<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)
November 15, 1996 (September 16, 1996)
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 September 16, 1996, C-TEC Corporation filed a Form 8-K to announce
that the Company purchased from RCN Corporation, the Company's controlling
shareholder ("RCN"), RCN's 80.1% interest in Freedom New York, L.L.C., a
Delaware limited liability company ("Freedom") and all related rights and
liabilities (collectively, the "Freedom Interest") for $29,847,364. Previously,
Freedom, an affiliate of RCN, purchased 80.1% of the assets of Liberty Cable
Television Inc. et al ("Liberty"). Liberty contributed the remaining 19.9% of
the assets of Liberty to Freedom. Additionally, in connection with this
acquisition, the Company acquired from RCN a note issued by Freedom in
connection with a loan from RCN to Freedom. The purchase price for the note was
$1,518,603, an amount equal to the accreted value of the note.
The required financial statements of Liberty and Freedom 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 Liberty Cable Television, Inc. and
affiliates as of and for the periods ended December 31, 1995 and
1994
2. Financial Statements of Freedom New York, L.L.C. as of and for the
period ended September 30, 1996.
(b) Pro Forma Financial Information
1. Pro Forma Condensed Consolidated Statements of Operations
(Unaudited) of C-TEC Corporation taking into consideration the
acquisition of the Freedom Interest
<PAGE>
Item 7(a) 1
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Financial Statements
December 31, 1994 and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
Liberty Cable Television, Inc. and affiliates:
We have audited the accompanying combined balance sheets of Liberty Cable
Television, Inc. and affiliates as of December 31, 1994 and 1995, and the
related combined statements of operations, changes in shareholders' deficit and
cash flows for the years then ended. These combined financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Liberty Cable
Television, Inc. and affiliates as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in note 10 to the financial statements, during March 1996,
substantially all of the assets and operations of Liberty Cable Television, Inc.
and affiliates were sold.
KPMG Peat Marwick LLP
New York, New York
November 6, 1996
<PAGE>
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Balance Sheets (note 10)
December 31, 1994 and 1995
<TABLE>
<CAPTION>
Assets 1994 1995
---- ----
<S> <C> <C>
Cash $ 76,717 17,122
Receivables from subscribers, net of
allowance for doubtful accounts of $168,943 in
1994 and $223,381 in 1995 266,187 177,445
Prepaid expenses and other assets 23,411 --
Cable television systems, net of accumulated
depreciation of $4,134,613 in 1994 and
$5,988,862 in 1995 (note 3) 7,965,216 9,586,633
----------- -----------
Total assets $ 8,331,531 9,781,200
=========== ===========
Liabilities and Shareholders' Deficit
Payable to banks (note 6) 7,686,305 15,000,000
Other notes payable (note 7) 189,168 --
Accounts payable 377,218 580,191
Accrued programming (note 4) 288,826 291,844
Accrued expenses and ligitation costs (note 9) 435,451 1,984,045
Due to affiliates (note 5) 8,631,040 10,002,417
----------- -----------
Total liabilities 17,608,008 27,858,497
----------- -----------
Commitments and contingencies (notes 4, 5, 6 and 9)
Shareholders' deficit (note 8):
Common stock 450 450
Additional paid-in capital 6,314,058 6,314,058
Accumulated deficit (15,590,985) (24,391,805)
----------- -----------
Total shareholders' deficit (9,276,477) (18,077,297)
----------- -----------
Total liabilities and
shareholders' deficit $ 8,331,531 9,781,200
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Statements of Operations
Years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Revenues $ 4,394,866 5,955,864
---------- ----------
Operating expenses:
Programming expenses (note 4) 1,701,465 2,697,500
Repairs and maintenance 1,395,120 1,717,412
General and administrative (note 6) 1,082,646 1,408,955
Legal, professional fees and ligitation
costs (note 9) 1,175,816 3,557,908
Salaries and employee benefits 1,275,455 1,371,244
Marketing and related 949,962 879,890
Depreciation and amortization 1,332,557 1,854,249
---------- ----------
Total operating expenses 8,913,021 13,487,158
---------- ----------
Operating loss (4,518,155) (7,531,294)
Interest expense (note 5) 623,968 1,269,526
---------- ----------
Net loss $ (5,142,123) (8,800,820)
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Statements of Cash Flows
