<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
--------------------------------------------------
Commission file number 0-20913
----------------------------------------------------------
TELEPORT COMMUNICATIONS GROUP INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------------------------------
DELAWARE 13-3173139
- --------------------------------------------------------------------------------
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
ONE TELEPORT DRIVE, STATEN ISLAND, NEW YORK 10311
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(718) 355-2000
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------------ ----------
Number of outstanding shares of Registrant's Common Stock as of November 8,
1996: 27,653,372 shares of Class A Common Stock and 131,274,632 shares of Class
B Common Stock.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 376,741 $ 11,862
------------------------------
Marketable securities 544,685 --
------------------------------
Accounts receivable:
Trade--net of allowance for doubtful accounts ($5,851 in 1996 and $1,161 in 1995) 45,586 26,196
Related parties 2,062 4,640
Miscellaneous--net of allowance for doubtful accounts ($1,415 in 1996 and $543 in 1995) 8,046 2,037
------------------------------
Accounts receivable--net 55,694 32,873
------------------------------
Prepaid expenses 9,538 4,939
------------------------------
Other current assets 2,142 532
------------------------------
Total current assets 988,800 50,206
------------------------------
Fixed assets--at cost:
Communications network 1,097,630 492,858
Other 79,962 52,795
------------------------------
1,177,592 545,653
Less accumulated depreciation and amortization (212,322) (113,202)
------------------------------
Fixed assets--net 965,270 432,451
------------------------------
Investment in unconsolidated affiliates 15,853 99,299
------------------------------
Goodwill--net of accumulated amortization 46,041 27,008
------------------------------
Other assets 9,892 5,829
------------------------------
Total assets $2,025,856 $ 614,793
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities $ 180,389 $ 92,104
Current portion of capital lease obligations ($16,712 in 1996 and $3,338 in 1995
with related parties) 19,574 4,354
Other current liabilities 3,295 831
------------------------------
Total current liabilities 203,258 97,289
------------------------------
Capital lease obligations ($29,893 in 1996 and $10,017 in 1995 with related parties) 35,985 11,964
Subordinated note to related party 26,000 --
Subordinated debt to parents -- 269,000
Senior notes 300,000 --
Senior discount notes 642,284 --
Unamortized notes costs (26,342) --
Long-term bank debt -- 87,500
Other liabilities 16,442 19,283
------------------------------
Total liabilities 1,197,627 485,036
------------------------------
Minority interest 16,731 4,409
------------------------------
Stockholders' equity and partners' deficit:
Common Stock, Class A $.01 par value: 450,000,000 shares authorized, 27,608,063 shares
issued and outstanding at September 30, 1996; and Common Stock, $1.00 par value: 3,000 276 2
shares authorized, 1,667 shares issued and outstanding at December 31, 1995
Common Stock, Class B $.01 par value: 300,000,000 shares authorized, 139,250,370
shares issued and 131,274,632 shares outstanding at September 30, 1996; and zero at 1,393 --
December 31, 1995
Additional paid-in capital 1,169,155 195,388
Accumulated deficit (238,301) (65,648)
Partners' deficit -- (4,394)
------------------------------
932,523 125,348
Less cost of Class B Common Stock held in treasury, 7,975,738 shares at September 30, 1996
and zero at December 31, 1995 (121,025) --
------------------------------
Total stockholders' equity and partners' deficit 811,498 125,348
Total liabilities and stockholders' equity and partners' deficit $2,025,856 $ 614,793
==============================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
2
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ------------------------------
1996 1995 1996 1995
---------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Telecommunications services $ 72,749 $ 34,338 $ 157,466 $ 96,269
Management and royalty fees from affiliates -- 8,011 22,805 21,719
---------------------------------------------------------------
Total revenues 72,749 42,349 180,271 117,988
---------------------------------------------------------------
Expenses:
Operating 43,694 23,929 106,030 66,954
Selling, general and administrative 25,993 12,259 55,373 35,862
Depreciation and amortization 25,025 8,878 51,984 24,353
---------------------------------------------------------------
Total expenses 94,712 45,066 213,387 127,169
---------------------------------------------------------------
Operating loss (21,963) (2,717) (33,116) (9,181)
---------------------------------------------------------------
Interest:
Interest income 14,666 1,020 17,336 3,045
Interest expense ($1,673 and $4,731 for the three
months ended September 30, 1996 and 1995 and
$12,525 and $13,751 for the nine months ended
September 30, 1996 and 1995, respectively, with
related parties) (26,829) (6,053) (44,451) (16,188)
---------------------------------------------------------------
Total interest (12,163) (5,033) (27,115) (13,143)
Loss before minority interest, equity in losses of
unconsolidated affiliates and income taxes (34,126) (7,750) (60,231) (22,324)
Minority interest 1,369 110 2,225 472
Equity in losses of unconsolidated affiliates (263) (4,997) (12,657) (13,695)
---------------------------------------------------------------
Loss before provision for income taxes (33,020) (12,637) (70,663) (35,547)
Provision for income taxes (684) (35) (1,476) (370)
---------------------------------------------------------------
Net loss $ (33,704) $ (12,672) $ (72,139) $ (35,917)
==============================================================
Loss per common share $(.21) $ ( .18) $ (.72) $ (.51)
==============================================================
Weighted average number of shares outstanding 158,876,191 70,000,140 100,234,987 70,000,140
==============================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
3
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND PARTNERS' DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL PAID-
STOCK STOCK IN-CAPITAL ACCUMULATED PARTNERS' TREASURY
CLASS A CLASS B DEFICIT DEFICIT STOCK TOTAL
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 2 -- $ 195,388 $ (65,648) $(4,394) -- $ 125,348
Issuance of 27,025,000
shares of Class
A Common Stock, net of 270 -- 407,374 -- -- -- 407,644
issuance
costs of $24.8 million
Conversion of and 42,000
to 1 stock
split of $1.00 par value
Common
Stock to 139,250,370 (2) $1,393 296,245 (100,514) 4,394 -- 201,516
shares of Class
B Common Stock as part
of the
Reorganization
Purchase of 7,975,738
shares of Class
B Common Stock from -- -- -- -- -- $(121,025) (121,025)
Continental
Cablevision, Inc.
