<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
April 10, 1995 (January 24, 1995)
C-TEC CORPORATION
(Exact name of registrant as specified in its charter)
Pennsylvania 0-11053 23-2093008
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
105 Carnegie Center, Princeton, NJ 08540
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(609) 734-3700
(Former name or former address, if changed since last report).
<PAGE>
Item 2. Acquisition or Disposition of Assets
On February 8, 1995, C-TEC Corporation filed a Form 8-K to announce
that C-TEC International, Inc., a wholly owned subsidiary of C-TEC Properties,
Inc., which in turn is a wholly-owned subsidiary of C-TEC Corporation,
(collectively "C-TEC") purchased on January 24, 1995 a 40 percent equity
position in Megacable S.A. DE CV, Mexico's second largest cable television
operator, for approximately $84 million in cash, subject to adjustments.
The required financial statements of Megacable and pro forma financial
information are included in Item 7 of this Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
(a) Financial Statements of Business Acquired
1. Financial Statements of Megacable S.A. DE CV as of December 31,
1994 and 1993
(b) Pro Forma Financial Information
1. Pro Forma Condensed Consolidated Financial Statements (Unaudited)
of C-Tec Corporation taking into consideration the acquisition of
Megacable S.A. DE CV and the pending acquisition of Twin County
Trans Video, Inc.
<PAGE>
Item 7(a) 1
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
----------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS ON THE CONSOLIDATED FINANCIAL
---------------------------------------------------------------
STATEMENTS AS OF DECEMBER 31, 1994 AND 1993
-------------------------------------------
C O N T E N T S
---------------
OPINION
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED AND COMBINED (PREDECESSOR) STATEMENTS OF OPERATIONS
CONSOLIDATED AND COMBINED (PREDECESSOR) STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF MEGACABLE S.A. DE C.V. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Megacable,
S.A. de C.V. and Subsidiaries (incorporated in Mexico) as of December 31, 1994
and 1993 and the related consolidated statements of operations, changes in
shareholder's equity and cash flows for the year ended December 31, 1994 and the
six-month period ended December 31, 1993, and the accompanying combined
statements of operations, changes in shareholders' equity and cash flows of
Cable Control Sinaloa, S.A. de C.V. and Cable Control de Sonora, S.A. de C.V.
(Predecessor) for the six month period ended June 30, 1993 (all expressed in
U.S. dollars). These financial statements are the responsibility of management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 Megacable, S.A.
de C.V. and Subsidiaries as of December 31, 1994 and 1993, and the results of
its operations, changes in shareholders' equity and cash flows for the year
ended December 31, 1994 and the six-month period ended December 31, 1993 and the
accompanying combined statements of operations, changes in shareholders' equity
and cash flows of Cable Control Sinaloa, S.A. de C.V. and Cable Control de
Sonora, S.A. de C.V. (Predecessor) for the six month period ended June 30, 1993
in conformity with generally accepted accounting principles in the United States
of America.
Lebrija Alvarez y Cia., S.C.
Roberto Escobedo Anzures C.P.
<PAGE>
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
AS OF DECEMBER 31, 1994 AND 1993
--------------------------------
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1994 1993
- ------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 665,452 $ 938,730
Accounts receivable 498,870 996,851
Income taxes receivable 1,135,660
Inventories (Note 2) 2,286,637 2,871,402
Other current assets 220,996 37,566
---------- ----------
Total Current Assets 4,807,615 4,844,549
Investments (Note 4) 234,197 365,713
Property, plant & equipment, net (Note 3) 10,813,496 9,586,968
Intangible assets, net (Note 5) 17,717,203 29,068,340
Other assets 36,309 33,221
Deferred income tax (Note 10) 2,975,647
---------- ----------
Total Assets 36,584,467 43,898,791
---------- ----------
LIABILITIES AND SHAREHOLDER'S DEFICIT
- -------------------------------------
Short-term bank loans (Note 6) 55,000,000 58,273,273
Current portion of capital leases (Note 7) 804,174
Trade accounts payable 867,973 974,840
Income taxes currently payable 1,003,592
Accrued interest 2,456,731 40,840
Other 1,415,758 949,764
---------- ----------
Total Current Liabilities 60,544,636 61,242,309
Capital leases (Note 7) 1,258,167
Deferred income tax (Note 10) 2,024,067
---------- ----------