Years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,142,123) (8,800,820)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,332,557 1,854,249
Changes in operating assets and liabilities:
(Increase) decrease in receivables from subscribers (78,341) 88,742
(Increase) decrease in prepaid expenses
and other assets (2,262) 23,411
Increase in accounts payable 240,422 202,973
(Decrease) increase in accrued programming
and other liabilities (228,795) 1,551,612
---------- -----------
Total adjustments 1,263,581 3,720,987
---------- -----------
Net cash used in operating activities (3,878,542) (5,079,833)
---------- -----------
Cash flows from investing activities:
Purchases of cable television system (2,407,558) (3,475,666)
---------- -----------
Net cash used in investing activities (2,407,558) (3,475,666)
---------- -----------
Cash flows from financing activities:
Proceeds from bank loans 1,000,000 7,325,000
Repayments of bank loans (426,390) (11,305)
Repayments of other notes payable (200,444) (189,168)
Advances from affiliates 6,941,416 14,779,377
Repayment of advances from affiliates (1,000,000) (13,408,000)
---------- -----------
Net cash provided by financing activities 6,314,582 8,495,904
---------- -----------
Net increase (decrease) in cash 28,482 (59,595)
Cash at beginning of year 48,235 76,717
---------- -----------
Cash at end of year $ 76,717 17,122
========== ===========
Supplemental cash flow information:
Interest paid $ 676,378 1,229,320
========== ===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Combined Statements of Changes in Shareholders' Deficit
Years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Additional
Common paid-in Accumulated
stock capital deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 450 6,314,058 (10,448,862) (4,134,354)
Net loss -- -- (5,142,123) (5,142,123)
---- --------- ----------- -----------
Balance at December 31, 1994 450 6,314,058 (15,590,985) (9,276,477)
Net loss -- -- (8,800,820) (8,800,820)
---- --------- ----------- -----------
Balance at December 31, 1995 $ 450 6,314,058 (24,391,805) (18,077,297)
==== ========= =========== ===========
</TABLE>
See accompanying notes to combined financial statements.
<PAGE>
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Notes to Combined Financial Statements
December 31, 1994 and 1995
(1) Organization and Nature of Business
Liberty Cable Television, Inc. and affiliates operated a wireless cable
television system serving subscribers who primarily reside in multiple
dwelling units in New York City and certain areas of New Jersey. Liberty
Cable Television, Inc. and its affiliates, Birdsong Communications, Inc.,
Liberty Cable Newport, Inc., Liberty Cable Company, Inc. and E.T. Vision,
Inc. (collectively, the "Company"), are owned by a group of related
individuals and share operating facilities and personnel. In March 1996,
the Company sold substantially all of its assets and operations (see note
10).
(2) Summary of Significant Accounting Policies
(a) Principles of Combination
The combined financial statements include the operations of Liberty
Cable Television, Inc. and its affiliates. All intercompany accounts
have been eliminated in combination.
(b) Revenue Recognition
The Company recognizes revenues as cable television services are
provided to subscribers. Subscription revenues billed in advance for
services are deferred and recorded as income in the period in which
the related services are rendered.
(c) Cable Television Systems
Cable television systems are carried at cost and are depreciated using
the straight-line method over the estimated useful lives of the
respective assets.
(d) Income Taxes
Each of the companies in the group is an S corporation, as defined by
the Internal Revenue Service. No provision for Federal or state income
taxes has been made in the accompanying combined financial statements
since any liability for such income taxes is that of the shareholders
and not of the Company. Certain assets have bases for income tax
purposes that differ from the carrying value for financial reporting
purposes, primarily due to differences in depreciation methods. The
reported combined assets reflected in these combined financial
statements exceeded their aggregate tax basis by approximately
$1,700,000 at December 31, 1995.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and judgments that affect the reported amounts of assets and
liabilities and disclosures of contingencies at the date of the
financial statements and revenues and expenses recognized during the
reported period. Actual results could differ from those estimates.
