TCI LIBERTY HOLDING CO
8-B12G, 1994-07-13
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<PAGE>   1



                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549



                                    FORM 8-B




            REGISTRATION OF SECURITIES OF CERTAIN SUCCESSOR ISSUERS

                 FILED PURSUANT TO SECTION 12(b) OR (g) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                         ------------------------------


                          TCI/LIBERTY HOLDING COMPANY
                          ---------------------------
             (Exact name of registrant as specified in its charter)




        Delaware                                           84-1260157
- -------------------------                             ---------------------
(State of incorporation                                   (I.R.S. Employer
   or organization)                                    Identification Number)




         Terrace Tower II, 5619 DTC Parkway, Englewood, Colorado 80111
         -------------------------------------------------------------
                 (Address of principal executive offices) (Zip Code)




          Securities registered pursuant to Section 12(b) of the Act:

                                      None


          Securities registered pursuant to Section 12(g) of the Act:

                Class A Common Stock, par value $1.00 per share
                Class B Common Stock, par value $1.00 per share
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock,
                            par value $.01 per share
                                (Title of Class)
<PAGE>   2


                                   BACKGROUND
                                   ----------

         TCI/Liberty Holding Company ("TCI/Liberty" or the "Registrant") is a
newly formed Delaware corporation that has not, to date, conducted any
significant activities other than (i) those incident to its formation, (ii) its
execution of the Agreement and Plan of Merger, dated as of January 27, 1994, as
amended (the "Merger Agreement"), by and among Tele-Communications, Inc., a
Delaware corporation ("TCI"), Liberty Media Corporation, a Delaware corporation
("Liberty"), TCI/Liberty, TCI Mergerco, Inc., a Delaware corporation and a
wholly owned subsidiary of TCI/Liberty ("TCI Mergerco"), and Liberty Mergerco,
Inc., a Delaware corporation and a wholly owned subsidiary of TCI/Liberty
("Liberty Mergerco") and (iii) its preparation and filing of a registration
statement on Form S-4 (Registration No. 33-54263) (together with all
amendments, exhibits, and schedules thereto, the "S-4 Registration Statement")
relating to securities to be issued by TCI/Liberty in accordance with the
Merger Agreement.

         Pursuant to the Merger Agreement, TCI Mergerco shall be merged with
and into TCI and Liberty Mergerco shall be merged with and into Liberty
(collectively, the "Mergers").  As a result of the Mergers, TCI and Liberty
will become wholly owned subsidiaries of TCI/Liberty.  Accordingly, the
business of TCI/Liberty, through its wholly owned subsidiaries TCI and Liberty,
will be the business currently conducted by TCI and Liberty.  Certain former
stockholders of TCI and certain former stockholders of Liberty will become
stockholders of TCI/Liberty and certain stock options and convertible
securities of TCI and Liberty will become exercisable or convertible into
common stock of TCI/Liberty after the Mergers.  Contemporaneously with the
Mergers, TCI/Liberty will change its name to "Tele-Communications, Inc." and
TCI will change its name to TCI Communications, Inc.

         TCI/Liberty's S-4 Registration Statement was declared effective by the
Securities and Exchange Commission on June 28, 1994.  A copy of the Proxy
Statement/Prospectus, dated June 23, 1994 (the "Proxy/Statement Prospectus")
which constitutes part of the S-4 Registration Statement is attached hereto as
Exhibit 1.  Citations in this Registration Statement are to the caption
headings of the Proxy Statement/Prospectus and page references are to the page
numbers in the Proxy Statement/Prospectus.


ITEM     1.      GENERAL INFORMATION.

         (a)     TCI/Liberty is a Delaware corporation that was incorporated on
                 January 24, 1994.

         (b)     TCI/Liberty's fiscal year ends on December 31.


ITEM     2.      TRANSACTION OF SUCCESSION.

        (a).     TCI/Liberty will be the successor to each of TCI and Liberty.
                 Immediately prior to the time of the succession, both TCI and
                 Liberty will have securities registered


                                         1
                                      

<PAGE>   3
                 pursuant to Section 12(g) of the Securities Exchange Act 
                 of 1934, as amended (the "Exchange Act").

         (b)     For a description of the transaction of succession and the
                 basis upon which securities of TCI/Liberty are to be issued in
                 respect of securities of TCI and Liberty, see the discussion
                 in the Proxy Statement/Prospectus under the headings "SUMMARY
                 - The Mergers - Consideration to be Received by TCI
                 Stockholders" and "- Consideration to be Received by Liberty
                 Stockholders" and "THE MERGER AGREEMENT" (pages 3-4 and 55-63,
                 respectively), which discussion is incorporated herein by
                 reference.


ITEM     3.      SECURITIES TO BE REGISTERED.

                 Presently, TCI/Liberty (1) is authorized to issue 1,000 shares
of Common Stock, par value $1.00 per share ("Common Stock"), (2) has 20 shares
of Common Stock issued, and (3) has no issued shares of Common Stock which are
held by or for the account of TCI/Liberty.

                 The following classes of securities of TCI/Liberty are being
registered by this Registration Statement: (a) Class A Common Stock, par value
$1.00 per share ("Class A Common"); (b) Class B Common Stock, par value $1.00
per share ("Class B Common"); and (c) Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock, par value $.01 per share ("Class B
Preferred").

                 (1)      Pursuant to the Amended and Restated Certificate of
Incorporation of TCI/Liberty, which will be filed with the Secretary of State
of the State of Delaware at the Effective Time (as such term is defined in the
Proxy Statement/Prospectus) of the Mergers, 1,100,000,000 shares of Class A
Common, 150,000,000 shares of Class B Common, and 1,675,096 shares of Class B
Preferred will be authorized.

                 (2)      At the Effective Time a maximum of 539,941,193 shares
of Class A Common, 89,514,039 shares of Class B Common and 1,675,096 shares of
Class B Preferred will be outstanding.

                 (3)      At the Effective Time, 85,713,881 shares of Class A
Common, 3,537,712 shares of Class B Common and 55,070 shares of Class B
Preferred will be held by or for the account of the Registrant.

ITEM     4.      DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.

                 For a description of the Registrant's securities to be
registered by this Registration Statement, see the discussion in the Proxy
Statement/Prospectus under the headings "DESCRIPTION OF TCI/LIBERTY CAPITAL
STOCK - TCI/Liberty Common Stock" and "-





                                         2
<PAGE>   4
TCI/Liberty Preferred Stock; Class B 6% Cumulative Redeemable Exchangeable
Junior Preferred Stock" (pages 70 and 72-75, respectively).

ITEM 5.  FINANCIAL STATEMENTS AND EXHIBITS.

         (a)     Financial Statements (unless otherwise indicated, references
are to page numbers in this Registration Statement)

         (1)  Registrant

         (A)  The following historical audited financial statements of
         TCI/Liberty are included in the Proxy Statement/Prospectus annexed
         hereto as Exhibit 1:


                                                                               
                          Document                                 Page(1)
                          --------                                 -------
                                                                     
           Independent Auditors' Report                            F-14
           Balance Sheet, March 31, 1994                           F-15
           Note to Balance Sheet, March 31, 1994                   F-16 to F-17
          
          
         (B)  The following condensed pro forma combined financial statements
         of TCI/Liberty are included in the Proxy Statement/Prospectus annexed
         hereto as Exhibit 1:



                          Document                                 Page(1)
                          --------                                 -------
                                                                   
           Condensed Pro Forma Combined Financial Statements       F-18
           Condensed Pro Forma Combined Balance Sheet,             
             March 31, 1994 (unaudited)                            F-19
           Condensed Pro Forma Combined Statement of Operations    
             Three months ended March 31, 1994 (unaudited)         F-20
             Year ended December 31, 1993 (unaudited)              F-21
           Notes to Condensed Pro Forma Combined Financial         F-22 to F-23
             Statements (unaudited)                                  
                                                                 
           
         (2)  Predecessor Companies

         (A)  The following historical financial statements and financial
         statement schedules of TCI and subsidiaries and Liberty and
         subsidiaries were incorporated into the Proxy Statement/Prospectus and
         are incorporated herein by reference to the respective filings of the
         predecessor companies under the Securities Exchange Act of 1934, as
         amended, which





   __________________________________

        (1)References are to page numbers for Exhibit 1.

       

                                         3
<PAGE>   5
         filings are identified below.  Copies of the pertinent pages of the
         filings containing such incorporated financial statements and related
         schedules are included herein at pages F-1 to F-301.

         (i)  TCI
              ---

                 (a)    The following financial statements and financial
         statement schedules of TCI are incorporated herein by reference to
         TCI's Annual Report on Form 10-K for the fiscal year ended 
         December 31, 1993, as amended (file no. 0-5550).

         (i)(a)(1)  Financial Statements

                     Document                                      Page
                     --------                                      ----

         Independent Auditors' Report                              F-1
   
         Consolidated Balance Sheets, December 31, 1993 and 1992   F-2 to F-3 

         Consolidated Statements of Operations, Years ended
          December 31, 1993, 1992, and 1991                        F-4

         Consolidated Statements of Stockholders' Equity,
          Years ended December 31, 1993, 1992, and 1991            F-5

         Consolidated Statements of Cash Flows,
          Years ended December 31, 1993, 1992 and 1991             F-6 to F-7

         Notes to Consolidated Financial Statements,
          December 31, 1993, 1992, and 1991                        F-8 to F-35





                                      4
<PAGE>   6
         (i)(a)(2)  Financial Statement Schedules

<TABLE>
<CAPTION>
                 
                 Financial Statement Schedules required to be filed:                          Page
                 ---------------------------------------------------                          ----
                 <S>                                                                          <C>
                 Independent Auditors' Report                                                 F-36

                 Schedule II - Amounts Receivable from Related Parties and
                    Employees Other Than Related Parties, Years ended
                    December 31, 1993, 1992 and 1991                                          F-37

                 Schedule III - Condensed Information as to the Financial
                    Position of the Registrant, December 31, 1993 and 1992;
                    Condensed Information as to the Operations and Cash Flows of
                    the Registrant, Years ended December 31, 1993, 1992 and 1991              F-38 to F-40

                 Schedule V - Property and Equipment, Years ended December 31,
                    1993, 1992 and 1991                                                       F-41

                 Schedule VI - Accumulated Depreciation of Property and
                    Equipment, Years ended December 31, 1993, 1992 and 1991                   F-42

                 Schedule VII - Guarantees of Securities of Other issuers,
                    December 31, 1993                                                         F-43

                 Schedule VIII - Valuation and Qualifying Accounts, Years ended
                    December 31, 1993, 1992 and 1991                                          F-44

                 Schedule IX - Short-Term Borrowings, Years ended December 31,
                    1993, 1992 and 1991                                                       F-45

                 Schedule X - Supplementary Statement of Operations Information,
                    Years ended December 31, 1993, 1992 and 1991                              F-46

</TABLE>

         All other schedules have been omitted because they are not required or
         are not applicable, or the required information is set forth in the
         applicable financial statements or notes thereto.



                                      5


<PAGE>   7
                 (b)      The following financial statements of TCI are
         incorporated herein by reference to TCI's Quarterly Report on 
         Form 10-Q for the quarter ended March 31, 1994, as amended 
         (file no. 0-5550).


                           Document                                Page
                           --------                                ----
                 
                 Consolidated Balance Sheets, March 31, 1994  
                  and December 31, 1993 (unaudited)                F-47 to F-48

                 Consolidated Statements of Operations, Three
                  months ended March 31, 1994 and 1993 (unaudited) F-49
                 
                 Consolidated Statement of Stockholders' Equity,     
                  Three months ended March 31, 1994 (unaudited)    F-50

                 Consolidated Statements of Cash Flows, Three
                  months ended March 31, 1994 and 1993 (unaudited) F-51
                 
                 Notes to Consolidated Financial Statements,
                  March 31, 1994 (unaudited)                       F-52 to F-61
  
                 
         (ii)    Liberty

         (a)     The following financial statements and financial statement
schedules of Liberty are incorporated herein by reference to Liberty's 
Annual Report on Form 10-K for the fiscal year ended December 31, 1993, 
as amended (file no. 0-19036).


         (ii)(a)(1)  Financial Statements                          Page
                                                                   ----
                 Independent Auditor' Report                       F-62

                 Consolidated Balance Sheets, December 31, 1993 
                  and 1992                                         F-63 to F-64

                 Consolidated Statements of Operations,               
                  Years ended December 31, 1993 and 1992
                  Nine months ended December 31, 1991 and
                  Three months ended March 31, 1991                F-65

                 Consolidated Statements of Stockholders' Equity,   
                  Years ended December 31, 1993 and 1992
                  Nine months ended December 31, 1991 and
                  Three months ended March 31, 1991                F-66 to F-67

                 Consolidated Statements of Cash Flows,             
                  Years ended December 31, 1993 and 1992
                  Nine months ended December 31, 1991 and
                  Three months ended March 31, 1991                F-68 to F-69

                 Notes to Consolidated Financial Statements,               
                  December 31, 1993, 1992 and 1991                 F-70 to F-121

                                    6
<PAGE>   8
         (ii)(a)(2)  Financial Statement Schedules

         (ii)(a)(2)(A)  Financial Statement Schedules required to be filed:

<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
                   <S>                                                                 <C>
                   Independent Auditors' Report                                        F-122
            
                   Schedule I - Marketable Securities - Other Investments,
                    December 31, 1993                                                  F-123

                   Schedule III - Condensed Information as to the Financial
                    Position of the Registrant, December 31, 1993 and 1992;
                    Condensed Information as to the Operations and Cash Flows of
                    the Registrant,
                    Years ended December 31, 1993 and 1992
                    Nine months ended December 31, 1991                                F-124 to F-126

                  Schedule IV - Indebtedness of Related Parties,
                   Years ended December 31, 1993 and 1992
                   Nine months ended December 31, 1991 and
                   Three months ended March 31, 1991                                   F-127

                  Schedule VII - Guarantees of Securities of Other Issuers,
                   December 31, 1993                                                   F-128

                  Schedule VIII - Valuation and Qualifying Accounts,
                   Years ended December 31, 1993 and 1992
                   Nine months ended December 31, 1991 and
                   Three months ended March 31, 1991                                   F-129

                  Schedule X-Supplementary Statement of Operations Information,
                   Years ended December 31, 1993 and 1992
                   Nine months ended December 31, 1991 and
                   Three months ended March 31, 1991                                   F-130
</TABLE>



         All other schedules have been omitted because they are not required or
         are not applicable, or the required information is set forth in the
         applicable financial statements or notes thereto.





                                      7
<PAGE>   9
         (ii)(a)(2)(B)    Separate financial statements and related schedules
                          for Lenfest Communications, Inc. and Subsidiaries:
<TABLE>
<CAPTION>
                 Consolidated Financial Statements:                                                    Page
                 ----------------------------------                                                    ----
<S>              <C>                                                                                   <C>
                 Independent Auditors' Report                                                          F-131
                                                                                                       
                 Consolidated Balance Sheets                                                           F-132 to F-133

                 Consolidated Statements of Income (Loss)                                              F-134

                 Consolidated Statements of Changes in
                  Stockholders' Equity (Deficit)                                                       F-135

                 Consolidated Statements of Cash Flows                                                 F-136 to F-137

                 Notes to Consolidated Financial Statements                                            F-138 to F-163

                 Schedules:
                 ----------

                 Independent Auditor's Report on Schedules                                             F-164

                 Schedule V. Property and Equipment                                                    F-165

                 Schedule VI.  Accumulated Depreciation and Amortization of
                  Property and Equipment                                                               F-166

                 Schedule VIII.  Valuation and Qualifying Accounts                                     F-167

                 Schedule X.  Supplementary Consolidated Statements
                  of Income (Loss) Information                                                         F-168

</TABLE>
         All other schedules are omitted because they are not required or are
         not applicable, or the required information is set forth in the
         applicable financial statements or notes thereto.




                                      8
<PAGE>   10
         (ii)(a)(2)(C)    Separate financial statements and related schedules
                          for the Cable Partnerships of Country Cable Co. and
                          Knight-Ridder Cablevision, Inc.:

                 Consolidated Financial Statements:             Page   
                 ----------------------------------             ----
   
                 Independent Auditors' Report                   F-169

                 Combined Balance Sheets                        F-170

                 Combined Statements of Earnings                F-171

                 Combined Statements of Changes in 
                 Partners' Capital                              F-172

                 Combined Statements of Cash Flows              F-173

                 Notes to Combined Financial Statements         F-174 to F-189


                 Schedules
                 ---------

                 Independent Auditors' Report                   F-190

                 Schedule IV. Indebtedness to Related Parties   F-191

                 Schedule VIII.  Valuation and Qualifying 
                 Accounts                                       F-192

                 Schedule X.  Supplementary Income Statement 
                 Information                                    F-193

         All other schedules are omitted because they are not required or are
         not applicable, or the required information is set forth in the
         applicable financial statements or notes thereto.





                                      9
<PAGE>   11
         (ii)(a)(2)(D)    Separate financial statements and related schedules
                          for Columbia Associates, L.P.:



                 Consolidated Financial Statements:            Page
                 ----------------------------------            ----
                 
                 Report of Independent Public Accountants      F-194

                 Consolidated Balance Sheets                   F-195

                 Consolidated Statements of Operations         F-196

                 Consolidated Statements of Partners'         
                 Equity (Deficit)                              F-197

                 Consolidated Statements of Cash Flows         F-198

                 Notes to Consolidated Financial Statements    F-199 to F-205

                 Schedules:
                 --------- 

                 Report of Independent Public Accountants      F-206

                 Schedule V.  Property, Plant and Equipment    F-207

                 Schedule VI.  Accumulated Depreciation of 
                 Property, Plant and Equipment                 F-208

                 Schedule of Supplementary Income Statement 
                 Information                                   F-209

         All other schedules are omitted because they are not required or are
         not applicable, or the required information is set forth in the
         applicable financial statements or notes thereto.





                                         10
<PAGE>   12
         (ii)(a)(2)(E)    Separate financial statements and related schedules
                          for SportsChannel Chicago Associates (A General
                          Partnership):



                 Consolidated Financial Statements:           Page
                 --------------------------------             ----
                
                 Independent Auditors' Report                 F-210

                 Balance Sheets                               F-211

                 Statements of Income                         F-212

                 Statements of Partners' Capital              F-213

                 Statements of Cash Flows                     F-214

                 Notes to Financial Statements                F-215 to F-218

                 Schedules:
                 --------- 

                 Schedule VIII.  Valuation and Qualifying 
                 Accounts                                     F-219

                 Schedule X.  Supplementary Income Statement  
                 Information                                  F-220


         All other schedules are omitted because they are not required or are
         not applicable, or the required information is set forth in the
         applicable financial statements or notes thereto.





                                         11
<PAGE>   13
         (ii)(a)(2)(F)    Separate financial statements and related schedules
                          for American Movie Classics Company (A General
                          Partnership):


                 Consolidated Financial Statements:               Page
                 ---------------------------------                ----
                 
                 Independent Auditors' Report                     F-221

                 Balance Sheets                                   F-222

                 Statements of Income                             F-223

                 Statements of Partners' Capital (Deficiency)     F-224

                 Statements of Cash Flows                         F-225

                 Notes to Financial Statements                    F-226 to F-232

                 Schedules:
                 --------- 

                 Schedule VIII.  Valuation and Qualifying 
                   Accounts                                       F-233

                 Schedule X.  Supplementary Income Statement
                   Information                                    F-234


         All other schedules are omitted because they are not required or are
         not applicable, or the required information is set forth in the
         applicable financial statements or notes thereto.





                                              12
<PAGE>   14
         (ii)(a)(2)(G)    Separate financial statements and related schedules
                          for Kansas City Cable Partners: General Partnership):


[CAPTION]

         Consolidated Financial Statements:                       Page
         ---------------------------------                        ----
         [S]
         Report of Independent Auditors                           F-235

         Balance Sheets                                           F-236

         Statements of Operations and Accumulated Earnings        F-237

         Statements of Partners' (Deficit) Capital                F-238

         Statements of Cash Flows                                 F-239 to F-240

         Notes to Financial Statements                            F-241 to F-247



         Schedules:
         --------- 

         Schedule V.  Property, Plant and Equipment               F-248

         Schedule VI.  Accumulated Depreciation of Property,      
           Plant and Equipment                                    F-249

         Schedule VIII.  Valuation and Qualifying Accounts        F-250

         Schedule X.  Supplementary Income Statement
           Information                                            F-251


         All other schedules are omitted because they are not required or are
         not applicable, or the required information is set forth in the
         applicable financial statements or notes thereto.





                                         13
<PAGE>   15
         (ii)(a)(2)(H)    Separate financial statements and related schedules
                          for QVC, Inc.:
<TABLE>
<CAPTION>


                 Consolidated Financial Statements:                                                    Page
                 ---------------------------------                                                     ----
<S>              <C>                                                                                   <C>
                 Independent Auditors' Report                                                          F-252

                 Consolidated Balance Sheets                                                           F-253

                 Consolidated Statements of Operations                                                 F-254

                 Consolidated Statements of Cash Flows                                                 F-255

                 Consolidated Statements of Shareholder's Equity                                       F-256

                 Notes to Consolidated Financial Statements                                            F-257 to F-274

                 Schedules:
                 --------- 

                 Schedule II.  Amounts Receivable From Related Parties                                 
                 and Underwriters, Promoters and Employees Other than Related 
                 Parties                                                                               F-275

                 Schedule VIII.  Valuation and Qualifying Accounts                                     F-276

                 Schedule X.  Supplementary Income Statement Information                               F-277
</TABLE>


Financial statements and related schedules of other 50% or less owned persons
accounted for under the equity method are omitted as they are not required.

         (b)     The following financial statements of Liberty are incorporated
herein by reference to Liberty's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 (file no. 0-19036).
<TABLE>
<CAPTION>


                         Document                                                                      Page
                         --------                                                                      ----
<S>             <C>                                                                                    <C>
                Consolidated Balance Sheets, March 31, 1994 and
                 December 31, 1993 (unaudited)                                                         F-278 to F-279

                Consolidated Statements of Operations, Three months
                 ended March 31, 1994 and 1993 (unaudited)                                             F-280

                Consolidated Statement of Stockholders' Equity, Three months
                 ended March 31, 1994 (unaudited)                                                      F-281

                Consolidated Statements of Cash Flows, Three months ended
                 March 31, 1994 and 1993 (unaudited)                                                   F-282 to F-283

                Notes to Consolidated Financial Statements, March 31, 1994
                 (unaudited)                                                                           F-284 to F-301




</TABLE>

                                         14
<PAGE>   16
         (B)     TCI and Liberty Pro Forma Financial Statements

         (i)     The following condensed Pro Forma Financial Statements of TCI
         are included in the Proxy Statement/Prospectus annexed hereto as
         Exhibit 1.

<TABLE>
<CAPTION>

                 Financial Statements:                                                    Page  
                 --------------------                                                     ----
<S>              <C>                                                                      <C>
                 Condensed Pro Forma Financial Statements                                 F-2

                 Condensed Pro Forma Balance Sheet,                                               
                  March 31, 1994 (unaudited)                                              F-3

                 Condensed Pro Forma Statement of Operations,
                  Three months ended March 31, 1994 (unaudited)
                  Year ended December 31, 1993 (unaudited)                                F-4 to F-5

                 Notes to Condensed Pro Forma Financial Statements (unaudited)            F-6

         (ii)    The following condensed Pro Forma Combined Financial
                 Statements of Liberty are included in the Proxy
                 Statement/Prospectus annexed hereto as Exhibit 1.                                  




                 Financial Statements:                                                    Page
                 --------------------                                                     ----

                 Condensed Pro Forma Financial Statements                                 F-7

                 Condensed Pro Forma Balance Sheet,
                  March 31, 1994 (unaudited)                                              F-8

                 Condensed Pro Forma Statement of Operations,
                  Three months ended March 31, 1994 (unaudited)
                  Year ended December 31, 1993 (unaudited)                                F-9 to F-10

                 Notes to Condensed Pro Forma Financial Statements (unaudited)            F-11 to F-13



</TABLE>



                                         15
<PAGE>   17
         (b)     Exhibits (items marked with an * are incorporated herein by
reference)


<TABLE>
<CAPTION>
Exhibit No.                                Description
- -----------                                -----------
         <S>       <C>
         1         Proxy Statement/Prospectus, dated June 23, 1994, which constitutes the Prospectus of TCI/Liberty (TCI/Liberty
                   Form S-4, Registration No. 33-54263 (effective June 28, 1994)).

         *2        Agreement and Plan of Merger, dated as of January 27, 1994, by and among TCI, Liberty, TCI/Liberty, TCI Mergerco
                   and Liberty Mergerco, as amended (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28, 1994), Appendix
                   I to Proxy Statement/Prospectus).

         *3.1      Certificate of Incorporation of TCI/Liberty, filed January 24, 1994 and dated January 21, 1994 (TCI/Liberty S-4,
                   Registration No. 33-54263 (effective June 28, 1994), exhibit 3.1).

         *3.2      Form of Amended and Restated Certificate of Incorporation of TCI/Liberty to be filed in connection with the
                   Mergers described in the Proxy Statement/Prospectus (TCI/Liberty S-4, Registration No. 33-54263, (effective June
                   28, 1994), exhibit 3.2).

         *3.3      Bylaws of TCI/Liberty as adopted January 25, 1994 (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28,
                   1994), exhibit 3.3).

         *3.4      Form of Bylaws of TCI/Liberty to be adopted in connection with the Mergers described in the Proxy
                   Statement/Prospectus (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28, 1994), exhibit 3.4).

         *4.1      Specimen Stock Certificate for Class A Common (TCI/Liberty S-4, Registration No. 33-54263, (effective June 28,
                   1994), exhibit 4.1).

         *4.2      Specimen Stock Certificate for Class B Common (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28,
                   1994), exhibit 4.2).

         *4.3      Specimen Stock Certificate for Class B Preferred (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28,
                   1994), exhibit 4.3).

         *4.4      Form of Amended and Restated Certificate of Incorporation of TCI/Liberty (included as exhibit 3.2).

         *4.5      Form of Junior Exchange Note Indenture (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28, 1994),
                   exhibit 4.5).
</TABLE>





                                                                     16
<PAGE>   18
<TABLE>
         <S>       <C>
         *10.1     TCI/Liberty 1994 Stock Incentive Plan (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28, 1994),
                   Appendix IV to Proxy Statement/Prospectus).

         *10.2     Restated and Amended Employment Agreement, dated as of November 1, 1992, between TCI and Bob Magness (TCI's
                   Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A (amendment No. 1)
                   Commission File No. 0-5550).

         *10.3     Restated and Amended Employment Agreement, dated as of November 1, 1993, between TCI and John C. Malone (TCI's
                   Annual Report on Form 10-K for the year ended December 31, 1992, as amended by Form 10-K/A (amendment no. 1)
                   Commission File No. 0-5550).

         *10.4     Employment Agreement, dated as of November 1, 1992, between TCI and J.C. Sparkman (TCI's Annual Report on Form
                   10-K for the year ended December 31, 1992, as amended by Form 10-K/A (amendment no. 1) Commission File No. 0-
                   5550).

         *10.5     Employment Agreement, dated as of November 1, 1992, between TCI and Fred A. Vierra (TCI's Annual Report on Form
                   10-K for the year ended December 31, 1992, as amended by Form 10-K/A (amendment no. 1) Commission File No. 0-
                   5550).

         *10.6     Employment Agreement, dated as of February 8, 1991, between Liberty and John C. Malone (Amendment No. 6 to
                   Liberty's Registration Statement on Form S-4, dated February 11, 1991, (No. 33-37673)).

         *10.7     First Amendment, dated October 24, 1991, to Employment Agreement between Liberty and John C. Malone (Liberty's
                   Current Report on Form 8-K, dated October 24, 1991).

         *10.8     Form of Indemnification Agreement (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28, 1994), exhibit
                   10.8).

         *10.9     Qualified Employee Stock Purchase Plan of TCI as amended (TCI's Registration Statement on Form S-8 (Commission
                   File No. 33-59058)).

         *21       Subsidiaries of TCI/Liberty (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28, 1994), exhibit 21).

         *24       Power of Attorney (TCI/Liberty S-4, Registration No. 33-54263 (effective June 28, 1994), exhibit 24).
</TABLE>





                                                                       17
<PAGE>   19
                                   SIGNATURE
                                   ---------


                 Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized.