Total liabilities 61,802,803 63,266,376
Shareholders' deficit (25,218,336) (19,367,585)
---------- ----------
Total liabilities and shareholders' deficit $36,584,467 $43,898,791
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
- --------------------------------------------------------------------------------
<PAGE>
STATEMENTS OF OPERATIONS
------------------------
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
----------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994 AND THE SIX
------------------------------------------------
MONTH PERIOD ENDED DECEMBER 31, 1993 (CONSOLIDATED)
---------------------------------------------------
CABLE CONTROL DE SONORA, S.A. DE C.V. AND
-----------------------------------------
CABLE CONTROL SINALOA, S.A. DE C.V. AND SUBSIDIARIES
----------------------------------------------------
(PREDECESSOR)
-------------
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1993
--------------------------------------------
(COMBINED)
----------
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Predecessor
Six month Six month
period ended period ended
December 31, June 30,
------------ --------
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES $ 29,997,052 $ 11,985,596 $ 12,014,287
- -------- ---------- ---------- ----------
EXPENSES
- --------
Costs and expenses 15,960,970 7,002,250 6,846,298
Depreciation and amortization 3,386,986 2,298,900 744,290
---------- ---------- ----------
Total expenses 19,347,956 9,301,150 7,590,588
---------- ---------- ----------
Operating profit 10,649,096 2,684,446 4,423,699
---------- ---------- ----------
Foreign currency transaction loss 28,555,651
Interest expense (income), net 6,009,386 3,816,397 ( 329,190)
---------- ---------- ----------
34,565,037 3,816,397 ( 329,190)
---------- ---------- ----------
Income (Loss) before income taxes (23,915,941) ( 1,131,951) 4,752,889
Income taxes (benefits) ( 5,698,579) ( 773,337) 2,524,032
---------- ---------- ----------
Net income (loss) $(18,217,362) $( 358,614) $ 2,228,857
========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
MEGACABLE, S.A. DE C.V. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
-----------------------------------------------------------
FOR THE PERIODS ENDED DECEMBER 31, 1994 AND 1993
------------------------------------------------
(U.S. DOLLARS)
<TABLE>
<CAPTION>
Common Stock
Shares Value
------ -----
<S> <C> <C>
Balance July 1, 1993 36,000 $ 15,298
Shares issued 37,964,000 1,595,539
Net loss
Translation adjustment
---------- ----------
Balance December 31, 1993 38,000,000 1,610,837
Stock dividend, Series D shares
Net loss
Translation adjustment
---------- ----------
Balance December 31, 1994 38,000,000 $ 1,610,837
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Cumulative
Preferred Stock Translation Accumulated
Shares Value Adjustment Deficit Total
- ------ ----- ---------- ------- -----
<S> <C> <C> <C> <C>
$ (21,651,334) $ (21,636,036)
1,595,539
( 358,614) ( 358,614)
$ 1,031,526 1,031,526
---------- ---------- ----------
1,031,526 (22,009,948) (19,367,585)
17,500,000
(18,217,362) (18,217,362)
12,366,611 12,366,611
- ---------- ---------- ---------- ---------- ----------
17,500,000 $ $ 13,398,137 $ (40,227,310) $ (25,218,336)
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
CABLE CONTROL DE SONORA, S.A. DE C.V. AND
-----------------------------------------
CABLE CONTROL SINALOA, S.A. DE C.V. AND SUBSIDIARIES
----------------------------------------------------
COMBINED STATEMENT OF CHANGES IN
--------------------------------
SHAREHOLDERS' EQUITY FOR THE SIX MONTH PERIOD
---------------------------------------------
ENDED JUNE 30, 1993
-------------------
PREDECESSOR
-----------
(U.S. DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
Shares Value
------ -----
<S> <C> <C>
Balance December 31, 1992 2,820,000 $ 535,636
Dividend ($ 3.30 per share)
Net profit
Transition Adjustment
---------- -----------
Balance June 30, 1993 2,820,000 $ 535,636
========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Cumulative Accumulated
Translation Profit
Adjustment (Deficit) Total
---------- ------- -----
<S> <C> <C>
( 199,182) $ 12,066,554 $ 12,403,008
( 9,296,639) ( 9,296,639)
2,228,857 2,228,857
( 123,112) ( 123,112)
---------- ---------- ----------
$ ( 322,294) $ 4,998,772 $ 5,212,114
========== ========== =========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
MEGACABLE S.A. DE C.V. AND SUBSIDIARIES
---------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR
--------------------------------------------------
ENDED DECEMBER 31, 1994 AND THE SIX MONTH ENDED
-----------------------------------------------
DECEMBER 31, 1993
-----------------