Conversion of Parental
Subordinated
Debt plus accrued -- -- 263,602 -- -- -- 263,602
interest of $20.6
million to equity
Issuance of 576,263 shares
of Class A
Common Stock to purchase
the 6 -- 6,499 -- -- -- 6,505
minority interests in a
Local Market
Partnership
6,800 shares of Class A
Common Stock issued -- -- 47 -- -- -- 47
upon exercise
of employee options
Net loss -- -- -- (72,139) -- -- (72,139)
---------------------------------------------------------------------------------------------------
Balance at September 30, $276 $1,393 $1,169,155 $(238,301) $ -- $(121,025) $ 811,498
1996
===================================================================================================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
4
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (72,139) $ (35,917)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 51,984 24,352
Amortization of bond costs 675 --
Equity in losses of unconsolidated affiliates 12,657 13,695
Amortization of deferred credits (1,855) (1,748)
Provision for losses on accounts receivable 1,830 746
Accretion of senior discount notes 17,284 --
Unrealized gain on marketable securities 1,904 --
Minority interest (2,225) (472)
(Increase) decrease in operating assets and increase (decrease) in
operating liabilities, net of the effects from the purchase of the Local
Market Partnerships:
Accounts receivable (11,083) (5,265)
Other assets (2,424) (472)
Accounts payable and accrued liabilities 8,004 22,007
Deferred credits 1,808 4,389
---------------------
Net cash provided by operating activities 6,420 21,315
---------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for communications network (176,717) (114,041)
Investment in unconsolidated affiliates - cash component -- (46,693)
Due from related parties (23,042) --
Purchase of a Local Market Partnership interest (11,618) --
Investment in unconsolidated affiliate (10,057) --
Capital contributions to Local Market Partnerships prior to
Reorganization (16,435) --
Purchases of marketable securities (546,589) --
---------------------
Net cash used for investing activities. (784,458) (160,734)
---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank revolving credit facility 162,500 126,500
Principal payments on capital leases (6,005) (2,526)
Capital contributions from minority partners -- 1,777
Proceeds from senior notes 300,000 --
Proceeds from senior discount notes 625,000 --
Proceeds from issuance of Class A Common Stock 432,400 --
Proceeds from the exercise of employee stock options 47 --
Purchase of treasury stock (121,025) --
Payments on bank revolving credit facility (250,000) --
---------------------
Net cash provided by financing activities 1,142,917 125,751
---------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 364,879 (13,668)
CASH AND CASH EQUIVALENTS, BEGINNING
OF THE PERIOD 11,862 26,000
---------------------
CASH AND CASH EQUIVALENTS, END OF THE PERIOD $ 376,741 $ 12,332
=====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during the period for interest $ 6,108 $ 6,745
=====================
NON-CASH TRANSACTIONS
Fixed assets acquired under capital leases $ 1,134 $ 1,355
=====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
5
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
In the opinion of Teleport Communications Group Inc. (together with
its wholly owned subsidiaries and its majority owned subsidiaries, "TCGI"
or the "Company"), the accompanying consolidated financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the Company's financial position as of
September 30, 1996 and the Company's results of operations and cash flows
for the nine months then ended.
The results of operations for the nine months ended September 30, 1996
are not necessarily indicative of the results expected for the full year.
2. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated balance sheet includes the accounts of TCGI's wholly
owned and majority owned subsidiaries at September 30, 1996. Minority
interest represents other partners' interest in TCG Seattle and TCG San
Francisco as of September 30, 1996. The statements of operations and of
cash flows include equity in losses of unconsolidated affiliates for all
the Local Market Partnerships except for TCG St. Louis through June 30,
1996. As of July 1, 1996, the statements of operations and of cash flows
consolidate the financial statements of the former Local Market
Partnerships. As of and for the period ended December 31, 1995, the
balance sheet, statements of operations and of cash flows include the
combined accounts of TCGI and TCG Partners. Minority interest represents
another partner's equity in TCG St. Louis at December 31, 1995.
Investments in which TCGI held less than a 50 percent interest are
accounted for under the equity method. (See Note 4 - Reorganization)
The accompanying financial statements include the accounts of TCGI and
its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in consolidation. Certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed
or omitted. These consolidated financial statements and notes should be
read in conjunction with the combined financial statements of Teleport
Communications Group Inc. and Subsidiaries and TCG Partners and the
combined financial statements of the Local Market Partnerships to be
acquired by Teleport Communications Group Inc., included as part of TCGI's
Prospectus, dated June 27, 1996, with respect to its Class A Common Stock
and filed with TCGI's Registration Statement on Form S-1 (File No. 333-
3850).
Marketable Securities
Marketable securities consist of fixed income securities, commercial
paper, floating rate notes and certificates of deposit. Marketable
securities are stated at market value. Market value is determined by the
most recently traded price of the security at the balance sheet date.
By policy, TCGI invests primarily in high-grade marketable securities.
All marketable securities are defined as trading securities under the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS
No. 115) and unrealized holding gains and losses are reflected in earnings.
Net realized gains or losses are determined on the specific identification
cost method.
At September 30, 1996, marketable securities in the aggregate had a
market value of $869.8 million consisting of cash and cash equivalents of
$325.1 million and short term investments of $544.7 million. Original cost
in the aggregate was $868.0 million consisting of cash and cash equivalents
of $324.6 million and short term investments of $543.4 million. As trading
securities are on a mark-to-market basis, this resulted in a net unrealized
gain of $1.9 million of which approximately $600,000 relates to cash and
cash equivalents and approximately $1.3 million relates to short term
investments.
6
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 - CONTINUED
Net Loss Per Share
Net loss per common share was determined by dividing net loss by the
weighted average number of common shares outstanding for the period. The
computation of fully diluted net loss per share was antidilutive in each of
the periods presented; therefore, the amounts reported as primary and fully
diluted are the same.