<PAGE>
2
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Notes to Combined Financial Statements, Continued
(2), Continued
(f) Fair Value of Financial Instruments
The Company's carrying value of its receivables from subscribers,
prepaid expenses and other assets and its payable to banks and all its
other liabilities and accounts payable approximate fair value due to
their short-term nature.
(3) Cable Television Systems
Cable television systems are depreciated over their estimated useful lives
of seven years.
(4) Accrued Programming
During 1994, the Company resolved its obligations for payment for programs
provided by certain suppliers in prior years at amounts that were
approximately $330,000 less than the Company had accrued in its combined
financial statements at December 31, 1993. Such amount was recorded as a
reduction in programming expenses in 1994.
(5) Transactions with Affiliates
The Company's primary headend and operations department is maintained at a
building owned and operated by a company whose shareholders include the
shareholders of the Company. Pursuant to an agreement, beginning JanuaryE1,
1994 the Company is charged $30,000 per month for the use of the facilities
and for certain administrative services provided to it by the affiliated
company.
The Company's operations are funded in part by cash advances from an entity
which is partially owned by the shareholders. The Company was indebted to
this entity in the amounts of $8,225,380 and $9,596,756 as of DecemberE31,
1994 and 1995, respectively. Beginning in 1993, interest on outstanding
advances is charged at the lower of LIBOR plus 1% or the greater of the
prime rate less 3/4% or the Federal Funds Rate plus 1/2%. Interest expense
under this arrangement was $241,479 in 1994 and $424,184 in 1995. The
Company is also indebted to another entity owned by the shareholders in the
amount of $405,660 as of December 31, 1994 and 1995. No interest was
charged on this balance owed.
The Company and a shareholder of the Company entered into a loan agreement
with a bank for $500,000, which was used to purchase an interest in an
unaffiliated cable venture. Prior to JanuaryE1, 1991, the investment was
transferred to the shareholder. The shareholder has assumed the total
obligation to the bank; however, the Company is still listed as borrower of
record. This obligation is not reflected in the Company's combined
financial statements.
The Company obtains insurance coverage with entities that are partially
owned by the Company's shareholders at no cost to the Company.
<PAGE>
3
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Notes to Combined Financial Statements, Continued
(6) Loans Payable - Banks
The Company has the following loans payable to a bank, all of which are
guaranteed by shareholders of the Company:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Demand note (a) $ 11,305 --
Term notes (b) 7,675,000 15,000,000
---------- ----------
$ 7,686,305 15,000,000
========== ==========
</TABLE>
(a) On November 1, 1991, the Company executed an unsecured demand note
with a bank in the amount of $445,000 which was completely repaid in
1995. Interest was payable at the bank's prime lending rate.
(b) During 1993, the Company entered into an agreement with the bank
allowing borrowings up to $7,700,000 under a credit facility. The
agreement calls for interest to be paid on the loan at LIBOR plus 1/2%
or the greater of prime less 3/4% or the Federal Funds Rate plus 1/2%.
The notes matured on June 30, 1995.
On July 1, 1995, the Company entered into a new agreement with the
bank increasing the borrowings to $15,000,000 with interest payable
under the same formula as the notes that matured in June 1995. The new
agreement matured on December 31, 1995 and was extended to March 1996.
The loan was repaid in March 1996 upon the sale of substantially all
of the Company's assets and operations (see note 10).
(7) Other Notes Payable
Other notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Installment note, collateralized by
equipment and payable in 36 monthly
installments of $8,233, including
interest at 10.5% per annum, through
May 1995 $ 63,344 --
Installment note, collateralized by
equipment and payable in 36 monthly
installments of $11,091, including
interest at 10.5% per annum, through
November 1995 125,824 --
------- -------
$ 189,168 --
======= =======
</TABLE>
<PAGE>
4
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Notes to Combined Financial Statements, Continued
(8) Shareholders' Equity (Deficit)
The following is a summary of the capital accounts for each of the
companies included in the combined financial statements:
<TABLE>
<CAPTION>
Common stock
-----------------
Number of Par Additional Shareholders'
shares value paid-in Accumulated equity
issued amount capital deficit (deficit)
------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Liberty Cable Television, Inc.