                             TCI/LIBERTY HOLDING COMPANY
                             (Registrant)


                                         By: /s/ Stephen M. Brett
                                             --------------------------------- 
                                             Name:  Stephen M. Brett 
                                             Title: Executive Vice President 
                                                    and Secretary


Date:  July 13, 1994





<PAGE>   20
                          INDEPENDENT AUDITORS' REPORT





The Board of Directors and Stockholders
Tele-Communications, Inc.:


We have audited the accompanying consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1993.  These consolidated financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
Tele-Communications, Inc. and subsidiaries as of December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.

As discussed in notes 1 and 10 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No.  109, "Accounting for Income Taxes."





                                                        /s/ KPMG Peat Marwick
                                                            KPMG Peat Marwick


Denver, Colorado
March 21, 1994





                                   F-1
<PAGE>   21
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                          Consolidated Balance Sheets

                           December 31, 1993 and 1992


<TABLE>
<CAPTION>
Assets                                                        1993      1992*
- ------                                                       ------    ------
                                                           amounts in millions
<S>                                                         <C>         <C>
Cash                                                        $     1         34

Trade and other receivables, net                                232        201

Investment in Liberty Media Corporation
  ("Liberty") (note 3)                                          489        432

Investment in other affiliates, accounted for under
  the equity method, and related receivables (note 4)           645        721

Investment in Turner Broadcasting System, Inc.
  (note 5)                                                      491        491

Property and equipment, at cost:
  Land                                                           73         71
  Distribution systems                                        6,629      6,075
  Support equipment and buildings                               818        712
                                                            -------     ------
                                                              7,520      6,858
  Less accumulated depreciation                               2,585      2,296
                                                            -------     ------
                                                              4,935      4,562
                                                            -------     ------

Franchise costs                                              10,620     10,467
  Less accumulated amortization                               1,423      1,167
                                                            -------     ------
                                                              9,197      9,300
                                                            -------     ------

Other assets, at cost, net of amortization                      530        569
                                                            -------     ------

                                                            $16,520     16,310
                                                            =======     ======


*Reclassified and restated - see notes 1, 3 and 10.
</TABLE>


                                                                     (continued)





                                   F-2
<PAGE>   22
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                     Consolidated Balance Sheets, continued


<TABLE>
<CAPTION>
                                                              1993      1992*
                                                             ------    ------
Liabilities and Stockholders' Equity                       amounts in millions
- ------------------------------------                                          
<S>                                                        <C>         <C>    
Accounts payable                                           $   124         99

Accrued interest                                               157         94

Other accrued expenses                                         500        465

Debt (note 6)                                                9,900     10,285

Deferred income taxes (note 10)                              3,310      3,164

Other liabilities                                              114         87
                                                           -------     ------

    Total liabilities                                       14,105     14,194
                                                           -------     ------

Minority interests in equity
 of consolidated subsidiaries                                  285        280

Redeemable preferred stocks (note 7)                            18        110

Stockholders' equity (note 8):
  Preferred stock, $1 par value.
    Authorized 10,000,000 shares, issued
    and outstanding 6,201 and 4,778,595
    shares of redeemable preferred stocks
    in 1993 and 1992                                            --         --  
  Class A common stock, $1 par value.
    Authorized 1,000,000,000 shares;
    issued 481,837,347 shares in 1993
    and 461,722,382 shares in 1992                             482        462
  Class B common stock, $1 par value.
    Authorized 100,000,000 shares;
    issued 47,258,787 shares in 1993
    and 47,708,677 shares in 1992                               47         48
  Additional paid-in capital                                 2,293      1,909
  Cumulative foreign currency translation adjustment           (29)       (19)
  Accumulated deficit                                         (348)      (341)
                                                           -------     ------ 
                                                             2,445      2,059
  Treasury stock, at cost (79,335,038
    shares of Class A common stock)                           (333)      (333)
                                                           -------     ------ 

    Total stockholders' equity                               2,112      1,726
                                                           -------     ------

Commitments and contingencies (note 11)

                                                           $16,520     16,310
                                                           =======     ======
</TABLE>


*Restated and reclassified - see notes 1, 3 and 10.


See accompanying notes to consolidated financial statements.





                                   F-3
<PAGE>   23
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                     Consolidated Statements of Operations

                  Years ended December 31, 1993, 1992 and 1991

<TABLE>
<CAPTION>
                                                      1993    1992 *    1991 *
                                                     ------   ------    ------
                                                       amounts in millions,
                                                      except per share amounts
<S>                                                  <C>       <C>      <C>
Revenue (note 3)                                     $4,153    3,574    3,214

Operating costs and expenses:
  Operating (note 3)                                  1,190    1,028    1,021
  Selling, general and administrative (note 4)        1,105      909      763
  Compensation relating to stock
    appreciation rights (note 8)                         31        1       --
  Restructuring charge                                   --        8       --
  Depreciation                                          622      512      529
  Amortization                                          289      252      227
                                                     ------    -----    -----
                                                      3,237    2,710    2,540
                                                     ------    -----    -----

    Operating income                                    916      864      674

Other income (expense):
  Interest expense                                     (731)    (718)    (826)
  Interest and dividend income                           34       69       53
  Share of earnings of Liberty (note 3)                   4       22       40
  Share of losses of other affiliates (note 4)          (76)    (105)     (60)
  Gain on disposition of assets, net                     42        9       43
  Premium received on redemption of
    preferred stock investment (note 4)                  --       14       --
  Loss on early extinguishment of debt
    (notes 4 and 6)                                     (17)     (67)      (7)
  Minority interests in earnings
   of consolidated subsidiaries, net                     (5)     (41)     (24)
  Other, net                                             (6)      (2)      (1)
                                                     ------    -----    ----- 
                                                       (755)    (819)    (782)
                                                     ------    -----    ----- 

      Earnings (loss) from continuing
        operations before income taxes                  161       45     (108)

Income tax benefit (expense) (note 10)                 (168)     (38)      30
                                                     ------    -----    -----

      Earnings (loss) from continuing operations         (7)       7      (78)

Loss from discontinued operations,
  net of income taxes (note 12)                          --      (15)     (19)
                                                     ------    -----    ----- 

      Net loss                                           (7)      (8)     (97)

Dividend requirement on redeemable
  preferred stocks                                       (2)     (15)      --
                                                     -------   -----    -----

      Net loss attributable to
        common shareholders                          $   (9)     (23)     (97)
                                                     ======    =====    ===== 

Loss attributable to common shareholders
  per common share (note 1):
    Continuing operations                            $ (.02)    (.01)    (.22)
    Discontinued operations                              --     (.04)    (.05)
                                                     ------    -----    ----- 

                                                     $ (.02)    (.05)    (.27)
                                                     ======    =====    ===== 
</TABLE>

*Restated and reclassified - see notes 1, 3 and 10.

See accompanying notes to consolidated financial statements.





                                   F-4
<PAGE>   24
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES


                Consolidated Statements of Stockholders' Equity

                  Years ended December 31, 1993, 1992 and 1991

<TABLE>
<CAPTION>
                                                                         Cumulative
                                                                           foreign
                                         Common stock       Additional    currency                              Total
                                         ------------        paid-in     translation  Accumulated  Treasury  stockholders'
                                       Class A  Class B      capital     adjustment    deficit *    stock      equity *   
                                       -------  -------     ----------   -----------   ---------   --------  -------------
                                                                       amounts in millions
<S>                                    <C>        <C>         <C>            <C>          <C>        <C>          <C>
Balance at January 1, 1991             $ 310      48            626           --          (436)        --           548
  Restatement for change in
    accounting principle for
    income taxes                          --      --             --           --           200         --           200
                                       -----      --          -----         ----          ----       ----         -----

Balance at January 1, 1991,
  as restated                            310      48            626           --          (236)        --           748
    Net loss                              --      --             --           --           (97)        --           (97)
    Issuance of common stock upon
      conversion of debentures            --      --              4           --            --         --             4
    Issuance of common stock upon
      exercise of options                 --       2              3           --            --         --             5
    Income tax effect of stock option
      deduction                           --      --              7           --            --         --             7
    Retirement of common stock upon
      redemption of Liberty preferred
      stock                               (5)     --            (86)          --            --         --           (91)
    Issuance of shares of Class A
      common stock for an acquisition      1      --             10           --            --         --            11
    Issuance of common stock
      upon acquisition of remaining
      minority interest in United
      Artists Entertainment Company
      ("UAE")                            143      --          1,190           --            --       (333)        1,000
    Acquisition and retirement
      of common stock                     --      (1)           (16)          --            --         --           (17)
                                       -----      --          -----         ----          ----       ----         ----- 

Balance at December 31, 1991             449      49          1,738           --          (333)      (333)        1,570
  Net loss                                --      --             --           --            (8)        --            (8)
  Conversion of public debentures
    (note 6)                               7      --            105           --            --         --           112
  Issuance of common stock upon
    exercise of options                    1      --             13           --            --         --            14
  Issuance of Class A common stock
    for acquisition and
    investment                             5      --             93           --            --         --            98
  Dividends on redeemable
    preferred stocks                      --      --            (15)          --            --         --           (15)
  Foreign currency translation
    adjustment                            --      --             --          (19)           --         --           (19)
  Acquisition and retirement
    of common stock                       --      (1)           (25)          --            --         --           (26)
                                       -----     ---          -----         ----          ----       ----         ----- 

Balance at December 31, 1992             462      48          1,909          (19)         (341)      (333)        1,726
  Net loss                                --      --             --           --            (7)        --            (7)
  Issuance of common stock
    upon conversion of notes
    (note 6)                              20      --            383           --            --         --           403
  Issuance of common stock upon
    exercise of options                   --      --              7           --            --         --             7
  Dividends on redeemable
    preferred stocks                      --      --             (2)          --            --         --            (2)
  Foreign currency translation
    adjustment                            --      --             --          (10)           --         --           (10)
  Acquisition and retirement
    of common stock                       --      (1)            (4)          --            --         --            (5)
                                       -----     ---          -----         ----          ----       ----         ----- 

Balance at December 31, 1993           $ 482      47          2,293          (29)         (348)      (333)        2,112
                                       =====     ===          =====         ====          ====       ====         =====
</TABLE>

*Restated - see notes 1, 3 and 10.

See accompanying notes to consolidated financial statements.

                                   F-5
<PAGE>   25
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

                  Years ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>
                                                    1993     1992 *    1991 *
                                                   ------    ------    ------
                                                       amounts in millions
                                                           (see note 2)
<S>                                              <C>        <C>       <C>
Cash flows from operating activities:
  Net loss                                       $    (7)       (8)      (97)
  Adjustments to reconcile net loss
    to net cash provided by operating activities:
      Discontinued operations                         --        15        19
      Restructuring charge                            --         8        --
      Payment of restructuring charge                 (8)       --        --
      Depreciation and amortization                  911       764       756
      Share of earnings of Liberty                    (4)      (22)      (40)
      Share of losses of other affiliates             76       105        60
      Gain on disposition of assets                  (42)       (9)      (43)
      Premium received on preferred stock
        investment redemption                         --       (14)       --
      Payment of premium received on preferred
        stock investment redemption                   14        --        --
      Loss on early extinguishment of debt            17        67         7
      Compensation relating to
         stock appreciation rights                    31         1        --
      Payment for stock appreciation rights           --       (80)      (45)
      Minority interests in earnings                   5        41        24
      Deferred income tax expense (benefit)          139        28       (39)
      Amortization of debt discount                   27        27        16
      Noncash interest and dividend income            (7)      (40)      (28)
      Other noncash charges                           --        --        (2)
      Changes in operating assets and liabilities,
        net of the effect of acquisitions:
          Change in receivables                      (32)       (3)      (36)
          Change in accrued interest                  63        --       (14)
          Change in other accruals and payables       68        77        45
                                                 -------     -----     -----
            Net cash provided by
              operating activities                 1,251       957       583
                                                 -------     -----     -----

Cash flows from investing activities:
  Cash paid for acquisitions                        (158)   (1,256)     (399)
  Capital expended for property and equipment       (947)     (526)     (566)
  Cash proceeds from disposition of assets           149        66       103
  Cash proceeds from disposition of
    discontinued operations                           --       220        --
  Discontinued operations                             --         9        31
  Additional investments in and loans to
    affiliates and others                           (361)     (205)     (192)
  Payment received on preferred stock
    investment redemption                            183        --        --
  Return of capital from affiliates                    1         1        34
  Repayment of loans by affiliates and others         62        32        35
  Other investing activities                         (99)     (155)     (138)
                                                 -------     -----     ----- 
            Net cash used in
              investing activities                (1,170)   (1,814)   (1,092)
                                                 -------     -----     ----- 
</TABLE>


                                                                     (continued)





                                   F-6
<PAGE>   26
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, Continued

                  Years ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>
                                                    1993     1992 *    1991 *
                                                   ------    ------    ------
                                                       amounts in millions
                                                           (see note 2)
<S>                                              <C>        <C>       <C>
Cash flows from financing activities:
  Borrowings of debt                               6,305     5,354     5,918
  Repayments of debt                              (6,321)   (4,435)   (5,412)
  Borrowings of short-term notes to affiliate         --        --        22
  Repayment of short-term notes to affiliate          --       (22)       --
  Sales of equity securities of subsidiaries          --        --         9
  Preferred stock dividends of subsidiaries           (6)       (6)      (19)
  Preferred stock dividends                           (2)      (15)       --
  Repurchase of preferred stock                      (92)       (5)       --
  Issuances of common stock                            6         7         2
  Repurchases of common stock                         (4)      (19)       (9)
                                                 -------     -----     ----- 
            Net cash provided (used) by
              financing activities                  (114)      859       511
                                                 -------     -----     -----

            Net increase (decrease) in cash          (33)        2         2

            Cash at beginning of year                 34        32        30
                                                 -------     -----     -----

            Cash at end of year                  $     1        34        32
                                                 =======     =====     =====
</TABLE>


*Restated and reclassified - see notes 1, 3 and 10.


See accompanying notes to consolidated financial statements.





                                   F-7
<PAGE>   27
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 1993, 1992 and 1991


(1)      Summary of Significant Accounting Policies

         Principles of Consolidation

         The consolidated financial statements include the accounts of
         Tele-Communications, Inc. and those of all majority-owned subsidiaries
         ("TCI" or the "Company").  All significant intercompany accounts and
         transactions have been eliminated in consolidation.

         Restated Financial Statements for Implementation of Statement of
         Financial Accounting Standards No. 109, "Accounting fo Income Taxes"

         Effective January 1, 1993, the Company adopted Statement of Financial
         Accounting Standards No. 109 ("Statement No. 109"), "Accounting for
         Income Taxes" and has applied the provisions of Statement No. 109
         retroactively to January 1, 1986.  The accompanying 1992 and 1991
         consolidated financial statements and related notes have been restated
         to reflect the implementation of Statement No. 109.  See note 10.

         Receivables

         Receivables are reflected net of an allowance for doubtful accounts.
         Such allowance at December 31, 1993 and 1992 was not material.

         Investments

         Investments in which the ownership interest is less than 20% are
         generally carried at cost.  Investments in marketable equity
         securities are carried at the lower of aggregate cost or market and
         any declines in value which are other than temporary are reflected as
         a reduction in the Company's carrying value of such investment.  For
         those investments in affiliates in which the Company's voting interest
         is 20% to 50%, the equity method of accounting is generally used.
         Under this method, the investment, originally recorded at cost, is
         adjusted to recognize the Company's share of the net earnings or
         losses of the affiliates as they occur rather than as dividends or
         other distributions are received, limited to the extent of the
         Company's investment in, advances to and guarantees for the investee.
         The Company's share of net earnings or losses of affiliates includes
         the amortization of purchase adjustments.

         Property and Equipment

         Property and equipment is stated at cost, including acquisition costs
         allocated to tangible assets acquired.  Construction costs, including
         interest during construction and applicable overhead, are capitalized.
         During 1993, 1992 and 1991, interest capitalized was not material.

                                                                     (continued)





                                   F-8
<PAGE>   28
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Depreciation is computed on a straight-line basis using estimated
         useful lives of 3 to 15 years for distribution systems and 3 to 40
         years for support equipment and buildings.  Beginning in April of
         1993, based upon changes in Federal Communications Commission ("FCC")
         regulations, the Company revised its estimate of useful lives of
         certain distribution equipment to correspond to the Company's
         anticipated remaining period of ownership of such equipment.  This
         revision resulted in a decrease to net earnings of approximately $12
         million ($.03 per share) for the year ended December 31, 1993.

         Repairs and maintenance are charged to operations, and renewals and
         additions are capitalized.  At the time of ordinary retirements, sales
         or other dispositions of property, the original cost and cost of
         removal of such property are charged to accumulated depreciation, and
         salvage, if any, is credited thereto.  Gains or losses are only
         recognized in connection with the sales of properties in their
         entirety.  However, recognition of gains on sales of properties to
         affiliates accounted for under the equity method is deferred in
         proportion to the Company's ownership interest in such affiliates.

         Franchise Costs

         Franchise costs include the difference between the cost of acquiring
         cable television systems and amounts assigned to their tangible
         assets.  Such amounts are generally amortized on a straight-line basis
         over 40 years. Costs incurred by the Company in obtaining franchises
         are being amortized on a straight-line basis over the life of the
         franchise, generally 10 to 20 years.

         Minority Interests

         Recognition of minority interests' share of losses of consolidated
         subsidiaries is limited to the amount of such minority interests'
         allocable portion of the common equity of those consolidated
         subsidiaries.  Further, the minority interests' share of losses is not
         recognized if the minority holders of common equity of consolidated
         subsidiaries have the right to cause the Company to repurchase such
         holders' common equity.

         Included in minority interests in equity of consolidated subsidiaries
         are $50 million and $46 million at December 31, 1993 and 1992,
         respectively, of preferred stocks (and accumulated dividends thereon)
         of certain subsidiaries.  The current dividend requirements on these
         preferred stocks aggregate $6 million per annum and such dividend
         requirements are reflected as minority interests in the accompanying
         consolidated statements of operations.

         Foreign Currency Translation

         All balance sheet accounts of foreign investments are translated at
         the current exchange rate as of the end of the accounting period.
         Statement of operations items are translated at average currency
         exchange rates.  The resulting translation adjustment is recorded as a
         separate component of stockholders' equity.

                                                                     (continued)





                                   F-9
<PAGE>   29
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Loss Per Common Shares

         The loss per common share for 1993, 1992 and 1991 was computed by
         dividing net loss by the weighted average number of common shares
         outstanding during such periods (432.6 million, 424.1 million and
         359.9 million for 1993, 1992 and 1991, respectively).  Common stock
         equivalents were not included in the computation of weighted average
         shares outstanding because their inclusion would be anti-dilutive.

         Reclassification

         Certain amounts have been reclassified for comparability with the 1993
         presentation.

(2)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $641 million, $689 million and $829 million
         for 1993, 1992 and 1991, respectively.  Also, during these years, cash
         paid for income taxes was not material.

         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                         Years ended December 31,
                                                         ------------------------
                                                          1993     1992     1991
                                                          ----     ----     ----
                                                           amounts in millions
         <S>                                            <C>       <C>      <C>
         Acquisitions:
           Fair value of assets acquired                $  172    1,231    1,877
           Liabilities assumed, net of current assets       (7)      21      (12)
           Deferred tax asset (liability)
             recorded in acquisitions                       (7)       7     (337)
           Minority interests in equity
             of acquired entities                           --       --       (3)
           Value of TCI preferred stock issued
             in acquisitions                                --       --     (115)
           Value of TCI common stock issued
             in acquisitions                                --       (3)  (1,011)
                                                         -----    -----    ----- 
                Cash paid for acquisitions              $  158    1,256      399
                                                        ======    =====    =====

         Value of TCI Class A common stock issued
           as part of purchase price of equity
           investment                                   $   --       95       --
                                                        ======    =====    =====

         Note received upon disposition of assets       $   --       15       --
                                                        ======    =====    =====

         Contribution of certain interests
           to Liberty in exchange for
           preferred stock (see note 3)                 $   --       --      530
                                                        ======    =====    =====

         Common stock received upon
           redemption of preferred stock
           of Liberty (see note 3)                      $   --       --       91
                                                        ======    =====    =====
</TABLE>


                                                                     (continued)





                                   F-10
<PAGE>   30
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                        Years ended December 31,
                                                        ------------------------
                                                         1993     1992     1991
                                                         ----     ----     ----
                                                         amounts in millions
         <S>                                             <C>       <C>      <C>
         Receipt of notes receivable upon
           disposition of Liberty common stock
           and preferred stock (note 3)                  $  182       --       --
                                                         ======    =====    =====

         Noncash capital contribution to
           Community Cable Television ("CCT")
           (note 3)                                      $   22       --       --
                                                         ======    =====    =====

         Noncash exchange of equity investment
           for consolidated subsidiary and
           equity investment                             $   22       --       --
                                                         ======    =====    =====

         Contribution of assets to an affiliate          $   --       --      108
                                                         ======    =====    =====

         Effect of foreign currency translation
           adjustment on book value of
           foreign equity investments                    $   10       19       --
                                                         ======    =====    =====

         Common stock issued upon conversion
           of notes (with accrued
           interest through conversion)                  $  403      112        4
                                                         ======    =====    =====

         Common stock surrendered in lieu
           of cash upon exercise of
           stock options                                 $    1        7        3
                                                         ======    =====    =====

         Note payable issued for
           repurchase of common stock                    $   --       --        5
                                                         ======    =====    =====

         Exchange of preferred stock investment
           for marketable equity securities              $   --       --      156
                                                         ======    =====    =====

         Deferred tax liability resulting from
           stock option deduction                        $   --       --        7
                                                         ======    =====    =====
</TABLE>


(3)      Investment in Liberty

         As of January 27, 1994, TCI and Liberty entered into a definitive
         agreement to combine the two companies.  The transaction will be
         structured as a tax free exchange of Class A and Class B shares of
         both companies and preferred stock of Liberty for like shares of a
         newly formed holding company, TCI/Liberty Holding Company
         ("TCI/Liberty").  TCI shareholders will receive one share of
         TCI/Liberty for each of their shares.  Liberty common shareholders
         will receive 0.975 of a share of TCI/Liberty for each of their common
         shares.  The transaction is subject to the approval of both sets of
         shareholders as well as various regulatory approvals and other
         customary conditions.  Subject to timely receipt of such approvals,
         which cannot be assured, it is anticipated the closing of such
         transaction will take place during 1994.

                                                                     (continued)





                                   F-11
<PAGE>   31
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         TCI owns 3,477,778 shares of Liberty Class A common stock (after
         giving effect to the repurchase by Liberty during the year ended
         December 31, 1993 of 927,900 shares of Class A common stock) and
         55,070 shares of Liberty Class E, 6% Cumulative Redeemable
         Exchangeable Junior Preferred Stock received in January of 1993 upon
         conversion of the Liberty Class A Redeemable Convertible Preferred
         Stock.  Such common shares represent less than 5% of the outstanding
         Class A common stock of Liberty.

         Of the remaining classes of preferred stock of Liberty held by the
         Company, one class entitles TCI to elect a number of members of
         Liberty's board of directors equal to no less than 11% of the total
         number of directors and another class is exchangeable for TCI common
         stock.

         Due to the significant economic interest held by TCI through its
         ownership of Liberty preferred stock and Liberty common stock and
         other related party considerations, TCI has accounted for its
         investment in Liberty under the equity method.  Accordingly, the
         Company has not recognized any income relating to dividends, including
         preferred stock dividends, and the Company has continued to record the
         earnings or losses generated by the interests contributed to Liberty
         (by recognizing 100% of Liberty's earnings or losses before deducting
         preferred stock dividends).

         On December 30, 1991, TCI Liberty, Inc. ("TCIL"), a wholly-owned
         subsidiary of TCI, entered into a Commercial Paper Purchase Agreement
         with Liberty whereby TCIL could from time to time sell short-term
         notes to Liberty from TCIL of up to an aggregate amount of $100
         million.  TCIL borrowed $22 million from Liberty on December 31, 1991,
         pursuant to the Commercial Paper Purchase Agreement.  The full amount,
         including interest, was repaid on January 15, 1992.  Interest rates on
         the short-term notes were determined by the parties by reference to
         prevailing money-market rates.  This agreement was terminated on March
         23, 1993.

         During 1992, the Company and Liberty formed CCT, a general partnership
         created for the purpose of acquiring and operating cable television
         systems with Tele-Communications of Colorado, Inc. ("TCIC"), an
         indirect wholly-owned subsidiary of TCI, owning a 49.999% interest and
         Liberty Cable Partner, Inc. ("LCP"), an indirect wholly-owned
         subsidiary of Liberty, owning a 50.001% interest.

         Pursuant to an amendment to the CCT General Partnership Agreement (the
         "Amendment"), certain non-cash contributions previously made to CCT
         were rescinded, TCIC contributed to CCT a $10,590,000 promissory note
         of TCI Development Corporation ("TCID") as of the date of the
         originally contributed assets, and LCP agreed to contribute its equity
         and debt interests in Daniels & Associates Partners Limited ("DAPL"),
         a general partner of Mile Hi Cablevision Associates, Ltd. ("Mile Hi"),
         to CCT immediately prior to the closing of the acquisition of Mile Hi
         described below which closed on March 15, 1993.  TCIC also agreed to
         contribute, at the time of the contribution by LCP of its DAPL
         interests, a TCID promissory note in the amount of $66,900,000.

                                                                     (continued)





                                   F-12
<PAGE>   32
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On March 12, 1993, the CCT General Partnership Agreement was further
         amended (the "Second Amendment").  Under the Second Amendment, LCP
         agreed to contribute its Mile Hi partnership interest but not a loan
         receivable from Mile Hi in the amount of $50 million (including
         accrued interest) (the "Mile Hi Note") (both of which it received upon
         the liquidation of DAPL on March 12, 1993 as described below) to CCT
         in exchange for 50.001% of a newly created Class B partnership
         interest in CCT.  TCIC agreed to contribute a $21,795,000 promissory
         note from TCID in exchange for 49.999% of the Class B partnership
         interests in place of the $66,900,000 note which was to be contributed
         under the Amendment.  On March 15, 1993, each party made its
         respective contribution required by the Second Amendment.

         On June 3, 1993, Liberty and TCI completed the transactions
         contemplated by a recapitalization agreement (the "Recapitalization
         Agreement").  Pursuant to the Recapitalization Agreement, Liberty
         repurchased 927,900 shares of Liberty Class A common stock owned by
         TCI  and repurchased all of the outstanding shares of the Liberty
         Class C Redeemable Exchangeable Preferred Stock.  The total purchase
         price of $194 million was paid through the delivery of cash amounting
         to $12 million and promissory notes of Liberty in the aggregate
         principal amount of $182 million.

         In connection with the Recapitalization Agreement, TCIC and LCP
         entered into an Option-Put Agreement (the "Option-Put Agreement"),
         which was amended on November 30, 1993.  Under the amended Option-Put
         Agreement, between June 30, 1994 and September 28, 1994, and between
         January 1, 1996 and January 31, 1996, TCIC will have the option to
         purchase all of LCP's interest in CCT and the Mile Hi Note for an
         amount equal to $77 million plus interest accruing at the rate of
         11.6% per annum on such amount from June 3, 1993.  Between April 1,
         1995 and June 29, 1995, and between January 1, 1997 and January 31,
         1997, LCP will have the right to require TCIC to purchase LCP's
         interest in CCT and the Mile Hi Note for an amount equal to $77
         million plus interest on such amount accruing at the rate of 11.6% per
         annum from June 3, 1993.

         Under a separate agreement, on June 3, 1993, TCI Holdings, Inc.
         ("TCIH"), a wholly-owned subsidiary of TCI, purchased a 16% limited
         partnership interest in Intermedia Partners from LCP and all of LCP's
         interest in a special allocation of income and gain of $7 million
         under the partnership agreement of Intermedia Partners for a purchase
         price of approximately $9 million.  TCIH also received an option to
         purchase LCP's remaining 6.37% limited partnership interest in
         Intermedia Partners prior to December 31, 1995 for a price equal to $4
         million plus interest at 8% per annum from June 3, 1993.


