 5,250
MINORITY INTEREST IN (INCOME) OF
CONSOLIDATED ENTITIES (55) (25) (127) (72)
EQUITY IN (LOSS) OF
UNCONSOLIDATED ENTITIES (443) (288) (2,572) (99)
-------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY
CHARGE AND CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE 5,767 1,415 20,751 5,079
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS 1,113 73,990 1,113 73,990
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES (330) 1,843 (202) 1,982
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY
CHARGE AND CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGE 6,550 77,248 21,662 81,051
EXTRAORDINARY CHARGE - DEBT - - - (2,861)
PREPAYMENT PENALTY
CUMULATIVE EFFECT ON PRIOR YEARS
OF CHANGE IN ACCOUNTING
PRINCIPLE FOR POSTEMPLOYMENT
BENEFITS - - - (378)
-------- -------- -------- --------
NET INCOME $6,550 $77,248 $21,662 $77,812
======== ======== ======== ========
</TABLE>
<PAGE>
Earnings Per Share
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------------
(1995) (1994) (1995) (1994)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings (loss) per average common share
Income from continuing operations before
extraordinary charge and cumulative effect
of accounting principle change $0.21 $0.09 $0.76 $0.31
Gain on disposal of discontinued operations 0.04 4.48 0.04 4.48
Income (loss) from discontinued operations (0.01) 0.11 (0.01) 0.12
---------- ---------- ---------- ----------
Income before extraordinary charge and
cumulative effect of accounting principle
change 0.24 4.68 0.79 4.91
Extraordinary charge-debt prepayment
penalty - - - (0.17)
Cumulative effect on prior years of change in
accounting principle - - - (0.03)
---------- ---------- ---------- ----------
Net income $0.24 $4.68 $0.79 $4.71
---------- ---------- ---------- ----------
Average common shares outstanding 27,445,167 16,509,593 27,445,167 16,509,593
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and temporary cash investments $78,503 $178,195
Short term investments 88,390 127,245
Other current assets 59,884 51,749
Deferred income taxes 8,752 7,057
------- -------
Total current assets 235,529 364,246
------- -------
PROPERTY, PLANT AND EQUIPMENT
Telephone Plant 416,188 399,330
Cable Plant 297,209 192,879
Mobile Services Plant - 2,456
Other Property, Plant and Equipment 16,197 12,948
------- -------
Total Property, Plant and Equipment 729,594 607,613
Accumulated Depreciation 300,711 267,185
------- -------
Net Property, Plant and Equipment 428,883 340,428
------- -------
INVESTMENTS 92,334 14,569
------- -------
INTANGIBLE ASSETS, NET 155,722 50,319
------- -------
DEFERRED CHARGES AND OTHER ASSETS 31,650 22,963
------- -------
TOTAL ASSETS $944,118 $792,525
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term
debt and preferred stock 10,481 9,028
Advance billings & customer deposits 11,069 8,169
Accrued taxes 5,248 21,807
Accrued interest 2,359 5,751
Accrued contract settlements 6,478 5,150
Other current liabilities 52,909 48,978
------- -------
Total current liabilities $88,544 $98,883
------- -------
</TABLE>
<PAGE>
C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
<S> <C> <C>
LONG-TERM DEBT 296,724 273,376
--------- ---------
DEFERRED INCOME TAXES AND INVESTMENT
TAX CREDITS 98,354 43,600
--------- ---------
OTHER DEFERRED CREDITS 33,998 26,995
--------- ---------
MINORITY INTEREST 11,830 -
--------- ---------
REDEEMABLE PREFERRED STOCK 44,500 257
--------- ---------
COMMON SHAREHOLDERS' EQUITY:
Common Stock 27,823 27,823
Additional Paid-in Capital 226,981 227,034
Retained Earnings 121,507 99,845
Treasury Stock at cost, 377,842 shares
at September 30, 1995 and December 31, 1994 (5,288) (5,288)
Cumulative translation adjustments (855) -
--------- ---------
Total Common Shareholders' Equity 370,168 349,414
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $944,118 $792,525
========= =========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
<PAGE>
C-TEC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1995 1994
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $45,642 $62,057
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to Property, Plant & Equipment (48,516) (45,199)
Proceeds from sale of mobile services properties 3,915 181,649
Proceeds from the sale of equity interest in Norteast
Networks, Inc. 5,007 -
Proceeds from sale of Pennsylvania
cable properties - 1,200
Proceeds from redemption of investment in
RTB Stock - 1,141
Reduction of short-term investments 38,855 -
Acquisitions, net of cash acquired (128,201) (800)
Other 2,542 (5,027)
-------- --------
Net Cash Provided by (Used in) Investing Activities (126,398) 132,964
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Penalty on early retirement of debt - (2,861)
Issuance of Long-Term Debt 15,300 148,176
Redemption of Long-Term Debt (31,614) (168,507)
Other (2,622) (1,947)
-------- --------
Net Cash Used in
Financing Activities (18,936) (25,139)
-------- --------
Net Increase (Decrease) in Cash and Temporary Cash
Investments (99,692) 169,882
Cash and Temporary Cash Investments at
Beginning of Year 178,195 60,182
-------- --------
Cash and Temporary Cash Investments at
September 30 $78,503 $230,064
======== ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the periods for:
Interest (net of amounts capitalized) $23,307 $25,997
======== ========
Income taxes $24,812 $4,252
======== ========
</TABLE>
<PAGE>
Supplemental Schedule of Noncash Investing and Financing Activities
The Company acquired all the outstanding Common Stock of Twin County Trans
Video, Inc. and a related covenant not to compete. The consideration for the
acquisition was as follows:
<TABLE>
<S> <C>
Cash $ 39,600
Issuance of 5% promissory note 4,000
Issuance of redeemable preferred stock 44,500
Liabilities assumed 14,000
--------
Fair value of assets acquired $102,100
========
</TABLE>
The Company acquired an additional 18.29% of the outstanding Common Stock
of Mercom, Inc. for cash of $6,912. The acquisition, along with the Company's
previous investment of 43.63% of Mercom's outstanding Common Stock, was
accounted for as a purchase. In connection with the acquisition, liabilities of
approximately $28,200 and minority interest of approximately $11,800 were
recorded.