Balance at December 31,
1992 300 $ 300 749,700 (1,728,595) (978,595)
Net loss -- -- -- (4,306,030) (4,306,030)
--- --- ------- ----------- -----------
Balance at December 31,
1993 300 300 749,700 (6,034,625) (5,284,625)
Net loss -- -- -- (5,574,022) (5,574,022)
--- --- ------- ----------- -----------
Balance at December 31,
1994 300 300 749,700 (11,608,647) (10,858,647)
Net loss -- -- -- (8,908,590) (8,908,590)
--- --- ------- ----------- -----------
Balance at December 31,
1995 300 $ 300 749,700 (20,517,237) (19,767,237)
=== === ======= =========== ===========
This company has authorized 1,000 shares of common stock at $1.00 par value per share.
Birdsong Communications, Inc.
Balance at December 31,
1992 150 $ 150 1,213,288 (965,810) 247,628
Capital contributions, net -- -- 29,004 -- 29,004
Net loss -- -- -- (66,262) (66,262)
--- --- --------- ----------- -----------
Balance at December 31,
1993 150 150 1,242,292 (1,032,072) 210,370
Net income -- -- -- 76,897 76,897
--- --- --------- ----------- -----------
Balance at December 31,
1994 150 150 1,242,292 (955,175) 287,267
Net loss -- -- -- (3,141) (3,141)
--- --- --------- ----------- -----------
Balance at December 31,
1995 150 $ 150 1,242,292 (958,316) 284,126
=== === ========= =========== ===========
This company has authorized 1,000 shares of common stock at $1.00 par value per share.
</TABLE>
<PAGE>
5
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Notes to Combined Financial Statements, Continued
(8), Continued
<TABLE>
<CAPTION>
Common stock
-----------------
Number of Par Additional Shareholders'
shares value paid-in Accumulated equity
issued amount capital deficit (deficit)
------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Liberty Cable Newport, Inc.
Balance at December 31,
1992 100 $ -- 1,936,789 (1,614,087) 322,702
Net loss -- -- -- (2,638) (2,638)
--- --- --------- ---------- --------
Balance at December 31,
1993 100 -- 1,936,789 (1,616,725) 320,064
Net income -- -- -- 236,215 236,215
--- --- --------- ---------- --------
Balance at December 31,
1994 100 -- 1,936,789 (1,380,510) 556,279
Net income -- -- -- 133,601 133,601
--- --- --------- ---------- --------
Balance at December 31,
1995 100 $ -- 1,936,789 (1,246,909) 689,880
=== === ========= ========== ========
This company has authorized 100 shares of common stock at no par value.
Liberty Cable Company, Inc.
Balance at December 31,
1992 100 $ -- 1,318,474 (946,789) 371,685
Capital contributions, net -- -- 6,400 -- 6,400
Net income -- -- -- 119,928 119,928
--- --- --------- ---------- --------
Balance at December 31,
1993 100 -- 1,324,874 (826,861) 498,013
Net income -- -- -- 52,792 52,792
--- --- --------- ---------- --------
Balance at December 31,
1994 100 -- 1,324,874 (774,069) 550,805
Net loss -- -- -- (83,202) (83,202)
--- --- --------- ---------- --------
Balance at December 31,
1995 100 $ -- 1,324,874 (857,271) 467,603
=== === ========= ========== ========
</TABLE>
This company has authorized 200 shares of common stock at no par value.
<PAGE>
6
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Notes to Combined Financial Statements, Continued
(8), Continued
<TABLE>
<CAPTION>
Common stock
-----------------
Number of Par Additional
shares value paid-in Accumulated Shareholders'
issued amount capital deficit equity
------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
E.T. Vision, Inc.