As part of the Reorganization, (as defined herein) TCGI declared a 42,000
to 1 stock split. All per share amounts and numbers of shares have been
restated to reflect the stock split retroactive for the periods presented.
Reclassification
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
3. OFFERINGS
On June 27, 1996, TCGI issued 27,025,000 shares of Class A Common Stock
which resulted in gross proceeds of approximately $432.1 million (the
"Stock Offering"), and $300 million of Senior Notes and $1,073 million of
Senior Discount Notes as part of an initial public offering (the
"Offerings"). The Offerings of the Senior Notes and the Senior Discount
Notes resulted in aggregate gross proceeds of $925 million. The gross
proceeds of the Offerings (approximately $1.3 billion) were received by
TCGI on July 2, 1996. TCGI also recognized a liability of approximately
$46.8 million which was paid to the underwriters on July 2, 1996. In July
1996 TCGI utilized a portion of the net proceeds of the Offerings to (i)
repay $250 million of bank indebtedness plus accrued interest and (ii)
purchase 7,975,738 shares of Class B Common Stock owned by Continental
Cablevision, Inc. for $16.00 per share less related expenses for a net cost
of $121 million. The remaining funds will be used to expand and develop
existing and new networks and for general corporate and working capital
purposes.
4. REORGANIZATION
Prior to the Offerings, TCGI was owned by subsidiaries of Cox
Communications, Inc. ("Cox") (approximately 30%), TCI Communications, Inc.
("TCI") (approximately 30%), Comcast Corporation ("Comcast") (approximately
20%) and Continental Cablevision, Inc. ("Continental") (approximately 20%)
(collectively the "Cable Stockholders"). The business was operated through
TCGI, and beginning in 1992, TCG Partners, which is a New York general
partnership owned prior to the Reorganization by the Cable Stockholders in
the same percentages as TCGI. TCG Partners was formed to invest, with
TCGI, the Cable Stockholders and other cable operators, in 14 partnerships
(the "Local Market Partnerships") to develop and operate local
telecommunications networks. The Local Market Partnerships were owned by
TCGI, and/or TCG Partners, and certain of the Cable Stockholders which have
cable operations in the particular markets addressed by the Local Market
Partnerships and, in some cases, other cable operators in such markets. To
simplify this complex ownership structure, TCGI and the Cable Stockholders
agreed to consolidate the ownership of TCG Partners and of the Local Market
Partnerships as wholly owned subsidiaries of TCGI. As part of this
process, certain of the other cable operators agreed to sell their
interests in the Local Market Partnerships to TCGI directly or through a
Cable Stockholder.
Reorganization Transactions Consummated Prior to or in Connection with
the Offerings
In connection with the Offerings, TCGI and the Cable Stockholders entered
into a reorganization agreement (the "Reorganization Agreement") pursuant
to which TCGI, TCG Partners and the Local Market Partnerships were or are
expected to be reorganized (the "Reorganization"). The principal
transactions comprising the Reorganization that have occurred are:
o The acquisition by TCGI of TCG Partners in exchange for Class B
Common Stock issued to the Cable Stockholders.
o The acquisition by TCGI of all of the interests in 12 of the 14
Local Market Partnerships in exchange for Class B Common Stock
issued to the Cable Stockholders and Class A Common Stock issued to
other cable operators.
7
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 - CONTINUED
o The contribution to TCGI of $269.0 million in aggregate principal
amount of indebtedness, plus accrued interest from May 1995, owed by
TCGI to the Cable Stockholders (except that TCI retained a $26
million subordinated note of TCGI) in exchange for Class B Common
Stock issued to the Cable Stockholders.
o In connection with Continental's announced proposed merger with US
West, Inc., the purchase by TCGI of 7,975,738 shares (out of
25,761,330 shares) of Class B Common Stock owned by Continental at a
price per share equal to $16.00 per share of the Class A Common
Stock offered in the Stock Offering, less the applicable
underwriting discount and a pro rata portion of the registration
fees, representing an aggregate purchase price of $121 million. On
November 5, 1996, the U.S. Department of Justice announced a
settlement with U.S. West and Continental pursuant to which
Continental will be required to reduce its ownership in TCGI to
below 10% by June 30, 1997 and to eliminate such ownership entirely
by December 31, 1998.
In consideration of the transfer by each of the Cable Stockholders of
its respective interests in TCG Partners and the Local Market Partnerships
and the contribution to TCGI of the indebtedness described above, the
Company issued immediately prior to the Offerings 69,250,230 additional
shares of Class B Common Stock to the Cable Stockholders.
Reorganization Transactions After the Offerings
Pursuant to the Reorganization, TCG Partners and 12 of the 14 Local
Market Partnerships have become wholly owned subsidiaries of TCGI. In
addition, TCI has agreed to transfer its interests in TCG Seattle and TCG
San Francisco to the Company at the earliest time such transactions can be
accomplished. Furthermore, TCI has acquired the 22.9% and 22.2% minority
partnership interests in TCG San Francisco and TCG Seattle, respectively,
formerly held by Viacom Telecom, Inc., which interests TCI is required to
transfer to TCGI. The issuance of shares of Class B Common Stock to TCI
assumes that, subsequent to the Offerings, TCI will contribute its current
partnership interests in TCG Seattle and TCG San Francisco, and that TCI
will acquire and contribute to TCGI the partnership interests of Viacom
Telecom, Inc. in TCG Seattle and TCG San Francisco.
In addition, TCI will be issued 638,862 shares of Class A Common Stock
in consideration for the transfer to TCGI of the partnership interest which
TCI acquired from MicroNet, Inc. in TCG San Francisco. TCI also has an
agreement to acquire a 4.2% partnership interest in TCG San Francisco from
InterMedia Partners. TCI has informed TCGI that it has acquired such
partnership interest. At such time as TCI acquires such partnership
interest, TCI is required to transfer such interest to TCGI in
consideration of the issuance to TCI of 372,666 shares of Class A Common
Stock. This transfer is expected to close in the fourth quarter of 1996.