See accompanying notes to Condensed Consolidated Financial Statements
<PAGE>
C-TEC CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Thousands of Dollars, except per share amounts)
1. The condensed Consolidated Financial Statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, in the opinion of the
Management of the Company, the Condensed Consolidated Financial Statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial information. The Condensed
Consolidated Financial Statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Form 10-K for
the fiscal year ended December 31, 1994, as amended on April 3, 1995 and as
further amended on July 31, 1995.
2. In 1995, the Company received official notification of final settlement 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 adjustment relates to the disallowance of the claimed amortization
of certain intangible assets. As a result of this disallowance, taxes payable
for prior tax years increased approximately $5 million, net operating loss
carryforwards are reduced by approximately $25 million and AMT credits are
increased by approximately $5 million. Additionally, interest ranging from $1-
$2 million will be payable. Management had accrued an amount approximating the
financial statement effect of the above adjustments in prior periods.
3. On September 9, 1994, the Company completed the sale of its cellular
properties, which were part of its Mobile Services business segment, to
Independent Cellular Network, Inc. for approximately $190,500. At September 30,
1995 and December 31, 1994, certain holdbacks and escrows of approximately
$2,200 and $6,000, respectively are included in other current assets and
approximately $1,500 and $2,200 respectively are included in other assets in the
accompanying consolidated balance sheets in accordance with the payment terms of
the respective agreements. In December 1994, the Company completed the sale of
its telephone answering service operations and signed a letter of intent
relative to the disposition of its paging operations. The paging disposition
was completed in July 1995 and the Company realized a gain of approximately
$2,100 before income tax on the disposal. The telephone answering service and
paging operations constituted the remaining portion of the Company's Mobile
Services business segment. Therefore, the Company has accounted for the Mobile
Services operations as discontinued operations. Prior years financial
statements have been restated to reflect the discontinuation of the Mobile
Services business segment and all activity up to the date of disposition has
been accounted for as discontinued operations. Sales of the Mobile Services
business segment were $15 and $7,146 for the three months ended September 31,
1995 and 1994, respectively and $1,147 and $22,311 for the nine months ended
September 30, 1995 and 1994, respectively.
<PAGE>
4. On January 24, 1995, the Company purchased a forty percent equity position
in Megacable, S.A. de C.V. ("Megacable"). The aggregate consideration for the
purchase was cash of $84,115, subject to adjustments based on the fourth quarter
1995 exchange rate. The Company accounts for its investment by the equity
method of accounting. Megacable translates its assets and liabilities into U.S.
dollars at the rates in effect at the end of the fiscal period. The Company's
share of the gains or losses that result from this process are shown in the
cumulative translation adjustments account in the shareholders' equity section
of the balance sheet. Megacable translates its revenue and expense accounts
into U.S. dollars at the average exchange rates that prevailed during the
period. Therefore, the U.S. dollar value of these items on the income statement
fluctuates from period to period depending on the value of the dollar against
the peso. The excess cost over the underlying equity in the net assets of
Megacable is approximately $94 million, which excess is being amortized on a
straight-line basis over 15 years. For the quarter and nine months ended
September 30, 1995, the Company recorded its proportionate share of losses and
amortization of excess cost over equity in net assets of $507 and $2,804,
respectively. The Company's share of cumulative foreign currency translation
charges were $954 and $855 for the quarter and nine months ended September 30,
1995, respectively. Summarized information for the financial position and
results of operations of Megacable, Inc. as of and for the nine months ended
September 30, 1995 is as follows:
<TABLE>
<S> <C>
Assets $71,451
Liabilities $13,077
Stockholders' Equity $58,375
Sales $16,661
Costs and Expenses $10,809
Foreign Currency Transaction Losses $ 5,105
Net Income $ 2,521
</TABLE>
5. On January 31, 1995, the Company purchased the assets of Higgins Lake Cable,
Inc. The aggregate consideration for the purchase was cash of approximately
$4,600.
6. The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
September 30,
1995 1994
<S> <C> <C>
Currently payable $8,091 $(10,962)
Deferred 1,964 16,170
Investment Tax Credits (413) (532)
------ --------
Total provision from continuing operations $9,642 $ 4,676
Provision from gain on disposal of
discontinued operations 962 55,751
Provision (Benefit) from discontinued operations 470 (4,165)
------ --------
Total provision for income taxes $11,074 $56,262
======= =======
</TABLE>
<PAGE>
The provision for income taxes is different than the amount computed by applying
the U.S. statutory federal tax rate.
<TABLE>
<CAPTION>
The differences are as follows: September 30,
1995 1994
<S> <C> <C>
Income before provision for income taxes and
cumulative effect of accounting principle
changes $30,393 $9,755
------- ------
Federal tax provision at statutory rate $10,638 $ 3,414
Increase (reduction) due to:
State income taxes, net of federal benefit 2,114 2,281
Amortization of investment tax credits (413) (532)
Rate differential applied
to reversing timing differences (1,261) (362)
Estimated nondeductible expenses - 1,125
Non-deductible goodwill 156 105
Tax-exempt interest (5) (221)
Equity in unconsolidated entities 330 465
Adjustments to prior years 1 (113)
Deferred tax amortization (1,458) (1,458)
Gain on disposal of investment (597) -
Other, net 137 (28)
------- -------
Provision for income taxes $9,642 $4,676
====== ======
</TABLE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 5,597 $ 4,772
Investment tax credit carryforwards 0 342
Alternative minimum tax credits 5,192 13,014
Regulatory liability - deferred taxes 6,888 6,060
Benefit plans 499 536
Accruals for nonrecurring charges and
contract settlements 4,031 3,366
Reserve for bad debts 632 540
All other 8,328 3,981
--------- --------
Total deferred tax assets $ 31,167 $ 32,611
--------- --------
Property, plant and equipment (74,792) (51,808)
Intangible assets (30,200) (4,163)
Regulatory asset - state flow-through (6,203) (3,864)
All other (4,438) (2,569)
--------- --------
Total deferred tax liabilities (115,633) (62,404)
--------- --------
Subtotal (84,466) (29,793)
--------- --------
Valuation allowance (4,564) (5,590)
--------- --------
Total deferred taxes $ (89,030) $(35,383)
========= ========
</TABLE>
<PAGE>
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.