                                                                     (continued)





                                   F-13
<PAGE>   33
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         In September of 1993, Encore QE Programming Corp. ("QEPC"), a
         wholly-owned subsidiary of Encore Media Corporation ("EMC"), a 90%
         owned subsidiary of Liberty, entered into a limited partnership
         agreement with TCI Starz, Inc. ("TCIS"), a wholly-owned subsidiary of
         TCI, for the purpose of developing, operating and distributing STARZ!,
         a first-run movie premium programming service launched in 1994.  QEPC
         is the general partner and TCIS is the limited partner.  Losses are
         allocated 1% to QEPC and 99% to TCIS.  Profits are allocated 1% to
         QEPC and 99% to TCIS until certain defined criteria are met.
         Subsequently, profits are allocated 20% to QEPC and 80% to TCIS.  TCIS
         has the option, exercisable at any time and without payment of
         additional consideration, to convert its limited partner interest to
         an 80% general partner interest with QEPC's partnership interest
         simultaneously converting to a 20% limited partnership interest.  In
         addition, during specific periods commencing April 1999 and April
         2001, respectively, QEPC may require TCIS to purchase, or TCIS may
         require QEPC to sell, the partnership interest of QEPC in the
         partnership for a formula-based price.  EMC is paid a management fee
         equal to 20% of "managed costs" as defined, in order to manage the
         service.  EMC manages the service and has agreed to provide the
         limited partnership with certain programming under a programming
         agreement whereby the partnership will pay its pro rata share of the
         total costs incurred by EMC for such programming.  The Company
         accounts for the partnership as a consolidated subsidiary.  
         (See note 11).

         On March 15, 1993, Mile Hi Cable Partners, L.P. ("New Mile Hi")
         acquired all the general and limited interests in Mile Hi, the owner
         of the cable television system serving Denver, Colorado.  New Mile Hi
         is a limited partnership formed among CCT (78% limited partnership
         interest), Daniels Cablevision, Inc. ("DCI") (1% limited partner) and
         P & B Johnson Corp. ("PBJC") (21% general partnership interest), a
         corporation controlled by Robert L. Johnson, a member of Liberty's
         board of directors.  As a result of the acquisition, New Mile Hi is a
         consolidated subsidiary of Liberty for financial reporting purposes.

         Prior to the acquisition, LCP indirectly owned a 32.175% interest in
         Mile Hi through its ownership of a limited partnership interest in
         DAPL, one of Mile Hi's general partners.  The other partners in Mile
         Hi were Time Warner Entertainment Company, L.P., various individual
         investors and Mile Hi Cablevision, Inc., a corporation in which all
         the other partners in Mile Hi were the shareholders.

         DAPL was liquidated on March 12, 1993, at which time LCP received a
         liquidating distribution consisting of its proportionate interest in
         DAPL's partnership interest in Mile Hi, representing the
         aforementioned 32.175% interest in Mile Hi.  The subsidiary of Liberty
         also received the Mile Hi Note in novation of a loan receivable from
         DAPL in an equal amount.

                                                                     (continued)





                                   F-14
<PAGE>   34
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The total value of the acquisition was approximately $180 million.  Of
         that amount, approximately $70 million was in the form of Mile Hi debt
         paid at the closing.  Another $50 million was in the form of the Mile
         Hi Note, which debt was assumed by New Mile Hi and then by CCT.  Of
         the remaining $60 million, approximately $40 million was paid in cash
         to partners in Mile Hi in exchange for their partnership interests.
         The remaining $20 million of interest in Mile Hi was acquired by New
         Mile Hi through the contribution by Liberty's subsidiary to CCT and by
         CCT to New Mile Hi of the 32.175% interest in Mile Hi received in the
         DAPL liquidation and by DCI's contribution to New Mile Hi of a 0.4%
         interest in Mile Hi.

         Of the estimated $110 million in cash required by New Mile Hi to
         complete the transaction, $105 million was loaned to New Mile Hi by
         CCT and $5 million was provided by PBJC as a capital contribution to
         New Mile Hi.  Of the $5 million contributed by PBJC, approximately $4
         million was provided by CCT through loans to Mr. Johnson and trusts
         for the benefit of his children.  CCT funded its loans to New Mile Hi
         and the Johnson interests by borrowing $93 million under its revolving
         credit facility and by borrowing $16 million from TCIC in the form of
         a subordinated note.

         Liberty's investment in Mile Hi, which was previously accounted for
         under the cost method, was received from TCI in the March 28, 1991
         transaction whereby TCI contributed its interests in certain
         programming businesses and cable television systems in exchange for
         several different classes and series of preferred stock of Liberty.

         Liberty adopted Statement No. 109 in 1993 and has applied the
         provisions of Statement No. 109 retroactively to March 28, 1991.

         During the year ended December 31, 1992, Liberty increased its
         economic and voting interest in Lenfest Communications, Inc.  ("LCI")
         to 50% and, accordingly, adopted the equity method of accounting.
         Liberty's investment in LCI, which was previously accounted for under
         the cost method, was received from TCI in March of 1991.
         Additionally, LCI adopted Statement No. 109 in 1993 and has applied
         its provisions on a retroactive basis.

         As a result of the aforementioned acquisition of Mile Hi and the
         implementation of Statement No. 109 by Liberty and LCI, the Company
         restated the carrying amount of its investment in Liberty preferred
         stock at December 31, 1992 through an increase of $19 million.
         Included in the restated balance is the recognition of previously
         reserved interest income on the Mile Hi Note.  These restatements
         resulted in an increase of $6 million to the Company's results of
         operations for the year ended December 31, 1992, a decrease of $2
         million for the year ended December 31, 1991 and an increase of $7
         million for prior years.


                                                                     (continued)





                                   F-15
<PAGE>   35
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Also, during the year ended December 31, 1992, Liberty increased its
         economic and voting interest in Columbia Associates, L.P. ("Columbia")
         to 39.609% and, accordingly, adopted the equity method of accounting.
         Liberty's investment in Columbia, which was previously accounted for
         under the cost method, was received from TCI in March of 1991.

         On December 31, 1992, Liberty sold certain notes receivable of
         Intermedia Partners to TCI for $36,300,000 in cash.

         The Company purchases sports and other programming from certain
         subsidiaries of Liberty.  Charges to TCI (which are based upon
         customary rates charged to others) for such programming were $44
         million, $44 million and $25 million for the years ended December 31,
         1993 and 1992 and the period from March 29, 1991 through December 31,
         1991 respectively.  Such amounts are included in operating expenses in
         the accompanying consolidated statements of operations.  Certain
         subsidiaries of Liberty purchase from TCI, at TCI's cost plus an
         administrative fee, certain pay television and other programming.  In
         addition, a consolidated subsidiary of Liberty pays a commission to
         TCI for merchandise sales to customers who are subscribers of TCI's
         cable systems.  Aggregate commission and charges for such programming
         were $11 million, $3 million and $2 million for the years ended
         December 31, 1993 and 1992 and the period from March 29, 1991 through
         December 31, 1991, respectively.  Such amounts are recorded in revenue
         in the accompanying consolidated statements of operations.

         Summarized unaudited financial information of Liberty as of December
         31, 1993 and 1992 and for the years ended December 31, 1993 and 1992
         and the period from March 29, 1991 through December 31, 1991 is as
         follows:

<TABLE>
<CAPTION>
                                                               December 31,
                                                               ------------
          Consolidated Financial Position                      1993    1992
          -------------------------------                      ----    ----
                                                           amounts in millions
           <S>                                                <C>      <C>
           Cash and cash equivalents                          $   91     96
           Investment in TCI common stock                        104    104
           Receivable from TCI                                    --      5
           Other investments and related receivables             372    453
           Other assets, net                                     870    172
                                                              ------   ----

             Total assets                                     $1,437    830
                                                              ======   ====

           Debt                                               $  446    167
           Deferred income taxes                                   2     15
           Other liabilities                                     307     54
           Minority interests                                    175     10
           Redeemable preferred stocks                           155    155
           Stockholders' equity                                  352    429
                                                               -----   ----

             Total liabilities and stockholders' equity       $1,437    830
                                                              ======   ====
</TABLE>


                                                                     (continued)





                                   F-16
<PAGE>   36
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
          Consolidated Operations                         1993     1992    1991
          -----------------------                         ----     ----    ----
                                                           amounts in millions
           <S>                                           <C>       <C>      <C>
           Revenue                                      $ 1,153     157      85
           Operating expenses                            (1,105)   (144)    (74)
           Depreciation and amortization                    (49)    (16)    (10)
                                                        -------   -----    ---- 

             Operating income (loss)                         (1)     (3)      1

           Interest expense                                 (31)     (7)     (5)
           Other, net                                        36      32      44
                                                        -------    ----    ----

             Net earnings                               $     4      22      40
                                                        =======    ====    ====
</TABLE>

(4)      Investments in Other Affiliates

         Investments in affiliates, other than Liberty (see note 3), accounted
         for under the equity method, amounted to $567 million and $650 million
         at December 31, 1993 and 1992, respectively.

         On December 2, 1992, SCI Holdings, Inc. ("SCI") consummated a
         transaction (the "Split-Off") that resulted in the ownership of its
         cable systems being split between its two stockholders, which
         stockholders were Comcast Corporation ("Comcast") and the Company.
         Prior to the Split-Off, the Company had an investment in the common
         stock of SCI and the preferred stock of its wholly-owned subsidiary,
         Storer Communications, Inc. ("Storer").

         The Split-Off, which permitted refinancing of substantially all of the
         publicly held debt of SCI and the preferred stock of SCI's
         wholly-owned subsidiary, Storer, was effected by the distribution of
         approximately 50% of the net assets of SCI to three holding companies
         formed by the Company (the "Holding Companies").

         Prior to the Split-off, the Company contributed its SCI common stock
         to the Holding Companies in exchange for 100% of such Holding
         Companies' common stock.  The amount of SCI common stock contributed
         to each of the Holding Companies was based upon the proportionate
         value of net assets to be received by each of the Holding Companies in
         the Split-Off.  SCI then merged into Storer and the SCI common stock
         held by the Holding Companies was converted into Storer common stock.


                                                                     (continued)





                                   F-17
<PAGE>   37
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Also prior to the Split-Off, (i) the Holding Companies incurred
         long-term debt aggregating approximately $1.1 billion and contributed
         substantially all of the resulting proceeds to Storer and (ii) a
         consolidated subsidiary of TCI redeemed approximately $476 million of
         its debt securities held by Storer with proceeds of its separate
         financing, and an affiliate of Comcast redeemed approximately $274
         million of its debt securities held by Storer.  In turn, Storer
         utilized substantially all of the proceeds of such contributions and
         redemptions to repurchase its preferred stock and extinguished all of
         its debt.  The Company's share of Storer's loss on early
         extinguishment of debt was $52 million and such amount is included in
         loss on early extinguishment of debt in the accompanying consolidated
         statements of operations.  Additionally, the Company received a
         premium, amounting to $14 million, on the repurchase of the Storer
         preferred stock.  Such amount is reflected separately in the
         accompanying consolidated financial statements.

         In the Split-Off, Storer redeemed its common stock held by the Holding
         Companies in exchange for 100% of the capital stock of certain
         operating subsidiaries of Storer.

         Immediately following the Split-Off, the Company owned a majority of
         the common stock of the Holding Companies and Comcast owned 100% of
         the common stock of Storer.  As such, the Company, which previously
         accounted for its investment in SCI using the equity method, now
         consolidates its investment in the Holding Companies.  The tangible
         assets of the Holding Companies were recorded at predecessor cost.

         In connection with the Company's 1988 acquisition of an equity
         interest in SCI, a subsidiary of the Company issued certain debt and
         equity securities to Storer for $650 million.  Such debt securities
         were redeemed and the equity securities were received by one of the
         Holding Companies in the Split-Off.  Interest charges and preferred
         stock dividend requirements on these debt and equity securities, prior
         to the Split-Off, aggregated $81 million and $89 million for the
         period ended December 2, 1992 and the year ended December 31, 1991.
         The Company's share of losses of SCI, prior to the Split-Off for the
         period ended December 2, 1992 and the year ended December 31, 1991
         amounted to $51 million and $54 million, as adjusted for the effect of
         interest and dividends accounted for by Storer as capital transactions
         due to their related party nature.

         The Company had a management consulting agreement with Storer which
         provided for the operational management of certain of Storer's cable
         television systems by TCI.  This agreement provided for a management
         fee based on 3.5% of the revenue of those cable television systems
         managed by the Company.  The Company also entered into a programming
         service agreement with Storer whereby the Company, for a fee, managed
         Storer's purchases of programming.  The total management fees under
         the consulting and programming service agreements, prior to the
         Split-Off, amounted to $7 million in each of the period from January 1
         1992 through December 2, 1992 and the year ended December 31, 1991
         (which amounts are recorded as a reduction of selling, general and
         administrative expenses in the accompanying consolidated statements of
         operations).


                                                                     (continued)





                                   F-18
<PAGE>   38
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company is a partner in certain joint ventures, accounted for
         under the equity method, which have operations in the United Kingdom
         and other parts of Europe.  These joint ventures, which are currently
         operating and constructing cable television and telephone systems,
         have generated losses to the Company in 1993 and 1992 amounting to $47
         million and $37 million, including $3 million and $6 million in 1993
         and 1992, respectively, resulting from foreign currency transaction
         losses.

         Summarized unaudited financial information for affiliates other than
         Liberty (including those contributed to Liberty through March 28,
         1991), is as follows:

<TABLE>
<CAPTION>
                                                                December 31, 
                                                               --------------
                                                               1993      1992
                                                               ----      ----
          Combined Financial Position                        amounts in millions
          ---------------------------                                           
          <S>                                                 <C>       <C>
           Property and equipment, net                        $1,059       757
           Franchise costs, net                                  266       211
           Other assets, net                                     727       467
                                                              ------    ------

             Total assets                                     $2,052     1,435
                                                              ======    ======

           Debt                                               $  593       661
           Due to TCI                                             78        71
           Other liabilities                                     338       185
           Owners' equity                                      1,043       518
                                                              ------    ------
                                                         
             Total liabilities and equity                     $2,052     1,435
                                                              ======    ======
</TABLE>

<TABLE>
<CAPTION>
                                                      Years ended December 31,
                                                      ------------------------
                                                      1993      1992      1991
                                                      ----      ----      ----
           Combined Operations                          amounts in millions
           -------------------                                              
           <S>                                       <C>        <C>       <C>
           Revenue                                   $  713     1,224     1,461
           Operating expenses                          (648)     (786)     (993)
           Depreciation and amortization               (127)     (303)     (329)
                                                     ------    ------    ------ 

             Operating income (loss)                    (62)      135       139

           Interest expense                             (37)     (295)     (374)
           Other, net                                    98      (234)      (47)
                                                      -----    ------    ------ 

             Net loss                                $   (1)     (394)     (282)
                                                     ======    ======    ====== 
</TABLE>

         Certain of the Company's affiliates are general partnerships and any
         subsidiary of the Company that is a general partner in a general
         partnership is, as such, liable as a matter of partnership law for all
         debts (other than non-recourse debts) of that partnership in the event
         liabilities of that partnership were to exceed its assets.


                                                                     (continued)





                                   F-19
<PAGE>   39
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(5)      Investment in Turner Broadcasting System, Inc.

         In 1987, the Company and several other cable television operators
         purchased shares of two classes of preferred stock of Turner
         Broadcasting System, Inc. ("TBS").  During 1991, TBS made an offer to
         exchange shares of one class of its preferred stock (and accrued
         dividends thereon) for shares of TBS common stock and, as a result,
         the Company received common shares valued at $178 million.  Shares of
         the other class of preferred stock have voting rights and are
         convertible into shares of TBS common stock.  The holders of those
         preferred shares, as a group, are entitled to elect seven of fifteen
         members of the board of directors of TBS, and the Company appoints
         three such representatives.  However, voting control over TBS
         continues to be held by its chairman of the board and chief executive
         officer (an unrelated third party).  The Company's total holdings of
         TBS common and preferred stocks represent an approximate 12% voting
         interest for those matters for which preferred and common stock vote
         as a single class.

         The Company's investment in TBS common stock had an aggregate market
         value of $803 million and $628 million (which exceeded cost by $485
         million and $310 million) at December 31, 1993 and 1992, respectively.
         In addition, the Company's investment in TBS preferred stock had an
         aggregate market value of $954 million and $746 million, based upon
         the common market value, (which exceeded cost by $781 million and $573
         million) at December 31, 1993 and 1992, respectively.

         In May 1993, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 115, "Accounting for Certain
         Investments in Debt and Equity Securities," effective for fiscal years
         beginning after December 15, 1993.  Under the new rules, debt
         securities that the Company has both the positive intent and ability
         to hold to maturity are carried at amortized cost.  Debt securities
         that the Company does not have the positive intent and ability to hold
         to maturity and all marketable equity securities are classified as
         available-for-sale or trading and carried at fair value.  Unrealized
         holding gains and losses on securities classified as available-for
         sale are carried as a separate component of shareholders' equity.
         Unrealized holding gains and losses on securities classified as
         trading are reported in earnings.

         The Company holds no material debt securities.  Marketable equity
         securities are currently reported by the Company at the lower of cost
         or market ("LOCOM") and net unrealized losses are reported in
         earnings.  The Company will apply the new rules starting in the first
         quarter of 1994.  Application of the new rules will result in an
         estimated increase of approximately $300 million in stockholders'
         equity as of January 1 1994, representing the recognition of
         unrealized appreciation, net of taxes, for the Company's investment in
         equity securities determined to be available-for-sale, previously
         carried at LOCOM.


                                                                     (continued)





                                   F-20
<PAGE>   40
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(6)      Debt

         Debt is summarized as follows:
<TABLE>
<CAPTION>
                                          
                                         Weighted-average        December 31, 
                                         interest rate at      ----------------
                                         December 31, 1993      1993     1992
                                         -----------------     ------    ------
                                                              amounts in millions
         <S>                                     <C>           <C>       <C>
         Parent company debt:
           Senior notes                           8.6%         $ 5,052    1,960
           Liquid Yield OptionTM Notes (a)          --              --      386
           Bank credit facilities                 6.0%              80      500
           Commercial paper                       4.1%              44       50
           Other debt                                                2        1
                                                               -------   ------
                                                                 5,178    2,897

         Debt of subsidiaries:
           Bank credit facilities                 4.6%           3,264    5,526
           Commercial paper                        --               --       12
           Notes payable                         10.3%           1,321    1,732
           Convertible notes (b)                  9.5%              47       48
           Other debt                                               90       70
                                                               -------   ------
                                                               $ 9,900   10,285
                                                               =======   ======
</TABLE>

         (a)     These subordinated notes, which were stated net of unamortized
                 discount of $764 million at December 31, 1992, were issued
                 through a public offering.  On October 28, 1993, the Company
                 called for redemption all of its remaining Liquid Yield
                 OptionTM Notes.  In connection with such call for redemption,
                 Notes aggregating $405 million were converted into 18,694,377
                 shares of Class A common stock and Notes aggregating less than
                 $1 million were redeemed together with accrued interest to the
                 redemption date.  Prior to the aforementioned redemption,
                 Notes aggregating $6 million were converted into 259,537
                 shares of TCI Class A common stock during 1993.

         (b)     These convertible notes, which are stated net of unamortized
                 discount of $197 million and $201 million on December 31, 1993
                 and 1992, respectively, mature on December 18, 2021.  The
                 notes require (so long as conversion of the notes has not
                 occurred) an annual interest payment through 2003 equal to
                 1.85% of the face amount of the notes.  During the year ended
                 December 31, 1993, certain of these notes were converted into
                 819,000 shares of Class A common stock.  At December 31, 1993,
                 the notes were convertible, at the option of the holders, into
                 an aggregate of 41,060,990 shares of Class A common stock.

         During the year ended December 31, 1992, TCI called for redemption all
         of its 7% convertible subordinated debentures.  Debentures aggregating
         $114 million were converted into 6,636,881 shares of Class A common
         stock and the remaining debentures were redeemed at 104.2% of the
         principal amount together with accrued interest to the redemption
         date.


                                                                     (continued)





                                     F-21
<PAGE>   41
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company's bank credit facilities and various other debt
         instruments generally contain restrictive covenants which require,
         among other things, the maintenance of certain earnings, specified
         cash flow and financial ratios (primarily the ratios of cash flow to
         total debt and cash flow to debt service, as defined), and include
         certain limitations on indebtedness, investments, guarantees,
         dispositions, stock repurchases and dividend payments.

         As security for borrowings under one of its credit facilities, the
         Company pledged a portion of the common stock (with a quoted market
         value of approximately $643 million at December 31, 1993) it holds of
         TBS.

         In order to provide interest rate protection on a portion of its
         variable rate indebtedness, the Company has entered into various
         interest rate exchange agreements pursuant to which it pays fixed
         interest rates, ranging from 7.7% to 9.9%, on notional amounts of $608
         million.  The Company has also entered into various other exchange
         agreements, pursuant to which it pays variable interest rates on
         notional amounts of $2,275 million.  The Company is exposed to credit
         losses for the periodic settlements of amounts due under these
         interest rate exchange agreements in the event of nonperformance by
         the other parties to the agreements.  However, the Company does not
         anticipate nonperformance by the counterparties and, in any event,
         such amounts were not material at December 31, 1993.

         The Company has also entered into various interest rate hedge
         agreements on notional amounts of $345 million which fix the maximum
         variable interest rates, at rates ranging from 10% to 11%.  The term
         of such agreements is approximately two years.

         TCI and certain of its subsidiaries are required to maintain unused
         availability under bank credit facilities to the extent of outstanding
         commercial paper.  Also, TCI and certain of its subsidiaries pay fees,
         ranging from 1/4% to 1/2% per annum, on the average unborrowed portion
         of the total amount available for borrowings under bank credit
         facilities.

         The fair value of the Company's debt is estimated based on the quoted
         market prices for the same or similar issues or on the current rates
         offered to the Company for debt of the same remaining maturities.  The
         fair value of debt, which has a carrying value of $9,900 million, was
         $10,572 million at December 31, 1993.

         The fair value of the interest rate exchange agreements is the
         estimated amount that the Company would pay or receive to terminate
         the agreements at December 31, 1993, taking into consideration current
         interest rates and assuming the current creditworthiness of the
         counterparties.  The Company would receive $13 million at December 31,
         1993 upon termination of the agreements.



                                                                     (continued)





                                     F-22
<PAGE>   42
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Annual maturities of debt for each of the next five years are as
follows:

<TABLE>
<CAPTION>
                                Parent     Total
                                ------     -----
                               amounts in millions
                 <S>             <C>         <C>
                 1994            $  69*      927*
                 1995              212       705
                 1996              210       993
                 1997              151       885
                 1998              349       799
</TABLE>

                 * Includes $44 million of commercial paper.

(7)      Redeemable Preferred Stocks

<TABLE>
<CAPTION>
                                                               December 31,   
                                                             -----------------
                                                              1993       1992 
                                                             ------     ------
                                                            amounts in millions
                 <S>                                          <C>         <C>
                 12-7/8% Cumulative Compounding
                   Preferred Stock, Series A;
                   issued and outstanding 4,772,394
                   shares in 1992 (a)                         $ --         92
                 6-3/4% Convertible Preferred Stock,
                   Series B; issued and outstanding
                   6,201 shares at December 31, 1992 (b)        --         18
                 4-1/2% Convertible Preferred Stock,
                   Series C; issued and outstanding
                    6,201 shares at December 31, 1993 (b)       18         --
                                                              ----       ----

                                                              $ 18        110
                                                              ====        ===
</TABLE>

         (a)     The 12-7/8% Cumulative Compounding Preferred Stock was stated
                 at its redemption value of $19.25 per share.  Dividends were
                 cumulative and accrued at 12-7/8% of the redemption value.  In
                 October of 1992, the Company acquired and retired 250,000
                 shares of this preferred stock in the open market for a
                 purchase price of $19.56 per share.  All remaining outstanding
                 shares of such preferred stock were redeemed on February 1,
                 1993 for a redemption price of $19.25 per share plus all
                 unpaid dividends accrued thereon.


                                                                     (continued)





                                     F-23
<PAGE>   43
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         (b)     The 4-1/2% Convertible Preferred Stock is stated at its
                 redemption value of $3,000 per share, and each share is
                 convertible into 204 shares of TCI Class A common stock.  In
                 1993, the Company designated this Series C Convertible
                 Preferred Stock with all of the same attributes of the Series
                 B Convertible Preferred Stock except that dividends on each
                 share of the Series C stock accrued on a daily basis at the
                 rate of 4-1/2% per annum instead of 6-3/4% per annum, and such
                 Series C stock was not subject to optional redemption by the
                 Company until after January 10, 1994.  During the year ended
                 December 31, 1993, the shares so designated were exchanged for
                 the existing Series B shares.  Subsequent to December 31,
                 1993, all of the Series C shares were converted into 1,265,004
                 shares of TCI Class A common stock.

(8)      Stockholders' Equity

         Common Stock

         The Class A common stock has one vote per share and the Class B common
         stock has ten votes per share.  Each share of Class B common stock is
         convertible, at the option of the holder, into one share of Class A
         common stock.

         Employee Benefit Plans

         The Company has an Employee Stock Purchase Plan ("ESPP") to provide
         employees an opportunity for ownership in the Company and to create a
         retirement fund.  Terms of the ESPP provide for employees to
         contribute up to 10% of their compensation to a trust for investment
         in TCI common stock.  The Company, by annual resolution of the Board
         of Directors, contributes up to 100% of the amount contributed by
         employees.  Certain of the Company's subsidiaries have their own
         employee benefit plans.  Contributions to all plans aggregated $16
         million, $13 million and $12 million for 1993, 1992 and 1991,
         respectively.


                                                                     (continued)





                                     F-24
<PAGE>   44
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Stock Options

         Two officers (one of whom is also a director) each held an option to
         acquire 200,000 shares of Class A common stock at an adjusted purchase
         price of $10.00 per share.  One of such officers received payment of
         $550,000 from the Company in December of 1991 upon cancellation of a
         portion of his option covering 100,000 shares.  The amount paid was
         based on the then market value of Class A common stock of $15.50 per
         share.  The same officer received payments of $512,500 and $569,000
         from the Company (based on the then market value of Class A common
         stock of $20.25 and $21.375 per share) in July and December of 1992,
         respectively, in cancellation of the remainder of his option covering
         100,000 shares of TCI Class A common stock.  The other officer
         received payment of $2,276,000 from the Company in December of 1992
         upon cancellation of his option covering 200,000 shares of TCI Class A
         common stock.  The amount paid was based on the then market value of
         Class A common stock of $21.375 per share.

         The Company had an Incentive Stock Option Plan ("ISOP") which has
         expired.  Options granted under the ISOP (prior to its expiration)
         have an option price equal to the fair market value on the date of
         grant, are all currently exercisable and expire five years from the
         date of grant.  Options to purchase 217,008 shares of TCI Class A
         common stock are outstanding at December 31, 1993, with a price of
         $17.25 per share.  During the years ended December 31, 1993, 1992 and
         1991, options to acquire 96,242, 321,406 and 78,642 shares,
         respectively were exercised at prices ranging from $10.00 to $17.25
         per share and options for 25,000, 12,000 and 15,000 shares,
         respectively, were cancelled.

         TCI assumed certain stock options previously granted by UAE to certain
         of its employees.  These options, which are currently exercisable,
         represent the right, as of December 31, 1993, to acquire 167,328
         shares of TCI Class A common stock at adjusted purchase prices ranging
         from $8.83 to $18.63 per share.  During the year ended December 31,
         1993, no options were exercised or cancelled.  No additional options
         may be granted by UAE.


                                                                     (continued)





                                     F-25
<PAGE>   45
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company has adopted the 1992 Stock Incentive Plan (the "Plan").
         The Plan provides for awards to be made with respect to a maximum of
         10 million shares of Class A common stock.  Awards may be made as
         grants of stock options, stock appreciation rights, restricted shares,
         stock units or any combination thereof.  On November 11, 1992, stock
         options in tandem with stock appreciation rights to purchase 4,020,000
         shares of Class A common stock were granted pursuant to the Plan to
         certain officers and other key employees at a purchase price of $16.75
         per share.  Such options become exercisable and vest evenly over five
         years, first became exercisable beginning November 11, 1993 and expire
         on November 11, 2002.  During the year ended December 31, 1993, stock
         options covering 50,000 shares of Class A common stock were cancelled
         upon termination of employment.  On October 12, 1993, stock options in
         tandem with stock appreciation rights to purchase 1,355,000 shares of
         TCI Class A common stock were granted pursuant to the Plan to certain
         officers and other key employees at a purchase price of $16.75 per
         share.  On November 12, 1993, an additional grant of stock options in
         tandem with stock appreciation rights to purchase 600,000 shares of
         TCI Class A common stock were granted to two officers at a purchase
         price of $16.75 per share.  Such options become exercisable and vest
         evenly over four years, first become exercisable beginning October 12,
         1994 and expire on October 12, 2003.  Separately from the Plan, an
         additional grant of stock options in tandem with stock appreciation
         rights to purchase 2,000,000 shares of TCI Class A common stock at a
         purchase price of $16.75 per share was made on November 12, 1993 to an
         individual who thereafter became a director of the Company.  Twenty
         percent of such options vested and became exercisable immediately and
         the remainder become exercisable evenly over 4 years.  The options
         expire October 12, 1998.  Estimates of the compensation relating to
         these grants have been recorded through December 31, 1993, but are
         subject to future adjustment based upon market value and, ultimately,
         on the final determination of market value when the rights are
         exercised.