CABLE CONTROL DE SONORA, S.A. DE C.V. AND
-----------------------------------------
CABLE CONTROL SINALOA, S.A. DE C.V. AND SUBSIDIARIES
----------------------------------------------------
(PREDECESSOR)
-------------
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1993
--------------------------------------------
(COMBINED)
----------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Predecessor)
Six Month Six Month
Period ended Period ended
December 31, June 30,
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
- ------------------------------------
Net loss $(18,217,362) $( 358,614) $ 2,228,857
Depreciation and amortization 3,386,986 2,298,900 744,290
Deferred taxes ( 6,072,352) ( 791,861) ( 448,913)
Net change in certain assets and
liabilities 1,593,941 ( 692,527) 4,400,715
Foreign currency transaction loss 28,555,651
---------- ---------- ---------
Net cash provided by
operating activities 9,246,864 455,898 6,924,949
CASH FLOWS FROM INVESTING ACTIVITIES:
- ------------------------------------
Acquisitions (50,114,941)
Additions to property, plant and
equipment ( 6,095,357) ( 1,296,889) ( 1,466,055)
---------- ---------- ---------
Net cash used in investing activities ( 6,095,357) (51,411,830) ( 1,466,055)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
- ------------------------------------
Dividend ( 9,296,639)
Repayment of debt ( 1,844,389)
Issuance of debt 5,000,000 50,114,941
Net cash provided by (used in) ---------- ---------- ---------
financing activities 5,000,000 50,114,941 (11,141,028)
---------- ---------- ---------
Effect of exchange rate changes on
cash ( 8,424,785) 109,298 1,437,136
---------- ---------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net decrease in cash and cash
equivalents ( 273,278) ( 731,693) (4,244,998)
Cash and cash equivalents, at
beginning of period 938,730 1,670,423 5,915,421
----------- --------- ----------
Cash and cash equivalents, at end
of period $ 665,452 $ 938,730 $ 1,670,423
=========== ========= ==========
Income tax paid $ 1,509,434 $ 18,524 $ 2,158,491
=========== ========= ==========
Interest paid $ 3,886,681 $3,775,557 --
=========== ========= ==========
COMPONENTS OF NET CHANGE IN
- ---------------------------
CERTAIN ASSETS AND LIABILITIES
------------------------------
Accounts receivable $( 1,390,172) $ 316,106 $( 439,445)
Inventories ( 638,572) ( 444,459) 542,949
Other assets ( 133,549) ( 44,388) ( 43,713)
Accounts payable 203,007 (608,489) 4,340,924
Accrued salaries and employee
benefits 50,156 88,703
Accrued interest 3,503,071
----------- --------- ----------
Net change in certain assets and
liabilities: $ 1,593,941 $( 692,527) $ 4,400,715
=========== ========= ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
11
<PAGE>
MEGACABLE , S.A. DE C.V. AND SUBSIDIARIES
-----------------------------------------
NOTES TO THE FINANCIAL STATEMENTS
---------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1994 AND
----------------------------------------
THE SIX MONTH ENDED DECEMBER 31, 1993
-------------------------------------
(CONSOLIDATED)
--------------
CABLE CONTROL DE SONORA, S.A. DE C.V. AND
-----------------------------------------
CABLE CONTROL SINALOA, S.A. DE C.V. AND SUBSIDIARIES
----------------------------------------------------
(PREDECESSOR)
-------------
FOR THE SIX MONTH PERIOD ENDED
------------------------------
JUNE 30, 1993
-------------
(COMBINED)
--------
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Organization of Business
------------------------
In June 1993 Cable Control de Sonora, S.A. de C.V. (Cacoson)
and Cable Control Sinaloa, S.A. de C.V. (Cacosin), which were jointly controlled
by approximately 80 shareholders, were acquired by Magacable, S.A. de C.V. (the
Company). The acquisition of the Cacoson and Cacosin shares was financed by a
U.S. $50 million short term bank loan.
The controlling shareholders of Megacable, (94% interest) had previously
been Cacosin and Cacoson shareholders' with an investment of approximately 34%
in Cacosin and Cacoson, combined. To account for the purchase of Cacosin and
Cacoson, Megacable recorded a step-up in the accounting basis of the acquired
assets of 66% of the fair market value. The balance of the acquired assets are
reflected on the Company's balance sheet at the predecessor shareholders'
carryover basis. The difference between the consideration paid and the basis of
the acquired assets has been allocated to goodwill or treated as a deemed
dividend on the basis of the percentage of predecessor shareholders' carryover
basis. The deemed dividend generates the accumulated deficit balance of
$ 21,651,334 on the Company's opening balance sheet.