The net change in the valuation allowance for deferred tax assets during
1995 was a decrease of $1,026.
7. On May 8, 1995, the Company sold its equity position in Northeast Networks,
Inc. for cash of $5,007. The Company realized a pretax gain of approximately
$2,890 on the disposal.
8. On May 15, 1995, the Company acquired 40% of the outstanding common stock of
Twin County Trans Video, Inc. ("Twin County") in exchange for cash of
approximately $28.6 million, including a $5 million deposit made in March 1995,
and a $4 million 5% promissory note of C-TEC Cable Systems, Inc., a wholly owned
subsidiary of the Company. In addition, C-TEC paid $11 million in consideration
of a noncompete agreement and assumed liabilities of $14 million. The remaining
shares were subject to an escrow agreement, pending completion of the merger,
and were required to be voted under the direction of C-TEC. C-TEC has also
assumed management of Twin County. As a result, C-TEC has control of Twin
County and accordingly has fully consolidated Twin County since May 1, 1995, the
effective date of the merger. The remaining outstanding common stock of Twin
County was acquired in September 1995 in exchange for $52 million stated value
redeemable preferred stock of C-TEC Corporation. The preferred stock has a
stated dividend rate of 5%, beginning January 1, 1996. The estimated fair value
of the preferred stock is $44.5 million, subject to final determination.
The Company has preliminarily allocated the purchase price paid to date on
the basis of the estimated fair value of property, plant and equipment and
identifiable intangible assets acquired and liabilities assumed. The excess of
the consideration for the acquisition over the fair value of the net assets
acquired of approximately $24 million has been allocated to goodwill and is
being amortized over a period of approximately 10 years.
9. Pursuant to a stock rights offering, the Company, through a wholly owned
subsidiary, acquired majority voting control of Mercom, Inc. through the
exercise of stock rights and oversubscription privileges. Immediately prior to
the rights offering, C-TEC owned 43.63% of the outstanding common stock of
Mercom. C-TEC purchased a total of 1,920,056 shares of common stock through the
rights offering for an aggregate consideration of $6,912,202. The rights
offering concluded on August 10, 1995. Following the purchase, C-TEC owns
61.92% of the outstanding common stock of Mercom, Inc. and accordingly has
consolidated Mercom, Inc. in its financial statements since August 1995. Prior
to the rights offering, C-TEC accounted for its 43.63% ownership interest under
the equity method of accounting. The acquisition has been accounted for as a
purchase. The full fair value of assets acquired and liabilities assumed has
been reflected in the Company's financial statements with minority interest
reflecting the separate 38.08% public ownership. The estimated fair values are
based on preliminary information which may be revised at a later date. Goodwill
of approximately $8,800 was recognized and is being amortized over approximately
10 years.
<PAGE>
10. In May 1995, the Company signed a definitive agreement for the acquisition
of all the outstanding shares of common stock of Buffalo Valley Telephone
Company for $61 per share, payable either in cash or C-TEC convertible preferred
stock. In October 1995, Buffalo Valley Telephone Company terminated its Merger
Agreement with C-TEC and entered into a definitive agreement with Conestoga
Enterprises, Inc.
11. In connection with the acquisition of Mercom, Inc. (see Note 9), the
Company has consolidated the long term debt of Mercom, Inc., as follows:
Credit Agreement outstanding at September 30, 1995 $19,276
=======
The average effective rate is 7% for outstanding borrowings at
September 30, 1995.
At September 30, 1995 Mercom was in compliance with all covenants
associated with its Credit Agreement. The most restrictive covenant contained in
the amended Credit Agreement pertains to the debt to operating cash flow ratio.
The agreement in 1995 requires the Company to maintain a debt to cash flow ratio
of less than five times. The ratio decreases in subsequent years per the
agreement.
The credit agreement with Morgan Guaranty Trust Company is secured by a
first lien on certain material assets of Mercom and its subsidiaries and by a
pledge of the stock of Mercom subsidiaries.
A payment of $346 is payable on December 31, 1995.
Additional maturities of the amended and restated Credit Agreement are as
follows:
<TABLE>
<CAPTION>
Aggregate
Year Amounts
---- -------
<S> <C>
1996 $1,500
1997 $1,750
1998 $2,100
1999 $2,600
2000 $3,750
Thereafter $7,230
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations, continued
(Thousands of Dollars, except per share amounts)
The following discussion should be read in conjunction with the attached
condensed consolidated financial statements and notes thereto, and with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1994.
C-TEC Corporation and subsidiaries' (the "Company") income from continuing
operations was $5,767 or $.21 per average common share, for the quarter ended
September 30, 1995 as compared to $1,415 or $.09 per average common share, for
the same period in 1994. The improvement results principally from higher
operating income before depreciation and amortization
<PAGE>
of $5,245 with increases in all operating groups, principally cable television.