Balance at December 31,
1992 400 $ -- 1,082,670 (968,250) 114,420
Capital distributions, net -- -- (22,267) -- (22,267)
Net income -- -- -- 29,671 29,671
--- --- --------- --------- --------
Balance at December 31,
1993 400 -- 1,060,403 (938,579) 121,824
Net income -- -- -- 65,995 65,995
--- --- --------- --------- --------
Balance at December 31,
1994 400 -- 1,060,403 (872,584) 187,819
Net income -- -- -- 60,512 60,512
--- --- --------- --------- --------
Balance at December 31,
1995 400 $ -- 1,060,403 (812,072) 248,331
=== === ========= ========= ========
</TABLE>
This company has authorized 400 shares of common stock at no par value.
Because the companies share personnel, facilities and equipment, the
capital contributions and certain expenses that were recorded in the
records of the individual companies may not be reflective of what might
have been if these companies were not affiliated.
(9) Commitments and Contingencies
The Company has oral agreements with an officer and certain directors under
which such individuals would be entitled to a portion of the increase in
value of the Company, over a predetermined amount, realized as a result of
an initial public offering or sale of substantially all of the Company's
assets.
<PAGE>
7
LIBERTY CABLE TELEVISION, INC.
AND AFFILIATES
Notes to Combined Financial Statements, Continued
(9), Continued
In connection with objections raised with the Federal Communications
Commission ("FCC") over the Company's applications for Operational Fixed
Microwave Service Licenses, the Company and the FCC moved jointly for a
summary decision before the presiding administrative law judge. The joint
motion asked that a decision be issued granting Liberty the licenses it
seeks and imposing a forfeiture of approximately $780,000 for violation of
certain FCC rules. Two intervenors have opposed this motion which is
pending before the presiding judge. The Company believes that the result
contemplated by the joint motion will likely be ordered by the FCC and has
accrued the forfeiture costs at December 31, 1995.
During 1996, the Company agreed to settle litigation resulting from a
dispute relating to copyright royalties to certain programs it had
broadcast. The Company also settled a separate litigation relating to
franchise operation issues. Both litigation costs have been accrued at
December 31, 1995.
The Company is party to other legal proceedings generally incidental to its
business. Although the ultimate outcome of other legal proceedings cannot
be readily determined, management believes that the outcome of such
proceedings will not have a material adverse effect on the combined
financial position of the Company.
(10) Subsequent Events
During March 1996, the Company entered into an agreement to sell
substantially all of its assets and operations for an amount in excess of
the carrying value of these assets. Assets that were not disposed and
liabilities of the Company were retained by a successor entity to the
Company.
<PAGE>
Freedom New York, L.L.C.
Condensed Balance Sheet
September 30, 1996
(Unaudited)
Dollars in Thousands
<TABLE>
<S> <C>
Assets & temporary cash investments $ (183)
Accounts receivable:
Trade, net allowance for
doubtful accounts of $95 323
Other 559
Prepaid expenses and other current assets 372
-------
Total current assets 1,071
Property, plant and equipment, net of
accumulated depreciation of $846 17,366
Intangible assets, net of accumulated
amortization of $2,462 15,772
-------
Total assets $34,209
=======
</TABLE>
<PAGE>
Liabilities and Partners' Capital
Current liabilities:
Accounts payable:
Trade $ 1,614
Affiliate 734
Other 550
Notes payable, affiliate 4,070
Accrued expenses 1,289
-------
Total liabilities 8,257
Partners' capital 25,952
-------
Total liabilities and partners' capital $34,209
=======
<PAGE>
Freedom New York, L.L.C.
Condensed Statement of Operations
For the Period March 6, 1996 to September 30, 1996
and for the Three Months ended September 30, 1996
(Unaudited)
Dollars in Thousands
<TABLE>
<CAPTION>
Three months Period
ended March 6, 1996
September 30, 1996 September 30, 1996
------------------ ------------------
<S> <C> <C>
Sales $ 2,074 $ 4,590
Costs and expenses, excluding
depression and amortization 2,852 5,963
Depreciation and amortization 1,518 3,309
-------- -------
Operating los (2,296) (4,682)
Interest income 1 5
Interest expense (189) (581)
-------- --------
Net loss $ (2,484) $ (5,258)
</TABLE>
Note to condensed Statement of Operations:
Information for the corresponding periods of the prior year is not presented
since Freedom New York, L.L.C. was formed in March 1996.