For purposes of these financial statements the Company has consolidated
Cacosin and Cacoson since July 1, 1993. The financial statements of Cacosin
and Cacoson for the six month period ended June 30, 1993 are presented on a
combined basis.
<PAGE>
Principles of Consolidation
---------------------------
The consolidated financial statements of the Company includes the accounts
of its majority owned subsidiaries: Cable Control Sinalca, S.A. de C.V.
(99.99%), Cable Control de Sonora, S.A. de C.V. (99.99%), Vision por Cable, S.A.
de C.V. (99.98%), Vision por Cable de Nayarit, S.A. de C.V. (99.97%), Servicios
Empresariales del Noroeste, S.A. de C.V. (100%) and Servicios Tecnicos de
Vision por Cable, S.A. de C.V. (100%). All intercompany transactions are
eliminated in consolidation.
The Company owns, operates and manages cable television systems in the
cities (states) of Culiacan, Guasave, Guamuchil, Los Mochis, Mazatlan (Sinaloa),
Hermosillo, Guaymas, Ciudad Obregon, Navojoa (Sonora) and Guadalajara
(Jalisco).
To convert its financial statements to a presentation in accordance with
generally accepted accounting principles in the United States, the Company has
made adjustments and reclassifications to the balance sheets and statements of
operations, which were derived from accounting records maintained under Mexican
accounting standards.
Cash and Cash Equivalents
-------------------------
For the purposes of reporting cash flows the Company considers all
investments purchased with an original maturity of three months or less to be
cash equivalents. Due to the short maturities of instruments held as cash
equivalents, their historical cost approximates market.
Inventory
---------
Inventory is carried at the lower of cost or market based on the average
cost method.
Investments
-----------
Investments in associated companies are carried at cost.
<PAGE>
Property, Plant and Equipment
-----------------------------
Property, plant and equpiment includes the original cost of construction.
The Company provides for depreciation on the straight line method based upon the
estimated lives of the various classes of depreciable property. The average
estimated lives of depreciable property are:
Cable television distribution equipment 8-14 years
Vehicles 10 years
Furniture and fixtures 10 years
The Company capitalized interest of approximately $ 205,613 in 1994 with
respect to the construction of cable television distribution equipment.
Intangible Assets
-----------------
Intangible assets, primarily goodwill and organization costs arising from
the acquisition of Cable Control Sinaloa, S.A. de C.V. and Cable Control de
Sonora, S.A. de C.V., are being amortized on a straight line basis over the
expected period of benefit ranging from 10 years to 20 years. Whenever
management becomes aware of circumstances which would indicate that the carrying
amount of an intangible asset does not appear to the recoverable, management
determines if an impairment exists based upon an evaluation of the estimated
cash flows from acquired businesses.
Employee Benefits
-----------------
The Company is required by the Mexican Federal Law of Labor to provide
certain employee benefits. The related liabilities and expenses are recorded in
accordance with SFAS87.
Subscriber Revenue
------------------
Revenue from basic and premium cable programming services are recorded in
the month the service is provided.
Income Taxes
------------
The Company provides for income taxes in accordance with SFAS 109,
"Accounting for Income Taxes" which requires an asset and liability approach to
accounting for deferred tax assets and liabilities.
<PAGE>
FOREIGN CURRENCY
----------------
The functional currency is the Mexican peso. Foreign exchange gains and
losses as a result of translating a foreign entity's balance sheet from its
functional currency into U.S. dollars are included as a separate component of
stockholder's equity. Gains or losses on transactions denominated in a currency
other than the functional currency are included in the results of operations.
2. INVENTORIES
-----------
Inventories at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cable distribution equipment $ 1,923,652 $ 2,184,257
Materials and supplies 257,925 646,682
Other 105,060 40,463
--------- ---------
$ 2,286,637 $ 2,871,402
========= =========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant, and equipment at December 31, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Building $ 67,308 $
Land 276,709 375,042
Cable television distribution equipment 12,285,058 10,575,698
Vehicles 822,149 694,559
Furniture and fixtures 220,124 185,075
---------- ----------
Total property, plant and equipment 13,671,348 11,830,374
Accumulated depreciation ( 2,857,852) ( 2,243,406)
---------- ----------
Net property, plant and equipment $10,813,496 $ 9,586,968
========== ==========
</TABLE>
Depreciation expense was $ 2,026,512 and $ 2,266,653 for the years ending
December 31, 1994 and 1993, respectively. At December 31, 1994 the Company had
fixed assets under capital leases recorded on its books of approximately
$ 2,432,000.