As of September 30, 1996, TCI, Cox, Comcast and Continental owned
37.2%, 29.8%, 19.5% and 13.6%, respectively, of the Company's Class B
Common Stock, representing 36.4%, 29.2%, 19.1% and 13.3%, respectively, of
the combined voting power of the Company's Common Stock.
8
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 - CONTINUED
Unaudited pro forma financial information for the three-month and
nine-month periods ended September 30, 1996 and 1995, as if the
Reorganization had occurred at the beginning of each of the respective
periods, is as follows (note that the 27,025,000 shares of Class A Common
Stock issued on June 27, 1996 are included in the 1996 weighted average
number of shares):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- --------------------------------
1996 1995 1996 1995
------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 72,749 $ 47,568 $ 195,985 $ 130,496
----------------------------------------------------------------
Expenses:
Operating 43,694 29,904 120,812 81,218
Selling, general and administrative 25,993 17,702 68,785 50,831
Depreciation and amortization 25,025 14,488 68,908 39,154
----------------------------------------------------------------
Total expenses 94,712 62,094 258,505 171,203
----------------------------------------------------------------
Operating loss (21,963) (14,526) (62,520) (40,707)
Interest:
Interest income 14,666 1,220 16,280 3,776
Interest expense (26,829) (2,912) (37,764) (7,368)
----------------------------------------------------------------
Total interest (12,163) (1,692) (21,484) (3,592)
----------------------------------------------------------------
Loss before minority interest, equity in losses
of unconsolidated affiliates and income taxes (34,126) (16,218) (84,004) (44,299)
Minority interest 1,369 847 3,418 2,260
Equity in losses of unconsolidated affiliates (263) (314) (908) (1,113)
----------------------------------------------------------------
Loss before provision for income taxes (33,020) (15,685) (81,494) (43,152)
Provision for income taxes (684) (35) (1,476) (370)
----------------------------------------------------------------
Net loss $ (33,704) $ (15,720) $ (82,970) $ (43,522)
================================================================
Loss per common share $( .21 ) $(.12) $( .59) $( .33)
================================================================
Weighted average number of shares outstanding 158,876,191 131,850,895 140,925,082 131,850,895
================================================================
</TABLE>
5. EMPLOYEE STOCK PURCHASE PLAN
TCGI adopted the Teleport Communications Group Inc. Employee Stock
Purchase Plan ("the Stock Purchase Plan"), effective June 27, 1996. The
Stock Purchase Plan is administered by a committee designated by the Board
of Directors. Each eligible employee will be given an option to purchase
up to a number of shares of Class A Common Stock equal to 10% of such
employee's compensation plus bonus paid for the calendar year preceding the
year the option is awarded, divided by the purchase price per share under
the option. The Board of Directors has authorized the issuance under the
Stock Purchase Plan of a maximum number of shares of Class A Common Stock
equal to the maximum number of shares for which all employees eligible as
of the date of the Stock Offerings could elect to be granted options for
the first offering period. Options relating to 622,000 shares of Class A
Common Stock were issued. The expense recorded for the three months ended
September 30, 1996 related to the options issued was approximately
$375,000.
9
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 - CONTINUED
6. SUBSEQUENT EVENT
On October 23, 1996, TCGI announced its agreement to acquire Eastern
TeleLogic Corporation ("ETC") for approximately $233 million in cash, stock
and assumed debt. ETC is a leading competitive local exchange carrier in
Philadelphia, Pennsylvania and in the neighboring cities of Camden, New
Jersey and Wilmington, Delaware. In the first of two steps, on October 25,
1996, ETC redeemed shares of its stock and employee stock options
(approximately 47%), not held by Comcast CAP of Philadelphia, Inc.
("Comcast CAP"), a corporation owned 51% by Comcast Corporation and 49% by
TCGI. Comcast CAP borrowed at a market interest rate approximately $115
million from TCGI as a short-term loan and, in turn, loaned this amount to
ETC to effect the redemption.
In the second step, TCGI will acquire Comcast's 51% stock interest in
Comcast CAP in exchange for 2,757,083 shares of TCGI Class A Common Stock,
resulting in ETC becoming a wholly owned subsidiary of TCG. TCG will also
assume approximately $45 million of ETC debt and approximately $5 million
of management stock appreciation rights. The second step will close as
soon as necessary regulatory approvals have been obtained, which is
expected in the first quarter of 1997.
10
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
Revenue
Total revenues increased to $72.7 million and $180.3 million for the
three and nine months ended September 30, 1996 from $42.3 million and
$118.0 million, representing increases of $30.4 million and $62.3 million,
or 72% and 53%, respectively. Pursuant to the Reorganization, TCGI
consolidated the financial statements of the Local Market Partnerships,
which consolidation accounts for $25.1 million of the increase for both the
three and nine months ended September 30, 1996 as compared to the three and
nine months ended September 30, 1995. Telecommunications services revenue
increased to $72.7 million and $157.5 million for the three and nine months
ended September 30, 1996, from $34.3 million and $96.3 million for the
three and nine months ended September 30, 1995, representing increases of
$38.4 million and $61.2 million, or 112% and 64%, respectively. The
increases in revenue occurred in every revenue category, most significantly
in switched services. These increases in revenues also are a result of
increased market penetration primarily in TCGI's existing markets as well
as expansion into new markets.
Management fees are directly related to operating and administrative
support services provided by TCGI to certain former wholly owned entities
and to the Local Market Partnerships. The royalty fees were charged to the
Local Market Partnerships based on revenue. As a result of the
Reorganization, management and royalty fees from the Local Market
Partnerships are no longer reflected as revenue for the three months ended
September 30, 1996, due to the consolidation of the Local Market
Partnerships.