<PAGE>
Freedom New York, L.L.C.
Condensed Statement of Cash Flows
For the Period March 6, 1996 to September 30, 1996
(Unaudited)
Dollars in Thousands
<TABLE>
<S> <C>
Cash flows from operating activities $ 983
-------
Cash flows from investing activities
Capital expenditures (3,736)
Acquisition of Assets of Liberty
Cable Television, Inc. et al (26,500)
-------
Net cash used in investing activities (30,236)
-------
Cash flows from financing activities:
Advances from affiliates: 4,070
Partners' capital Contributions 25,000
-------
Net cash provided by operating activities 29,070
-------
Net decrease in cash and
temporary cash investments (183)
Cash and temporary cash investments, beginning --
-------
Cash and temporary cash investments, ending $ (183)
=======
</TABLE>
<PAGE>
Item 7(b)1
PRO FORMA FINANCIAL STATEMENTS
The following unaudited Pro Forma Condensed Consolidated Statements of
Operations for the nine months ended September 30,1996 and the year ended
December 31, 1995 give effect to the acquisition of the Freedom Interest as
though it had occurred on January 1, 1995. These pro forma financial statements
should be read in conjunction with (i) the historical financial statements and
notes thereto of Liberty Cable Television, Inc. and affiliates ("Liberty") and
(ii) the Company's historical consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 and in the quarterly report on Form 10-Q for the nine months
ended September 30, 1996. The Pro Forma Condensed Consolidated Statements of
Operations are not necessarily indicative of the actual results of operations or
financial position which would have been reported if the transaction 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
Liberty and the historical information regarding Liberty was provided by
Liberty.
A Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996
has not been included since the Company's Condensed Consolidated Balance Sheet
included in its Form 10-Q as of and for the nine months ended September 30, 1996
reflects the acquisition.
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 1996
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
C-TEC Liberty Freedom
Corporation January 1, 1996- March 6, 1996 - Pro Forma
(Historical)(b) March 5, 1996(b) August 31, 1996(b) Adjustments Pro Forma
--------------- ----------------- ------------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
SALES $272,503 $1,330 $3,876 - $277,709
COSTS & EXPENSES, EXCLUDING
DEPRECIATION AND AMORTIZATION 172,249 2,696 4,866 - 179,811
DEPRECIATION AND AMORTIZATION 71,350 379 2,799 1,931(a) 76,459
-------- ------- ------- ------- --------
OPERATING INCOME (LOSS) 28,904 (1,745) (3,789) (1,931) 21,439
INTEREST & DIVIDEND INCOME 10,967 - 4 - 10,971
INTEREST EXPENSE (20,745) (263) (474) - (21,482)
OTHER (EXPENSE) INCOME, NET 2,046 - - - 2,046
-------- ------- ------- ------- --------
INCOME (LOSS) ROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 21,172 (2,008) (4,259) (1,931) 12,974
PROVISION (BENEFIT) FOR INCOME TAXES 8,788 - - (1,674)(d) 7,114
-------- ------- ------- ------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST AND
EQUITY IN UNCONSOLIDATED ENTITIES 12,384 (2,008) (4,259) (257) 5,860
MINORITY INTEREST IN LOSS
OF CONSOLIDATED ENTITIES 960 - - 1,631(c) 2,591
EQUITY IN LOSS OF
UNCONSOLIDATED ENTITIES (578) - - - (578)
-------- ------- ------- ------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY CHARGE $ 12,766 $(2,008) $(4,259) $ 1,374 $ 7,873
======== ======= ======= ======= ========
</TABLE>
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 1996
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
C-TEC
Corporation
(Historical)(b) Pro Forma
--------------- ---------
<S> <C> <C>
Primary earnings (loss) per average
common share:
Income from continuing operations
before extraordinary charge $0.46 $0.28
Average common shares and common
stock equivalents outstanding 27,735,389 27,735,389
Fully diluted earnings (loss) per
average common share:
Income from continuing operations
before extraordinary charge $0.44 $0.27