The acquisition of Twin County Trans Video, Inc., a cable television service
provider in the Lehigh Valley area of Pennsylvania, primarily accounts for the
increase for the Cable Television Group. Interest and dividend income exceeded
the 1994 level for the period by $2,058 principally as a result of earnings on
the proceeds of the Company's cellular business segment disposition and stock
rights offering in September and December 1994, respectively. Interest expense
decreased $1,668 primarily due to the early payment of $100 million parent
company debt in December 1994. Partially offsetting these improvements were
higher depreciation and amortization of $3,567 resulting from the accounting for
the Twin County Trans Video, Inc. and Mercom, Inc. business combinations (see
Notes 8 & 9). Income taxes were $1,217 higher primarily due to higher earnings.
Net income was $6,550, or $.24 per average common share, and $77,248 or $4.68
per average common share, for the three months ended September 30, 1995 and
1994, respectively. The difference in net income is principally due to a gain of
$73,990 on the disposition of the Company's cellular operations in 1994.
Sales increased 21.1% for the Quarter ended September 30, 1995 to $85,044
as compared to $70,206 for the same period in 1994, with the Cable Group
contributing $11,650 of the increase. The increase at the Cable Group is due to
increased subscribers and a rate increase as well as to the acquisitions of Twin
County Video, Inc., which contributed $6,706 for the Quarter and Mercom, Inc.
which contributed $2,382 from August, when its results were consolidated with
the Company, through September 1995.
For the nine months ended September 30, 1995, income from continuing
operations was $20,751, or $.76 per average common share, as compared to $5,079,
or $.31 per average common share, for the same period in 1994. The increase is
primarily due to higher interest and dividend income of $9,352. Additionally,
operating income before depreciation and amortization increased $6,151, with
increases in all operating groups, principally cable television. Interest
expense decreased $5,080 primarily due to the early payment of $100 million
parent company debt in December 1994. Additionally, results for 1995 include a
gain of $2,890 on the disposition of an equity interest in Northeast Networks,
Inc. while 1994 results reflect a gain of $893 on the disposition of
Pennsylvania cable properties. Partially offsetting these improvements were
higher income taxes of $4,966 primarily due to higher earnings and a higher
equity in the loss of unconsolidated entities of $2,473, primarily resulting
from amortization of excess of the Company's purchase price over the net assets
of Megacable. Net income was $21,662, or $.79 per average common share, and
$77,812, or $4.71 per average common share, for the nine months ended September
30, 1995 and 1994, respectively. The difference in net income is principally
due to a gain of $73,990 on the disposition of the Company's cellular operations
and an extraordinary charge of $2,861 on the early repayment of certain debt of
the Telephone Group in 1994.
Sales increased 18.6% for the nine months ended September 30, 1995 to
$237,417 as compared to $200,156 for the same period in 1994, with the Cable and
Long Distance Groups contributing $19,048 and $11,737, respectively, toward the
increase. See the individual operating group sections below for a discussion of
these increases.
Sales and operating income before interest, depreciation, amortization and
income taxes by business segment was as follows for the three and nine months
ended September 30, 1995:
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
Sales 1995 1994 1995 1994
- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Telephone $32,202 $30,996 $ 95,611 $ 92,125
Cable 35,206 23,556 90,006 70,958
Long Distance 8,431 7,396 31,604 19,867
Other 9,205 8,258 20,196 17,206
------- ------- -------- --------
Total $85,044 $70,206 $237,417 $200,156
======= ======= ======== ========
<CAPTION>
Operating income before
interest, depreciation, amortization
and income taxes
- ----------------
<S> <C> <C> <C> <C>
Telephone $19,366 $19,127 $ 57,122 $55,540
Cable 15,093 10,381 40,481 33,776
Long Distance (100) (1,213) (1,034) (4,502)
Corporate Overhead
and Other (2,352) (1,533) (10,262) (4,658)
------- ------- -------- -------
Total $32,007 $26,762 $ 86,307 $80,156
======= ======= ======== =======
</TABLE>
Telephone Group
- ---------------
Sales of the Telephone Group increased $1,206, or 3.9% for the third Quarter
of 1995 as compared to the same period in 1994. The increase is due to higher
local network service revenue, resulting from an increase in access lines.
Additionally, intrastate network access revenue increased due to growth in
access minutes and a higher average rate per minute. Operating expenses,
excluding depreciation and amortization, increased approximately $1,000 as
compared to the same period in 1994, primarily due to higher payroll expense.
The increase in payroll is principally associated with a one-time post-
employment benefit charge.
For the nine months ended September 30, 1995, sales of the Telephone Group
increased $3,486, or 3.8% as compared to the same period in 1994 due primarily
to increases in local network service and network access revenues discussed
above; partially offset by decreases in long distance toll revenue. Operating
expenses, excluding depreciation and amortization, increased approximately
$1,900, or 5.2% in 1995 as compared to the same period in 1994, primarily due to
higher payroll expense, in part associated with a one-time post-employment
benefit charge.
Cable Group
- -----------
Sales of the Cable Group increased $11,650, or 49.5% for the three months
ended September 30, 1995 as compared to the same period in 1994. The increase
is due to the sales increases of $6,706 resulting from the acquisition of Twin
County Trans Video, Inc. effective May 1, 1995. Twin County serves
approximately 74,000 subscribers in the Greater Lehigh Valley area of
Pennsylvania. Additionally, subscriber increases of approximately 15,000 over
the same period in 1994 and a rate increase effective in April 1995 account for
increases of approximately $2,800 in basic revenue. The Company acquired
majority control of the voting stock of Mercom, Inc., which provides cable
television service in Michigan and Port St. Lucie, Florida, in August 1995
through a rights offering. Mercom's results have been consolidated since that
time, resulting in a sales increase of approximately
<PAGE>
$2,400. C-TEC previously owned 43.63% of the voting stock of Mercom, Inc. and
accounted for its investment under the equity method. Operating expenses,
excluding depreciation and amortization, increased approximately $6,938, or
52.6%, primarily due to operating expenses associated with the addition of Twin
County, Trans Video, Inc. and Mercom, Inc. subscribers and to higher programming
expense resulting from increased subscribers, channel additions, and rate
increases.