On a pro forma basis, had telecommunications services revenue
generated by unconsolidated Local Market Partnerships been included in the
prior periods' financial statements, total revenues would have increased to
$72.7 million and $196.0 million for the three and nine months ended
September 30, 1996 from $47.6 million and $130.5 million for the three and
nine months ended September 30, 1995, reflecting increases of $25.1 million
and $65.5 million, or 53% and 50%, respectively. This revenue growth is a
direct result of increased market penetration of all telecommunications
service offerings in existing markets and the addition of new markets. On
a pro forma basis, annualized monthly recurring revenue increased to
approximately $282.9 million for the month of September 30, 1996, from
$179.9 million for the comparable period in 1995, an increase of $103.0
million, or 57%. Monthly recurring revenue represents monthly service
charges billable to telecommunications services customers for the month
indicated, but excluding non-recurring revenues for certain one-time
services, such as installation fees or equipment charges.
On a pro forma basis, switched service revenue increased 74%, for both
the three and nine months ended September 30, 1996 from the similar periods
in 1995 and represented 39% and 34% of total revenue as of September 30,
1996 and 1995, respectively. Increased monthly dedicated services revenue,
as well as sales growth in enhanced switched services products to new
customers, also contributed to overall revenue growth. On a pro forma
basis, dedicated services revenue increased 41% and 38% for the three and
nine months ended September 30, 1996, respectively.
Operating Expenses
TCGI, in order to be consistent with industry standards, has
reclassified certain compensation and overhead expenses, related to
engineering, customer service and new technology, from selling, general and
administrative to operating expenses. Operating expenses increased to
$43.7 million and $106.0 million for the three and nine months ended
September 30, 1996, from $23.9 million and $67.0 million for the three and
nine months ended September 30, 1995, increases of $19.8 million and $39.0
million, or 83% and 58%, respectively. Pursuant to the Reorganization,
TCGI has consolidated the financial statements of the Local Market
Partnerships, which consolidation accounts for $12.7 million of the
increase in operating expenses for both the three and nine months ended
September 30, 1996 as compared to the three and nine months ended September
30, 1995. The remaining increases are directly related to the costs
associated with the expansion of TCGI's networks. These expenses include
costs specifically associated with network operations including
compensation costs for technical personnel,
11
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
access, rights-of-way, node, rent and maintenance expenses. Offsetting
these expense increases are reductions in expenses due to renegotiation of
interconnection agreements with incumbent local carriers. On a pro forma
basis, operating expenses increased to $43.7 million and $120.8 million for
the three and nine months ended September 30, 1996, from $29.9 million and
$81.2 million for the three and nine months ended September 30, 1995,
increases of $13.8 million and $39.6 million, or 46% and 49%, respectively.
On a pro forma basis, operating expenses are approximately 60% and 62% of
revenue for the three and nine months ended September 30, 1996,
respectively, and 63% and 62% of revenue for the three and nine months
ended September 30, 1995.
Selling, General and Administrative Expenses
TCGI, in order to be consistent with industry standards, has
reclassified certain compensation and overhead expenses related to
engineering, customer service and new technology, from selling, general and
administrative to operating expenses. Selling, general and administrative
expenses increased to $26.0 million and $55.4 million for the three and
nine months ended September 30, 1996, from $12.3 million and $35.9 million
for the three and nine months ended September 30, 1995, an increase of
$13.7 million and $19.5 million, or 111% and 54%, respectively. Pursuant
to the Reorganization, TCGI has consolidated the financial statements of
the Local Market Partnerships, which consolidation accounts for $18.1
million of the increase in selling, general and administrative expenses for
both the three and nine months ended September 30, 1996 as compared to the
three and nine months ended September 30, 1995. These remaining increases
are attributable to the costs required to maintain an infrastructure which
supports the continued expansion of the Company's networks and the
introduction of new services. These costs include compensation, occupancy,
insurance, professional fees, and sales and marketing expenses. In the
third quarter, TCGI incurred costs to introduce a new advertising media
promotion in order to increase market penetration. In addition, TCGI
incurred professional fees relating to various state interconnection
arbitrations. On a pro forma basis, selling, general and administrative
expenses increased to $26.0 million and $68.8 million for the three and
nine months ended September 30, 1996, from $17.7 and $50.8 million for the
three and nine months ended September 30, 1995, an increase of $8.3
million and $18.0 million, or 47% or 35%, respectively.
EBITDA
EBITDA (earnings before interest, taxes, depreciation, amortization,
minority interest and equity in losses of unconsolidated affiliates)
decreased to $3.1 million for the three months ended September 30, 1996,
from $6.2 million for the three months ended September 30, 1995, a decrease
of $3.1 million, or 50%. Pursuant to the Reorganization, TCGI has
consolidated the financial statements of the Local Market Partnerships,
which consolidation accounts for $5.7 of the decrease in EBITDA. EBITDA
increased to $18.9 million for the nine months ended September 30, 1996,
from $15.2 million for the nine months ended September 30, 1995, an
increase of $3.7 million or 24%. The increase that occurred for the nine
months ended September 30, 1996 compared to the nine months ended September
30, 1995 is a result of TCGI obtaining increased efficiencies through
greater automation and through lower access costs, offset by the lower
management fees received in 1996. On a pro forma basis, EBITDA increased
to $3.1 million and $6.4 million for the three and nine months ended
September 30, 1996, from $40,000 and ($1.6) million for the three and nine
months ended September 30, 1995, increases of $3.1 million and $8.0
million, respectively. The Local Market Partnerships, which are included
in the pro forma financial data to reflect the Reorganization, have
negative EBITDA due to the start-up or rapid expansion of the networks of
such Local Market Partnerships.
Depreciation and Amortization Expense
Depreciation and amortization expense increased to $25.0 million and
$52.0 million for the three and nine months ended September 30, 1996, from
$8.9 million and $24.4 million for the three and nine months ended
September 30, 1995, increases of $16.1 million and $27.6 million, or 181%
or 113%, respectively. These increases are primarily attributable to
increased depreciation related to the expansion of the Company's local
telecommunications networks nationally and to changes in the estimated
useful lives of certain electronics equipment, which were made during 1995
in order to conform with industry standards. On a pro forma basis,
depreciation and amortization expense increased to $25.0 million and $68.9
million for the three and nine months
12
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
ended September 30, 1996, from $14.5 million and $39.2 million for the
three and nine months ended September 30, 1995, increases of $10.5 million
and $29.7 million, or 72% and 76%, respectively.