<PAGE>
4. INVESTMENTS
-----------
The Company's investments at December 31, 1994 and 1993 reflected its
16.37% equity interest in Productora y Comercializadora de Television, S.A. de
C.V. which is carried on the cost method, at December 31, 1994.
5. INTANGIBLE ASSETS
-----------------
Intangible assets are as follows at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Excess of cost over fair value of
assets acquired $19,082,227 $29,798,073
Organization costs 66,142 15,218
---------- ----------
Total Intangible assets 19,148,369 29,813,291
Less: Accumulated amortization 1,431,166 744,951
---------- ----------
Net intangible assets 17,717,203 29,068,340
========== ==========
</TABLE>
Amortization expense charged to operations was $ 1,360,474 and $ 776,537 in
1994 and 1993.
6. BANK LOANS
----------
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Loans in U.S. dollars payable
June 27, 1994 with a renewal
expiring on January 13, 1995
at Libor plus 4.125 points;
9.72% at December 31, 1994. $55,000,000 $50,000,000
Loans in Mexican currency, -
payable in January and March
1994, at interest rates of
12.9% to 16% guaranteed by
the subsidiary companies. 8,273,273
---------- ----------
$55,000,000 $58,273,273
========== ==========
</TABLE>
<PAGE>
7. CAPITAL LEASES
--------------
The Company has entered into three capital lease contracts where it is
leasing cable television distribution equipment over a 12 to 36 month term. The
leases pay interest on the basis of various floating indices that during 1994
resulted in a weighted average rate of 41.24%.
The annual aggregate maturities of capital leases subsequent to 1994 are
presented below:
<TABLE>
<S> <C>
1995 $ 804,174
1996 567,480
1997 690,687
-------
$ 2,062,341
=========
</TABLE>
8. SUBSEQUENT EVENTS
-----------------
On January 19, 1995 the Company signed an agreement with C-TEC Corporation
to sell 37,000,000 of Megacable shares for $ 84,115,456.
During 1995 the Mexican peso continued to devaluate against the U.S.
dollar. At March 29, 1995 the exchange rate was NPS 6.90 to 1. In addition,
during 1995 the interest rates on peso denominated debt increased to over 100%
per annum. The financial statements presented herein do not consider these 1995
events.
9. CAPITAL STOCK
-------------
On December 16, 1994 the Company restructured its existing shareholders'
capital consisting of series A and B shares to a capital structure consisting
of no-par value B and D shares.
The restructuring was effected by converting the series A outstanding shares
to minimum fixed capital series B shares, meaning that the Company cannot
redeem and retire such shares in the future. Concurrently, all series B shares
were declared to be no-par value stock and a stock split was declared on the
5,277,300 outstanding shares, wherein an additional 32,722,700
<PAGE>
shares were issued, representing a 7.2:1 split. All references in the financial
statements to the number of shares outstanding have been restated to reflect the
split.
In addition, on the same date a stock dividend of 17,500,000 Series D
preferred shares was made to existing B shareholders. The Company did not
transfer any capital to the preferred stock account. The series D shares have a
preference with respect to dividends in that the holders of such shares must
receive a minimum dividend based on the fair market value of the D shares before
any dividend can be paid to series B shareholders.
The series D shares also carry limited voting rights which allow the
shareholders to vote on only certain corporate matters such as mergers,
liquidations and changes in the basic corporate charter. Pursuant to the
December 16, 1994 board resolutions, the Company can also issue both series B-2
and D-2 shares representing variable capital which can be redeemed and retired
by the Company.
The Company's board of directors authorized on December 16, 1994, the
issuance of up to 100,000,000 shares of all series of stock. The related
resolution does not identify a maximum number of shares authorized per series of
stock.
Capital stock outstanding at December 31, 1994 is as follows:
<TABLE>
<S> <C>
Series B 38,000,000
Series D, Subseries D-1 7,375,000
Series D, Subseries D-2 10,125,000
----------
55,500,000
==========
</TABLE>
At present the subseries D-1 and subseries D-2 shares have the same
characteristics.