For the nine months ended September 30, 1995, the Cable Group had increased
sales of $19,048, or 26.8% as compared to the nine months ended September 30,
1994, primarily for the reasons referred to above. Operating expenses,
excluding depreciation and amortization, increased $12,343, or 33.2% primarily
due to operating expenses associated with the addition, of Twin County Trans
Video, Inc. and Mercom, Inc. subscribers and to higher basic programming costs.
Additionally, customer service and technical service expenses increased mainly
due to additional personnel while general and administrative expenses increased
primarily due to higher insurance and franchise fee expense, as well as
additional personnel.
Long Distance Group
- -------------------
Sales of the Long Distance Group increased $1,035 or 14% for the Quarter ended
September 30, 1995 as compared to the same period in 1994 primarily due to
increases in switched business sales and 800 service sales of approximately $628
and $436, respectively. Operating expenses, excluding depreciation and
amortization, remained relatively stable as compared to the same period in 1994.
For the nine months ended September 30, 1995, sales of the Long Distance Group
increased $11,737, or 59.1% as compared to the nine months ended September 30,
1994 primarily due to higher revenues of approximately $5,670 from resale of
AT&T Tariff 12 services to another long distance reseller. The Group's
arrangement for sales of this product to this long distance reseller terminated
during the second Quarter of 1995. Increases in switched business sales and 800
service sales of approximately $2,608 and $1,853, respectively, account for the
majority of the increase. Operating expenses, excluding depreciation and
amortization, increased $8,269, or 33.9% for the nine months ended September 30,
1995 as compared to the same period in 1994. The primary increases occurred in
expenses associated with Tariff 12 sales of $5,405 and carrier expense of
$2,605.
Corporate Overhead and Other
- ----------------------------
For the three and nine months ended September 30, 1995, other sales increased
$947, or 11.5%, and $2,990, or 17.4%, respectively, primarily due to increases
resulting from a large premises distribution systems project of the
Communications Services Group for a telecommunications services provider.
Corporate overhead and other costs and expenses, excluding depreciation and
amortization, increased $1,766, or 18% and $8,594, or 39.3%, for the three and
nine months ended September 30, 1995 as compared to the same periods in 1994.
The increases result primarily from higher costs of sales of the Communications
Services Group due to increases in sales volume and changes in sales mix,
expenses associated with new business initiatives and higher salary expense due
to increased rates and additional personnel.
<PAGE>
Depreciation and Amortization
- -----------------------------
Depreciation and amortization increased $3,567 for the three months ended
September 30, 1995 as compared to the same period in 1994 primarily due to
additional expense of $3,609 and $1,236 associated with the consolidation of
Twin County Trans Video, Inc., and Mercom, Inc., respectively. These increases
were partially offset by lower amortization resulting from the expiration in
August 1994 of a significant Noncompete Agreement of the Cable Group.
For the nine months ended September 30, 1995, depreciation and amortization
decreased $289 as compared to the same period in 1994 primarily due to the
expiration in August 1994 of a significant Noncompete Agreement of the Cable
Group offset by additional depreciation and amortization resulting from
consolidation of Twin County Trans Video, Inc., effective May 1, 1995 and
Mercom, Inc., effective August 1, 1995.
In future periods, depreciation and amortization is expected to significantly
exceed amounts recorded for comparable periods in 1994 and earlier periods of
1995.
Interest and Dividend Income
- ----------------------------
Interest and dividend income increased $2,058 and $9,352 for the quarter and
nine months ended September 30, 1995, respectively, as compared to the same
periods in 1994. The increases are the result of both higher average invested
balances and higher yields in 1995. Average invested balances have increased
primarily as a result of the proceeds received from the sale of the Company's
cellular operations in September 1994 and proceeds from the Company's stock
rights offering, which concluded in December 1994, net of uses which primarily
include the repayment in December 1994 of $100,000 Parent Company debt and the
1995 acquisitions of Megacable for $84,000 and Twin County, the cash portion of
which was $39,000. The average yield has increased approximately 200 basis
points over the comparable periods in 1994.
Additionally, contributing to the increase were dividends received on the
Telephone Group's investment in Rural Telephone Bank (RTB) Class C Stock, which
was converted from non-dividend paying RTB Class B Stock in connection with the
early retirement of certain debt of the Telephone Group in March 1994. Such
dividends aggregated $1,975 for the nine months ended September 30, 1995 and
$893 for the nine months ended September 30, 1994.
Interest Expense
- ----------------
Interest expense decreased $1,668 and $5,080 for the three and nine month
periods ended September 30, 1995 as compared to the same periods in 1994
primarily due to the early payment of $100,000 Parent Company debt in December
1994.
Other
- -----
The Company disposed of its equity position in Northeast Networks, Inc. during
the second quarter of 1995 and realized a gain of $2,890.
<PAGE>
The Company's equity in the loss of unconsolidated entities increased $2,473
for the nine months ended September 30, 1995 as compared to the same period in
1994 primarily results from amortization of excess of the Company's purchase
price over the net assets of Megacable.
Financial Condition
- -------------------
Cash and temporary cash investments and short-term investments decreased
primarily as a result of the Company's $84 million investment in Megacable S.A.
de C.V. in January 1995 and its $39 million investment in Twin County Trans
Video, Inc. in May 1995.
Other current assets increased primarily as a result of the acquisitions and
consolidations of Twin County and Mercom which increased accounts receivable by
approximately $2,100. Additionally, interest and dividends receivable increased
$2,984 as a result of the timing of receipt of such income. Higher inventory
balances at the Telephone and Communications Services Group due to construction
projects in process also contribute to the increase.
Property, plant and equipment and intangible assets increased primarily as a
result of the allocation of the consideration for the Twin County Trans Video,
Inc. acquisition and Mercom, Inc. consolidation.
Investments increased primarily as a result of the Company's $84 million
investment in Megacable S.A. de C.V. in January 1995 in exchange for a forty
percent ownership interest.