Interest Income
Interest income increased to $14.7 million and $17.3 million for the
three and nine months ended September 30, 1996, from $1.0 million and $3.0
million for the three and nine months ended September 30, 1995, increases
of $13.7 million and $14.3 million, or 137% and 477%, respectively. These
increases are attributable to interest earned and accreted on the cash and
cash equivalents that resulted from the proceeds of the Offerings.
Interest Expense
Interest expense increased to $26.8 million and $44.5 million for the
three and nine months ended September 30, 1996, from $6.1 million and $16.2
million for the three and nine months ended September 30, 1995, increases
of $20.7 million and $28.3 million, or 339% and 175%, respectively. These
increases resulted from interest on the Company's senior notes, senior
discount notes, and a subordinated note to a related party issued on June
27, 1996, offset by the absence of interest for the three months ended
September 30, 1996 on the revolving credit agreement and borrowings under
the subordinated debt to parents for the three months ended September 30,
1996.
Equity in Losses of Unconsolidated Affiliates
Equity in losses of unconsolidated affiliates decreased to $300,000
and $12.7 million for the three and nine months ended September 30, 1996
from $5.0 million and $13.7 million for the three and nine months ended
September 30, 1995, decreases of $4.7 million and $1.0 million, or 94% and
7%, respectively. The decreases resulted from the consolidation of the
Local Market Partnerships.
Net Loss
The net losses were $33.7 million and $72.1 million for the three and
nine months ended September 30, 1996, respectively. These are increases of
$21.0 million and $36.2 million from net loss of $12.7 million and $35.9
million for the three and nine months ended September 30, 1995,
respectively. The increases in net loss are attributable to the factors
discussed previously. On a pro forma basis, net loss increased to $33.7
million and $83.0 million for the three and nine months ended September 30,
1996, from $15.7 million and $43.5 million for the three and nine months
ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
As of September 30, 1996, TCGI had total assets of approximately $2.0
billion, an increase of approximately $1.4 billion from $615 million as of
December 31, 1995. This growth is primarily attributable to the Offerings
which occurred on June 27, 1996, whereby TCGI issued 27,025,000 shares of
Class A Common Stock, $300 million Senior Notes and $1,073 million of
Senior Discount Notes for aggregate gross proceeds of approximately $1.3
billion. The Company's current assets of approximately $989 million exceed
current liabilities of $203 million, providing working capital of
approximately $786 million. Network and equipment, net of depreciation
aggregates $965 million. The increase in assets from December 31, 1995 as
compared to September 30, 1996 is also attributable to the assets of the
Local Market Partnerships which TCGI acquired from the Cable Stockholders
pursuant to the Reorganization (See Note 4 - Reorganization). The assets
of the Local Market Partnerships as of September 30, 1996 were
approximately $529 million.
TCGI has invested the proceeds from the Offerings in short-term
marketable securities such as Treasury bills and commercial paper. TCGI
will utilize the remaining proceeds to expand its networks, for
acquisitions and to provide funds for working capital.
Prior to the Offerings, growth had been funded primarily by the Cable
Stockholders through equity contributions, and through a loan facility
aggregating $269 million borrowed by TCGI under the Stockholders Loan
13
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
Agreement, as well as through $250 million in borrowings under the
Revolving Credit Agreement. Pursuant to the Reorganization, the $269
million of aggregate principal amount of indebtedness (plus $20.6 million
of accrued interest as of June 27, 1996) under the Stockholders Loan
Agreement was contributed by the Cable Stockholders to capital in exchange
for Class B Common Stock. Additionally, the $250 million of indebtedness
under the Revolving Credit Agreement was repaid in July 1996 from the
proceeds of the Offerings. TCGI plans to utilize the credit facility under
the Revolving Credit Agreement, of which $250 million is currently
available, to supplement TCGI's funding requirements related to its network
expansion.
On October 23, 1996, TCGI announced its agreement to acquire, via a
two-step transaction, ETC for approximately $233 million in cash, stock and
assumed debt (See Note 5 - Subsequent Event). This transaction will be
funded with proceeds from the Offerings.
The Company has incurred significant net operating losses resulting
from the development and operation of new networks. TCGI expects that such
losses may continue to increase as TCGI emphasizes the development,
construction and expansion of its networks and builds its customer base and
that while cash provided by operations may be sufficient to fund modest
incremental growth it may not be sufficient to fund the extensive expansion
and development of networks as currently planned.
Net cash provided by financing activities for the nine months ended
September 30, 1996 and 1995 was $1.1 billion and $125.8 million,
respectively, comprised primarily of proceeds from the Offerings, as well
as borrowings under the Revolving Credit Agreement for the nine months
ended September 30, 1996 and borrowings under the Revolving Credit
Agreement and the Stockholder Loan Agreement for the nine months ended
September 30, 1995. Net cash provided by operating activities was $6.4
million and $21.3 million for the nine months ended September 30, 1996 and
1995, respectively. Net operating cash provided decreased for the nine
months ended September 30, 1996 as compared to the similar period in 1995,
primarily due to funding requirements of the recently consolidated Local
Market Partnerships. Net cash used for investing activities was $784.5
million and $160.7 million for the nine months ended September 30, 1996 and
1995, respectively. As of September 30, 1996, cash and cash equivalents
were $376.7 million and short term marketable securities were $544.7
million.
On a pro forma basis, TCGI made capital expenditures of $230.0 million
and $203.5 million for the nine months ended September 30, 1996 and 1995,
respectively. The Company anticipates that capital expenditures will be
approximately $375 million in the aggregate in 1996 and between $450 and
$475 million in the aggregate in 1997, primarily for the expansion,
development and construction of its networks, the acquisition and
deployment of switches and the expansion of operating support systems.
