SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 333-37959
A. Full title of the plan:
RCN SAVINGS & STOCK OWNERSHIP PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
RCN CORPORATION
105 Carnegie Center
Princeton, New Jersey 08540
RCN Corporation
RCN Savings & Stock Ownership Plan
Table of Contents
December 31, 1999 and 1998
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Pages
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Report of Independent Accountants 1
Financial Statements:
Statements of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4-10
Supplemental Schedules:
Schedule H Item 4(i)* -Assets Held for Investment Purposes 11
Schedule H Item 4(j)* -Reportable Transactions 12
*Refer to item numbers in Form 5500 (Annual Return/Report of
Employee Benefit Plan) for the plan periods ended December 31,
1999, which items are incorporated herein by reference
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Administrator of
RCN Savings & Stock Ownership Plan
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the RCN Savings & Stock Ownership Plan (the "Plan") at December 31, 1999 and
1998 and the changes in net assets available for benefits for the year ended
December 31, 1999 in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Plan's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of Assets
Held for Investment Purposes and Reportable Transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. These supplemental
schedules are the responsibility of the Plan's management. These supplemental
schedules have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
/s/ PricewaterhouseCoopers LLP
June 28, 2000
RCN Corporation
RCN Savings & Stock Ownership Plan
Statement of Net Assets Available for Benefits
December 31, 1999 and 1998
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1999 1998
Investments (see Note 4) $37,270,594 $17,739,945
Receivables:
Employer contributions 88,682 104,016
Participant contributions 279,382 228,463
Dividends 23,560 --
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Net assets available for benefits $37,662,218 $18,072,424
=========== ===========
The accompanying notes are an integral
part of the financial statements
-2-
RCN Corporation
RCN Savings & Stock Ownership Plan
Statement of Changes in Net Assets Available for Benefits
For the year ended December 31, 1999
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Additions:
Employer contributions $ 2,900,236
Participant contributions 5,652,385
Interest 47,124
Dividends 887,086
Net appreciation in fair value of investments (see Note 4) 14,338,550
-----------
Total additions 23,825,381
-----------
Deductions:
Benefits paid to participants 4,217,292
Administrative fees 6,300
Transfer of assets to other plans 11,995
-----------
Total deductions 4,235,587
-----------
Increase in net assets available for benefits 19,589,794
Net assets available for benefits:
Beginning of year 18,072,424
-----------
End of year $37,662,218
===========
The accompanying notes are an integral
part of the financial statements.
-3-
RCN Corporation
RCN Savings & Stock Ownership Plan
Notes to Financial Statements
December 31, 1999 and 1998
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1.DESCRIPTION OF PLAN
The following brief description of RCN Savings and Stock Ownership Plan (the
"Plan") is provided for general information purposes only. Participants
should refer to the Plan agreement for a more complete description of the
Plan's provisions.
GENERAL
The Plan, established on October 1, 1997, is a defined contribution plan
covering substantially all employees of RCN Corporation and its subsidiaries
(the "Company") who have attained the age of twenty-one and have three months
of enlisted service. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974.
CONTRIBUTIONS
Participants in the Plan may contribute between 1% and 15% of their annual
compensation. Participants may also contribute amounts representing
distributions from other qualified defined benefit or contribution plans. The
Company contributes on behalf of each participant an amount not to exceed 100%
of the first 3.5% of the participant's compensation. All Company
contributions are used to purchase common stock of RCN. Contributions are
subject to certain limitations.
Participants may change salary deferral elections as of each of the following
entry dates (January 1, April 1, July 1 and October 1). Participants may
change investment elections on a daily basis, subject to limitations on RCN
stock.
PARTICIPANT'S ACCOUNT
Each participant's account is credited with the participant's contribution and
allocations of the Company's contribution and Plan earnings, and charged with
an allocation of administrative expenses. Allocations are based upon
participant earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's account balance.
VESTING
Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the Company's matching contribution portion of
their accounts plus earnings thereon is based on years of continuous service.
A participant is 100 percent vested after five years of credited service.
PLAN BENEFITS
On termination of service due to death, disability or retirement, a
participant may elect to receive a lump-sum distribution if the value of the
participant's account is less than or equal to $5,000. If the value of the
participant's account is greater than $5,000 and the participant rolled over
money from a qualified plan, the participant may elect to have their benefit
paid out in an annuity.
A participant may elect to have the lump-sum distribution paid in cash or RCN
Corporation common stock. If a member elects to receive stock, only whole
shares are distributed with cash being distributed in lieu of fractional
shares.