10. INCOME TAXES
------------
The Company and each of its Subsidiaries file individual income tax
returns. Temporary differences and carryforwards which give rise to deferred
tax assets and liabilities at December 31, 1994 and 1993 are as follows:
<PAGE>
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards $ 4,924,752 $ 166,916
Employee benefits 14,067 21,846
--------- ---------
4,938,819 188,762
Deferred tax liability:
Property, plant and equipment ( 1,745,265) ( 1,917,292)
Inventories ( 217,907) ( 295,537)
--------- ---------
( 1,963,172) ( 2,212,829)
Net deferred tax asset
(liability) $ 2,975,647 $( 2,024,067)
========= =========
</TABLE>
Comparative analysis of the provisions (benefit) for income tax follows:
<TABLE>
<CAPTION>
Predecessor
Six month
Six months ended ended June
1994 December 31, 1993 30, 1993
---- ----------------- --------
<S> <C> <C> <C>
Current $ 373,773 $ 18,524 $ 2,075,119
Deferred (6,072,352) (791,861) 448,913
--------- ------- ---------
$ (5,698,579) $(773,337) $ 2,524,032
========= ======= =========
</TABLE>
The operating losses incurred in 1994 can be used to offset income in
future years until they expire in 1999.
The reconciliation of the Company's effective tax rate to the applicable
Mexican statutory rate is as follows:
<TABLE>
<CAPTION>
December 31,
1994
----
<S> <C>
Statutory Rate (34.00)%
Inflationary loss (gain) 5.40
Amortization (Goodwill) 2.60
Other Expenses (Income) 2.17
------------
Effective Rate (Real) (23.83)%
============
</TABLE>
For the periods ended June 30, 1993 and December 31, 1993, the Company and
Cacosin and Cacoson had the same type of reconciling items at arriving at a
reconciliation of the statutory and effective rates. The only significant
difference is that goodwill amortization was not a reconciling item for the
period ended June 30, 1993 as the predecessor companies did not have recorded
goodwill.
<PAGE>
11. RELATED PARTIES
---------------
The Company makes regular payments to its cost method investee,
Comercializadora de Television, S.A. de C.V. for television transmission
services. In addition, certain Company shareholders have significant investments
in outside entities which normally enter into transactions with the Company. A
summary of the related party transactions at December 31, 1994 and 1993, and
June 30, 1993 (Predecessor) is as follows:
<TABLE>
<CAPTION>
Predecessor
Six months Six months
ended ended
December 31, June 30,
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
Purchase of transportation equipment $ 141,188 $ $ 66,449
Financial advisory services 257,961 234,901 335,360
Television transmission services 1,601,792 327,544 276,432
Tax and accounting advisory services 13,735 48,012
</TABLE>
12. PENSIONS AND EMPLOYEE BENEFITS
------------------------------
Mexican law requires that employers make cash payments (Seniority Premiums)
to employees who retire or are forced to leave the Company. The amount of the
payments are based on employees' longevity with the Company and are actuarially
calculated.
Components of net periodic pension cost for the periods ended December 31,
1994 and 1993 and June 30, 1993 (Predecessor) are as follows:
<TABLE>
<CAPTION>
Predecessor
Six months Six months
ended ended
December 31, June 30,
1994 1993 1993
---- ---- ----
<S> <C> <C> <C>
- - Service cost $43,860 $18,415 $18,415
- - Interest cost 1,570 6,738 6,738
- - Net Amortization and deferral 13,564 7,564 7,564
------ ------ ------
$58,994 $32,717 $32,717
====== ====== ======
</TABLE>
The status of these plans at December 31 was:
<PAGE>
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Accrued/(Prepaid) Cost
- Vested accumulated benefit obligation $ 102,321 $ 129,157
- Effects of increases in compensation 37,493 47,985
------- -------
- Projected benefit obligation 139,814 177,142
- Unrecognized transition
obligation ( 63,491) (112,886)
- Adjustment required to
recognize the minimum liability 25,998 64,902
------- -------
$ 102,321 $ 129,158
======= =======
Weighted Average Rates
- Discount 8.16% 8.16%
- Salary Increase 7.12% 7.12%
</TABLE>
The plan is not currently funded. The additional minimum liability recorded is
offset by an intangible asset.
13. CONTINGENCY
-----------
Mexican law requires that severance payments be made to employees that are
terminated. Due to the uncertain timing of terminations, the related payments
are recorded in expense when they are made.