Average common shares and common
stock equivalents outstanding 29,192,532 29,192,532
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1995
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
C-TEC Liberty Cable
Corporation Television, Inc. Pro Forma
(Historical) and Affiliates Adjustments Pro Forma
------------ ----------------- --------------- ----------
<S> <C> <C> <C> <C>
SALES $324,688 $ 5,956 - $330,644
COSTS & EXPENSES, EXCLUDING
DEPRECIATION AND AMORTIZATION 209,201 11,633 - 220,834
DEPRECIATION AND AMORTIZATION 72,958 1,854 5,176(a) 79,988
-------- ------- -------- --------
OPERATING INCOME (LOSS) 42,529 (7,531) $(5,176) 29,822
INTEREST & DIVIDEND INCOME 14,930 - - 14,930
INTEREST EXPENSE (26,513) (1,270) - (27,783)
GAIN ON SALE OF INVESTMENTS 3,038 - - 3,038
OTHER (EXPENSE) INCOME, NET 592 - - 592
-------- ------- ------- --------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 34,576 (8,801) (5,176) 20,599
PROVISION (BENEFIT) FOR INCOME TAXES 8,856 - (2,855)(d) 6,001
-------- ------- ------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE MINORITY INTEREST AND
EQUITY IN UNCONSOLIDATED ENTITIES 25,720 (8,801) (2,321) 14,598
MINORITY INTEREST IN (INCOME) LOSS
OF CONSOLIDATED ENTITIES (329) - 2,781(c) 2,452
EQUITY IN LOSS OF
UNCONSOLIDATED ENTITIES (2,665) - - (2,665)
-------- ------- ------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY CHARGE
AND CUMULATIVE EFFECT OF
ACCOUNTING PRINCIPLE CHANGES $ 22,726 $(8,801) $ 460 $ 14,385
======== ======= ======= ========
</TABLE>
<PAGE>
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1995
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
C-TEC
Corporation
(Historical) Pro Forma
------------ ---------
<S> <C> <C>
Primary earnings (loss) per average
common share:
Income from continuing operations
before extraordinary charge and
cumulative effect of accounting
principle change $0.83 $0.52
Average common shares and common
stock equivalents outstanding 27,597,783 27,597,783
Fully diluted earnings (loss) per
average common share:
Income from continuing operations
before extraordinary charge and
cumulative effect of accounting
principle change $0.81 $0.51
Average common shares and common
stock equivalents outstanding 28,144,472 28,144,472
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
<PAGE>
Notes to Pro Forma Condensed Consolidated Financial Statements
(a) Adjustments to record additional depreciation and amortization resulting
from recording the fair value of tangible and identifiable intangible
assets acquired from Liberty Cable Television, Inc. and affiliates. The
purchase price of approximately $29,000 was allocated based on preliminary
information and the final allocation may differ from assumptions used in
the preparation of the pro forma statements.
(b) The Company purchased from RCN Corporation, the Company's controlling
shareholder ("RCN"), RCN's 80.1% interest in Freedom New York, L.L.C.
("Freedom Interest"). Previously, in March 1996, Freedom, an affiliate of
RCN, purchased 80.1% of the assets of Liberty Cable Television, Inc. et al
("Liberty"). Liberty contributed the remaining 19.9% of the assets of
Liberty to Freedom. The operating results of Freedom for September 1996 are
reflected in C-TEC's historical financial results for the nine months ended
September 30, 1996.
(c) Adjustment to reflect minority interest of 19.9% in the depreciation/
amortization adjustment and the operating losses of Freedom and/or Liberty,
as appropriate.
(d) Adjustment to reflect tax benefits associated with the depreciation/
amortization adjustment and with the Company's share of the operating
losses of Freedom and/or Liberty. The separate historical financial
statements of Freedom and Liberty do not reflect provisions for income
taxes because Freedom is treated as a partnership and Liberty was an S
corporation for federal tax purposes.
<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 C. Godfrey
------------------------------
Name: Bruce C. Godfrey
Title: Executive Vice President
and Chief Financial Officer
Date: November 15, 1996