Deferred charges and other assets primarily increase as a result of the
regulatory accounting treatment of deferred state income taxes by the Telephone
Group. The Telephone Group is permitted to recognize only State income taxes
actually paid as a cost of service. Accordingly, a regulatory asset is
established for the tax effect of temporary differences to be recovered from
rate payers when such taxes are actually paid.
Advance billings and customer deposits increased due to advance billings of
Twin County Trans Video, Inc., which was consolidated with the Company since May
1995.
Accrued taxes decreased primarily due to payment of state taxes accrued in
1994 on the gain resulting from the sale of Company's cellular operations.
Accrued interest decreased as a result of the timing of payment of interest on
the 9.65% $150,000 Senior Secured Notes of the Cable Group and the early
repayment of $100,000 Parent Company debt in December 1994.
Other current liabilities increased primarily as a result of the acquisition
of Twin County Trans Video, Inc., and the consolidation of Mercom, Inc.
Long-term debts increased primarily as a result of the consolidation of
Mercom, Inc., which has long term debt, including current maturities, of
$19,276. The remaining increase is due to additional borrowings by the Cable
Group on its Revolving Credit Agreement.
<PAGE>
Other deferred credits increased primarily as a result of regulatory
liabilities recorded for adjustments to future revenue requirements of the
Telephone Group caused by the provision of deferred taxes on regulatory assets.
Minority interest arises from the Purchase Method of accounting applied to the
Mercom, Inc. business combinations as a result of C-TEC acquiring majority
control of Mercom through the exercise of its rights and oversubscription
privilege of a stock rights offering by Mercom, Inc. in August 1995.
Redeemable preferred stock represents an estimate of the fair value of the $52
million stated value preferred stock issued as a portion of the consideration
for the Twin County Trans Video, Inc., acquisition. Such fair value is subject
to final adjustment.
Liquidity and Capital Resources
- -------------------------------
<TABLE>
<CAPTION>
September 30 December 31
1995 1994
---- ----
<S> <C> <C>
Cash and Temporary Cash Investments and
Short-term investments $166,893 $305,440
Working Capital $146,985 $265,363
Long-term Debt (including current maturities) $307,205 $282,385
<CAPTION>
Nine Months Ended September 30,
1995 1994
---- ----
<S> <C> <C>
Net cash provided by
operating activities $45,642 $62,057
Operating income before depreciation
and amortization (excluding Mobile Services
business segment in 1994) 86,307 80,156
Investing Activities:
Additions to property, plant and equipment
(excluding Mobile Services business segment
in 1994) 48,516 38,796
Acquisitions and investments, net of
cash acquired 128,201 800
------- ------
Total $176,717 $39,596
</TABLE>
The Company remains in a strong liquidity position at September 30, 1995
despite declines in cash, temporary cash investments, short-term investments and
working capital over December 31, 1994 primarily due to the Company's $84
million investment in Megacable S.A. de C.V. and its $39 million investment in
Twin County Trans Video, Inc. Long-term debt increased primarily as a result
of debt of Mercom, Inc. which was consolidated with the Company since August
1995.
<PAGE>
Net cash provided by operating activities represented 94.1% and 160.0% of
additions to property, plant and equipment for the nine months ended September
30, 1995 and 1994, respectively. This decline is largely the result of a
significant increase in additions to property, plant and equipment by the Cable
Group compared to the nine months ended September 30, 1994 and a decrease in net
cash provided by operating activities. The increase at the Cable Group is the
result of the Group's network upgrades to enable it to provide enhanced
telecommunications services over its network. The Cable Group's capital
expenditures are currently expected to remain ahead of the 1994 level throughout
1995. The decline in net cash provided by operating activities is the result of
working capital changes. The Company anticipates that its cash flow from
operations in 1995 will exceed the 1994 level.
The Company intends to utilize its available cash balance to develop full
service networks using certain of the Company's cable television and telephone
systems or other platforms such as leased or overbuilt facilities and for
potential acquisitions, joint ventures and similar strategic investments in the
telecommunications industry.
REGULATORY ISSUES
CABLE TELEVISION CONSUMER PROTECTION
AND COMPETITION ACT
The Company, like other operators of cable television systems, is subject to
regulation at the federal, state and local levels. Many aspects of such
regulation are currently the subject of judicial proceedings and administrative
or legislative proceedings or proposals. On October 5, 1992, Congress passed
The Cable Television Consumer Protection and Competition Act of 1992 (the "Act")
which regulated certain subscriber rates and a number of other matters in the
cable industry, such as mandatory carriage of local broadcast stations and
retransmission consent, which have increased the administrative costs of
complying with such regulations. The most significant provision of the Act
requires the Federal Communications Commission (the "FCC") to establish rules to
ensure that rates for basic services are reasonable for subscribers in areas
without effective competition as defined in the Act. Few municipalities served
by the Company are subject to effective competition. The FCC has delegated the
responsibility of regulation of the basic tier to the applicable franchise
authority, provided such authority becomes certified to regulate by the FCC.
The FCC's initial rules regulating cable television rates were effective
September 1, 1993 and the revised rate regulations were effective May 15, 1994.
All cable television rates except pay-per-view and premium channels are subject
to competitive benchmarks established by the FCC. Under the revised regulation,
cable operators' regulated rates generally must be reduced to 83 percent of
their September 30, 1992 levels adjusted forward by inflation and permitted
external costs. The reduction reflects the 17 percent "competitive
differential" between rates of systems that were and systems that were not
subject to effective competition on September 30, 1992, based on the results of
the FCC's statistical analysis of the data it had collected and evaluated in
establishing the initial benchmark rates. Under both the initial and revised
scheme of benchmark/price cap regulation, once the cable operator has reached
the regulated rate level, its rates remain capped at that level. Future rate
adjustments are permitted based on certain external costs incurred by the cable
operator, inflation and the cost of adding channels. External costs include
programming costs excluding retransmission consent fees prior to October 6,
1994, as well as subscriber related taxes and franchise fees and
<PAGE>
other franchise requirements. A system with rates above the benchmarks may
utilize a cost-of-service showing to justify its rates and avoid a rate
reduction. Equipment charges for basic tier services are also subject to roll
back to the level representing the cost of the equipment including a reasonable
profit. 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.