<PAGE>
Item 7(b)1
PRO FORMA FINANCIAL STATEMENTS
In addition to the acquisition of Megacable S.A. De CV, C-TEC Corporation
filed a Form 8-K on October 27, 1994 to announce the pending acquisition of Twin
County Trans Video, Inc. This transaction is expected to close in the second
quarter of 1995.
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of December 31, 1994 gives effect to the acquisition of Megacable S.A. De CV
("Megacable") and the pending acquisition of Twin County Trans Video, Inc.
("Twin County"), (the "transactions") as though they occurred on December 31,
1994. The following unaudited Pro Forma Condensed Consolidated Statement of
Operations for the year ended December 31, 1994 gives effect to the transactions
as though they had occurred on January 1, 1994. These pro forma financial
statements should be read in conjunction with (i) Megacable's historical
financial statements and notes thereto, and (ii) the Company's historical
consolidated financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1994. The Pro
Forma Condensed Consolidated Statements of Operations and Balance Sheet are not
necessarily indicative of the actual results of operations or financial position
which would have been reported if the transactions had occurred on the
respective dates referred to above nor do they purport to indicate the results
of future operations or financial position of the Company. In the opinion of
management, all adjustments necessary to present fairly such pro forma financial
statements have been made. Information with respect to Megacable and Twin
County and the historical information regarding Megacable and Twin County was
provided by Megacable and Twin County.
<PAGE>
C-TEC Corporation
Pro Forma Condensed Consolidated Balance Sheet
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
C-TEC Twin County Twin County Megacable,
Corporation Trans Video, Inc. Trans Video, Inc. S.A. De CV
December 31, 1994 October 31, 1994 Aquisition Acquisition
(Actual) (Actual)(c) Adjustments(a) Adjustments(b) Pro Forma
------------------ ------------------ ------------------ ------------------- ---------
<S> <C> <C> <C> <C> <C>
Current Assets
Cash and temporary cash investments $178,195 $ 722 ($36,960) ($84,115) $ 57,842
Short term investments 127,245 - - - 127,245
Other current assets 51,749 1,415 - - 53,164
Deferred income taxes 7,057 1,371 - - 8,428
--------------------------------------------------------------------------------------
Total current assets 364,246 3,508 (36,960) (84,115) 246,679
--------------------------------------------------------------------------------------
Property, Plant and Equipment
Telephone plant 399,330 - - - 399,330
Cable plant 192,879 43,464 - - 236,343
Mobile Services plant 2,456 - - - 2,456
Other property, plant and equipment 12,948 - - - 12,948
--------------------------------------------------------------------------------------
Total property, plant and equipment 607,613 43,464 - - 651,077
Accumulated depreciation 267,185 24,008 (20,246) - 270,947
--------------------------------------------------------------------------------------
Net property, plant and equipment 340,428 19,456 20,246 - 380,130
--------------------------------------------------------------------------------------
Investments 14,569 - - 84,115 98,684
--------------------------------------------------------------------------------------
Intangible Assets, Net 50,319 45 105,732 - 156,096
--------------------------------------------------------------------------------------
Deferred Charges and Other Assets 22,963 3,340 (2,459) - 23,844
--------------------------------------------------------------------------------------
Total Assets $792,525 $26,349 $ 86,559 - $905,433
======================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt
and preferred stock $ 9,028 - - - $ 9,028
Advance billings and customer deposits 8,169 $ 3,133 - - 11,302
Accrued taxes 21,807 - - - 21,807
Accrued interest 5,751 - - - 5,751
Accrued contract settlements 5,150 - - - 5,150
</TABLE>
<PAGE>
C-TEC Corporation
Pro Forma Condensed Consolidated Balance Sheet
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
C-TEC Twin County Twin County Megacable,
Corporation Trans Video, Inc. Trans Video, Inc. S.A. De CV
December 31, 1994 October 31, 1994 Aquisition Acquisition
(Actual) (Actual)(c) Adjustments(a) Adjustments(b) Pro Forma
------------------ ------------------ ------------------ ------------------- ---------
<S> <C> <C> <C> <C> <C>
Other current liabilities 48,978 3,778 - - 52,756
--------------------------------------------------------------------------------------
Total current liabilities 98,883 6,911 - - 105,794
--------------------------------------------------------------------------------------
Long-Term Debt 273,376 12,641 $ 4,000 - 290,017
--------------------------------------------------------------------------------------
Deferred Income Taxes and
Investment Tax Credits 43,600 1,460 35,576 - 80,636
--------------------------------------------------------------------------------------
Other Deferred Credits 26,995 320 - - 27,315