         Two officers (who are also directors) each held an option, expiring
         December 31, 1991, to acquire 1,200,000 shares of Class B common stock
         at an adjusted purchase price of $1.10 per share.  In June of 1991,
         one of the aforementioned officers exercised in full his option to
         acquire 1,200,000 shares of Class B common stock by delivery of 80,000
         shares of Class B common stock valued at $16.50 per share and, on the
         same date, sold 400,000 of such option shares (at a price of $16.50
         per share) to TCI for cash and a short-term note.  In December of
         1991, the other officer exercised his option to purchase 900,000
         shares of Class B common stock by delivery of 63,871 shares of Class A
         common stock valued at $15.50 per share.  Such officer agreed to
         forego exercising the balance of his option to purchase 300,000 shares
         of Class B common stock in exchange for the payment by the Company of
         $4,320,000 as compensation to be applied towards federal and state
         income taxes withheld by the Company for his account.

         Other

         The excess of consideration received on debentures converted or
         options exercised over the par value of the stock issued is credited
         to additional paid-in capital.

                                                                     (continued)





                                     F-26
<PAGE>   46
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         At December 31, 1993, there were 50,635,330 Class A shares of TCI
         common stock reserved for issuance under exercise privileges related
         to options and convertible debt securities described in this note 8
         and in notes 6 and 7.  In addition, one share of Class A common stock
         is reserved for each share of Class B common stock.

(9)      Transactions with Officers and Directors

         On December 10, 1992, pursuant to a restricted stock award agreement,
         an officer, who is also a director, of the Company was transferred the
         right, title and interest in and to 124.03 shares (having a
         liquidation value of $4 million) of the 12% Series B cumulative
         compounding preferred stock of WestMarc Communications, Inc. (a
         wholly-owned subsidiary of the Company) owned by the Company.  Such
         preferred stock is subject to forfeiture in the event of certain
         circumstances from the date of grant through February 1, 2002,
         decreasing by 10% on February 1 of each year.

         On December 14, 1992, an officer, who is also a director, sold 100,000
         shares of Class B common stock to the Company for $2,138,000.

(10)     Income Taxes

         TCI files a consolidated Federal income tax return with all of its 80%
         or more owned subsidiaries.  Consolidated subsidiaries in which the
         Company owns less than 80% each file a separate income tax return.
         TCI and such subsidiaries calculate their respective tax liabilities
         on a separate return basis which are combined in the accompanying
         consolidated financial statements.

         The Financial Accounting Standards Board Statement No. 109 requires a
         change from the deferred method of accounting for income taxes of APB
         Opinion No. 11 to the asset and liability method of accounting for
         income taxes.  Under the asset and liability method of Statement No.
         109, deferred tax assets and liabilities are recognized for the
         estimated future tax consequences attributable to differences between
         the financial statement carrying amounts of existing assets and
         liabilities and their respective tax bases.  Deferred tax assets and
         liabilities are measured using enacted tax rates in effect for the
         year in which those temporary differences are expected to be recovered
         or settled.  Under Statement No. 109, the effect on deferred tax
         assets and liabilities of a change in tax rates is recognized in
         income in the period that includes the enactment date.

         The Company adopted Statement No. 109 in 1993 and has applied the
         provisions of Statement No. 109 retroactively to January 1, 1986.  The
         Company restated its financial statements for the years beginning
         January 1, 1986 through December 31, 1992.  The effect of the
         implementation of Statement No. 109 at December 31, 1992 was a $2
         million decrease in receivables, $48 million net increase in
         investments, $178 million net increase in property and equipment,
         $2,901 million net increase in franchise costs, $2 million increase in
         other assets, $34 million increase in other liabilities, $2,865
         million increase in deferred taxes payable and $228 million decrease
         in accumulated deficit.


                                                                     (continued)





                                     F-27
<PAGE>   47
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The financial statements for the years ended December 31, 1992 and
         1991 have been restated to comply with the provisions of Statement No.
         109.  The following summarizes the impact of applying Statement No.
         109 on net loss and loss per common share for the years ended December
         31, 1992 and 1991:

<TABLE>
<CAPTION>
                                                              December 31,     
                                                           --------------------
                                                            1992         1991  
                                                           -------     --------
                                                            amounts in millions
           <S>                                             <C>             <C> 
           Net loss as previously reported                 $   (34)        (103)
           Effect of restatements:
             Liberty, including the effects
               of Mile Hi and LCI (note 3)                       6           (2)
             Statement No. 109                                  20            8
                                                           -------      -------

               As restated                                 $    (8)         (97)
                                                           =======      ======= 

           Per share amounts as previously reported        $  (.12)        (.29)
           Effect of restatements:
             Liberty, including the effects
               of Mile Hi and LCI (note 3)                     .02           --
           Statement No. 109
                                                               .05          .02
                                                           -------      -------

               As restated                                 $  (.05)        (.27)
                                                           =======      ======= 
</TABLE>

         Income tax benefit (expense) attributable to income or loss from
         continuing operations for the years ended December 31, 1993, 1992 and
         1991 consists of:

<TABLE>
<CAPTION>
                                              Current     Deferred      Total 
                                              -------     --------     -------
                                                     amounts in millions
           <S>                                  <C>         <C>          <C>
           Year ended December 31, 1993:
             Federal                            $(14)       (119)        (133)
             State and local                     (15)        (20)         (35)
                                                ----        ----         ---- 

                                                $(29)       (139)       (168)
                                                ====        ====        ==== 

           Year ended December 31, 1992:
             Federal                            $ --         (24)        (24)
             State and local                     (10)         (4)        (14)
                                                ----        ----        ---- 
                                                $(10)        (28)        (38)
                                                ====        ====        ==== 

           Year ended December 31, 1991:
             Federal                            $ (2)         33          31
             State and local                      (7)          6          (1)
                                                ----        ----        ---- 

                                                $ (9)         39          30
                                                ====        ====        ==== 
</TABLE>


                                                                     (continued)





                                     F-28
<PAGE>   48
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The significant components of deferred income tax benefit (expense)
         for the years ended December 31, 1993, 1992 and 1991 are as follows:

<TABLE>
<CAPTION>
                                                               Years ended
                                                              December 31,      
                                                         -----------------------
                                                         1993     1992     1991 
                                                         -----   ------   ------
                                                           amounts in millions
           <S>                                           <C>         <C>      <C>
           Deferred tax benefit (expense)
             (exclusive of effects of other
              components listed below)                   $ (63)      (28)     39
           Adjustment to deferred tax assets and
             liabilities for enacted change in
             tax rates                                     (76)       --      --
                                                         -----     -----   -----

                                                         $(139)      (28)     39
                                                         =====     =====   =====
</TABLE>

         Income tax benefit (expense) attributable to income or loss from
         continuing operations differs from the amounts computed by applying
         the Federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 as
         a result of the following:

<TABLE>
<CAPTION>
                                                               Years ended
                                                              December 31,      
                                                         -----------------------
                                                         1993     1992     1991 
                                                         -----   ------   ------
                                                           amounts in millions
           <S>                                          <C>         <C>      <C>
           Computed "expected" tax benefit (expense)    $  (56)     (15)      37
           Adjustment to deferred tax assets and
             liabilities for enacted change in
             Federal income tax rate                       (76)      --       --
           Dividends excluded for income tax purposes        4       10       13
           Amortization not deductible for tax purposes    (12)      (8)      (7)
           Minority interest in earnings of
             consolidated subsidiaries                      (1)     (14)     (13)
           Recognition of losses of consolidated
             partnership                                    (8)      --       --       
           State and local income taxes, net of Federal
             income tax benefit                            (23)      (9)       1
           Other                                             4       (2)      (1)
                                                        ------   ------   ------ 

                                                        $ (168)     (38)      30
                                                        ======   ======   ======
</TABLE>


                                                                     (continued)





                                     F-29
<PAGE>   49
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Note to Consolidated Financial Statements


         The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets and deferred tax liabilities at
         December 31, 1993 and 1992 are presented below:

<TABLE>
<CAPTION>
                                                            December 31,     
                                                        ---------------------
                                                         1993           1992 
                                                        ------         ------
                                                         amounts in millions
           <S>                                          <C>              <C>
           Deferred tax assets:
             Net operating loss carryforwards           $  590             665
               Less - valuation allowance                  (90)            (88)
             Investment tax credit carryforwards           140             140
               Less - valuation allowance                  (36)            (34)
             Alternative minimum tax credit
               carryforwards                                19              11
             Investments in affiliates, due
               principally to losses of affiliates
               recognized for financial statement
               purposes in excess of losses
               recognized for income tax purposes          266             321
             Future deductible amounts principally
               due to non-deductible accruals               27              19
             Other                                          13               5
                                                        ------          ------

               Net deferred tax assets                     929           1,039
                                                        ------          ------

           Deferred tax liabilities:
             Property and equipment, principally
               due to differences in depreciation        1,193           1,136
             Franchise costs, principally due to
               differences in amortization               2,784           2,720
             Investment in affiliates, due
               principally to undistributed
               earnings of affiliates                      256             332
             Other                                           6              15
                                                        ------          ------
               Total gross deferred tax liabilities      4,239           4,203
                                                        ------          ------

               Net deferred tax liability               $3,310           3,164
                                                        ======          ======
</TABLE>

         The valuation allowance for deferred tax assets as of December 31,
         1993 was $126 million.  Such balance increased by $4 million from
         December 31, 1992.  Subsequently recognized tax benefits relating to
         the valuation allowance for deferred tax assets as of December 31,
         1993 will be recorded as reductions of franchise costs.

         At December 31, 1993, the Company had net operating loss carryforwards
         for income tax purposes aggregating approximately $1,071 million of
         which, if not utilized to reduce taxable income in future periods, $8
         million expires through 1998, $17 million in 2001, $76 million in
         2002, $153 million in 2003, $132 million in 2004, $384 million in 2005
         and $301 million in 2006.  Certain subsidiaries of the Company had
         additional net operating loss carryforwards for income tax purposes
         aggregating approximately $368 million and these net operating losses
         are subject to certain rules limiting their usage.


                                                                     (continued)





                                     F-30
<PAGE>   50
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         At December 31, 1993, the Company had remaining available investment
         tax credits of approximately $85 million which, if not utilized to
         offset future Federal income taxes payable, expire at various dates
         through 2005.  Certain subsidiaries of the Company had additional
         investment tax credit carryforwards aggregating approximately $55
         million and these investment tax credit carryforwards are subject to
         certain rules limiting their usage.

         Certain of the Federal income tax returns of TCI and its subsidiaries
         which filed separate income tax returns are presently under
         examination by the Internal Revenue Service ("IRS") for the years 1979
         through 1992.  In the opinion of management, any additional tax
         liability, not previously provided for, resulting from these
         examinations, ultimately determined to be payable, should not have a
         material adverse effect on the consolidated financial position of the
         Company.  The Company pursued a course of action on certain issues
         (primarily the deductibility of franchise cost amortization) the IRS
         had raised and such issues were argued before the United States Tax
         Court.  During 1990, the Company received a favorable decision
         regarding these issues.  The IRS appealed this decision but the
         Company prevailed in the appeal.  The IRS may further appeal the
         decision to the Supreme Court until March 27, 1994.

         New tax legislation was enacted in the third quarter of 1993 which,
         among other matters, increased the corporate Federal income tax rate
         from 34% to 35%.  The Company has reflected the tax rate change in its
         consolidated statements of operations in accordance with the treatment
         prescribed by Statement No. 109.  Such tax rate change resulted in an
         increase of $76 million to income tax expense and deferred income tax
         liability.

(11)     Commitments and Contingencies

         On October 5, 1992, Congress enacted the Cable Television Consumer
         Protection and Competition Act of 1992 (the "1992 Cable Act").  In
         1993, the FCC adopted certain rate regulations required by the 1992
         Cable Act and imposed a moratorium on certain rate increases.  Such
         rate regulations became effective on September 1, 1993.  The rate
         increase moratorium, which began on April 5, 1993, continues in effect
         through May 15, 1994.  As a result of such actions, the Company's
         basic and tier service rates and its equipment and installation
         charges (the "Regulated Services") are subject to the jurisdiction of
         local franchising authorities and the FCC.  Basic and tier service
         rates are evaluated against competitive benchmark rates as published
         by the FCC, and equipment and installation charges are based on actual
         costs.  Any rates for Regulated Services that exceeded the benchmarks
         were reduced as required by the 1993 rate regulations.  The rate
         regulations do not apply to the relatively few systems which are
         subject to "effective competition" or to services offered on an
         individual service basis, such as premium movie and pay-per-view
         services.  Subsequent to September 1, 1993, any cable system charging
         basic cable rates that exceed the FCC's benchmark rate may be required
         to substantiate its rates by demonstrating its cost of providing basic
         cable services to subscribers.  If, as a result of this process, a
         system cannot substantiate its rates, it could be required to
         retroactively reduce its rates to the appropriate benchmark and refund
         the excess portion of rates received since September 1, 1993.

                                                                     (continued)





                                     F-31
<PAGE>   51
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company believes that it has complied in all material respects
         with the provisions of the 1992 Cable Act, including its rate setting
         provisions.  However, since the Company's rates for Regulated Services
         are subject to review, the Company may be subject to a refund
         liability.  The amount of refunds, if any, which could be payable by
         the Company in the event that systems' rates are successfully
         challenged by franchising authorities is not currently estimable.

         In connection with the acquisition from TCI of a 19.9% minority
         interest in Heritage Communications, Inc. ("Heritage") by Comcast,
         Comcast has the right, through December 31, 1994, to require TCI to
         purchase or cause to be purchased from Comcast all shares of Heritage
         directly or indirectly owned by Comcast for either cash or assets or,
         at TCI's election, shares of TCI common stock.  The purchase price of
         the shares of Heritage directly or indirectly owned by Comcast will be
         determined by external appraisal.

         The Company is obligated to pay fees for the license to exhibit
         certain qualifying films that are released theatrically by various
         motion picture studios from January 1, 1993 through December 31, 2002
         (the "Film License Obligations").  The aggregate minimum liability
         under certain of the license agreements is approximately $105 million.
         The aggregate amount of the Film License Obligations under other
         license agreements is not currently estimable because such amount is
         dependent upon the number of qualifying films produced by the motion
         picture studios, the amount of United States theatrical film rentals
         for such qualifying films, and certain other factors.  Nevertheless,
         the Company's aggregate payments under the Film License Obligations
         could prove to be significant.

         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $237 million at December 31, 1993.

         The Company leases business offices, has entered into pole rental
         agreements and uses certain equipment under lease arrangements.
         Minimum rental expense under such arrangements, net of sublease
         rentals, amounted to $59 million, $57 million and $52 million for
         1993, 1992 and 1991, respectively.

         Future minimum lease payments under noncancellable operating leases
         for each of the next five years are summarized as follows (amounts in
         millions):
<TABLE>
<CAPTION>
                                  Years ending
                                  December 31,
                                  ------------
                                      <S>           <C>
                                      1994          $16
                                      1995           12
                                      1996            9
                                      1997            7
                                      1998            6
</TABLE>

         It is expected that, in the normal course of business, expiring leases
         will be renewed or replaced by leases on other properties; thus, it is
         anticipated that future minimum lease commitments will not be less
         than the amount shown for 1994.


                                                                     (continued)





                                     F-32
<PAGE>   52
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(12)     Discontinued Operations

         The Company sold its motion picture theatre business and certain
         theatre-related real estate assets on May 12, 1992.  The selling price
         (including liabilities assumed) was approximately $680 million.  In
         connection with the disposition, the Company paid $92.5 million for
         certain preferred stock of the buyer.  No gain or loss was recognized
         in connection with this transaction as the net assets of discontinued
         operations were reflected at their net realizable value.

         Operating results for the theatre operations for the period from
         January 1, 1992 through May 12, 1992 and the year ended December 31,
         1991 are reported separately in the consolidated statements of
         operations under the caption "Loss from discontinued operations" and
         include:

<TABLE>
<CAPTION>
                                                                  1992       1991 
                                                                 ------     ------
                                                                amounts in millions
                 <S>                                              <C>          <C>
                 Revenue                                          $ 211        613

                 Loss before income taxes                         $ (16)       (18)

                 Income tax benefit (expense)                     $   1         (1)

                 Net loss                                         $ (15)       (19)
</TABLE>


                                                                     (continued)





                                     F-33
<PAGE>   53
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(13)     Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                                 1st       2nd       3rd       4th
                                                               Quarter   Quarter   Quarter   Quarter
                                                               -------   -------   -------   -------
                                                                       amounts in millions,
         1993:                                                       except per share amounts
         ---                                                                                
         <S>                                                   <C>       <C>       <C>       <C>
         Revenue                                               $1,018    1,042     1,044     1,049

         Operating income:
           As previously reported                              $  247      255       248
           Adjustment to revise estimate of useful
             lives of certain distribution equipment               --       (6)       (6)
           Adjustment to properly reflect compensation
             relating to stock appreciation rights                 --       (3)       (6)
                                                                -----     ----     ----- 

               As adjusted                                     $  247      246       236       187
                                                               ======     ====     =====      ====

         Gain (loss) on disposition of assets                  $   40        5         4        (7)

         Income tax benefit (expense):
           As previously reported                              $  (38)     (21)     (116)
           Adjustment to revise estimate of useful
             lives of certain distribution equipment               --        3         3
           Adjustment to properly reflect compensation
             relating to stock appreciation rights                 --        1         2
           Adjustment to income taxes upon
             revision of Statement No. 109                         --       --        (3)
                                                               ------     ----      ---- 

               As adjusted                                     $  (38)     (17)     (114)        1
                                                               ======     ====      ====      ====

         Net earnings (loss):
           As previously reported                              $   53       31       (55)
           Adjustment to revise estimate of useful
             lives of certain distribution equipment               --       (3)       (3)
           Adjustment to properly reflect compensation
             relating to stock appreciation rights                 --       (2)       (4)
           Adjustment to income taxes upon
             revision of Statement No. 109                         --       --        (3)
                                                               ------     ----      ---- 

               As adjusted                                     $   53       26       (65)      (21)
                                                               ======     ====      ====      ==== 

         Primary and fully diluted earnings (loss)
           attributable to common shareholder per
           common and common equivalent share:
             As previously reported                            $  .11      .07      (.13)
             Adjustment to revise estimate of useful
               lives of certain distribution equipment             --     (.01)       --
             Adjustment to properly reflect compensation
               relating to stock appreciation rights               --       --      (.01)
             Adjustment to income taxes upon revision
               of Statement No. 109                                --       --        --
                                                               ------     ----      ----

                 As adjusted                                   $  .11      .06      (.14)     (.05)
                                                               ======     ====      ====      ==== 
</TABLE>


                                                                     (continued)





                                     F-34
<PAGE>   54
                           TELE-COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
                                                                 1st       2nd       3rd       4th
                                                               Quarter   Quarter   Quarter   Quarter
                                                               -------   -------   -------   -------
                                                                       amounts in millions,
         1992:                                                       except per share amounts
         ---                                                                                
         <S>                                                   <C>        <C>        <C>      <C>
         Revenue                                               $ 856       879       896       943

         Operating income:
           As previously reported                              $ 197       225       242       226
           Adjustment to depreciation and amortization
             upon revision of Statement No. 109                   (2)       (1)       --       (23)
                                                               -----      ----      ----      ---- 

               As adjusted                                     $ 195       224       242       203
                                                               =====      ====      ====      ====

         Gain (loss) on disposition of assets                  $   3        (3)       (1)       10

         Income tax benefit (expense):
           As previously reported                              $   1       (15)        6       (49)
           Adjustment to income taxes for the
             restatement of share of earnings
             of Liberty (note 3)                                  --        (3)       (5)        3
           Adjustment to revise/implement
             Statement No. 109                                     1        --        --        23
                                                               -----      ----      ----      ----

             As adjusted                                       $   2       (18)        1       (23)
                                                               =====      ====      ====      ==== 

         Earnings (loss) from continuing operations:
           As previously reported                              $ (18)        9        63       (51)
           Adjustment to restate share of earnings
             of Liberty (note 3)                                  --         4         7        (5)
           Adjustment to depreciation, amortization
             and income taxes upon revision/
             implementation of Statement No. 109                  (1)       (1)       --        --
                                                               -----      ----      ----      ----

               As adjusted                                     $ (19)       12        70       (56)
                                                               =====      ====      ====      ==== 

         Loss from discontinued operations                     $  --       (15)       --        --
                                                               =====      ====      ====      ====

         Net earnings (loss):
           As previously reported                              $ (18)       (6)       63       (51)
           Adjustment to restate share of earnings
             of Liberty (note 3)                                  --         4         7        (5)
           Adjustment to depreciation, amortization
             and income taxes upon revision/
             implementation of Statement No. 109                  (1)       (1)       --        --
                                                               -----      ----      ----      ----

             As adjusted                                       $ (19)       (3)       70       (56)
                                                               =====      ====      ====      ==== 

         Primary and fully diluted earnings (loss)
           attributable to common shareholders per
           common and common equivalent share:
             Continuing operations:
               As previously reported                          $(.05)      .01       .13      (.12)
               Adjustment to restate share of earnings
                 of Liberty (note 3)                              --       .01       .01      (.01)
               Adjustment to depreciation, amortization
                 and income taxes upon revision/
                 implementation of Statement No. 109            (.01)       --        --        --
                                                               -----      ----      ----      ----

                 As adjusted                                    (.06)      .02       .14      (.13)

             Discontinued operations                              --      (.03)       --        --
                                                               -----     -----      ----      ----


                                                               $(.06)     (.01)      .14      (.13)
                                                               =====      ====      ====      ==== 
</TABLE>


                                     F-35
<PAGE>   55
                         INDEPENDENT AUDITORS' REPORT




The Board of Directors and Stockholders
Tele-Communications, Inc.:

Under date of March 21, 1994, we reported on the consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1993, as contained in the annual report on Form 10-K for the year 1993.  In
connection with our audits of the aforementioned consolidated financial
statements, we have also audited the related financial statement schedules as
listed in the accompanying index.  These financial statement schedules are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these financial statement schedules based on our audits.

In our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

As discussed in notes 1 and 10 to the consolidated financial statements, the
Company changed its method of accounting for income taxes.




                                              /s/ KPMG Peat Marwick
                                                  KPMG Peat Marwick
                                                  
                                                  


Denver, Colorado
March 21, 1994





                                     F-36
<PAGE>   56
                                                                     Schedule II
                                      
                          TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                      
                   Amounts Receivable from Related Parties
                   and Employees Other Than Related Parties
                                      
                 Years ended December 31, 1993, 1992 and 1991
                                      

<TABLE>
<CAPTION>
                        Balance at                                  Balance
                        beginning                                   at end
Name of debtor           of year      Additions     Deductions      of year
- --------------          ----------    ---------     ----------      -------
                                         amounts in millions
<S>                        <C>            <C>           <C>           <C>
Year ended
  December 31, 1993:
    Russ Skinner           $0.2             --            --           0.2 (1)
                           ====           ====          ====          ====    

Year ended
  December 31, 1992:
    Russ Skinner           $0.2             --            --           0.2
                           ====           ====         =====          ====

Year ended
  December 31, 1991:
    Russ Skinner           $0.2             --            --           0.2
    Arthur Lee               --            0.2          (0.2)           --
    Ron Rierson             0.1             --          (0.1)           --
                           ----           ----          ----          ----

                           $0.3            0.2          (0.3)          0.2
                           ====           ====          ====          ====

</TABLE>


(1)     This note  receivable is due in  2003 or upon sale  of certain property
        and has no stated interest rate.  Interest will be based upon 
        appreciation of the underlying property.
       
Note - Amounts include accrued interest on note receivable balances.





                                     F-37
<PAGE>   57
                                                                    Schedule III
                                                                     Page 1 of 3

                                      
                          TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                      
                       Condensed Information as to the
                     Financial Position of the Registrant

                          December 31, 1993 and 1992



<TABLE>
<CAPTION>
Assets                                                    1993     1992*
- ------                                                    ----     ---- 
                                                       amounts in millions

<S>                                                     <C>       <C>
Cash                                                    $    4       79
                                                    
Investments in and advances to consolidated         
  subsidiaries - eliminated upon consolidation           7,560    4,795
                                                    
Property and equipment, at cost                             40       27
  Less accumulated depreciation                             16       12
                                                        ------    -----
                                                            24       15
                                                        ------    -----
                                                    
Other assets, at cost, net of amortization                  44       32
                                                        ------    -----
                                                    
                                                        $7,632    4,921
                                                        ======    =====
                                                    
Liabilities and Stockholders' Equity                
- ------------------------------------                
                                                    
Accrued liabilities                                     $  324      188
Debt                                                     5,178    2,897
                                                        ------    -----
    Total liabilities                                    5,502    3,085
                                                    
Redeemable preferred stocks                                 18      110
                                                    
Stockholders' equity (see detail on page II-15)          2,112    1,726
                                                        ------    -----
                                                    
                                                        $7,632    4,921
                                                        ======    =====
                                                    
Guarantee (see Schedule VII)                            $   44
                                                        ======


</TABLE>

*Restated - see notes 1, 3 and 10 to consolidated financial statements.





                                     F-38
<PAGE>   58
                                                                    Schedule III
                                                                     Page 2 of 3

                                      
                          TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                      
                       Condensed Information as to the
                         Operations of the Registrant
                                      
                 Years ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>
                                                         1993     1992*    1991*
                                                         ----     ----     ---- 
                                                           amounts in millions

<S>                                                     <C>       <C>      <C>
Management costs reimbursed by subsidiaries             $  98      106       54
                                                        -----    -----    -----
Operating expenses (income):
  Selling, general and administrative                     134       99       50
  Interest expense                                        369      226      164
  Interest income, principally from
    consolidated subsidiaries                            (370)    (232)    (165)
  Depreciation and amortization                             8        5        3
  Gain on disposition of assets                           (43)      (2)      --
  Loss on early extinguishment of debt                     --       10        2
                                                        -----    -----    -----
                                                           98      106       54
                                                        -----    -----    -----

    Earnings from operations before
      share of losses of
      consolidated subsidiaries                            --       --       --

Share of losses of
  consolidated subsidiaries, including
  loss from discontinued operations                        (7)      (8)     (97)
                                                        -----    -----    ----- 


    Net loss                                            $  (7)      (8)     (97)
                                                        =====    =====    ===== 


</TABLE>

*Restated - see notes 1, 3 and 10 to consolidated financial statements.





                                     F-39
<PAGE>   59
                                                                    Schedule III
                                                                     Page 3 of 3


                           TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                       
                    Condensed Information as to Cash Flows
                               of the Registrant
                                       
                 Years ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>
                                                         1993     1992     1991
                                                         ----     ----     ----
                                                          amounts in millions
<S>                                                    <C>      <C>      <C>
Cash flows from operating activities:
  Earnings before share of losses of
    consolidated subsidiaries, including
    loss from discontinued operations                  $   --       --       --
  Adjustments to reconcile loss to net
    cash provided by operating activities:
      Depreciation and amortization                         8        5        3
      Loss on early extinguishment of debt                 --       10        2
      Gain on disposition of assets                       (43)      (2)      --
      Amortization of debt discount                        27       26       15
      Change in accrued liabilities                       136       90       40
                                                       ------    -----    -----
        Net cash provided by
          operating activities                            128      129       60
                                                       ------    -----    -----

Cash flows from investing activities:
  Reduction in or additional
    investments in and advances to
    consolidated subsidiaries, net                     (2,723)  (1,036)    (508)
  Proceeds on disposition of assets                       111       12       --
  Capital expended for property and
    equipment and other assets, net                       (38)     (25)     (19)
                                                       ------    -----    ----- 
        Net cash used by
          investing activities                         (2,650)  (1,049)    (527)
                                                       ------    -----    ----- 

Cash flows from financing activities:
  Borrowings of debt                                    3,274    2,327    1,996
  Repayment of debt                                      (735)  (1,332)  (1,512)
  Preferred stock dividends                                (2)     (15)      --
  Repurchase of preferred stock                           (92)      (5)      --
  Issuances of common stock                                 6        7        2
  Repurchases of common stock                              (4)     (19)      (9)
                                                       ------    -----    ----- 
        Net cash provided by
          financing activities                          2,447      963      477
                                                       ------    -----    -----

            Increase (decrease) in cash                   (75)      43       10

            Cash at beginning of year                      79       36       26
                                                       ------    -----    -----

            Cash at end of year                        $    4       79       36
                                                       ======    =====    =====

Supplemental disclosure of cash flow information -
  Cash paid during the year for interest               $  257      177      142
                                                       ======    =====    =====


</TABLE>

See also note 2 to the consolidated financial statements.