-4-
RCN Corporation
RCN Savings & Stock Ownership Plan
Notes to Financial Statements
December 31, 1999 and 1998
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Additionally, the Plan permits participants to withdraw a portion or all of
their vested account balance. These special distributions include in service
distributions and hardship withdrawals. An active participant may request an
in service distribution upon attaining age 59 1/2. A hardship withdrawal may
be granted to a participant for emergency circumstances as defined by the
Plan.
PARTICIPANT LOANS
Participants may borrow from their fund accounts the lesser of 50% of their
vested account balance or $50,000, subject to a minimum of $1,000. Loan
transactions are treated as a transfer to (from) the investment fund from (to)
the Loan Fund. Loan terms range from 1-5 years unless the loan is for the
purchase of a primary residence, for which the term is 30 years. The loans
are secured by the balance in the participant's account and bear interest at
the prime rate plus one basis point. Principal and interest is paid ratably
through monthly payroll deductions.
FORFEITURED ACCOUNTS
At December 31, 1999, forfeited nonvested accounts totaled $222,235. These
accounts will be used to reduce future employer contributions. Also, in 1999,
there were no forfeitures used to reduce employer contributions.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Plan are prepared under the accrual method of
accounting.
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. Shares of registered
investment companies are valued at quoted market prices which represent the
net asset value of shares held by the Plan at year-end. The guaranteed
investment contracts held in the Merrill Lynch Retirement Preservation Trust
Fund are valued at fair value. The Company stock is valued at its quoted
market price. Participant loans are valued at cost which approximates fair
value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on
the ex-dividend date.
The Plan presents in the statement of changes in net assets available for
benefits the net appreciation (depreciation) in the fair value of its
investments which consists of the realized gains or losses and the unrealized
appreciation (depreciation) on those investments.
INVESTMENTS IN COMMON COLLECTIVE TRUST
The Merrill Lynch Retirement Preservation Trust Fund (the "Trust Fund")
invests in various term guaranteed insurance contracts and maintains a cash
reserve balance with all excess funds. The average yield and the weighted
average crediting interest rate are based on the underlying contracts.
-5-
RCN Corporation
RCN Savings & Stock Ownership Plan
Notes to Financial Statements
December 31, 1999 and 1998
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The Trust Fund's investment contracts are reported at their estimated fair
value. The investment contracts are nontransferable but provide for benefit
responsive withdrawals by plan participants at contract value. Benefit
responsive withdrawals are provided for on a proportional basis by the issuers
of the investment contracts. In determining fair value, the Plan's trustee's
valuation committee primarily considers such factors as the benefit
responsiveness of the investment contract and the ability of the parties to
the investment contract to perform in accordance with the terms of the
contract. Generally, fair value approximates contract value (contributions
made plus interest accrued at the current rate, less withdrawals and fees).
If, however, an event has occurred that may impair the ability of the contract
issuer to perform in accordance with the contract terms, fair value may be
less than contract value. The contract value of the Trust Fund at December
31, 1999 and 1998 is $2,166,691 and $1,640,716, respectively.
The average yield and crediting interest rates were approximately 6 percent
for the years ended December 31, 1999 and 1998.
EXPENSES OF THE PLAN
Fees and other costs incurred are paid by the Plan, then allocated to each
investment fund.
BENEFIT PAYMENTS
Benefits are recorded when paid.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of net assets and changes therein, and
disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.
RISKS AND UNCERTAINTIES
The Plan provides for various investment options in any combination of stocks,
bonds, fixed income securities, mutual funds, and other investment securities.
Investment securities are exposed to various risks, such as interest rate,
market and credit. Due to the level of risk associated with certain
investment securities and the level of uncertainty related to changes in the
value of investment securities, it is at least reasonably possible that
changes in risks in the near term could materially affect participants'
account balances and the amounts reported in the statements of net assets
available for benefits and the statements of changes in net assets available
for benefits.
-6-
RCN Corporation
RCN Savings & Stock Ownership Plan
Notes to Financial Statements
December 31, 1999 and 1998
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3.INVESTMENT OPTIONS
The investment options of the Plan are as follows:
MERRILL LYNCH RETIREMENT PRESERVATION TRUST FUND
This Merrill Lynch Trust account is made up primarily of guaranteed investment
contracts generally issued by an insurance company or a bank returning
guaranteed principal and interest to the fund. A lesser portion of the fund
is composed of high-quality money market investments.
MERRILL LYNCH S&P 500 INDEX FUND
This Merrill Lynch Fund seeks to provide investment results that replicate the
total return of the Standard & Poor's 500 Composite Stock Price Index (S&P 500
Index). The fund generally allocates its investments among common stocks in
approximately the same weightings as the S&P 500 Index.