The FCC in its revised rate regulation issued additional criteria which
addressed whether the manner in which regulated program services were moved to
unregulated a la carte services enhanced subscriber choice or were an evasion of
the FCC's rate regulation. If the a la carte tier enhanced customer choice and
satisfied the criteria established by the FCC, the tier would be considered
unregulated.
Additionally, the FCC issued its going forward rules, effective January 1,
1995. Under the new going forward rules, operators may continue to pass through
the cost of new channels plus a 7.5 percent mark-up. Alternatively, under the
new rules, which generally apply only to cable programming service tiers,
operators have the option of imposing a $0.20 per channel per month mark-up
(limited to $1.20 over the next two years and $1.40 over the next three years)
for new channels. In addition, under the new alternative, operators may pass
through increases in cable programming service costs (from May 15, 1994 through
December 31, 1996) only in an amount not to exceed $0.30 per subscriber per
month. Under the new rules, operators also may add unregulated "new product
tiers," composed of new channels and/or channels that duplicate existing
channels. Operators must choose to make adjustments based on either the new
rules or the old rules for all channel additions after May 14, 1994.
On June 5, 1995, the FCC released the text of a small systems rate relief
Order. The Order provides that "small systems" (i.e. those with 15,000 or fewer
subscribers) owned by "small cable companies" (i.e. serving 400,000 or fewer
subscribers) may file a very streamlined cost-of-service analysis to justify
their rates. The Company anticipates that some of its Michigan operations may be
classified as small systems under these new rules. The Company is currently
reviewing the Order and its impact on the Company going forward.
On June 6, 1995 the United States Court of Appeals for the D.C. Circuit
released a decision to permit the recovery of increases in external costs for
the period extending from September 30, 1992 until the operator became subject
to rate regulation at some point after September 1, 1993 commonly referred to as
the "Gap Period". The Company is currently reviewing the impact of this decision
on its maximum permitted rates under the going forward rules.
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. The Company restructured its
rates and channel offerings in 1993 and 1994 to comply with rate regulation and
minimize the negative impact on revenues.
The Company is continuing to evaluate the effect of FCC regulations on its
rates. All existing rates as well as future rate increases for basic cable
service must be approved by the local municipality if it has certified to
regulate basic cable service rates. To date, approximately 42% of the
<PAGE>
Company's municipalities have filed to regulate basic cable service rates with
31% of these municipalities currently certified to regulate basic rates. The FCC
regulates tiers of service above basic cable service in a franchise area if a
complaint is filed with the FCC with respect to rates in that franchise area.
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 original Act. The Company continues to believe it
is in full compliance with the original Act. However, on December 30, 1994, the
FCC issued a Memorandum Opinion and Order which ordered that C-TEC's a la carte
packages in two Michigan communities as they existed on November 17, 1993, are
subject to rate regulation as of September 1, 1993, and the channels composing
them must be counted by C-TEC as rate regulated channels for purposes of rate
justification, as of that date. The order also terminated the remaining 14
inquiries regarding other C-TEC Michigan franchises since these franchises
withdrew their complaints and accepted the Company's settlement offer, discussed
below. The Company submitted an application for review of the Memorandum
Opinion and Order with the FCC on January 30, 1995. The Company accrued for the
potential a la carte liability in 1994. Since the filing of the application for
review, one of the two Michigan communities subject to the Memorandum Opinion
and Order has accepted the Company's settlement offer.
The Company has been challenged on it's existing regulated rate structure by
additional communities in Michigan which were not a part of the FCC's letters of
inquiry and is involved in ongoing negotiations with these communities. The
Company accrued an amount which represents its best estimate of it's subscriber
refund liability in Michigan in 1994. This amount represents a reduction of the
limited basic rate by $.30 cents per month for each subscriber from December 31,
1994 back to the date of initial regulation. The proposed settlement with the
Michigan communities is an effort to resolve the regulatory issues and avoid
possible extended litigation. Communities representing approximately 76% of the
Company's Michigan subscriber base have accepted the proposed settlement offer
which precludes challenges for various periods extending beyond 1995. The
Company has either settled challenges or accrued for anticipated exposures
related to initial rate regulation which was effective September 1993. The FCC
issued new rate regulation guidelines which were effective May 1994. During the
first quarter of 1995, the Company commenced basic rate increase notifications
to all of its Michigan subscribers. The rate increase was implemented in April
1995. The increase was in conformity with the settlement agreements discussed
previously and the FCC going forward rules. Five Michigan communities to date
have filed complaints with the FCC relative to the April rate increase on the
basic cable service tier. Five Michigan subscribers to date have filed
complaints with the FCC relative to the April increase on the cable programming
service tier. The Company believes that it is in compliance with the amended
rate regulation provisions; however, there is no assurance that there will not
be challenges to its rates.
The Company's cable systems in New York and New Jersey are regulated by the
respective state regulatory commissions. These commissions have certified with
the FCC to regulate basic cable service rates on behalf of all communities in
those states. In August, 1994, the State of New Jersey Board of Public Utilities
(the "Board") ruled on the Company's rates which were in effect prior to May 15,
1994. The Board approved the basic rate and ruled that the Company's a la carte
package should not be considered a regulated tier. The Board did, however, order
a two dollar reduction in the rate charged for converter rental. In 1994, the
Company accrued for a refund
<PAGE>
liability back to September 1, 1993. Additionally, the Company has changed its
rate for converter rental for future periods to reflect the Board's decision.