                                     F-40
<PAGE>   60
                                                                      Schedule V

                                       
                           TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                       
                            Property and Equipment
                                       
                 Years ended December 31, 1993, 1992 and 1991
                                       

<TABLE>
<CAPTION>

                            Balance at             Retire-             Balance
                            beginning   Additions   ments               at end
Classification               of year*   at cost*   or sales*   Other   of year*
- --------------               -------    -------    --------    -----   ------- 
                                            amounts in millions
 <S>                         <C>        <C>        <C>        <C>     <C>
 Year ended               
  December 31, 1993:      
    Land                     $   71          1         (1)       2        73
    Distribution systems      6,075        899       (323)     (22)    6,629
    Support equipment     
      and buildings             712        120        (29)      15       818
                             ------     ------     ------     ----    ------
                             $6,858      1,020       (353)      (5)    7,520
                             ======     ======     ======     ====    ======
                          
Year ended:               
  December 31, 1992:      
    Land                      $   59         10         (2)       4        71
    Distribution systems       5,191      1,075       (151)     (40)    6,075
    Support equipment     
      and buildings              598        123        (33)      24       712
                              ------     ------     ------     ----    ------
                              $5,848      1,208       (186)     (12)    6,858
                              ======     ======     ======     ====    ======
                          
                          
Year ended                
  December 31, 1991:      
    Land                      $   66          1         (8)      --        59
    Distribution systems       4,976        551       (336)      --     5,191
    Support equipment     
      and buildings              528        118        (48)      --       598
                              ------     ------     ------     ----    ------
                              $5,570        670       (392)      --     5,848
                              ======     ======     ======     ====    ======



</TABLE>

*Restated and Reclassified - see notes 1 and 10 to consolidated financial
 statements.

Note - Columns which would have been answered "none" have been omitted.





                                     F-41
<PAGE>   61
                                                                     Schedule VI

                                       
                           TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                       
                          Accumulated Depreciation of
                            Property and Equipment
                                       
                 Years ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>

                                         Additions
                             Balance at   charged                      Balance
                             beginning   to profit    Retire-           at end
Description                  of year*    and loss*    ments*   Other*  of year*
- -----------                  ----------  ---------    -------  ------  -------- 
                                            amounts in millions
<S>                           <C>         <C>         <C>      <C>     <C>
Year ended                 
  December 31, 1993:       
    Distribution systems      $1,993         544        (315)     --    2,222
    Support equipment      
      and buildings              303          78         (18)     --      363
                              ------      ------      ------   -----   ------
                              $2,296         622        (333)     --    2,585
                              ======      ======      ======   =====   ======
                           
Year ended                 
  December 31, 1992:       
    Distribution systems      $1,536         445        (142)    154    1,993
    Support equipment      
      and buildings              231          67         (22)     27      303
                              ------      ------      ------   -----   ------
                              $1,767         512        (164)    181**  2,296
                              ======      ======      ======   =====   ======
                           
                           
Year ended                 
  December 31, 1991:       
    Distribution systems      $1,230         467        (155)     (6)   1,536
    Support equipment      
      and buildings              184          62         (19)      4      231
                              ------      ------      ------   -----   ------
                              $1,414         529        (174)     (2)   1,767
                              ======      ======      ======   =====   ======


</TABLE>


*Restated and Reclassified - see notes 1 and 10 to consolidated financial
 statements.

**Amount represents the historical accumulated depreciation  of the Storer
  assets received by the Holding Companies  in the Split-Off (see note 4 to 
  the consolidated financial statements).





                                     F-42
<PAGE>   62
                                                                    Schedule VII

                                       
                           TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                       
                   Guarantees of Securities of Other Issuers
                                       
                               December 31, 1993


<TABLE>
<CAPTION>
                                 Title of issue
Name of issuer of securities     of each class     Total amount       Nature
  guaranteed by person for       of securities    guaranteed and        of
  which statement is filed         guaranteed      outstanding       guarantee
- ----------------------------     --------------   --------------     ---------
                                                amounts in millions
<S>                               <C>                 <C>          <C>
Parent company guarantee:
  ARP Partnership                 General             $  1         Letter of
                                    liabilities                      credit
                                                  
  TCG Partners                    General                9         Letter of
                                    liabilities                      credit
                                                  
  Reiss Media Enterprises, Inc.   Bank loan              3         Funding
                                                                     commitment
                                                  
  London South Cable              Bank loan                        Principal and
    Partnership and Avon                                             interest
    Cable Limited Partnership                           31
                                                      ----
                                                  
                                                      $ 44
                                                      ====
                                                  
Subsidiaries' guarantees:                         
                                                  
  Tempo Satellite, Inc.           Construction        $125         Payment of
                                    liability                        obligations
                                                  
  Robin Media Group, Inc.         Bank loan             30         Principal and
                                                                     interest
                                                  
  Interactive Network, Inc.       Bank loan              2         Principal and
                                                                     interest
                                                  
  UA-Israel, Inc.                 Bank loan              5         Principal and
                                    and general                      interest
                                    liabilities                      and payment
                                                                     obligations
                                                  
  UA-Malta, Inc.                  Bank loan              5         Principal and
                                    and general                      interest
                                    liabilities                      and payment
                                                                     obligations
                                                  
  Tevel Israel International      General                          Letter of
    Communications, Ltd.            liabilities          1           credit
                                                  
  E! Entertainment                Building                         Lease
    Television, Inc.                lease                1           guarantee
                                                  
  United Artists Properties I     Bank loan             12         Principal and
                                                                     interest
                                                  
  United Artists Properties II    Bank loan             12         Principal and
                                                      ----           interest  
                                                                     
                                                      $193
                                                      ====


</TABLE>
Note - Columns which would have been answered "none" have been omitted.





                                     F-43
<PAGE>   63
                                                                   Schedule VIII


                           TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                       
                       Valuation and Qualifying Accounts
                                       
                 Years ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>
                                              Additions   Deductions
                                              ---------   ----------
                                 Balance at   Charged to   Write-offs   Balance
                                 beginning      profit       net of     at end
Description                       of year*    and loss*    recoveries*  of year*
- -----------                      ----------   ----------   ----------   ------- 
                                              amounts in millions
<S>                                 <C>          <C>          <C>         <C>
Year ended                  
  December 31, 1993:        
    Allowance for doubtful  
      receivables - trade           $15           58          (54)         19
                                    ===          ===          ===         ===
Year ended                  
   December 31, 1992:       
    Allowance for doubtful  
      receivables - trade           $16           45          (46)         15
                                    ===          ===          ===         ===
Year ended                  
  December 31, 1991:        
    Allowance for doubtful  
      receivables - trade           $11           46          (41)         16
                                    ===          ===          ===         ===


</TABLE>


*Reclassified - see note 1 to consolidated financial statements.





                                     F-44
<PAGE>   64
                                                                     Schedule IX

                                       
                           TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                       
                             Short-Term Borrowings
                                       
                 Years ended December 31, 1993, 1992 and 1991
                                       

<TABLE>
<CAPTION>
                            End of Year                   During the year           
                       ----------------------   ------------------------------------
Category of                          Weighted                               Weighted
aggregate                            average      Maximum       Average     average
short-term               Amount      interest     amount        amount      interest
borrowing              Outstanding     rate     outstanding   outstanding     rate  
- ----------             -----------   --------   -----------   -----------   --------
                                           amounts in millions,
                                        except percentage amounts
<S>                       <C>          <C>         <C>           <C>          <C>           
Year ended
  December 31, 1993 -
    Commercial paper      $ 44         3.94%       $  306        $128         3.75%
                          ====         ====        ======        ====         ==== 

Year ended
  December 31, 1992 -
    Commercial paper      $ 62         3.70%       $  266        $171         4.55%
                          ====         ====        ======        ====         ==== 

Year ended
  December 31, 1991 -
    Commercial paper      $ 47         5.70%       $  188        $110         6.31%
                          ====         ====        ======        ====         ==== 
</TABLE>





                                     F-45
<PAGE>   65
                                                                      Schedule X


                           TELE-COMMUNICATIONS, INC.
                               AND SUBSIDIARIES
                                       
               Supplementary Statement of Operations Information
                                       
                 Years ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>
                                                   Charged to expense
                                                 ----------------------
                                                 1993     1992*    1991*
                                                 ----     ----     ---- 
                                                  amounts in millions

<S>                                              <C>      <C>      <C>
Maintenance and repairs                          $ 45       43       37
                                                 ====     ====     ====

Amortization:
  Franchise costs                                $258      230      207
  Other                                            31       22       20
                                                 ----     ----     ----

                                                 $289      252      227
                                                 ====     ====     ====

Taxes, other than
  payroll and income                             $203      170       97
                                                 ====     ====     ====

Royalties -
  Copyright fees                                 $ 43       40       28
                                                 ====     ====     ====


Advertising costs                                $ 20       21       36
                                                 ====     ====     ====


</TABLE>

*Restated and Reclassified - see notes 1 and 10 to consolidated financial
 statements.





                                     F-46
<PAGE>   66

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets
                                  (unaudited)


<TABLE>
<CAPTION>
                                                   March 31,      December 31,
Assets                                               1994             1993    
- ------                                             ---------      ------------
                                                       amounts in millions
<S>                                                 <C>              <C>
Cash                                                $    51               1

Trade and other receivables, net                        234             232

Investment in Liberty Media Corporation
  ("Liberty") (note 4)                                  507             489

Investments in other affiliates, accounted for
  under the equity method, and related
  receivables (note 5)                                  693             645

Investment in Turner Broadcasting System, Inc.
  (note 6)                                              786             491

Property and equipment, at cost:
  Land                                                   73              73
  Distribution systems                                6,851           6,629
  Support equipment and buildings                       850             818
                                                    -------          ------
                                                      7,774           7,520
  Less accumulated depreciation                       2,748           2,585
                                                    -------          ------
                                                      5,026           4,935
                                                    -------          ------

Franchise costs                                      10,628          10,620
  Less accumulated amortization                       1,487           1,423
                                                    -------          ------
                                                      9,141           9,197
                                                    -------          ------

Other assets, at cost, net of amortization              620             530
                                                    -------          ------

                                                    $17,058          16,520
                                                    =======          ======
</TABLE>


                                                                     (continued)




                                     F-47
<PAGE>   67
                    TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Balance Sheets, continued
                                  (unaudited)



<TABLE>
<CAPTION>
                                                   March 31,      December 31,
Liabilities and Stockholders' Equity                 1994             1993    
- ------------------------------------               ---------      ------------
                                                       amounts in millions
<S>                                                 <C>              <C>    
Accounts payable                                    $   156             124

Accrued interest                                        131             157

Other accrued expenses                                  556             500

Debt (note 7)                                        10,008           9,900

Deferred income taxes                                 3,456           3,310

Other liabilities                                        97             114
                                                    -------          ------

    Total liabilities                                14,404          14,105
                                                    -------          ------

Minority interests in equity
  of consolidated subsidiaries                          300             285

Redeemable preferred stocks                              --              18

Stockholders' equity (note 8):
  Preferred stock, $1 par value.
    Authorized 10,000,000 shares; issued and
    outstanding 6,201 shares of redeemable
    preferred stocks in 1993                             --              --  
  Class A common stock, $1 par value.
    Authorized 1,000,000,000 shares;
    issued 483,106,459 shares in 1994
    and 481,837,347 shares in 1993                      483             482
  Class B common stock, $1 par value.
    Authorized 100,000,000 shares;
    issued 47,258,787 shares in
    1994 and 1993                                        47              47
  Additional paid-in capital                          2,310           2,293
  Cumulative foreign currency
    translation adjustment                              (28)            (29)
  Unrealized holding gains for
    available-for-sale securities                       191              --
  Accumulated deficit                                  (316)           (348)
                                                    -------          ------ 
                                                      2,687           2,445
  Treasury stock, at cost (79,335,038 shares
    of Class A common stock in 1994 and 1993)          (333)           (333)
                                                    -------          ------ 

    Total stockholders' equity                        2,354           2,112
                                                    -------          ------

Commitments and contingencies (note 9)

                                                    $17,058          16,520
                                                    =======          ======
</TABLE>

See accompanying notes to consolidated financial statements.





                                     F-48
<PAGE>   68
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Operations
                                  (unaudited)


<TABLE>
<CAPTION>
                                                            Three months
                                                                ended
                                                              March 31,    
                                                          -----------------
                                                           1994       1993 
                                                          ------     ------
                                                        amounts in millions,
                                                      except per share amounts
<S>                                                       <C>         <C>
Revenue (note 4)                                          $1,060      1,018

Operating costs and expenses:
  Operating (note 4)                                         315        292
  Selling, general and administrative                        295        259
  Compensation relating to stock
    appreciation rights                                       --          3
  Adjustment to compensation relating to
    stock appreciation rights                                (19)        --
  Depreciation                                               163        144
  Amortization                                                72         73
                                                          ------      -----
                                                             826        771
                                                          ------      -----

    Operating income                                         234        247

Other income (expense):
  Interest expense                                          (178)      (181)
  Interest and dividend income                                10          5
  Share of earnings of Liberty (note 4)                       14         10
  Share of losses of other affiliates, net (note 5)           (9)       (14)
  Gain on disposition of assets                               --         40
  Loss on early extinguishment of debt                        (2)        (8)
  Minority interests in earnings of
    consolidated subsidiaries, net                            (2)        (4)
  Other, net                                                  (4)        (4)
                                                          ------      ----- 
                                                            (171)      (156)
                                                          ------      ----- 

    Earnings before income taxes                              63         91

Income tax expense                                           (31)       (38)
                                                          ------      ----- 

    Net earnings                                              32         53

Dividend requirement on
  redeemable preferred stocks                                 --         (1)
                                                          ------      ----- 

    Net earnings attributable
      to common shareholders                              $   32         52
                                                          ======      =====

Primary and fully diluted earnings
  attributable to common shareholders
  per common and common equivalent share (note 2)         $  .07        .11
                                                          ======      =====
</TABLE>

See accompanying notes to consolidated financial statements.





                                     F-49
<PAGE>   69
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                 Consolidated Statement of Stockholders' Equity

                       Three months ended March 31, 1994
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                                                              
                                                                           Unrealized                                         
                                                            Cumulative      holding                                           
                                                              foreign      gains for                                          
                               Common stock     Additional    currency     available-                              Total      
                               ------------      paid-in     translation    for-sale    Accumulated   Treasury  stockholders' 
                             Class A  Class B    capital     adjustment    securities     deficit      stock       equity    
                             -------  -------   ----------   -----------   ----------   -----------   --------  -------------
                                                                  amounts in millions
<S>                           <C>         <C>       <C>           <C>          <C>         <C>          <C>         <C>
Balance at January 1, 1994    $ 482       47        2,293         (29)          --         (348)        (333)       2,112
  Net earnings                   --       --           --          --           --           32           --           32
  Conversion of redeemable
    preferred stock               1       --           17          --           --           --           --           18
  Foreign currency
    translation adjustment       --       --           --           1           --           --           --            1
  Unrealized holding gains
    for available-for-sale
    securities                   --       --           --          --          191           --           --          191
                              -----      ---        -----        ----         ----         ----         ----        -----

Balance at March 31, 1994     $ 483       47        2,310         (28)         191         (316)        (333)       2,354
                              =====      ===        =====        ====         ====         ====         ====        =====
</TABLE>

See accompanying notes to consolidated financial statements.





                                     F-50
<PAGE>   70
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows
                                  (unaudited)

<TABLE>
<CAPTION>
                                                              Three months
                                                                  ended
                                                                March 31,    
                                                            -----------------
                                                             1994       1993 
                                                            ------     ------
                                                           amounts in millions
                                                              (see note 4)
<S>                                                       <C>         <C>         
Cash flows from operating activities:
  Net earnings                                            $    32         53
  Adjustments to reconcile net earnings to
    net cash provided by operating activities:
      Depreciation and amortization                           235        217
      Compensation relating to stock
        appreciation rights                                    --          3
      Adjustment to compensation relating to
        stock appreciation rights                             (19)        --      
      Share of earnings of Liberty                            (14)       (10)
      Share of losses of other affiliates                       9         14
      Deferred income tax expense                              13         32
      Minority interests in earnings                            2          4
      Amortization of debt discount                            --          7
      Loss on early extinguishment of debt                      2          8
      Gain on disposition of assets                            --        (40)
      Payment received on preferred stock
        investment redemption                                  --        197
      Noncash interest and dividend income                     (2)        (2)
      Other noncash charges                                     1         --      
      Changes in operating assets and liabilities,
        net of the effect of acquisitions:
          Change in receivables                                 7          4
          Change in accrued interest                          (26)        27
          Change in other accruals and payables                86         (1)
                                                          -------     ------ 
            Net cash provided by operating activities         326        513
                                                          -------     ------

Cash flows from investing activities:
  Cash paid for acquisitions                                  (10)       (19)
  Capital expended for property and equipment                (243)      (175)
  Proceeds from disposition of assets                           8        109
  Additional investments in and
    loans to affiliates and others                            (97)      (118)
  Repayment of loans by affiliates and others                  31          3
  Other investing activities                                  (71)       (29)
                                                          -------     ------ 
            Net cash used in investing activities            (382)      (229)
                                                          -------     ------ 

Cash flows from financing activities:
  Borrowings of debt                                        1,296      2,493
  Repayments of debt                                       (1,188)    (2,692)
  Preferred stock dividends of subsidiaries                    (2)        (1)
  Preferred stock dividends                                    --         (1)
  Repurchase of preferred stock                                --        (92)
  Repurchases of common stock                                  --         (2)
                                                          -------     ------ 
            Net cash provided (used) by
              financing activities                            106       (295)
                                                          -------     ------ 

              Net increase (decrease) in cash                  50        (11)

              Cash at beginning of period                       1         34
                                                          -------     ------

              Cash at end of period                       $    51         23
                                                          =======     ======
</TABLE>

See accompanying notes to consolidated financial statements.





                                     F-51
<PAGE>   71
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                                 March 31, 1994
                                  (unaudited)


(1)      General

         The accompanying consolidated financial statements include the
         accounts of Tele-Communications, Inc. and those of all majority-owned
         subsidiaries ("TCI" or the "Company").  All significant intercompany
         accounts and transactions have been eliminated in consolidation.

         The accompanying interim consolidated financial statements are
         unaudited but, in the opinion of management, reflect all adjustments
         (consisting of normal recurring accruals) necessary for a fair
         presentation of the results for such periods.  The results of
         operations for any interim period are not necessarily indicative of
         results for the full year.  These consolidated financial statements
         should be read in conjunction with the consolidated financial
         statements and notes thereto contained in the Company's Annual Report
         on Form 10-K for the year ended December 31, 1993.

         Certain amounts have been reclassified for comparability with the 1994
         presentation.

(2)      Earnings Per Common and Common Equivalent Share

         Primary earnings per common and common equivalent share attributable
         to common shareholders was computed by dividing net earnings
         attributable to common shareholders by the weighted average number of
         common and common equivalent shares outstanding (491.9 million and
         468.7 million for the three months ended March 31, 1994 and 1993,
         respectively).

         Fully diluted earnings per common and common equivalent share
         attributable to common shareholders was computed by dividing earnings
         attributable to common shareholders by the weighted average number of
         common and common equivalent shares outstanding (491.9 million and
         468.7 million for the three months ended March 31, 1994 and 1993,
         respectively).  Shares issuable upon conversion of the Liquid Yield
         OptionTM Notes and upon conversion of the Convertible Preferred Stock
         have not been included in the 1993 computations of weighted average
         shares outstanding because their inclusion would be anti- dilutive.


                                                                     (continued)





                                     F-52
<PAGE>   72
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(3)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $204 million and $158 million for the three
         months ended March 31, 1994 and 1993, respectively.  Also, during
         these periods, cash paid for income taxes was not material.

         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                 Three months ended
                                                                      March 31,   
                                                                 -----------------
                                                                  1994       1993 
                                                                 ------     ------
                                                                amounts in millions
                 <S>                                              <C>        <C>
                 Common stock issued upon conversion
                   of redeemable preferred stock                  $ 18         --
                                                                  ====       ====

                 Effect of foreign currency translation
                   adjustment on book value of foreign
                   equity investments                             $  1         --
                                                                  ====       ====

                 Unrealized gains, net of deferred income
                   taxes, on available-for-sale securities        $191         --
                                                                  ====       ====

                 Noncash exchange of equity investments
                   and consolidated subsidiaries for
                   consolidated subsidiary                        $ 38         --
                                                                  ====       ====

                 Cash paid for acquisitions:
                   Fair value of assets acquired                  $ 10         26
                   Liabilities assumed                              --         (7)
                                                                  ----       ---- 

                       Cash paid for acquisitions                 $ 10         19
                                                                  ====       ====

                 Noncash exchange of equity investment
                   for consolidated subsidiary and
                   equity investment                              $ --         19
                                                                  ====       ====

                 Noncash capital contribution to
                   Community Cable Television ("CCT") (note 4)    $ --         22
                                                                  ====       ====

                 Common stock issued upon conversion
                   of notes                                       $ --          1
                                                                  ====       ====
</TABLE>

(4)      Investment in Liberty

         As of January 27, 1994, TCI and Liberty entered into a definitive
         agreement to combine the two companies.  The transaction will be
         structured as a tax free exchange of Class A and Class B shares of
         both companies and preferred stock of Liberty for like shares of a
         newly formed holding company, TCI/Liberty Holding Company
         ("TCI/Liberty").  TCI shareholders will receive one share of
         TCI/Liberty for each of their shares.  Liberty common shareholders
         will receive 0.975 of a share of TCI/Liberty for each of their common
         shares.  The transaction is subject to the approval of both sets of
         shareholders as well as various regulatory approvals and other
         customary conditions.  Subject to timely receipt of such approvals,
         which cannot be assured, it is anticipated the closing of such
         transaction will take place during 1994.


                                                                     (continued)





                                     F-53
<PAGE>   73
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         TCI owns 3,477,778 shares of Liberty Class A common stock (after
         giving effect to the repurchase by Liberty during the year ended
         December 31, 1993 of 927,900 shares of Class A common stock) and
         55,070 shares of Liberty Class E, 6% Cumulative Redeemable
         Exchangeable Junior Preferred Stock received in January of 1993 upon
         conversion of the Liberty Class A Redeemable Convertible Preferred
         Stock.  Such common shares represent less than 5% of the outstanding
         Class A common stock of Liberty.

         Of the remaining classes of preferred stock of Liberty held by the
         Company, one class entitles TCI to elect a number of members of
         Liberty's board of directors equal to no less than 11% of the total
         number of directors and another class is exchangeable for TCI common
         stock.

         Due to the significant economic interest held by TCI through its
         ownership of Liberty preferred stock and Liberty common stock and
         other related party considerations, TCI has accounted for its
         investment in Liberty under the equity method.  Accordingly, the
         Company has not recognized any income relating to dividends, including
         preferred stock dividends, and the Company has continued to record the
         earnings or losses generated by the interests contributed to Liberty
         (by recognizing 100% of Liberty's earnings or losses before deducting
         preferred stock dividends).

         TCI and Liberty entered into an Option-Put Agreement (the "Option-Put
         Agreement"), which was amended on November 30, 1993.  Under the
         amended Option-Put Agreement, between June 30, 1994 and September 28,
         1994, and between January 1, 1996 and January 31, 1996, TCI will have
         the option to purchase all of Liberty's interest in CCT and a loan
         receivable in the amount of $50 million (the "Mile Hi Note") for an
         amount equal to $77 million plus interest accruing at the rate of
         11.6% per annum on such amount from June 3, 1993.  Between April 1,
         1995 and June 29, 1995, and between January 1, 1997 and January 31,
         1997, Liberty will have the right to require TCI to purchase Liberty's
         interest in CCT and the Mile Hi Note for an amount equal to $77
         million plus interest on such amount accruing at the rate of 11.6% per
         annum from June 3, 1993.

         The Company purchases sports and other programming from certain
         subsidiaries of Liberty.  Charges to TCI (which are based upon
         customary rates charged to others) for such programming were $12
         million and $11 million for the three months ended March 31, 1994 and
         1993, respectively.  Such amounts are included in operating expenses
         in the accompanying consolidated statements of operations.  Certain
         subsidiaries of Liberty purchase from TCI, at TCI's cost plus an
         administrative fee, certain pay television and other programming.  In
         addition, a consolidated subsidiary of Liberty pays a commission to
         TCI for merchandise sales to customers who are subscribers of TCI's
         cable systems.  Aggregate commission and charges for such programming
         were $3 million and $1 million for the three months ended March 31,
         1994 and 1993, respectively.  Such amounts are recorded in revenue in
         the accompanying consolidated statements of operations.


                                                                     (continued)





                                     F-54
<PAGE>   74
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

In September of 1993, Encore QE Programming Corp. ("QEPC"), a wholly-owned
subsidiary of Encore Media Corporation ("EMC), a 90% owned subsidiary of
Liberty, entered into a limited partnership agreement with TCI Starz, Inc.
("TCIS"), a wholly-owned subsidiary of TCI, for the purpose of developing,
operating and distributing STARZ!, a first-run movie premium programming
service launched in the first quarter of 1994. QEPC is the general partner and
TCIS is the limited partner. Losses are allocated 1% to QEPC and 99% to TCIS.
Profits are allocated 1% to QEPC and 99% to TCIS until certain defined criteria
are met. Subsequently, profits are allocated 20% to QEPC and 80% to TCIS. TCIS
has the option, exercisable at any time and without payment of additional
consideration, to convert its limited partner interest to an 80% general
partner interest with QEPC's partnership interest simultaneously converting to
a 20% limited partnership interest. In addition, during specific periods
commencing April 1999 and April 2001, respectively, QEPC may require TCIS to
purchase, or TCIS may require QEPC to sell, the partnership interest of QEPC in
the partnership for a formula-based price. EMC is paid a management fee equal
to 20% of "managed costs" as defined, in order to manage the service. EMC
manages the service and has agreed to provide the limited partnership with
certain programming under a programming agreement whereby the partnership will
pay its pro rata share of the total costs incurred by EMC for such programming.
The Company accounts for the partnership as a consolidated subsidiary. (See
note 9.)

         Summarized unaudited financial information of Liberty for the three
         months ended March 31, 1994 and 1993 is as follows:


<TABLE>
<CAPTION>
          Consolidated Operations                                 1994    1993
          -----------------------                                 ----    ----
                                                              amounts in millions
           <S>                                                    <C>    <C>
           Revenue                                                $333     179
           Operating expenses                                     (295)   (169)
           Depreciation and amortization                           (13)     (8)
                                                                  ----   ----- 

             Operating income                                       27       2

           Interest expense                                         (9)     (5)
           Other, net                                               (4)     13
                                                                  ----    ----

             Net earnings                                         $ 14      10
                                                                  ====    ====
</TABLE>





                                     F-55
<PAGE>   75
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(5)      Investments in Other Affiliates

         Summarized unaudited results of operations for affiliates, other than
         Liberty, accounted for under the equity method, are as follows:

<TABLE>
<CAPTION>
                                                              Three months
                                                                 ended
              Combined Operations                              March 31,    
              -------------------                          -----------------
                                                            1994       1993 
                                                           ------     ------
                                                          amounts in millions
           <S>                                             <C>        <C>
           Revenue                                         $  195        188
           Operating expenses                                (173)      (158)
           Depreciation and amortization                      (31)       (44)
                                                           ------     ------ 

             Operating loss                                    (9)       (14)

           Interest expense                                    (9)       (22)
           Other, net                                         (20)        (3)
                                                           ------     ------ 

             Net loss                                      $  (38)       (39)
                                                           ======     ====== 
</TABLE>

         Certain of the Company's affiliates are general partnerships and any
         subsidiary of the Company that is a general partner in a general
         partnership is, as such, liable as a matter of partnership law for all
         debts of that partnership in the event liabilities of that partnership
         were to exceed its assets.