MERRILL LYNCH GROWTH FUND
This Merrill Lynch Fund provides for a return on investment based on the
performance of equity securities comprising the fund.
MERRILL LYNCH CAPITAL FUND
This Merrill Lynch Fund provides for a return on investment based on the
performance of a balanced investment in equity, debt, convertible, and money
market securities.
MERRILL LYNCH BASIC VALUE FUND
This Merrill Lynch Fund invests primarily in stocks that appear undervalued,
especially those selling at a discount from book value or at low
price/earnings ratios. The investment goal is capital appreciation.
MERRILL LYNCH CORPORATE BOND FUND
This Merrill Lynch Fund provides for a return on investment based on the
performance of investment grade fixed income securities comprising the fund.
DREYFUS PREMIUM WORLDWIDE GROWTH FUND
This Dreyfus Fund invests primarily in equity securities of large
capitalization multinational corporations. The investment goal of the fund is
long-term growth.
VAN KAMPEN AMERICAN VALUE FUND
This Van Kampen Fund invests primarily in stocks of small- and mid-cap
companies which it believes are temporarily undervalued. The Fund seeks to
capitalize on the potential appreciation of the companies it believes are
undervalued.
VAN KAMPEN AMERICAN EMERGING GROWTH FUND
This Van Kampen Fund invests primarily in the stocks of emerging mid-cap
companies that have significant growth potential. The objective of the Fund
is long-term capital appreciation.
-7-
RCN Corporation
RCN Savings & Stock Ownership Plan
Notes to Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
PIMCO HIGH YIELD FUND
This PIMCO Fund invests in fixed income securities of companies in the upper
and middle credit quality tiers of the high yield market. By focusing on
better quality high yield investments, the fund seeks to reduce exposure to
more risky high yield bonds without sacrificing return potential.
ALLIANCE QUASAR FUND
This Alliance Fund invests in widely diversified portfolios of equity
securities spread among many industries that offer the possibility of above-
average earnings growth.
IVY INTERNATIONAL FUND
This Ivy Mackenzie Fund invests primarily in stocks of European, Pacific Basin
and South American Markets. The investment goal is long-term capital
appreciation.
MASS INVESTORS GROWTH FUND
This MFS Fund invests in equity securities of companies believed to have
better-than-average long-term growth potential. The objective of the fund is
to seek long-term growth of capital and future income rather than current
income.
RCN COMMON STOCK
Monies invested in this fund are used to purchase common stock of RCN
Corporation.
LOAN FUND
The Fund represents the outstanding principal balance for all participant
loans.
4. INVESTMENTS
The following presents investments that represent 5 percent or more of the
Plan's net assets:
December 31
---------------------------
1999 1998
Investments at fair value:
Merrill Lynch Retirement Preservation Trust $ 2,166,691 $ 1,640,716
Merrill Lynch Growth Fund 2,792,961 2,040,109
Merrill Lynch Capital Fund 2,071,335 1,974,598
Merrill Lynch Basic Value Fund 3,424,330 2,813,215
Shares of RCN Common Stock* 21,506,640 7,464,212
-8-
RCN Corporation
RCN Savings & Stock Ownership Plan
Notes to Financial Statements
December 31, 1999 and 1998
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During 1999, the Plan's investments, including gains and losses on investments
sold, as well as held during the year, appreciated in value by $14,338,550 as
follows:
Merrill Lynch Retirement Preservation Trust $ 634
Merrill Lynch S&P 500 Index Fund 32,077
Merrill Lynch Growth Fund 578,095
Merrill Lynch Capital Fund (133,564)
Merrill Lynch Basic Value Fund (2,443)
Merrill Lynch Corporate Bond Fund (26,044)
Dreyfus Premium Worldwide Growth Fund 22,005
Van Kampen American Value Fund 8,508
Van Kampen Emerging Growth Fund 230,654
PIMCO High Yield Fund (552)
Alliance Quasar Fund 69,788
Ivy International Fund 103,841
Mass Investors Growth Stock Fund 71,143
Shares of RCN Common Stock* 13,384,408
------------
$ 14,338,550
============
*Participant and Nonparticipant directed
5. NONPARTICIPANT DIRECTED INVESTMENTS
Information about the net assets and significant components of the changes in
net assets relating to the nonparticipant directed investments is as follows:
December 31,
1999 1998
Net assets:
RCN Common Stock $11,545,261 $ 3,391,657
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Changes in net assets:
Contributions 2,900,105
Net appreciation in fair value of investments 7,137,116
Benefits paid to participants (1,570,752)
Administrative fees (1,571)
Interfund transfers (311,294)
-----------
$ 8,153,604
===========
6. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100 percent vested in their accounts.