--------------------------------------------------------------------------------------
Redeemable Preferred Stock 257 - - - 257
--------------------------------------------------------------------------------------
Common Shareholders' Equity
Common Stock 27,823 300 (300) - 27,823
Preferred Stock - - 52,000 - 52,000
Additional paid-in capital 227,034 - - - 227,034
Retained earnings 99,845 4,717 (4,717) - 99,845
Treasury stock at cost, 377,842
shares at December 31, 1994 (5,288) - - - (5,288)
--------------------------------------------------------------------------------------
Total Shareholders' Equity 349,414 5,017 46,983 - 401,414
--------------------------------------------------------------------------------------
Total Liabilities and Shareholders'
Equity $792,525 $26,349 $86,559 - $905,433
=======================================================================================
</TABLE>
See accompanying Notes to Pro Forma Condensed Financial Statements
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
For the Year Ended December 31, 1994
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twin County
C-TEC Corporation Trans Video, Inc. Twin County. Megacable
Year Ended Year Ending Trans Video, Inc. S.A. De CV
December 31, 1994 October 31, 1994 Acquisition Acquisition Adjustments
(Actual) (Actual)(c) Adjustments(a) (b) Pro Forma
------------------ --------------------- -------------------- ------------------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 268,884 $23,675 - - $ 292,559
Costs & Expenses 235,265 21,346 $ 16,426 - 273,037
------------------------------------------------------------------------------------------------------
Operating Income 33,619 2,329 (16,426) - 19,522
Interest and Dividend
Income 6,926 27 - - 6,953
Interest Expense (34,562) (898) (200) - (35,660)
Other Income, Net 1,017 - - - 1,017
------------------------------------------------------------------------------------------------------
Income from Continuing
Operations Before Income
Taxes 7,000 1,458 (16,626) - (8,168)
Provision (benefit) for
Income Taxes 3,820 650 (5,819) (4,748) (6,097)
------------------------------------------------------------------------------------------------------
Income from Continuing
Operations Before Minority
Interest and Equity in
Unconsolidated Entities 3,180 808 (10,807) 4,748 (2,071)
Preferred Dividends and
Minority Interest in
Income of Consolidated
Entities (95) - (2,600) - (2,695)
Equity in (Loss) of
Unconsolidated Entities (258) - - (13,567) (13,825)
------------------------------------------------------------------------------------------------------
Income (loss) from
Continuing Operations
Available for Common Stock
Before Extraordinary Item
and Cumulative Effect of
Accounting Principle Change $ 2,827 $ 808 $(13,407) $ (8,819) $ (18,591)
======================================================================================================
Earnings (Loss) Per
Average Common Share: $.17 ($1.09)
Income from Continuing
Operations Before
Extraordinary Item and
Cumulative Effect of
Accounting Principal Change
======================================================================================================
Average Common Shares
Outstanding 17,078,842 - - - 17,078,842
</TABLE>
See accompanying Notes to Pro Forma Condensed Financial Statements
<PAGE>
Notes to Pro Forma Condensed Consolidated Financial Statements
(a) Adjustments to reflect the pending acquisition of Twin County.
The adjustments assume that the consideration for the pending acquisition will
be cash of approximately $37 million, a promissory note of $4 million, and
preferred stock of the Company with a liquidation preference of $52 million.
The purchase price will reflect the fair value of the consideration for the
acquisition; such fair value may differ from assumptions used in the preparation
of the pro forma statements. The purchase price has been allocated based on
assumptions of the fair values of the tangible and identifiable intangible
assets acquired and liabilities assumed.
(b) Adjustments to reflect the acquisition of Megacable are based on
a cash purchase price of $84 million, which price is subject to adjustment based
on the fourth quarter 1995 exchange rate. The excess of the purchase price over
the Company's underlying equity in the net assets of Megacable is assumed to be
amortized on a straight-line basis over fifteen years, which period is subject
to adjustment as additional information becomes available during 1995.
(c) Twin County has a fiscal year ending October 31. Twin County's
most recent interim historical balance sheet as of October 31, 1994 is included
in the pro forma condensed consolidated balance sheet. Twin County's statement
of operations for the year ended October 31, 1994 is included in the pro forma
condensed consolidated statement of operations for the year ended December 31,
1994.
<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 hereunto duly authorized.
C-TEC Corporation
By: /s/ Bruce Godfrey
-----------------
Name: Bruce Godfrey
Title: Executive Vice President
and Chief Financial Officer
Date: April 10, 1995