(6)      Investment in Turner Broadcasting System, Inc.

         The Company owns shares of a class of preferred stock of Turner
         Broadcasting System, Inc. ("TBS") which has voting rights and are
         convertible into shares of TBS common stock.  The holders of those
         preferred shares, as a group, are entitled to elect seven of fifteen
         members of the board of directors of TBS, and the Company appoints
         three such representatives.  However, voting control over TBS
         continues to be held by its chairman of the board and chief executive
         officer (an unrelated third party).  The Company's total holdings of
         TBS common and preferred stocks represent an approximate 12% voting
         interest for those matters for which preferred and common stock vote
         as a single class.

         In May 1993, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standards No. 115, "Accounting for Certain
         Investments in Debt and Equity Securities," effective for fiscal years
         beginning after December 15, 1993.  Under the new rules, debt
         securities that the Company has both the positive intent and ability
         to hold to maturity are carried at amortized cost.  Debt securities
         that the Company does not have the positive intent and ability to hold
         to maturity and all marketable equity securities are classified as
         available-for-sale or trading and carried at fair value.  Unrealized
         holding gains and losses on securities classified as available-for
         sale are carried as a separate component of shareholders' equity.
         Unrealized holding gains and losses on securities classified as
         trading are reported in earnings.

                                                                     (continued)





                                     F-56
<PAGE>   76
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company applied the new rules beginning in the first quarter of
         1994.  Application of the new rules resulted in an net increase of
         $191 million to stockholders' equity, representing the recognition of
         unrealized appreciation, net of taxes, for the Company's investment in
         equity securities determined to be available-for-sale.  The majority
         of such securities represents the Company's investment in TBS common
         stock.  The Company holds no material debt securities.

(7)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                       March 31,     December 31,
                                                         1994            1993    
                                                     -------------   ------------
                                                         amounts in millions
           <S>                                          <C>            <C>
           Parent company debt:
             Senior notes                               $ 5,052         5,052
             Bank credit facilities                         355            80
             Commercial paper                                37            44
             Other debt                                       3             2
                                                        -------        ------
                                                          5,447         5,178

           Debt of subsidiaries:
             Bank credit facilities                       3,205         3,264
             Notes payable                                1,225         1,321
             Convertible notes (a)                           47            47
             Other debt                                      84            90
                                                        -------        ------

                                                        $10,008         9,900
                                                        =======        ======
</TABLE>

         (a)     These convertible notes, which are stated net of unamortized
                 discount of $197 million, mature on December 18, 2021.  The
                 notes require (so long as conversion of the notes has not
                 occurred) an annual interest payment through 2003 equal to
                 1.85% of the face amount of the notes.  At March 31, 1994, the
                 notes were convertible, at the option of the holders, into an
                 aggregate of 41,060,990 shares of Class A common stock.

         The Company's bank credit facilities and various other debt
         instruments generally contain restrictive covenants which require,
         among other things, the maintenance of certain earnings, specified
         cash flow and financial ratios (primarily the ratios of cash flow to
         total debt and cash flow to debt service, as defined), and include
         certain limitations on indebtedness, investments, guarantees,
         dispositions, stock repurchases and/or dividend payments.

         As security for borrowings under one of its credit facilities, the
         Company pledged a portion of the common stock (with a quoted market
         value of approximately $488 million at March 31, 1994) it holds of
         TBS.

                                                                     (continued)





                                     F-57
<PAGE>   77
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         In order to provide interest rate protection on a portion of its
         variable rate indebtedness, the Company has entered into various
         interest rate exchange agreements.  The Company is exposed to credit
         losses for the periodic settlements of amounts due under these
         interest rate exchange agreements in the event of nonperformance by
         the other parties to the agreements.  However, the Company does not
         anticipate nonperformance by the counterparties and, in any event,
         such amounts were not material at March 31, 1994.

         The fair value of the Company's debt is estimated based on the quoted
         market prices for the same or similar issues or on the current rates
         offered to the Company for debt of the same remaining maturities.  The
         fair value of debt, which has a carrying value of $10,008 million, was
         $10,496 million at March 31, 1994.

         The fair value of the interest rate exchange agreements is the
         estimated amount that the Company would pay or receive to terminate
         the agreements at March 31, 1994, taking into consideration current
         interest rates and the current creditworthiness of the counterparties.
         The Company would be required to pay $109 million at March 31, 1994 to
         terminate the agreements.

         TCI and certain of its subsidiaries are required to maintain unused
         availability under bank credit facilities to the extent of outstanding
         commercial paper.

(8)      Stockholders' Equity

         Common Stock

         The Class A common stock has one vote per share and the Class B common
         stock has ten votes per share.  Each share of Class B common stock is
         convertible, at the option of the holder, into one share of Class A
         common stock.

         Stock Options

         The Company had an Incentive Stock Option Plan ("ISOP") which has
         expired.  Options granted under the ISOP (prior to its expiration)
         have an option price equal to the fair market value on the date of
         grant, are all currently exercisable and expire five years from the
         date of grant.  Options to purchase 210,508 shares of TCI Class A
         common stock are outstanding at March 31, 1994, with a purchase price
         of $17.25 per share.  During the three months ended March 31, 1994,
         options to acquire 5,500 shares were exercised and options for 1,000
         shares were cancelled.

         TCI assumed certain stock options previously granted by United Artists
         Entertainment Company ("UAE") to certain of its employees.  These
         options, which are currently exercisable, represent the right, as of
         March 31, 1994, to acquire 167,328 shares of TCI Class A common stock
         at adjusted purchase prices ranging from $8.83 to $18.63 per share.
         During the three months ended March 31, 1994, no options were
         exercised or cancelled.  No additional options may be granted by UAE.


                                                                     (continued)





                                     F-58
<PAGE>   78
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company has adopted the 1992 Stock Incentive Plan (the "Plan").
         The Plan provides for awards to be made with respect to a maximum of
         10 million shares of Class A common stock.  Awards may be made as
         grants of stock options, stock appreciation rights, restricted shares,
         stock units or any combination thereof.  On November 11, 1992, stock
         options in tandem with stock appreciation rights to purchase 4,020,000
         shares of Class A common stock were granted pursuant to the Plan to
         certain officers and other key employees at a purchase price of $16.75
         per share.  Such options become exercisable and vest evenly over five
         years, first became exercisable beginning November 11, 1993 and expire
         on November 11, 2002.  During the year ended December 31, 1993, stock
         options covering 50,000 shares of Class A common stock were cancelled
         upon termination of employment.  On October 12, 1993, stock options in
         tandem with stock appreciation rights to purchase 1,355,000 shares of
         TCI Class A common stock were granted pursuant to the Plan to certain
         officers and other key employees at a purchase price of $16.75 per
         share.  On November 12, 1993, an additional grant of stock options in
         tandem with stock appreciation rights to purchase 600,000 shares of
         TCI Class A common stock were granted to two officers at a purchase
         price of $16.75 per share.  Such options become exercisable and vest
         evenly over four years, first become exercisable beginning October 12,
         1994 and expire on October 12, 2003.  Separately from the Plan, an
         additional grant of stock options in tandem with stock appreciation
         rights to purchase 2,000,000 shares of TCI Class A common stock at a
         purchase price of $16.75 per share was made on November 12, 1993 to an
         individual who thereafter became a director of the Company.  Twenty
         percent of such options vested and became exercisable immediately and
         the remainder become exercisable evenly over 4 years.  The options
         expire October 12, 1998.  Estimates of the compensation relating to
         these grants have been recorded through March 31, 1994, but are
         subject to future adjustment based upon market value and, ultimately,
         on the final determination of market value when the rights are
         exercised.

         Other

         The excess of consideration received on debentures converted or
         options exercised over the par value of the stock issued is credited
         to additional paid-in capital.

         At March 31, 1994, there were 49,356,326 shares of TCI Class A common
         stock reserved for issuance under exercise privileges related to
         options and convertible debt securities described in this note 8 and
         in note 7.  In addition, one share of Class A common stock is reserved
         for each share of Class B common stock.


                                                                     (continued)





                                     F-59
<PAGE>   79
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(9)      Commitments and Contingencies

         On October 5, 1992, Congress enacted the Cable Television Consumer
         Protection and Competition Act of 1992 (the "1992 Cable Act").  In
         1993, the Federal Communications Commission ("FCC") adopted certain
         rate regulations required by the 1992 Cable Act and imposed a
         moratorium on certain rate increases.  Such rate regulations became
         effective on September 1, 1993.  The rate increase moratorium, which
         began on April 5, 1993, continues in effect through May 15, 1994.  As
         a result of such actions, the Company's basic and tier service rates
         and its equipment and installation charges (the "Regulated Services")
         are subject to the jurisdiction of local franchising authorities and
         the FCC.  Basic and tier service rates are evaluated against
         competitive benchmark rates as published by the FCC, and equipment and
         installation charges are based on actual costs.  Any rates for
         Regulated Services that exceeded the benchmarks were reduced as
         required by the 1993 rate regulations.  The rate regulations do not
         apply to the relatively few systems which are subject to "effective
         competition" or to services offered on an individual service basis,
         such as premium movie and pay-per-view services.  Subsequent to
         September 1, 1993, any cable system charging basic cable rates that
         exceed the FCC's benchmark rate may be required to substantiate its
         rates.  If, as a result of this process, a system cannot substantiate
         its rates, it could be required to retroactively reduce its rates to
         the appropriate benchmark and refund the excess portion of rates
         received since September 1, 1993.
        
         The Company believes that it has complied in all material respects
         with the provisions of the 1992 Cable Act, including its rate setting
         provisions.  However, since the Company's rates for regulated services
         are subject to review, the Company may be subject to a refund
         liability.  The amount of refunds, if any, which could be payable by
         the Company in the event that systems' rates are successfully
         challenged by franchising authorities is not currently estimable.

         In connection with the acquisition from TCI of a 19.9% minority
         interest in Heritage Communications, Inc. ("Heritage") by Comcast,
         Comcast has the right, through December 31, 1994, to require TCI to
         purchase or cause to be purchased from Comcast all shares of Heritage
         directly or indirectly owned by Comcast for either cash or assets or,
         at TCI's election, shares of TCI common stock.  The purchase price of
         the shares of Heritage directly or indirectly owned by Comcast will be
         determined by external appraisal.

         The Company is obligated to pay fees for the license to exhibit
         certain qualifying films that are released theatrically by various
         motion picture studios from January 1, 1993 through December 31, 2002
         (the "Film License Obligations").  The aggregate minimum liability
         under certain of the license agreements is approximately $105 million.
         The aggregate amount of the Film License Obligations under other
         license agreements is not currently estimable because such amount is
         dependent upon the number of qualifying films produced by the motion
         picture studios, the amount of United States theatrical film rentals
         for such qualifying films, and certain other factors.  Nevertheless,
         the Company's aggregate payments under the Film License Obligations
         could prove to be significant.


                                                                     (continued)





                                     F-60
<PAGE>   80
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $195 million at March 31, 1994.

         The Company has contingent liabilities related to legal proceedings
         and other matters arising in the ordinary course of business.  In the
         opinion of management, it is expected that amounts, if any, which may
         be required to satisfy such contingencies will not be material in
         relation to the accompanying consolidated financial statements.





                                     F-61
<PAGE>   81
                          INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS
LIBERTY MEDIA CORPORATION:

We have audited the accompanying consolidated balance sheets of Liberty Media
Corporation and subsidiaries (Successor) as of December 31, 1993 and 1992, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the years ended December 31, 1993 and 1992 and the period from
April 1, 1991 to December 31, 1991 (Successor Periods) and the consolidated
statements of operations, stockholders' equity, and cash flows of Liberty Media
(a combination of certain programming interests and cable television assets of
Tele-Communications, Inc. (Predecessor) for the period from January 1, 1991 to
March 31, 1991 (Predecessor Period).  These consolidated financial statements
are the responsibility of the Companies' management.  Our responsibility is to
express an opinion on these consolidated 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 aforementioned Successor consolidated financial statements
present fairly, in all material respects, the financial position of Liberty
Media Corporation and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for the Successor Periods, in
conformity with generally accepted accounting principles. Further, in our
opinion, the aforementioned Predecessor consolidated financial statements
present fairly, in all material respects, the results of operations and cash
flows for the Predecessor Period, in conformity with generally accepted
accounting principles.

As discussed in Note 1 to the consolidated financial statements, effective
March 28, 1991, Tele-Communications, Inc. (TCI) (the former parent of the
Company) contributed to Liberty Media Corporation its interests in certain
cable television programming businesses and cable television systems in
exchange for several different classes and series of the Company's preferred
stock. As a result, the Company recorded the exchange at TCI's historical cost
basis, therefore the consolidated financial information for the period after
the contribution is presented on a predecessor cost basis.

As discussed in notes 3 and 13 to the consolidated financial statements, the
Companies changed their method of accounting for income taxes in 1993 to adopt
the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No.  109, "Accounting for Income Taxes."


                                                  /s/ KPMG Peat Marwick
Denver, Colorado                                      KPMG Peat Marwick
March 18, 1994





                                     F-62
<PAGE>   82
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
ASSETS
 
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                        ----------------------
                                                                           1993        1992*
                                                                        ----------    --------
                                                                         AMOUNTS IN THOUSANDS
<S>                                                                     <C>           <C>
Cash and cash equivalents                                               $   91,305      96,253
Trade and other receivables                                                 57,458      20,926
  Less allowance for doubtful receivables                                    3,032       2,404
                                                                        ----------    --------
                                                                            54,426      18,522
                                                                        ----------    --------
Inventories, net                                                           112,005          --
Due from Tele-Communications, Inc. ("TCI") (note 16)                            --       4,786
Prepaid expenses                                                            25,210       6,253
Investments in affiliates, accounted for under the equity method, and
  related receivables (note 6)                                             151,540     239,535
Other investments, at cost, and related receivables (note 7)               220,218     212,993
Investment in TCI common stock (note 8)                                    104,011     104,011
Property and equipment, at cost:
  Land                                                                      21,662          77
  Cable distribution systems                                                87,437      36,428
  Support equipment and buildings                                          124,727      18,365
  Computer and broadcast equipment                                          61,820          --
                                                                        ----------    --------
                                                                           295,646      54,870
  Less accumulated depreciation                                             39,968      19,395
                                                                        ----------    --------
                                                                           255,678      35,475
                                                                        ----------    --------
Franchise costs                                                            142,789      52,808
  Less accumulated amortization                                              5,351       1,856
                                                                        ----------    --------
                                                                           137,438      50,952
                                                                        ----------    --------
Excess cost over acquired net assets                                       255,842      17,659
  Less accumulated amortization                                              9,818         480
                                                                        ----------    --------
                                                                           246,024      17,179
                                                                        ----------    --------
Other intangibles                                                           96,873      79,428
  Less accumulated amortization                                             65,895      40,372
                                                                        ----------    --------
                                                                            30,978      39,056
                                                                        ----------    --------
Other assets, at cost, net of amortization                                   7,715       5,172
                                                                        ----------    --------
                                                                        $1,436,548     830,187
                                                                         =========     =======
</TABLE>
 
                                                                     (continued)
 
                                     F-63
<PAGE>   83
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS, CONTINUED
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                        ---------------------
                                                                          1993         1992*
                                                                        ---------     -------
                                                                         AMOUNTS IN THOUSANDS
<S>                                                                     <C>           <C>
Accounts payable                                                        $  99,680       9,985
Accrued liabilities                                                        96,566      21,562
Accrued litigation settlements (note 10)                                   29,000          --
Due to TCI, including accrued interest payable (notes 11 and 16)           17,874          --
Accrued compensation relating to stock appreciation rights (note 15)       36,996      18,171
Income taxes payable                                                       24,624         808
Debt (notes 11 and 17)                                                    260,180     163,330
Debt to TCI (notes 11 and 17)                                             185,918       4,322
Deferred income taxes (note 13)                                             1,653      14,974
Other liabilities                                                           1,585       3,003
                                                                        ---------     -------
          Total liabilities                                               754,076     236,155
                                                                        ---------     -------
Minority interests in equity of consolidated subsidiaries (note 12)       174,738      10,020
Preferred stock subject to mandatory redemption requirements
  (including accreted dividends) (notes 8, 14 and 17):
  Class A Redeemable Convertible Preferred Stock, $.01 par value               --      12,720
  Class B Redeemable Exchangeable Preferred Stock, $.01 par value         132,652     122,056
  Class D Redeemable Voting Preferred Stock, $.01 par value                22,585      20,485
                                                                        ---------     -------
                                                                          155,237     155,261
                                                                        ---------     -------
Stockholders' equity (notes 2, 15 and 18):
  Class C Redeemable Exchangeable Preferred Stock, $.01 par value              --           4
  Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred
     Stock, $.01 par value                                                     17          16
  Class A common stock, $1 par value                                       87,515      76,036
  Class B common stock, $1 par value                                       43,339      43,340
  Additional paid-in capital                                              236,126     323,855
  Retained earnings                                                            --          --
  Note receivable from related party                                      (14,500)    (14,500)
                                                                        ---------     -------
                                                                          352,497     428,751
                                                                        ---------     -------
Commitments and contingencies (notes 6, 11 and 18)                     $1,436,548     830,187
                                                                        =========     =======
</TABLE>
 
* Restated -- see notes 6, 9 and 13.
 
See accompanying notes to consolidated financial statements.
 
                                     F-64
<PAGE>   84
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                             PREDECESSOR
                                                               LIBERTY                        COMPANIES
                                             --------------------------------------------     ------------
                                                                             NINE MONTHS      THREE MONTHS
                                              YEAR ENDED      YEAR ENDED        ENDED            ENDED
                                             DECEMBER 31,    DECEMBER 31,    DECEMBER 31,      MARCH 31,
                                                 1993           1992*           1991*            1991*
                                             ------------    ------------    ------------     ------------
                                                      AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<S>                                          <C>             <C>             <C>           |  <C>
Revenue:                                                                                   |
  Net sales from home shopping services       $  942,940             --              --    |         --
  From TCI (note 16)                              44,074         42,834          25,191    |      3,879
  From cable and programming services            166,242        113,679          60,206    |     17,529
                                             ------------    ------------    ------------  |  ------------
                                               1,153,256        156,513          85,397    |     21,408
                                             ------------    ------------    ------------  |  ------------
Cost of sales, operating costs and                                                         |
  expenses:                                                                                |
  Cost of sales                                  611,526             --              --    |        --
  Operating, selling, general and                                                          |
     administrative                              442,142        120,851          68,237    |     24,958
  Charges by TCI (note 16)                        10,856          6,573           4,345    |        495
  Compensation relating to stock                                                           |
     appreciation rights (note 15)                40,366         16,939           1,398    |         --
  Depreciation                                    24,958          3,815           2,278    |      1,246
  Amortization                                    24,311         11,731           8,354    |      2,747
                                             ------------    ------------    ------------  | ------------
                                               1,154,159        159,909          84,612    |     29,446
                                             ------------    ------------    ------------  |  ------------
          Operating income (loss)                   (903)        (3,396)            785    |     (8,038)
Other income (expense):                                                                    |
  Interest expense to TCI (notes 11 and 12)      (13,039)          (271)             --    |        (98)
  Other interest expense                         (18,041)        (7,058)         (4,687)   |     (1,685)
  Interest income from TCI (note 12)               3,788            846              --    |         --
  Dividend and interest income, primarily                                                  |
     from affiliates                              19,761         30,063          25,116    |      7,849
  Premium received upon redemption of                                                      |
     preferred stock investment                       --          8,248              --    |         --
  Share of earnings (losses) of affiliates,                                                |
     net (note 6)                                 34,044         17,815          13,955    |     (2,414)
  Gain on sale of investment                      31,972             --              --    |         --
  Loss on transactions with TCI (note 16)        (30,296)       (17,826)             --    |         --
  Minority interests in losses of                                                          |
     consolidated subsidiaries                       289          4,734           5,618    |      3,817
  Recognition of deferred gain upon                                                        |
     repayment of note receivable from                                                     |
     affiliate                                        --             --          16,412    |         --
  Litigation settlements (note 10)                (7,475)            --              --    |         --
  Other, net                                      (1,592)          (328)             83    |         42
                                             ------------    ------------    ------------  |  ------------
          Earnings (loss) before income                                                    |
            taxes and extraordinary item          18,508         32,827          57,282    |       (527)
Income tax benefit (expense) (note 13)           (11,522)       (10,443)        (16,961)   |        753
                                             ------------    ------------    ------------  |  ------------
          Earnings before extraordinary                                                    |
            item                                   6,986         22,384          40,321    |        226
Extraordinary item -- loss on early                                                        |
  extinguishment of debt, net of taxes                                                     |
  (note 11)                                       (2,191)            --              --    |         --
                                             ------------    ------------    ------------  |  ------------
          Net earnings                             4,795         22,384          40,321    |        226
Dividend requirement on preferred stocks                                                   |
  (notes 14 and 15)                              (31,972)       (41,631)        (24,499)   |         --
                                             ------------    ------------    ------------  |  ------------
Net earnings (loss) attributable to common                                                 |
  shareholders                                $  (27,177)       (19,247)         15,822    |        226
                                             ============    ============    ============  |  ============
Earnings (loss) per share:
          Net earnings (loss) before
            extraordinary item                $    (0.19)         (0.16)           0.13
          Extraordinary item, net                  (0.02)            --              --
                                             ------------    ------------    ------------
          Net earnings (loss) attributable
            to common shareholders            $    (0.21)         (0.16)           0.13
                                             ============    ============    ============
</TABLE>
* Restated -- see notes 6, 9 and 13.
 
See accompanying notes to consolidated financial statements.
 
                                     F-65
<PAGE>   85
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                                                                                NOTE
                                                                                                             RECEIVABLE    TOTAL
                                 PREFERRED STOCK      COMMON STOCK      ADDITIONAL               RETAINED       FROM      STOCK-
                                -----------------   -----------------    PAID-IN     COMBINED    EARNINGS     RELATED     HOLDERS'
                                CLASS C   CLASS B   CLASS A   CLASS B    CAPITAL*     EQUITY    (DEFICIT)*     PARTY      EQUITY*
                                -------   -------   -------   -------   ----------   --------   ----------   ----------   -------
                                                                      AMOUNTS IN THOUSANDS
<S>                             <C>       <C>       <C>       <C>       <C>          <C>        <C>          <C>          <C>
PREDECESSOR COMPANIES:
BALANCE AT JANUARY 1, 1991      $   --        --        --        --           --    497,503      (60,916)          --    436,587
Restatement for change in
  accounting principle for
  income taxes                      --        --        --        --           --         --       59,833           --     59,833
                                 -----    ------    ------     -----      -------    -------      -------      -------    -------
BALANCE AT JANUARY 1, 1991, AS
  RESTATED                          --        --        --        --           --    497,503       (1,083)          --    496,420
Change in contributions or
  advances from parent              --        --        --        --           --      4,255           --           --      4,255
Net earnings                        --        --        --        --           --         --          226           --        226
                                 -----    ------    ------     -----      -------    -------      -------      -------    -------
BALANCE PRIOR TO TRANSACTIONS   $   --        --        --        --           --    501,758         (857)          --    500,901
                                 =====    ======    ======     =====      =======    =======      =======      =======    =======
- ---------------------------------------------------------------------------------------------------------------------------------
LIBERTY:
Net effect of Transactions
  (note 2)                      $   --        --       544       171       38,239         --           --           --     38,954
Issuance of common stock upon
  exercise of stock options
  (note 15)                         --        --        --       100       25,500         --           --      (25,500)       100
Income tax effect of stock
  options deduction                 --        --        --        --          320         --           --           --        320
Income tax effect related to
  redemption of Class B
  Redeemable Exchangeable
  Preferred Stock,
  Series 2                          --        --        --        --        1,151         --           --           --      1,151
Partial repayment of note
  receivable from related
  party (note 15)                   --        --        --        --           --         --           --       12,195     12,195
Excess of fair value paid for
  assets acquired from
  affiliate over net book
  value, net of tax (note 16)       --        --        --        --           --         --      (21,322)          --    (21,322)
Excess of fair value of assets
  sold to an affiliate over
  net book value, net of tax
  (note 16)                         --        --        --        --       16,564         --           --           --     16,564
Accreted dividends on all
  classes of preferred stock        --        --        --        --       (5,516)        --      (18,983)          --    (24,499)
Acquisition and retirement of
  common stock                      --        --        (2)       --         (772)        --           --           --       (774)
Net earnings                        --        --        --        --           --         --       40,321           --     40,321
Retroactive effect of
  recapitalization (note 2)          4        16    10,306     5,151      399,242         --          (16)          --    414,703
                                 -----    ------    ------     -----      -------    -------      -------      -------    -------
BALANCE AT DECEMBER 31, 1991    $    4        16    10,848     5,422      474,728         --           --      (13,305)   477,713
                                 -----    ------    ------     -----      -------    -------      -------      -------    -------
</TABLE>
                                                                     (continued)
 
                                     F-66
<PAGE>   86
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, CONTINUED
 
<TABLE>
<CAPTION>
                                                                                                               NOTE
                                                                                                            RECEIVABLE    TOTAL
                                            PREFERRED STOCK      COMMON STOCK      ADDITIONAL                  FROM       STOCK-
                                           -----------------   -----------------    PAID-IN     RETAINED     RELATED     HOLDERS'
           LIBERTY (CONTINUED):            CLASS C   CLASS E   CLASS A   CLASS B    CAPITAL*    EARNINGS*     PARTY      EQUITY*
- ------------------------------------------ -------   -------   -------   -------   ----------   ---------   ----------   --------
                                                                            AMOUNTS IN THOUSANDS
<S>                                        <C>        <C>      <C>       <C>       <C>          <C>         <C>          <C>
BALANCE AT DECEMBER 31, 1991               $   4        16     10,848     5,422      474,728          --      (13,305)    477,713
Dividends, including accretion, on all
  classes of preferred stock                  --        --         --        --      (19,247)    (22,384)          --     (41,631)
Dividends, including accretion, on all
  classes of preferred stock not subject
  to mandatory redemption requirements        --        --         --        --       28,850          --           --      28,850
Stock split effected in the form of a
  dividend (note 2)                           --        --     28,514    16,252      (44,766)         --           --          --
Acquisition and retirement of common stock    --        --     (1,348)       --      (56,022)         --           --     (57,370)
Accrued interest on note receivable from
  related party                               --        --         --        --           --          --       (1,195)     (1,195)
Exchange of Class B common stock for Class
  A common stock                              --        --          4        (4)          --          --           --          --
Net earnings                                  --        --         --        --           --      22,384           --      22,384
Retroactive effect of stock split effected
  in the form of a dividend (note 2)          --        --     38,018    21,670      (59,688)         --           --          --
                                                        --
                                            ----               ------    ------     --------     -------      -------    --------
BALANCE AT DECEMBER 31, 1992                   4        16     76,036    43,340      323,855          --      (14,500)    428,751
Dividends, including accretion, on all
  classes of preferred stock                  --        --         --        --      (27,177)     (4,795)          --     (31,972)
Dividends, including accretion, on all
  classes of preferred stock not subject
  to mandatory redemption requirements        --        --         --        --       19,229          --           --      19,229
Cash dividends on Class B preferred stock     --        --         --        --       (9,743)         --           --      (9,743)
Issuance of Class A common stock and Class
  E Preferred Stock upon conversion of
  preferred stock (note 16)                   --         1      4,406        --        8,360          --           --      12,767
Issuance of Class A common stock for
  acquisition (note 9)                        --        --      8,000        --      115,000          --           --     123,000
Redemption of preferred stock (note 16)       (4)       --         --        --     (175,787)         --           --    (175,791)
Acquisition and retirement of common stock
  (note 16)                                   --        --       (928)       --      (17,611)         --           --     (18,539)
Exchange of Class B common stock for Class
  A common stock                              --        --          1        (1)          --          --           --          --
Accrued interest on note receivable from
  related party (note 15)                     --        --         --        --           --          --         (984)       (984)
Prepayment of interest on note receivable
  from related party (note 15)                --        --         --        --           --          --          984         984
Net earnings                                  --        --         --        --           --       4,795           --       4,795
                                                        --                                                              
                                            ----               ------    ------     --------     -------      -------    --------
BALANCE AT DECEMBER 31, 1993               $  --        17     87,515    43,339      236,126          --      (14,500)    352,497
                                            ====      ====     ======    ======     ========      ======      =======    ========
</TABLE>
 
*Restated -- see notes 6, 9 and 13.
 
See accompanying notes to consolidated financial statements.
 