-9-
RCN Corporation
RCN Savings & Stock Ownership Plan
Notes to Financial Statements
December 31, 1999 and 1998
- --------------------------------------------------------------------------------
7.RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by Merrill Lynch.
Merrill Lynch is the trustee as defined by the Plan and, therefore, these
transactions qualify as party-in-interest. Fees paid by the Plan for the
investment management services amounted to $6,300 for the year ended December
31, 1999.
As described in Note 1, participants may choose to purchase common stock of
RCN Corporation, the Plan Sponsor. During 1999, purchases of $7,235,863 were
made, and proceeds of $5,268,126 were received from sales of RCN Corporation's
common stock.
8.TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated March 11, 1999, that the Plan and related trust are designed in
accordance with applicable sections of the Internal Revenue Code (IRC). The
Plan administrator and Plan's tax counsel believe that the Plan is designed
and is currently being operated in compliance with the applicable requirements
of the IRC.
-10-
RCN Corporation
RCN Savings & Stock Ownership Plan
Schedule H Item 4(i) - Assets Held for Investment Purposes
December 31, 1999
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(b) (c) (d) (e)
(a) Identity of Issue Description of Asset Cost Current Value
* Merrill Lynch Merrill Lynch Retirement Preservation Trust $ 2,166,737 $ 2,166,691
Merrill Lynch S&P 500 Index Fund 440,140 471,837
Merrill Lynch Growth Fund 2,546,886 2,792,961
Merrill Lynch Capital Fund 2,172,684 2,071,335
Merrill Lynch Basic Value Fund 3,293,062 3,424,330
Merrill Lynch Corporate Bond Fund 537,492 517,914
Dreyfus Premium Worldwide Growth Fund 180,771 199,517
Van Kampen American Value Fund 215,724 225,247
Van Kampen Emerging Growth Fund 609,440 838,938
PIMCO High Yield Fund 80,918 80,365
Alliance Quasar Fund 535,900 584,357
Ivy International Fund 745,015 823,840
Mass Investors Growth Stock Fund 491,601 562,578
* RCN Common Stock Shares of RCN Common Stock 9,963,213 21,506,640
* Paticipants' Notes Participants' loans with interest rates from 7.75% to 9.50%
with maturity dates from 2000 to 2028 -- 1,004,044
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Total $23,979,583 $37,270,594
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*Party-in-interest
-11-
RCN Corporation
RCN Savings & Stock Ownership Plan
Schedule H Item (j) - Reportable Transactions
For the year ended December 31, 1999
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(a) (b) Number of (c) Purchase (d)
Identity of Party Description of Asset Transactions Price Selling Price
Merrill Lynch* Merrill Lynch Retirement Preservation Trust 427 $ 1,224,299 -
Merrill Lynch Retirement Preservation Trust 407 - $694,449
Merrill Lynch Growth Fund 334 900,163 -
Merrill Lynch Growth Fund 162 - 549,676
Merrill Lynch Capital Fund 157 874,315 -
Merrill Lynch Capital Fund 299 - 601,302
Merrill Lynch Basic Value Fund 141 1,529,336 -
Merrill Lynch Basic Value Fund 244 - 829,484
RCN Corporation* Shares of RCN Common Stock 427 7,235,863 -
Shares of RCN Common Stock 407 - 5,268,126
(a) (b) (e) (f) Current (g) Net
Identity of Party Description of Asset Cost Value Gain (Loss)
Merrill Lynch* Merrill Lynch Retirement Preservation Trust $ 1,224,299 $ 1,224,299 -
Merrill Lynch Retirement Preservation Trust 694,449 - -
Merrill Lynch Growth Fund 900,163 900,163 -
Merrill Lynch Growth Fund 674,630 - $ (124,954)
Merrill Lynch Capital Fund 874,315 874,315 -
Merrill Lynch Capital Fund 573,609 - 27,693
Merrill Lynch Basic Value Fund 1,529,336 1,529,336 -
Merrill Lynch Basic Value Fund 759,742 - 69,742
RCN Corporation* Shares of RCN Common Stock 7,235,863 7,235,863 -
Shares of RCN Common Stock 2,198,248 - 3,069,878
-12-
SIGNATURES
Pursuant to the requirements of The Securities Exchange Act of 1934, the
trustees have duly caused this annual report to be signed on its behalf by the
undersigned thereunto duly authorized.
RCN SAVINGS & STOCK
OWNERSHIP PLAN
DATE: June 28, 2000 By: /s/ Jonathan R. Parkes
--------------------------
Human Resources
Financial Manager