For the nine months ended September 30, 1996, TCGI has expanded its
route and fiber miles by 15% and 25%, respectively. The Company has also
increased the metropolitan areas and the buildings its serves by 15% and
44%, respectively, for the nine months ended September 30, 1996.
The Company believes that the net proceeds from the Offerings and the
amount of credit available under the Revolving Credit Agreement will be
adequate for its 1996 and 1997 funding requirements. However, the
Company's financing strategy is to remain financially flexible to market
opportunities which are consistent with the Company's long range growth
plans.
The incurrence of long term indebtedness by TCGI in an amount in
excess of $1 billion had been subject to certain state regulatory approvals
in New York and New Jersey. The Company filed petitions for orders from
such state regulatory authorities to permit TCGI to expand TCGI's borrowing
authority to $2 billion. Both the New York and New Jersey state regulatory
authorities approved these petitions in the third quarter of 1996.
The Company from time to time evaluates acquisitions and investments
in light of the Company's long range plans. The Company may have future
opportunities with certain of its Cable Stockholders to invest in
additional markets as a minority partner or shareholder as well as
opportunities as a managing partner or controlling shareholder in new or
existing telecommunications ventures which are consistent with the
Company's business plans (See Note 4 - Reorganization). The Company
expects to continue to build on its existing relationships with cable
television providers and other strategic customers, suppliers and
telecommunications carriers. Such
14
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES
ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
acquisitions, investments and strategic arrangements, if available, could
use a material portion of the Company's financial resources following the
Offerings and may accelerate the need for raising additional capital in the
future.
Earnings before fixed charges were insufficient to cover fixed charges
for the nine months ended September 30, 1996 and 1995, by $72.9 million and
$36.0 million, respectively. On a pro forma basis, the Company's earnings
would have been insufficient to cover fixed charges for the nine months
ended September 30, 1996 and 1995 by $84.9 million and $45.4 million,
respectively.
For a period of time, the Company will have excess liquidity as a
result of the Offerings. The Company has invested these funds in short
term, interest bearing money market funds until used to fund the capital
investments and operating needs of the Company's business.
On August 8, 1996, the Federal Communications Commission ("the FCC")
released an order and associated rules to implement Sections 251 and 252
of the Telecommunications Act of 1996 which govern the interconnection of
competitive local exchange carriers ("CLECs"), such as TCGI, and the
incumbent local exchange carriers ("ILECs"). On October 15, 1996, the
United States Court of Appeals for the Eighth Circuit granted a stay of the
pricing aspects of the FCC's rules, in response to requests filed by ILECs
and state public utility commissions. On November 1, 1996, the Court
lifted a portion of the stay insofar as it applied to wireless carriers.
The FCC rules at issue are intended to govern the arbitration actions to be
conducted by state public utility commissions in the event that a CLEC and
ILEC cannot voluntarily negotiate an interconnection arrangement. TCGI
does not believe that the stay of the FCC's rules will have a material
adverse impact on the Company. The court's review of the FCC's rules will
continue into early 1997, with a decision to be released thereafter. TCGI
has negotiated interconnection arrangements with BellSouth Corp. (covering
nine states), Pacific Bell (covering California), and NYNEX (governing New
York State). TCGI continues to negotiate with GTE Corp., Southern New
England Telecommunications Corp. and ILECs and has conducted arbitrations
in 20 states. Final arbitration decisions are due to be released by
November 8, 1996 for the ILEC arbitrations. Until the negotiations or
arbitrations are concluded, and implementing interconnection agreements
between TCG and the ILECs have been approved by the state public utility
commissions, it is not possible to determine whether and to what degree
the negotiations or arbitrations will affect TCGI's operations.
This report contains forward-looking statements, within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which are
inherently uncertain. Actual results and events may differ significantly
from those discussed in such forward-looking statements. In addition to
other information discussed herein, factors that might cause or contribute
to such differences include the risks and uncertainties set forth under the
caption "Risk Factors" in the Prospectus, dated as of June 27, 1996,
relating to the Company's Class A Common Stock and to the Company's Senior
Notes and Senior Discount Notes, included in the Company's Registration
Statements on Form S-1 (File Nos. 333 - 3850 and 333 - 3984).
15
<PAGE>
PART II
- OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES
Prior to the consummation of the Offerings, TCGI amended its Amended
and Restated Certificate of Incorporation to change its authorized capital
stock to 900 million shares, including 450 million shares of Class A Common
Stock, $.01 par value per share, 300 million shares of Class B Common
Stock, $.01 par value per share and 150 million shares of preferred stock,
$.01 par value per share. As of September 30, 1996, there was no preferred
stock outstanding and TCI, Cox, Continental and Comcast owned of record all
of the outstanding shares of Class B Common Stock of 131,274,632. TCGI has
issued and outstanding 27,608,063 shares of Class A Common Stock.
Each share of Class A Common Stock entitles the holder to one vote and
each share of Class B common stock entitles the holder to 10 votes on each
matter to be voted upon by the holders of the Common Stock.
ITEM 3: DEFAULTS UPON SENIOR SECURITY
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to the provisions of the Amended and Restated Stockholders'
Agreement of the Company dated as of June 26, 1996 among the Company and
the Cable Stockholders, by unanimous written consent of each of the holders
of the Company's Class B Common Stock dated as of August 15, 1996, Bernard
W. Schotters and Jimmy W. Hayes, having been designated as nominees by TCI
and Cox, respectively, were elected as Directors of the Company to fill
vacancies created by resignations of Nancy Hawthorne and Ronald H. Cooper.
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit No.
- -----------
*2.1 Reorganization Agreement, dated as of April 18, 1996
*3.6 Amended and Restated Certificates of Incorporation of
TCGI, as revised
*3.7 Amended and Restated By-laws of TCGI, as revised
*4.2 Form of Amended and Restated Stockholders' Agreement
(incorporated by reference to Exhibit E of Exhibit 2.1 hereof)
*4.3 Form of Indenture between TCGI and United States Trust Company of New
York, as Trustee, relating to the 11 1/8% Senior Discount Notes due 2007
of TCGI
*4.4 Form of Indenture between TCGI and United States Trust Company of New
York, as Trustee, relating to the 9 7/8% Senior Notes due 2006 of TCGI
*4.5 Form of Stock Certificate for Teleport Communications Group, Inc.