                                     F-67
<PAGE>   87
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                                                PREDECESSOR
                                                                                                COMPANIES
                                                                 LIBERTY                       ------------
                                                ------------------------------------------      THREE MONTHS
                                                 YEAR ENDED     YEAR ENDED    NINE MONTHS         ENDED
                                                DECEMBER 31,   DECEMBER 31,   DECEMBER 31,      MARCH 31,
                                                    1993          1992*          1991*            1991*
                                                ------------   ------------   ------------     ------------
                                                         AMOUNTS IN THOUSANDS (SEE NOTES 4  AND 5)
<S>                                             <C>            <C>            <C>              <C>
Cash flows from operating activities:                                                       |
  Net earnings                                   $    4,795        22,384         40,321    |         226
  Adjustments to reconcile net earnings to net                                              |
     cash provided (used) by operating                                                      |
     activities:                                                                            |
     Depreciation and amortization                   49,269        15,546         10,632    |       3,993
     Compensation relating to stock                                                         |
       appreciation rights                           40,366        16,939          1,398    |          --
     Payment of compensation relating to stock                                              |
       appreciation rights                          (21,541)         (166)            --    |          --
     Share of (earnings) losses of affiliates,                                              |
       net                                          (34,044)      (17,815)       (13,955)   |       2,414
     Loss on transactions with TCI                   30,296        17,826             --    |          --
     Premium received upon redemption of                                                    |
       preferred stock investment                        --        (8,248)            --    |          --
     Deferred income tax (benefit) expense          (12,206)        7,952         15,181    |        (650)
     Minority interests in losses                      (289)       (4,734)        (5,618)   |      (3,817)
     Noncash interest and dividends                  (4,941)       (7,547)       (18,446)   |      (6,662)
     Gain on sale of investment                     (31,972)           --             --    |          --
     Litigation settlements                           7,475            --             --    |          --
     Payment of premium received upon                                                       |
       redemption of preferred stock                                                        |
       investment                                     8,248            --             --    |          --
     Loss on early extinguishment of debt, net                                              |
       of tax                                         2,191            --             --    |          --
     Amortization of debt discount                       --           520          1,483    |
         455                                                                                |
     Recognition of deferred gain                        --            --        (16,412)   |          --
     Other noncash charges                            8,925            --             --    |          12
     Changes in operating assets and                                                        |
       liabilities, net of effect of                                                        |
       acquisitions:                                                                        |
       Change in receivables                        (15,318)          (85)        (1,647)   |      (1,695)
       Change in inventories                         (7,606)           --             --    |          --
       Change in due to/from TCI, other than                                                |
          repayment for commercial paper             22,660          (735)        (4,051)   |        (150)
       Change in prepaid expenses                   (10,347)         (606)        (3,345)   |      (1,487)
       Change in payables and accruals               43,810         5,353         11,083    |       1,832
                                                -----------    ----------     ----------    |  ----------
          Net cash provided (used) by                                                       |
            operating activities                     79,771        46,584         16,624    |      (5,529)
                                                -----------    ----------     ----------    |  ----------
</TABLE>
 
                                                                     (continued)
 
                                     F-68
<PAGE>   88
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
 
<TABLE>
<CAPTION>
                                                                                              PREDECESSOR
                                                               LIBERTY                         COMPANIES
                                             --------------------------------------------     ------------
                                                                             NINE MONTHS      THREE MONTHS
                                              YEAR ENDED      YEAR ENDED        ENDED            ENDED
                                             DECEMBER 31,    DECEMBER 31,    DECEMBER 31,      MARCH 31,
                                                 1993           1992*           1991*            1991*
                                             ------------    ------------    ------------     ------------
                                                       AMOUNTS IN THOUSANDS (SEE NOTES 4 AND 5)
<S>                                          <C>             <C>             <C>              <C>
Cash flows from investing activities:                                                      |
  Cash paid for acquisitions                  $ (264,180)       (57,016)             --    |         --
  Capital expended for property and                                                        |
     equipment                                   (25,476)        (3,315)         (3,353)   |       (845)
  Additional investments in and loans to                                                   |
     affiliates and others                       (48,155)      (113,811)        (21,807)   |     (3,368)
  Purchase of commercial paper from TCI               --             --         (22,004)   |         --
  Repayment for commercial paper from TCI             --         22,004              --    |         --
  Return of capital from affiliates               84,750         42,295          30,140    |        725
  Collections on loans to affiliates and                                                   |
     others                                       20,541          5,440          38,130    |      1,610
  Cash received on redemption of preferred                                                 |
     stock investment                            104,336             --              --    |         --
  Proceeds from disposition of assets             53,228         36,300          20,933    |         --
  Cash resulting from consolidation of a                                                   |
     certain affiliate, net of payment                                                     |
     therefor                                         --          1,269              --    |         --
  Other investing activities, net                 (2,719)        (1,336)            567    |     (1,113)
                                               ---------     ----------      ----------    |  ---------       
          Net cash provided (used) by                                                      |
            investing activities                 (77,675)       (68,170)         42,606    |     (2,991)
                                               ---------     ----------      ----------    |  ---------       
Cash flows from financing activities:                                                      |
  Borrowings of debt                             291,314         98,066              11    |         27
  Repayments of debt                            (317,326)       (25,220)         (9,758)   |     (2,192)
  Dividends on preferred stock                    (9,743)            --              --    |         --
  Cash paid for redemption of preferred                                                    |
     stock                                       (12,338)            --              --    |         --
  Excess of fair value paid for assets                                                     |
     acquired from affiliate over net book                                                 |
     value                                            --             --         (33,171)   |         --
  Excess of fair value of assets sold to an                                                |
     affiliate over net book value                    --             --          23,333    |         --
  Purchases and retirements of common stock           --        (57,370)           (774)   |         --
  Issuance of common stock                            --             --             100    |         --
  Contributions or advances from parent               --             --              --    |      8,018
  Contributions by minority shareholders of                                                |
     subsidiaries                                 41,049          2,774           3,324    |      1,893
                                               ---------     ----------      ----------    |  ---------       
          Net cash provided (used) by                                                      |
            financing activities                  (7,044)        18,250         (16,935)   |      7,746
                                               ---------     ----------      ----------    |  ---------       
          Net increase (decrease) in cash                                                  |
            and cash equivalents                  (4,948)        (3,336)         42,295    |       (774)
  Cash and cash equivalents at beginning of                                                |
     period                                       96,253         99,589          57,294    |      8,068
                                               ---------     ----------      ----------    |  ---------       
  Cash and cash equivalents at end of                                                      |
     period                                   $   91,305         96,253          99,589    |      7,294
                                               =========     ==========      ==========    |  =========                      
</TABLE> 
* Restated -- see notes 6, 9 and 13.
 
See accompanying notes to consolidated financial statements.
 
                                     F-69
<PAGE>   89
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1993, 1992 AND 1991




(1)      FORMATION AND RELATED TRANSACTIONS

         The accompanying consolidated financial statements include the
         accounts of Liberty Media Corporation, those of all majority-owned
         subsidiaries and entities for which there is a controlling voting
         interest ("Liberty" or the "Company").  All significant intercompany
         accounts and transactions have been eliminated in consolidation.  The
         Company has made certain significant acquisitions in 1993 (see note
         9).

         On January 27, 1994, Liberty and TCI entered into a definitive merger
         agreement (the "Merger Agreement").  Under the Merger Agreement, the
         transaction will be structured as a tax-free exchange of shares of
         Class A and Class B common stock of both companies and preferred stock
         of Liberty for like shares of a newly formed holding company,
         TCI/Liberty Holding Company ("TCI/Liberty").  TCI stockholders will
         receive one share of TCI/Liberty common stock for each of their
         shares.  Liberty common stockholders will receive 0.975 of a share of
         TCI/Liberty common stock for each of their shares.  Holders of Liberty
         Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
         (the "Class E Preferred Stock") will receive one share of a
         substantially identical class of voting preferred stock of TCI/Liberty
         for each of their shares.  The transaction is subject to the approval
         of both sets of shareholders as well as various regulatory approvals
         and other customary conditions.  Subject to timely receipt of such
         approvals, which cannot be assured, it is anticipated the closing of
         such transaction will take place during 1994.

         During February 1991, Liberty, then a newly formed Delaware
         corporation and an indirect wholly owned subsidiary of TCI,
         distributed to certain security holders of TCI the transferable right
         (the "Class A Exchange Right") to exchange shares of TCI Class A
         common stock for shares of Liberty Class A common stock at an exchange
         rate of 160 shares of Liberty Class A common stock, after giving
         effect to the Stock Splits as defined in note 2, for every 16 shares
         of TCI Class A common stock exchanged, and the transferable right (the
         "Class B Exchange Right") to exchange shares of TCI Class B common
         stock for shares of Liberty Class B common stock at an exchange rate
         of 160 shares of Liberty Class B common stock, after giving effect to
         the Stock Splits as defined in note 2, for every 16 shares of TCI
         Class B common stock exchanged (the "Exchange Offers").





                                     F-70
                                                                    (continued)
<PAGE>   90
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         The Class A Exchange Rights were issued to the holders of shares of
         TCI Class A common stock, on the basis of one Class A Exchange Right
         for every 200 shares of TCI Class A common stock held of record, and
         to the holders of certain options and convertible debt securities that
         are exercisable for or convertible into TCI Class A common stock on
         the basis of one Class A Exchange Right for every 200 shares of TCI
         Class A common stock issuable on exercise or conversion of such
         securities.  The Class B Exchange Rights were issued to the holders of
         shares of TCI Class B common stock, on the basis of one Class B
         Exchange Right for every 200 shares of TCI Class B common stock held
         of record, and to the holders of certain options to purchase TCI Class
         B common stock on the basis of one Class B Exchange Right for every
         200 shares of TCI Class B stock issuable on exercise of the options.

         On March 28, 1991, the Company issued 87,136,960 shares of Liberty
         Class A common stock and 27,377,120 shares of Liberty Class B common
         stock, after giving effect to the Stock Splits as defined in note 2,
         in the consummation of the Exchange Offers in exchange for 8,713,696
         shares of TCI Class A common stock and 2,737,712 shares of TCI Class B
         common stock (the "Exchange").

         Also, on March 28, 1991, various subsidiaries of TCI contributed their
         interests in certain cable television programming businesses and cable
         television systems to the Company (the "Contribution") and the Company
         issued to said subsidiaries of TCI shares of several different classes
         and series of the Company's preferred stocks with an  aggregate issue
         price of $624,295,000; and the one share of Liberty  common stock
         owned by TCI on the date thereof was redeemed for its par value.

         In these notes to the consolidated financial statements, any reference
         to TCI in connection with the issuance of the Company's preferred
         stock includes subsidiaries of TCI.

(2)      BASIS OF PRESENTATION

         For financial reporting purposes, the Exchange and the Contribution
         (the "Transactions") are deemed to be effective on March 31, 1991.
         The statements of operations and cash flows for the years ended
         December 31, 1993 and 1992 and the nine months ended December 31, 1991
         present the results of operations and cash flows of the Company after
         giving effect to the Transactions.  The accompanying statements of
         operations and cash flows for the three months ended March 31, 1991,
         representing a combination of certain programming interests and cable
         television assets of TCI (referred to herein as the "Predecessor
         Companies"), are presented for comparative purposes.





                                     F-71
                                                                     (continued)
<PAGE>   91
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         The Company's accounting basis in each share of TCI common stock
         acquired in the Exchange is $16 (the average of the high and low sales
         price for shares of both classes of TCI common stock on February 6,
         1991, the record date of the Exchange Offers).  The Company's
         interests in the cable television programming businesses and cable
         television systems received in the Contribution were accounted for
         utilizing the predecessor cost of TCI.  The excess of the aggregate
         issue amount of the preferred stock issued to TCI over the restated
         historical basis (see notes 6, 9, and 13) in the net assets received
         in the Contribution is accounted for by the Company similar to a
         "preferential dividend" by deducting such amount from stockholders'
         equity.

         The following table reflects the recapitalization (after giving effect
         to the restatements described in notes 6, 9 and 13) resulting from the
         Transactions (amounts in thousands):

<TABLE>
            <S>                                                              <C>
            Combined net equity of Predecessor
             Companies prior to Transactions                                 $  500,901

            Liberty common stock issued in the
             Exchange                                                           183,223

            Redeemable preferred stock issued in
             connection with the Contribution                                  (624,295)

            Deferred tax liability for temporary difference
              arising from difference in book and tax basis
              of TCI common stock received in the Exchange                      (31,458)

            Cash contributed by TCI                                              10,583
                                                                               --------

            Initial common stockholders' equity of
             Liberty subsequent to the Transactions                          $   38,954
                                                                               ========
</TABLE>

       The subsidiaries of TCI which were contributed to the Company are
       separately operated.  As such, there were no material expenses incurred
       by TCI on behalf of these subsidiaries. Therefore, no  allocation of
       expenses (other than the allocation of income taxes described in note
       13) has been reflected in the financial statements of the Predecessor
       Companies.  

       On March 12, 1992, the shareholders of the Company voted to adopt a 
       plan of recapitalization (the "Recapitalization") by approving 
       amendments to the Company's Restated Certificate of Incorporation.  The 
       effect of the Recapitalization has been reflected retroactively to 
       December 31, 1991.





                                     F-72
                                                                     (continued)
<PAGE>   92
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




       Pursuant to the Recapitalization, among other things, each outstanding
       share of Liberty's common stock was reclassified and exchanged into 20
       shares of the same class of Liberty common stock and two shares of Class
       E Preferred Stock.  Subsequently, Liberty effected the following stock
       splits each in the form of a stock dividend (together with the
       Recapitalization, the "Stock Splits"): (i) On December 3, 1992, each
       stockholder received three additional shares for each share they held of
       record on November 23, 1992; and (ii) on March 17, 1993 each stockholder
       received one additional share for each share they held of record on
       March 10, 1993.  The share amounts throughout the notes to the
       consolidated financial statements have been adjusted to give effect to
       the Stock Splits.

       Certain amounts have been reclassified for comparability with the 1993
       presentation.

(3)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       CASH AND CASH EQUIVALENTS

       Cash equivalents consist of investments which are readily convertible
       into cash and have original maturities of three months or less.

       TRADE AND OTHER RECEIVABLES

       A sales program with a deferred payment arrangement, "flex-pay," allows
       customers to charge their purchase to third party credit cards in
       installments, generally over three consecutive months.  Flex-pay
       receivables at December 31, 1993 were $15,547,000.

       INVENTORIES, NET

       Inventories, consisting of products held for sale, are valued at the
       lower of cost or market, cost being determined using the first-in,
       first-out method.  Cost includes freight, certain warehousing costs and
       other allocable overhead.  Market is determined on the basis of
       replacement cost or net realizable value, giving consideration to
       obsolescence and other factors.  The inventory balances are presented
       net of a reserve of $25,246,000 at December 31, 1993.

       INVESTMENTS

       Investments in which the ownership interest is less than 20% are
       generally carried at cost.  For those investments in affiliates in which
       the Company's voting interest is 20% to 50%, the equity method of
       accounting is generally used.  Under this method, the investment,





                                     F-73
                                                                     (continued)
<PAGE>   93
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       originally recorded at cost, is adjusted to recognize the Company's
       share of net earnings or losses of the affiliates as they occur rather
       than as dividends or other distributions are received, limited to the
       extent of the Company's investment in, advances to and guarantees for
       the investee.  The Company's share of net earnings or losses of
       affiliates includes the amortization of purchase adjustments.

       PROPERTY AND EQUIPMENT

       Property and equipment, including significant improvements, is stated at
       cost which includes acquisition costs allocated to tangible assets
       acquired. Construction costs, including interest during construction and
       applicable overhead, are capitalized.  Interest capitalized during the
       periods presented was not material.

       Depreciation is computed on a straight-line basis using estimated useful
       lives of 5 to 15 years for cable distribution systems, 3 to 40 years for
       support equipment and buildings and 6 to 13 years for computer and
       broadcast equipment.

       Repairs and maintenance and any gains or losses on disposition of assets
       in their entirety are included in operations.  However, recognition of
       gains on sales of properties to affiliates accounted for under the
       equity method is deferred in proportion to the Company's ownership
       interest in such affiliates.

       FRANCHISE COSTS

       Franchise costs include the difference between the cost of acquiring
       cable television systems and amounts assigned to their tangible assets.
       Such amounts are generally amortized on a straight-line basis over 40
       years.  Costs incurred by Liberty in obtaining franchises are being
       amortized on a straight-line basis over the life of the franchise,
       generally 10 to 20 years.

       EXCESS COST OVER ACQUIRED NET ASSETS

       Excess cost over acquired net assets consists of the difference between
       the cost of acquiring programming entities and amounts assigned to their
       tangible assets.  Such amounts are amortized on a straight-line basis
       over 30 years.





                                     F-74
                                                                     (continued)
<PAGE>   94
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       OTHER INTANGIBLE ASSETS

       Other intangible assets consist of amounts assigned to covenants not to
       compete and amounts (in excess of tangible assets) assigned to sports
       program rights agreements, affiliate agreements and distribution
       agreements.  The amounts assigned to these agreements are amortized over
       the respective lives of the agreements ranging from 1 to 10 years.

       NET SALES

       Net Sales include merchandise sales and shipping and handling revenues,
       and are reduced by incentive discounts and sales returns to arrive at
       net sales.  The Company's sales policy allows merchandise to be returned
       at the customer's discretion, generally up to 30 days after the date of
       sale.  An allowance for returned merchandise is provided based upon past
       experience.

       RESTATED FINANCIAL STATEMENTS FOR IMPLEMENTATION OF STATEMENT OF 
       FINANCIAL ACCOUNTING STANDARDS NO. 109, "ACCOUNTING FOR INCOME TAXES"

       Effective January 1, 1993, the Company adopted Statement of Financial
       Accounting Standards No. 109 ("Statement No. 109"), "Accounting for
       Income Taxes" and has applied the provisions of Statement No. 109
       retroactively to Liberty and the Predecessor Companies to January 1,
       1986.  The accompanying 1992 and 1991 consolidated financial statements
       and related notes have been restated to reflect the implementation of
       Statement No. 109.  See note 13.

       PRIMARY AND FULLY DILUTED EARNINGS (LOSS) PER COMMON AND COMMON
       EQUIVALENT SHARE

       Loss per common share attributable to common shareholders for the years
       ended December 31, 1993 and 1992 was computed by dividing net loss
       attributable to common shareholders by the weighted average number of
       common shares outstanding (130,574,056 and 123,391,426, respectively).
       Common stock equivalents were not included in the computation of
       weighted average shares outstanding because their inclusion would be
       anti-dilutive.

       Primary earnings per common and common equivalent share attributable to
       common shareholders for the nine months ended December 31, 1991 was
       computed by dividing net earnings attributable to common shareholders by
       the weighted average number of common and common equivalent shares
       outstanding of 120,682,737.





                                     F-75
                                                                     (continued)
<PAGE>   95
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




       Fully diluted earnings per common and common equivalent share
       attributable to common shareholders was computed by dividing earnings
       attributable to common shareholders by the weighted average number of
       common and common equivalent shares outstanding (120,878,097 for the
       nine months ended December 31, 1991).  Shares issuable upon conversion
       of the Class A Redeemable Convertible Preferred Stock (the "Class A
       Preferred Stock") have not been included in the 1991 computation of
       weighted average shares outstanding as their inclusion would be
       anti-dilutive.

(4)    SUPPLEMENTAL DISCLOSURE TO CONSOLIDATED STATEMENTS OF CASH FLOWS
       RELATING TO THE TRANSACTIONS

<TABLE>
<CAPTION>
                                                                           AMOUNTS IN THOUSANDS
                                                                           --------------------
             <S>                                                              <C>
             Cash Prior to the Transactions                                   $   7,294

                Repayment of amounts due
                  from TCI and cash contributed by TCI                           50,000
                                                                               --------

             Cash subsequent to the Transactions                              $  57,294
                                                                               ========
</TABLE>



(5)    SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

       Cash paid for interest was $20,354,000, $4,373,000, $2,219,000 and
       $1,493,000 for the years ended December 31, 1993 and 1992, the nine
       months ended December 31, 1991 and the three months ended March 31,
       1991, respectively.  Cash paid for income taxes during the years ended
       December 31, 1993 and 1992 was $6,621,000 and $3,336,000, respectively.
       Cash paid for income taxes during the remaining periods was not
       material.





                                     F-76
                                                                     (continued)
<PAGE>   96
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Significant noncash investing and financing activities:
 
<TABLE>
<CAPTION>
                                                                                             PREDECESSOR  
                                                               LIBERTY                        COMPANIES
                                             --------------------------------------------    ------------
                                                                             NINE MONTHS     THREE MONTHS
                                              YEAR ENDED      YEAR ENDED        ENDED           ENDED
                                             DECEMBER 31,    DECEMBER 31,    DECEMBER 31,     MARCH 31,
                                                 1993            1992            1991            1991
                                             ------------    ------------    ------------    ------------
                                                                  AMOUNTS IN THOUSANDS     
<S>                                          <C>             <C>             <C>             <C>
Cash paid for acquisitions:                                                                |
  Fair value of assets acquired               $  686,200         64,602             --     |         --
  Net liabilities assumed                       (197,536)        (7,586)            --     |         --
  Deferred tax asset recorded upon                                                         |
     acquisition                                   1,115             --             --     |         --
  Common stock issued for acquisition           (123,000)            --             --     |         --
  Noncash contribution for acquisition           (32,673)            --             --     |         --
  Minority interests in equity of acquired                                                 |
     entities                                    (69,926)            --             --     |         --
                                               ---------     ----------      ---------     |  ---------      
                                              $  264,180         57,016             --     |         --
                                               =========     ==========      =========     |  =========     
Cash resulting from consolidation of a                                                     |
  certain affiliate net of payment                                                         |
  therefor:                                                                                |
  Fair value of assets acquired               $       --        (26,186)            --     |         --
  Net liabilities assumed                             --         27,485             --     |         --
  Payment for additional interest                     --            (30)            --     |        --
                                               ---------     ----------      ---------     |  ---------      
                                              $       --          1,269             --     |         --
                                               =========     ==========      =========     |  =========     
Liberty Class A common stock issued upon                                                   |
  conversion of preferred stock               $   12,767             --             --     |         --
                                               =========     ==========      =========     |  =========     
Note issued in exchange for Liberty Class A                                                |
  common stock                                $   18,539             --             --     |         --
                                               =========     ==========      =========     |  =========     
Notes issued in redemption of preferred                                                    |
  stocks                                      $  163,057             --             --     |         --
                                               =========     ==========      =========     |  =========     
Accreted and unpaid preferred stock                                                        |
  dividends                                   $   30,348         41,631         24,499     |         --
                                               =========     ==========      =========     |  =========     
Redemption of preferred stock in exchange                                                  |
  for TCI Class A common stock                $       --             --         91,611     |         --
                                               =========     ==========      =========     |  =========     
Note received upon exercise of stock option   $       --             --         25,500     |         --
                                               =========     ==========      =========     |  =========     
Note issued in exchange for investment in                                                  |
  affiliate                                   $       --             --          4,322     |         --
                                               =========     ==========      =========     |  =========     
TCI common stock received as partial                                                       |
  repayment of note and interest receivable   $       --             --         12,195     |         --
                                               =========     ==========      =========     |  =========     
Partial repayment of note receivable with                                                  |
  common stock of an affiliate                $       --             --         18,867     |         --
                                               =========     ==========      =========     |  =========     
Deferred tax liability recorded as a                                                       |
  reduction to paid-in capital                $       --             --          5,298     |         --
                                               =========     ==========      =========     |  =========     
Deferred tax asset recorded as an increase                                                 |
  to retained earnings                        $       --             --         11,849     |         --
                                               =========     ==========      =========     |  =========     
Transfers of assets (other than in the                                                     |
  Contribution), net of liabilities, from                                                  |
  TCI                                         $       --             --             --     |      3,763
                                               =========     ==========      =========     |  =========        
</TABLE> 
                                                                     (continued)
 
                                     F-77
 
 
<PAGE>   97
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(6) INVESTMENTS IN AFFILIATES
 
Summarized unaudited financial information for affiliates accounted for under
the equity method, which operate in three related industries (see note 19) is
as follows:
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,     DECEMBER 31,
                                                                    1993             1992
                                                                ------------     ------------
                                                                     AMOUNTS IN THOUSANDS
<S>                                                             <C>              <C>
Combined Financial Position
  Property and equipment, net                                   $   649,901         661,546
  Franchise costs, net                                              678,232         623,904
  Investments                                                       362,748         243,675
  Feature film inventory                                            112,183          60,217
  Cable distribution rights                                          99,579         116,557
  Excess costs, other intangibles and other assets                  700,851         620,582
                                                                 ----------       ---------
          Total assets                                          $ 2,603,494       2,326,481
                                                                 ==========       =========
  Debt                                                          $ 1,633,207       1,613,345
  Due to Liberty                                                      4,254           3,848
  Feature film rights payable                                       104,096          38,578
  Other liabilities                                                 506,072         437,249
  Owners' equity                                                    355,865         233,461
                                                                 ----------       ---------
          Total liabilities and equity                          $ 2,603,494       2,326,481
                                                                 ==========       =========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                                   PREDECESSOR
                                                     LIBERTY                        COMPANIES
                                   --------------------------------------------    ------------
                                                                   NINE MONTHS     THREE MONTHS
                                    YEAR ENDED      YEAR ENDED        ENDED           ENDED
                                   DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                       1993            1992            1991            1991
                                   ------------    ------------    ------------    ------------
                                                       AMOUNTS IN THOUSANDS     
<S>                                <C>             <C>             <C>              <C>
Combined Operations                                                             |
  Revenue                          $ 2,131,210       1,834,965        952,889   |      404,221
  Operating expenses                (1,595,103)     (1,383,782)      (624,087)  |     (311,599)
  Depreciation and amortization       (199,304)       (202,235)      (165,212)  |      (47,326)
                                    ----------      ----------      ---------   |    ---------
     Operating income                  336,803         248,948        163,590   |       45,296
  Interest expense                     (98,933)       (120,618)      (129,909)  |      (42,296)
  Other, net                          (116,686)        (73,174)       (28,802)  |       (7,262)
                                    ----------      ----------      ---------   |    ---------
     Net earning (loss)            $   121,184          55,156          4,879   |       (4,262)
                                    ==========      ==========      =========   |    ==========
</TABLE>                                                                        
 
                                                                     (continued)
 
                                     F-78
<PAGE>   98
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       The following table reflects the carrying value of the Company's
       investments accounted for under the equity method, including related
       receivables:

<TABLE>
<CAPTION>
                                                                           December 31,     December 31,
                                                                               1993             1992   
                                                                            ----------       ----------
                                                                               AMOUNTS IN THOUSANDS
                                                                                                   
               <S>                                                        <C>                  <C>
               QVC, Inc. ("QVC")                                          $    60,397           58,509
               Kansas City Cable Partners ("KCCP")                            (33,618)          35,860
               US Cable of Lake County ("Lake County")                         25,650           25,013
               Columbia Associates, L.P. ("Columbia")                           7,720           12,975
               Lenfest Communications, Inc. ("Lenfest")                        16,508           23,217
               Mile Hi Cablevision Associates, Ltd.
                  ("Mile Hi")  (see note 9)                                       ---           32,689
               The Cable Partnerships of Country Cable
                  and Knight-Ridder Cablevision, Inc.
                  (SCI Cable Partners and TKR Cable Company)
                  (collectively referred to as "TKR")                          34,270           22,912
               Sunshine Network Joint Venture ("Sunshine")                      9,131           12,202
               American Movie Classics Company ("AMC")                        (11,026)         (22,125)
               Sioux Falls Cable Television ("Sioux Falls")                   (11,675)         (13,463)
               SportsChannel Chicago Associates ("Sports")                     32,561           31,385
               Home Team Sports Limited Partnership ("HTS")                     4,610           10,958
               Other investments                                               17,012            9,403
                                                                             --------         --------
                                                                          $   151,540          239,535
                                                                             ========         ========
</TABLE>


       The common stock of QVC is publicly traded.  At December 31, 1993, based
       on the trading price of QVC common stock, the Company's investment in
       QVC had a market value of $402,543,000 (which exceeded its cost by
       $342,146,000) (excluding the effect of the Diller option described
       below).