The State of New Jersey again challenged the Company's rate structure, including
a la carte services, under the revised regulations. In June and July 1995, the
Board ruled on the Company's rates which were in effect subsequent to May 15,
1994, but prior to any rate increases. The Board once again approved the basic
rate and stated that the Company continues to offer the same package of a la
carte channels previously approved by the Board. During the first quarter of
1995, the Company commenced basic rate increase notifications to all of its New
Jersey and New York subscribers. The rate increase was implemented in April 1995
and was in conformity with the FCC going forward rules. There have been
sixty six customer complaints filed with the FCC for New Jersey and sixteen for
New York relative to the April rate increase on the cable programming service
tier. As stated earlier, the Company believes that is in compliance with the
amended rate regulation provisions.
The Company anticipates that certain provisions of the Act that do not relate
to rate regulation, such as the provisions relating to retransmission consent
and customer service standards, will reduce the future operating margins of the
Company.
No assurance can be given at this time that the above matters will not have a
material adverse effect on the Company's business and results of operations in
the future. Also, no assurance can be given as to what other future actions
Congress, the FCC or other regulatory authorities may take or the effects
thereof on the cable industry in general or the Company in particular.
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.
During 1993, the Pennsylvania Public Utility Commission ("PPUC"), conducted a
review 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 review, CTCo is providing 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 does not record deferred state
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.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on September 14, 1995.
Matters submitted to and approved by Shareholders included:
1) The election of the following Class II Directors to serve for a term of
three years:
Nominee For Against
------- --- -------
Thomas C. Stortz 115,139,885 19,011,399
Robert E. Julian 115,138,885 19,012,399
Frank M. Henry 115,154,886 18,996,397
Eugene Roth 115,059,485 19,091,798
Additional Directors whose term of office as a Director continued after the
meeting included:
James Q. Crowe Michael J. Mahoney
Stuart E. Graham David C. McCourt
Richard R. Jaros David C. Mitchell
Daniel E. Knowles Walter Scott, Jr.
2) An amendment to the articles of incorporation to increase the
authorized C-TEC Common Stock and Class B Stock to 85,000,000 and
15,000,000 respectively.
For Against Abstain No Vote
107,646,771 25,932,286 572,226 0
3) An amendment to the articles of incorporation to authorize a new class
of 25,000,000 shares of C-TEC Preferred Stock.
For Against Abstain No Vote
99,455,865 24,773,708 644,620 9,277,090
4) The approval of the issuance of C-TEC Preferred Stock for use in the
merger of Twin County Trans Video, Inc. into a subsidiary of the Company.
For Against Abstain No Vote
93,787,225 19,448,090 638,878 9,277,090
5) The approval of the issuance of C-TEC Preferred Stock for use in the
merger of Buffalo Valley Telephone Company into a subsidiary of the
Company.
For Against Abstain No Vote
104,722,454 19,536,652 615,087 9,277,090
6) The ratification of the selection of Coopers & Lybrand as the
Company's independent auditors for the year ending December 31, 1995.
For Against Abstain No Vote
115,815,008 17,834,981 501,294 1,809,550
<PAGE>
Item 5. Other Events
The Company announced on November 8, 1995 that it is evaluating strategic
options for its various business units with a view toward enhancing
shareholder value. Specifically, the Company will evaluate the
advisability and flexibility of separating or restructuring its local
telephone business, its cable television, and its various other
communications businesses. C-TEC has engaged the investment banking firm
of Merrill Lynch & Co. to assist with the process.
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
(11) Statement re: Computation of Per Share Earnings
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
C-TEC CORPORATION
DATE: November 14, 1995 /s/ Bruce C. Godfrey
________________________
Bruce C. Godfrey
Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT 11
COMPUTATION OF PRIMARY/FULLY DILUTED SHARES OUTSTANDING
USED IN INCOME (LOSS) PER SHARE CALCULATIONS
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------- -------------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY:
- -------
Average Shares 27,445,167 16,509,593 27,445,167 16,509,593
Outstanding
Dilutive Shares 78,952 - 28,375 -
resulting from
stock options -
based on treasury
stock method using
average market price
Dilutive Shares
resulting from - - - - -
redeemable
preferred stock***
Weighted Average Common 27,524,119 16,509,593 27,473,542 16,509,593
========== ========== ========== ==========
Stock & CSE Outstanding
FULLY DILUTED:
- -------------
Average Shares 27,445,167 16,509,593 27,445,167 16,509,593
Outstanding
Dilutive Shares 78,952 - 46,280 -
resulting from stock
options - based on treasury
stock method using
the greater of the
period-end market price
or average market price
Dilutive Shares resulting 145,714 - 48,038 -
from redeemable preferred
stock - treated as
converted to common stock
on the date of issuance
Weighted Average 27,669,833 16,509,593 27,539,485 16,509,593
========== ========== ========== ==========
Common Stock
& CSE Outstanding
</TABLE>
<PAGE>
*** Treated as if converted to common stock on the date of issuance if the
effective yield is less then two-thirds the average Aa corporate bond rate at
issuance:
Dividends at Stated Rate 2,600,000 = 5.8%
----------
Fair Value of Convertible Preferred Stock 44,500,000
Average Aa bond rate = 7.5% x .667 = 5.0%
NOTE - The effects of CSE on Earnings per Share calculations were less than 3%,
therefore they were not used in the EPS calculation.
(27) Financial Data Schedule
(b.) Reports on Form 8-K
The Company filed a Form 8-K on September 7, 1995 to announce that
Megacable, S.A. de C.V., in which the Company has a 40% ownership interest,
signed a nonbinding letter of intent on July 25, 1995 to form business
relationship with MFS Communications Company, Inc. to provide local
telecommunications services in Mexico City.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS AS OF AND FOR THE PERIOD ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 78,503
<SECURITIES> 88,390
<RECEIVABLES> 45,482
<ALLOWANCES> 1,957
<INVENTORY> 6,998
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44,500
0
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</TABLE>