*10.1 New York Franchise Agreement, dated May 2, 1994, as amended
*10.2 Participation Agreement, dated May 15, 1984
*10.3 Agreement of Lease, dated May 15, 1984, as amended
*10.4 Keepwell Agreement, dated June 7, 1984, as amended
16
<PAGE>
*10.5 Agreement of Lease with Teleport Associates, dated November 10, 1987
*10.6 Agreement of Sublease between Merrill Lynch/WFC/L, Inc. and TC Systems,
Inc. dated January 30, 1990
*10.7 Loan Agreement, dated May 5, 1993
*10.8 Amendment No. 1 to Loan Agreement, dated March 1, 1994
*10.9 Amendment No. 2 to Loan Agreement, dated October 23, 1994
*10.10 Amendment No. 3 to Loan Agreement, dated February 15, 1995
*10.11 Loan Agreement, dated May 22, 1995 and related documents
*10.12 Amendment No. 1 to Loan Agreement, dated May 31, 1996
*10.13 Teleport Communications Group Inc. 1992 Unit Appreciation Plan
*10.14 Teleport Communications Group Inc. 1993 Unit Appreciation Plan
*10.15 Teleport Communications Group Inc. 1993 Stock Option Plan, as amended
*10.16 Form of Teleport Communications Group Inc. Employee Stock Purchase Plan
*10.17 Deferred Compensation Plan of Teleport Communications Group Inc.
*10.18 Make-up Plan of Teleport Communications Group Inc. for the Retirement
Savings Plan
*10.19 Teleport Communications Group Inc. 1996 Equity Incentive Plan
*10.20 Robert Annunziata Employment Agreement, dated December 18, 1992, as
amended
*10.21 John A. Scarpati Employment Agreement, dated July 12, 1994, as amended
*10.22 Robert C. Atkinson Employment Agreement, dated July 12, 1994, as amended
*10.23 Stuart A. Mencher Employment Agreement, dated July 12, 1994, as amended
*10.24 Alf T. Hansen Employment Agreement, dated July 12, 1994, as amended
*10.25 Partnership Agreement of TCG Detroit, dated as of November 1, 1993
*10.26 Amended and Restated Partnership Agreement of TCG Los Angeles, dated as
of March 1, 1994
*10.27 Partnership Agreement of TCG Pittsburgh, dated as of March 1, 1994
*10.28 Partnership Agreement of TCG San Diego, dated as of June 1, 1994
*10.29 Partnership Agreement of TCG San Francisco, dated as of January 1,
1994, as amended
*10.30 Partnership Agreement of TCG Seattle, dated as of January 1, 1994, as
amended
*10.31 Agreement among Teleport Communications Group Inc. and Comcast
Corporation, dated April 18, 1996
*10.32 First Amendment to the Teleport Communications Group Inc. 1993 Stock
Option Plan
*10.33 Second Amendment to the Teleport Communications Group Inc. 1993 Stock
Option Plan
*10.34 Letter of Intent between Viacom Telecom, Inc. and Teleport
Communications Group Inc., dated as of May 30, 1996.
*10.35 Letter of Intent between Viacom Telecom, Inc. and Teleport Communications
Group Inc., dated as of May 30, 1996
*10.36 First Amendment to the Teleport Communications Group Inc. 1996 Equity
Incentive Plan
*10.37 Stockholders' Agreement of Comcast CAP of Philadelphia, Inc. dated as
of June 30, 1993
11.00 Computation of Loss Per Common Share
27.00 Financial Data Schedule
*Incorporated by reference to the corresponding exhibit of TCGI's
Registration Statements on Form S-1 (File Nos. 333-3850 and 333-3984)
b. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which this
report is filed.
17
<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 of the
undersigned, thereunto duly authorized.
TELEPORT COMMUNICATIONS GROUP INC.
Dated: November 8, 1996
By: /s/ John A. Scarpati
--------------------------
Name: John A. Scarpati
Title: Senior Vice President and
Chief Financial Officer
Dated: November 8, 1996 By: /s/ Maria Terranova-Evans
--------------------------
Name: Maria Terranova-Evans
Title: Vice President and Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT 11
TELEPORT COMMUNICATIONS GROUP INC.
COMPUTATION OF LOSS PER COMMON SHARE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ---------------------------------
1996 1995 1996 1995
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Net Loss $(33,704,000) $(12,672,000) $(72,139,000) $(35,917,000)
================================================================
Primary loss per common share:
Weighted average number of shares
outstanding 158,876,191 70,000,140 100,234,987 70,000,140
================================================================
Loss per share $ (0.21) $ (0.18) $ (0.72) $ (0.51)
================================================================
Fully diluted loss per share:
Weighted average number of shares
outstanding 158,876,191 70,000,140 100,234,987 70,000,140
================================================================
Loss per share $ (0.21) $ (0.18) $ (0.72) $ (0.51)
================================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 376,741
<SECURITIES> 544,685
<RECEIVABLES> 45,586
<ALLOWANCES> 5,851
<INVENTORY> 0
<CURRENT-ASSETS> 988,800
<PP&E> 1,177,592
<DEPRECIATION> 212,322
<TOTAL-ASSETS> 2,025,856
<CURRENT-LIABILITIES> 203,258
<BONDS> 997,501
0
0
<COMMON> 1,669
<OTHER-SE> 930,854
<TOTAL-LIABILITY-AND-EQUITY> 2,025,856
<SALES> 0
<TOTAL-REVENUES> 72,749
<CGS> 0
<TOTAL-COSTS> 43,694
<OTHER-EXPENSES> 25,025
<LOSS-PROVISION> 687
<INTEREST-EXPENSE> 26,829
<INCOME-PRETAX> (33,020)
<INCOME-TAX> 684
<INCOME-CONTINUING> (33,704)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,704)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