                                     F-79
                                                                     (continued)
<PAGE>   99
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The following table reflects the Company's share of earnings (losses) of each
of the aforementioned affiliates:
 
<TABLE>
<CAPTION>
                                                                                      PREDECESSOR
                                                      LIBERTY                          COMPANIES
                                    --------------------------------------------      ------------
                                                                    NINE MONTHS       THREE MONTHS
                                     YEAR ENDED      YEAR ENDED        ENDED             ENDED
                                    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,       MARCH 31,
                                        1993            1992            1991              1991
                                    ------------    ------------    ------------      ------------
                                                        AMOUNTS IN THOUSANDS       
<S>                                 <C>             <C>             <C>               <C>
QVC                                   $ 13,978          13,217          6,911     |      (1,260)
KCCP                                    10,522           8,805          4,869     |       1,498
Lake County                                637          (1,050)            --     |          --
Columbia                                (5,256)        (10,849)          (881)    |      (1,234)
Lenfest                                 (6,710)         (8,843)        (3,588)    |      (1,197)
Mile Hi                                   (380)         (2,337)        (1,480)    |        (746)
TKR                                     11,358          10,870          5,533     |         142
Sunshine                                  (957)         (1,055)        (1,833)    |        (433)
AMC                                     11,313           7,839          5,911     |       1,948
Sioux Falls                              1,788           1,532          1,229     |         598
Sports                                   5,859           3,348             --     |          --
HTS                                     (7,076)            748            271     |        (162)
Other                                   (1,032)         (4,410)        (2,987)    |      (1,568)
                                       -------       ---------       --------     |   ---------
                                      $ 34,044          17,815         13,955     |      (2,414)
                                       =======       =========       ========     |   =========
</TABLE>
 
                                                                     (continued)
 
                                     F-80
<PAGE>   100
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       On November 11, 1993, Liberty entered into an agreement with the staff
       of the Federal Trade Commission pursuant to which Liberty agreed to
       divest all of its equity interests in QVC during an 18 month time period
       if QVC was successful in its offer to buy Paramount Communications, Inc.
       ("Paramount") and not to vote or otherwise exercise or influence control
       over QVC until such time as QVC withdrew its offer for Paramount.
       Simultaneously, Liberty agreed to withdraw from a stockholders agreement
       pursuant to which Liberty and certain other stockholders exercised
       control over QVC (the "Stockholders' Agreement").  On February 15, 1994,
       QVC terminated its offer for Paramount.  Upon termination of such offer,
       Liberty has the right to be reinstated as a party to the Stockholders'
       Agreement so long as such option is exercised within 90 days after such
       termination.  However, Liberty has not yet determined if it will rejoin
       the control group under the Stockholders' Agreement.

       On November 16, 1993, Liberty sold 1,690,041 shares of common stock of
       QVC to Comcast Corporation ("Comcast") for aggregate consideration of
       approximately $31,461,000.  The sale to Comcast reduced Liberty's
       interest in QVC common stock (on a fully diluted basis) from 21.6% to
       18.5%.  Liberty continues to account for its investment in QVC under the
       equity method, although it no longer exercises significant control over
       such affiliate, pending the determination of whether it will rejoin the
       control group under the Stockholders' Agreement.  Liberty will change to
       the cost method of accounting in the event it elects not to be
       reinstated as a party to the Stockholders' Agreement.

       Certain of the shares of stock of QVC owned by Liberty are subject to
       repurchase by QVC in the event that commitments to carry its programming
       are not met.  Approximately 46% of the shares which the Company holds or
       would hold upon exercise or conversion of convertible securities, are
       "unvested" and are subject to such repurchase rights by QVC.  QVC's
       repurchase rights with respect to QVC securities held by the Company are
       exercisable over a period of time, ending in the year 2004, if certain
       carriage commitments made by Satellite Services, Inc., ("SSI"), an
       indirect wholly owned subsidiary of TCI, are not met.  Under the terms
       of a certain agreement pursuant to which the Company acquired from TCI a
       substantial number of the QVC securities it now beneficially owns, TCI
       has agreed to reimburse the Company in the event QVC exercises its right
       to repurchase certain of the "unvested" shares.  Such reimbursement will
       be based on the value assigned such shares when the Company acquired
       them from TCI, which is substantially below the current market price of
       such shares.  Pursuant to an agreement with Comcast and Mr. Barry Diller
       ("Diller"), Liberty may be required to sell approximately 1.63 million
       shares of QVC common stock to Diller.  The purchase price under the
       Diller purchase right is $34.082 per share.





                                     F-81
                                                                     (continued)
<PAGE>   101
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




       During 1992, AMC distributed $39,000,000 to the Company.  The Company
       recorded the amount received as a reduction of its investment in AMC.
       On September 16, 1993, Liberty announced that one of its subsidiaries
       received notice from Rainbow Program Enterprises ("Rainbow") that
       Rainbow had elected to purchase Liberty's 50% partnership interest in
       AMC under the terms of a buy/sell provision contained in the AMC
       partnership agreement.  Liberty expects to receive net pre tax cash
       proceeds of approximately $170 million from the sale and an additional
       $5 million from a buy-out of Liberty's consulting agreement with AMC.
       The $170 million cash proceeds consist of $195 million sales price
       reduced by Liberty's proportionate share of AMC's debt.  On March 9,
       1994 Liberty and Rainbow agreed to a postponement of  the closing of the
       sale until May 31, 1994.  Liberty and Rainbow are continuing their
       discussions regarding other possible transactions which, if consummated,
       may result in the parties amending or terminating the sale by Liberty of
       its AMC partnership interest.

       On October 1, 1993 KCCP made an $80,000,000 distribution to the Company.
       The Company recorded the amount received as a reduction of its
       investment in KCCP.  Approximately $63,174,000 was used to repay a note
       payable to KCCP, including accrued interest.

       TKR and Lenfest adopted Statement No. 109 in 1993 and have applied the
       provisions of Statement No. 109 on a retroactive basis.  Liberty's (and
       the Predecessor Companies') investment, results of operations and
       stockholders' equity were adjusted retroactively to reflect Liberty's
       share of the restated results of operations of TKR and Lenfest.  Upon
       restatement of Liberty's (and the Predecessor Companies') share of
       earnings (losses) of Lenfest and TKR, the Company's net earnings was
       increased by approximately $4,562,000 for the year ended December 31,
       1992.  The Company's net earnings was reduced through a charge of
       approximately $1,966,000 and $656,000 for the nine months ended December
       31, 1991 and the three months ended March 31, 1991, respectively.

       During 1992, the Company increased its investment in Lenfest and adopted
       the equity method of accounting for its investment in Lenfest, which was
       previously accounted for under the cost method.  Accordingly, Liberty's
       (and the Predecessor Companies') investment, results of operations and
       stockholders' equity were adjusted retroactively to reflect the equity
       method of accounting.  As of December 31, 1992, the Company reduced the
       carrying amount of its investment in Lenfest by $56 million.

       Certain of the Company's affiliates are general partnerships and any
       subsidiary of the Company that is a general partner in a general
       partnership is, as such, liable as a matter of partnership law for all
       debts (other than non-recourse debts) of that partnership in the event
       liabilities of that partnership were to exceed its assets.





                                     F-82
                                                                     (continued)
<PAGE>   102
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




(7)    OTHER INVESTMENTS

       Other investments, accounted for under the cost method, and related
       receivables, are summarized as follows:

<TABLE>
<CAPTION>
                                                                               December 31,  
                                                                             ----------------
                                                                      1993                    1992 
                                                                     ------                  ------
                                                                          AMOUNTS IN THOUSANDS
       <S>                                                         <C>                       <C>
       Limited partnership interest
          and related receivables                                  $  3,647                   43,109

       Marketable equity securities (a)                              25,811                    8,841

       Convertible debt, accrued interest
          and preferred stock investment                             46,457                   46,459

       Note receivable including
          accrued interest (b)                                      132,303                      ---
                                                                                        
       Receivable for redemption of
          preferred stock investment                                    ---                  112,583

       Other investments and related receivables                     12,000                    2,001
                                                                   --------                  -------

                                                                   $220,218                  212,993
                                                                   ========                  =======
</TABLE>

       (a)     The marketable equity securities, which are being accounted for
               at the lower of cost or market, had an aggregate market value of
               $111,549,000 and $55,825,000  (which exceeded cost by
               $85,738,000 and $46,984,000) at December 31, 1993 and December
               31, 1992, respectively.

       (b)     In December 1992, Home Shopping Network, Inc. ("HSN"), a cost
               investment of the Company at that time and a consolidated
               subsidiary of the Company at December 31, 1993 (see note 9),
               distributed the capital stock of Silver King Communications,
               Inc. ("SKC"), formerly a wholly owned subsidiary of HSN, to
               their stockholders of record, including Liberty.  This
               transaction was treated as a stock dividend by HSN.  At the time
               of said dividend, intercompany indebtedness in an amount of
               approximately $135 million owed by SKC to HSN was converted into
               a secured long-term senior loan to SKC (a cost investment of the
               Company).





                                     F-83
                                                                     (continued)
<PAGE>   103

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                Such loan is evidenced by a promissory note, the terms of which
                are governed by a loan agreement and the liability evidenced 
                thereby is secured by substantially all of SKC's assets, and 
                bears interest on the unpaid principal amount at 9.5% per 
                annum.  The note is payable in equal monthly installments of 
                principal and interest over fifteen years.

       Management of the Company estimates that the market value, calculated
       utilizing a multiple of cash flow approach or publicly quoted market
       prices, of all of the Company's other investments aggregated $406
       million and $338 million at December 31, 1993 and 1992, respectively,
       including amounts previously disclosed for marketable equity securities.
       No independent external appraisals were conducted for those assets which
       were valued utilizing a multiple of cash flow approach.

       In May 1993 the Financial Accounting Standards Board issued Statement of
       Financial Accounting Standards No. 115, "Accounting for Certain
       Investments in Debt and Equity Securities," ("Statement No. 115")
       effective for fiscal years beginning after December 15, 1993.  Under the
       new rules, debt securities that the Company has both the positive intent
       and ability to hold to maturity are carried at amortized cost.  Debt
       securities that the Company does not have the positive intent and
       ability to hold to maturity and all marketable equity securities are
       classified as available-for-sale or trading and carried at fair value.
       Unrealized holding gains and losses on securities classified as
       available-for-sale are carried as a separate component of stockholders'
       equity.  Unrealized holding gains and losses on securities classified as
       trading are reported in earnings.

       Presently, the Company has no debt securities.  Marketable equity
       securities are currently reported at the lower of cost or market and net
       unrealized losses are reported in earnings.  The Company will apply the
       new rules starting in the first quarter of 1994.  Application of the new
       rules will result in an estimated increase of $54,015,000 in
       stockholders' equity as of January 1, 1994, representing the recognition
       of unrealized appreciation, net of taxes, for the Company's investment
       in equity securities determined to be available-for-sale, previously
       carried at lower of cost or market.  However, the unrealized holding
       gain does not include any unrealized gain associated with the Company's
       investment in TCI common stock as such common stock is deemed to be
       restricted stock.  Restricted stock, under Statement No. 115, is not
       considered to have a readily determinable fair value.  See note 8.





                                     F-84
                                                                     (continued)

<PAGE>   104
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(8)    INVESTMENT IN TCI COMMON STOCK

       The Company holds 2,988,009 shares of TCI class A common stock and
       3,537,712 shares of TCI class B common stock.  At December 31, 1993 and
       1992, the market value of the Company's investment in TCI amounted to
       $209,785,000 and $140,440,000, respectively, based on its publicly
       quoted market price.

       Certain of the TCI common stock is held in escrow for delivery upon
       exchange of the Liberty Class B Redeemable Exchangeable Preferred Stock
       (the "Class B Preferred Stock").  Pending such exchange and provided
       that the Company is not in default of its obligations to redeem,
       exchange or purchase shares of the Class B Preferred Stock, the Company
       has the right to vote the TCI common stock held in escrow on all matters
       submitted for a vote to the holders of TCI common stock.

(9)    ACQUISITIONS

       On February 11, 1993, Liberty acquired 20,000,000 shares of the Class B
       Stock of HSN from RMS Limited Partnership ("RMS") for $58,000,000 in
       cash and 8,000,000 shares of Liberty Class A common stock.  Liberty had
       previously acquired shares of common stock of HSN in 1992.  Such common
       stock acquired in 1992 and the Class B Stock acquired represented 23.5%
       of the common equity and 65.6% of the controlling voting interest of HSN
       as of the date of acquisition.  As a result of the acquisition of the
       controlling voting interest, HSN became a consolidated subsidiary of the
       Company for financial reporting purposes.

       On June 1, 1993, Liberty completed the purchase of approximately
       16,000,000 shares of HSN common stock at a price of $7 per share.  The
       shares had been tendered pursuant to a tender offer initiated by the
       Company in April 1993.

       On March 15, 1993, Mile Hi Cable Partners, L.P. ("New Mile Hi")
       completed the acquisition of all the general and limited partnership
       interests in Mile Hi, the owner of the cable television system serving
       Denver, Colorado.  New Mile Hi is a limited partnership formed among
       Community Cable Television ("CCT") a general partnership owned 50.001%
       by the Company and 49.999% by TCI, (78% limited partnership interest),
       Daniels Communications, Inc. ("DCI") (1% limited partner) and P & B
       Johnson Corp. ("PBJC") (21% general partnership interest), a corporation
       controlled by Robert L. Johnson, a member of the Company's Board of
       Directors.  New Mile Hi is a consolidated subsidiary of the Company for
       financial reporting purposes.  Liberty's investment in Mile Hi, which
       was previously accounted for under the cost method, was received from
       TCI





                                     F-85
                                                                     (continued)
<PAGE>   105
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       in the Transactions.   As a result of the aforementioned acquisition of
       Mile Hi, Liberty's (and the Predecessor Companies') investment, results
       of operations and stockholders' equity were adjusted retroactively to
       reflect Liberty's share of historical losses of Mile Hi adjusted for the
       amortization of the excess cost over Liberty's share of Mile Hi's
       historical net book value.  In addition, Liberty's (and the Predecessor
       Companies') investment, results of operations and stockholders' equity
       were adjusted retroactively to reflect previously reserved interest
       income on a loan receivable of approximately $50 million (including
       accrued interest) (the "Mile Hi Note") at the time of consolidation of
       New Mile Hi.  The Mile Hi Note was eliminated upon consolidation.  Upon
       restatement of Liberty's share of historical losses of Mile Hi, net of
       the restatement of previously reserved interest income on the Mile Hi
       Note, the Company's net earnings was increased by approximately
       $1,397,000, $1,111,000 and $220,000 for the year ended December 31,
       1992, the nine months ended December 31, 1991 and the three months ended
       March 31, 1991, respectively.

       Prior to the acquisition, the Company, through a wholly owned
       subsidiary, indirectly owned a 32.175% interest in Mile Hi through its
       ownership of a limited partnership interest in Daniels & Associates
       Partners Limited ("DAPL"), one of Mile Hi's general partners.  DAPL was
       liquidated on March 12, 1993, at which time a subsidiary of Liberty (and
       partner in DAPL) received a liquidating distribution consisting of its
       proportionate interest in DAPL's partnership interest in Mile Hi,
       representing the aforementioned 32.175% interest in Mile Hi.  The
       subsidiary of Liberty also received the Mile Hi Note in novation of a
       loan receivable from DAPL in an equal amount.  The subsidiary then was
       merged into Liberty Cable Partner, Inc.  ("LCP") a wholly owned
       subsidiary of the Company and a general partner of CCT.

       The total value of the acquisition was approximately $180 million.  Of
       that amount, approximately $70 million was in the form of Mile Hi debt
       paid at the closing.  Another $50 million was in the form of the Mile Hi
       Note, which debt was assumed by New Mile Hi and then by CCT.  Of the
       remaining $60 million, approximately $40 million was paid in cash to
       partners in Mile Hi in exchange for their partnership interests.  The
       remaining $20 million of interest in Mile Hi was acquired by New Mile Hi
       through the contribution by LCP to CCT and by CCT to New Mile Hi of the
       32.175% interest in Mile Hi received in the DAPL liquidation and by
       DCI's contribution to New Mile Hi of a 0.4% interest in Mile Hi.

       Of the $110 million in cash required by New Mile Hi to complete the
       transaction, $105 million was loaned to New Mile Hi by CCT and $5
       million was provided by PBJC as a capital contribution to New Mile Hi.
       Of the $5 million contributed by PBJC,





                                     F-86
                                                                     (continued)
<PAGE>   106
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       approximately $4 million was provided by CCT through loans to Mr.
       Johnson and trusts for the benefit of his children.  CCT funded its
       loans to New Mile Hi and the Johnson interests by borrowing $93 million
       under its revolving credit facility and by borrowing $16 million from
       TCI in the form of a subordinated note.

       The acquisitions of HSN and all the general and limited partnership
       interests in Mile Hi were accounted for by the purchase method.
       Accordingly, the results of operations of such acquired entities have
       been consolidated with those of the Company since their respective dates
       of acquisition.  On a pro forma basis the Company's revenue would have
       been increased by approximately $111,208,000 and $1,106,394,000 for the
       years ended December 31, 1993 and 1992, respectively, had the
       acquisition occurred prior to January 1, 1992.  Earnings before
       extraordinary item, on a pro forma basis would have been decreased by
       approximately $9,378,000 and $25,074,000 for the years ended December
       31, 1993 and 1992, respectively.  Net loss attributable to common
       shareholders and loss per common share would have increased by
       $14,429,000 and $0.11, respectively, for the year ended December 31,
       1993.  Net loss attributable to common shareholders and loss per common
       share would have increased by $24,508,000 and $0.19, respectively for
       the year ended December 31, 1992.  The foregoing unaudited pro forma
       financial information was based upon historical results of operations
       adjusted for acquisition costs and, in the opinion of management, is not
       necessarily indicative of the results had the Company operated the
       acquired entities since prior to January 1, 1992.





                                     F-87
                                                                     (continued)
<PAGE>   107
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(10)   LITIGATION SETTLEMENTS

       The Company has reached agreements in principle to settle certain
       lawsuits related to HSN.  Under the terms of the settlements, the
       Company will pay approximately the following (amounts in thousands):

<TABLE>
               <S>                                                                   <C>
               Civil actions pending Court approval
                 in Delaware and Colorado to be paid
                 by the parent                                                       $   13,000

               Civil actions pending Court approval
                 in the United States District Court
                 for the Middle District of Florida
                 to be paid by HSN                                                        8,500

               Settlement to Western Hemisphere, Inc.
                 to be paid by HSN                                                        4,500

               Settlements to be paid by HSN which
                 will be reimbursed by Roy M. Speer,
                 former chairman of the board of HSN                                      3,000
                                                                                       --------

                    Accrued litigation settlements                                   $   29,000
                                                                                       ========
</TABLE>


       Any attorneys' fees awarded by the Courts to the plaintiffs' attorneys
       in such actions will be paid out of the above amounts.  The portion of
       the accrued litigation settlements to be paid by the parent which will
       be paid to the class who sold shares of HSN common stock to Liberty as
       part of the June 1, 1993 purchase (approximately $5.5 million) (see note
       9), was capitalized as additional acquisition costs.  The portion of the
       accrued litigation settlements to be paid by HSN were capitalized by the
       Company as additional acquisition costs.  A receivable amounting to $3
       million has been recorded by the Company in anticipation of
       reimbursement by Roy M. Speer.





                                     F-88
                                                                     (continued)
<PAGE>   108
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(11)   DEBT

       Debt is summarized as follows:
<TABLE>
<CAPTION>
                                                 
                                                 Weighted average                  December 31,
                                                 interest rate at                  ------------
                                                 December 31, 1993           1993                 1992  
                                                 -----------------         --------             --------
                                                                               AMOUNTS IN THOUSANDS
       <S>                                            <C>              <C>                       <C>
       Parent company debt:
            Note payable to TCI (a)                    11.6%           $    76,952                  ---
            Note payable to TCI (b)                     6.0%               104,644                  --- 
                                                                        ----------            ---------
       Debt of subsidiaries:                                               181,596                  ---
            Note payable to TCI (c)                     6.0%                 4,322                4,322
                                                                        ----------            ---------
                       Debt due TCI                                        185,918                4,322
                                                                        ----------            ---------

            Note payable to bank (d)                    7.3%                 5,815                6,257
            Note payable to bank (e)                    4.4%                23,425               25,954
            Note payable to bank (f)                    4.7%                79,500               25,000
            Liability to seller (g)                     ---                 19,637               19,637
            Unsecured note payable (h)                  6.0%                   545                1,635
            Convertible note payable (i)               10.0%                13,131               12,121
            Notes payable to bank (j)                   5.5%               110,000                  ---
            Note payable to affiliate                   ---                   ---                61,391
            Note payable to bank                        ---                   ---                 7,000
            Other debt, with varying
               rates and maturities                     8.9%                 8,127                4,335
                                                                        ----------            ---------
                                                                           260,180              163,330
                                                                        ----------            ---------

                                                                       $   446,098              167,652
                                                                        ==========            =========
</TABLE>

       (a)     Payable by Liberty.

               The notes payable are due on February 1, 1997 and are secured by
               the Company's partnership interest in CCT and in the Mile Hi
               Note.

       (b)     Payable by Liberty.

               These notes payable were amended to extend the due date from
               December 3, 1993 to the earlier of June 30, 1994 or ten days
               following termination of the proposed





                                     F-89
                                                                     (continued)
<PAGE>   109
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



               business combination of TCI and Liberty (see note 1).  From and
               after maturity, the unpaid amount of these notes will bear
               interest at 10% per annum, payable on demand.

       (c)     Payable by LMC Chicago Sports, Inc.

               This note is payable on December 31, 1996 and is secured by the
               Company's general partnership interest in Sports.

       (d)     Payable by Command Cable of Eastern Illinois Limited Partnership
               ("Command").

               This loan is payable in quarterly installments as defined in the
               related loan agreement, with a final payment on September 30,
               1994.  The quarterly installments consist of a fixed amount per
               quarter plus additional principal payments based on a percentage
               of the previous quarter's cash flow.  The loan agreement
               contains provisions for the maintenance of certain financial
               ratios and other matters.  At December 31, 1993, Command did not
               meet certain provisions of the note and the bank has the right
               to declare the loan in default.  Command has requested a waiver
               of these items from the bank.  All of Command's cable television
               assets are pledged as collateral under this loan agreement.  The
               Company's investment in Command has been reduced to zero and
               therefore a default by Command under its loan agreement will
               have no material effect on Liberty.

       (e)     Payable by US Cable of Paterson ("Paterson").

               This term loan has quarterly principal payments in increasing
               amounts through December 31, 1996.  In addition to the scheduled
               quarterly payments, an annual payment may be required based upon
               the prior year's excess cash flow, as defined.  The terms of the
               agreement include, in addition to other requirements, compliance
               with certain financial ratios and limitations on capital
               expenditures and leases.  The loan is secured and collateralized
               by the assets of Paterson, the franchise rights, and the
               assignment of its various leases and contracts.

               Paterson entered into an interest rate swap agreement to reduce
               the impact of changes in interest rates on its floating rate
               bank loan payable.  This agreement effectively fixes the
               interest rate on $6 million of its floating rate debt to 8.25%
               plus the adjustment based on the results of a certain financial
               ratio, as discussed above.  The agreement which had an
               expiration date of April 18, 1995 was





                                     F-90
                                                                     (continued)
<PAGE>   110
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



               terminated on December 29, 1993 at a cost of $403,000 including
               approximately $60,000 of accrued interest through the
               termination date.  Such amounts are included in interest expense
               in the 1993 consolidated statement of operations.

       (f)     Payable by CCT.

               This revolving line of credit provides for borrowings of up to
               $145,000,000 through March 31, 1995.  Such facility provides for
               mandatory commitment reduction payments through December 31,
               1999.  The revolving credit facility permits CCT to borrow from
               the banks to fund acquisitions of cable television systems and
               for other general purposes, subject to compliance with the
               restrictive covenants (including ratios of debt to cash flow and
               cash flow to interest expense) contained in the loan agreement
               governing the facility.

       (g)     Payable by ARC.

               The liability represents the discounted amount estimated under
               an "Earnout Rights" agreement.  The agreement requires annual
               payments during a five-year period contingent upon the
               operations from ARC's "DBS Business," as defined in the
               agreement.  The annual payments equal 86% of the Earnings Before
               Depreciation, Interest and Income Taxes ("EBDIT"), as defined of
               the DBS Business over the base EBDIT.  The calculated amount
               required under the agreement is $20 million.  At December 31,
               1992, the estimated liability was revised to the calculated
               amount under the agreement.  This amount is due on April 30,
               1994.  ARC has received a $30,000,000 financing commitment from
               a bank and intends to use a portion of that commitment to repay
               this obligation.  The financing commitment is subject to final
               documentation, and includes covenants to maintain certain
               financial ratios and other restrictions.  The discount was being
               deferred and amortized over the life of the agreement using the
               effective interest method.  Amortization of the discount
               amounted to $520,000, $1,483,000 and $455,000 for the year ended
               December 31, 1992, the nine months ended December 31, 1991 and
               the three months ended March 31, 1991, respectively.

       (h)     Payable by LMC Regional Sports, Inc.

               This note is payable in equal quarterly installments through 
               June 30, 1994.





                                     F-91
                                                                     (continued)
<PAGE>   111
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       (i)     Payable by ARC.

               These notes are due December 30, 2000.  The notes are
               convertible, at the option of the holders, into an 11.65%
               limited partnership interest in ARC.

       (j)     Payable by HSN.

               These notes payable consist of a $60 million unsecured senior
               term loan, $25 million of which matures on each of June 15, 1994
               and 1995 and $10 million of which matures on December 15, 1995;
               and a $50 million unsecured senior term loan, $25 million of
               which matures on each of January 31, 1997 and 1998; and a $40
               million three-year senior unsecured revolving credit facility.
               The revolving credit facility provides for yearly extension
               options at the request of HSN and is subject to the approval of
               participating banks.  At December 31, 1993, $40 million of the
               senior revolving credit facility remains available.
               Restrictions contained in the senior term loans and revolving
               credit agreement include, but are not limited to, limitations on
               the encumbrance and disposition of assets and the maintenance of
               various financial covenants and ratios.

               In February and April 1993, HSN drew $140 million under the
               above mentioned bank financing agreements.  These proceeds,
               together with available working capital of HSN, were used to
               retire $143,252,000 principal amount of the Unsecured 11-3/4%
               Senior Notes, due October 15, 1996 (the "Senior Notes"), at 104%
               of the principal amount plus accrued interest to the redemption
               date.  During August and September of 1993, HSN repaid $30
               million of the outstanding balance on the revolving credit
               facility.

               In 1993, HSN entered into interest rate exchange agreements with
               certain financial institutions to limit its exposure from
               interest rate volatility.  These agreements have notional
               principal amounts aggregating $115 million, of which $25
               million, $35 million and $30 million of the senior term loans,
               have fixed maximum variable interest rates if the London
               Interbank Offering Rate ("LIBOR") exceeds 6% until June 1994, 6%
               until June 1995 and 7% until October 1995, respectively.  The
               senior unsecured revolving credit facility has a principal
               amount of $25 million with a fixed maximum variable interest
               rate if LIBOR exceeds 6% until April 1994.  The three month
               LIBOR rate at December 31, 1993 was 3.3125%.

               On May 11, 1993, HSN retired the remaining $16,915,000 principal
               balance of its Unsecured 5-1/2% Convertible Subordinated
               Debentures, due April 22, 2002 (the





                                     F-92
                                                                     (continued)
<PAGE>   112
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



               "Debentures"), at 101.83% of the principal amount plus accrued
               interest to the redemption date.

               The Company recognized extraordinary losses on the early
               extinguishment of the Senior Notes and the Debentures.

       Certain of Liberty's subsidiaries are subject to loan agreements that
       prohibit or limit the transfer of funds of such subsidiaries to the
       parent company in the form of loans, advances or cash dividends.

       Subsidiaries of Liberty pay fees, generally 1/4% to 3/8% per annum, on
       the average unborrowed portion of the total amount available for
       borrowings under their bank credit facilities.

       Debt maturities are as follows: 1994 - $143,454,000; 1995 - $38,909,000;
       1996 - $21,834,000; 1997 - $109,941,000 and 1998 - $67,014,000.

(12)   PROMISSORY NOTES

       CCT has a note payable to TCI of approximately $58 million, including
       accrued interest, due January 1, 2000. The note bears interest at 8% per
       annum.  The note, net of payments made, is reflected as an addition to
       minority interest in the accompanying consolidated financial statements
       due to its related party nature.  Additionally, CCT has approximately
       $36 million, including accrued interest, in notes receivable from TCI
       due January 1, 2000.  The notes receivable earn interest at 11.6% per
       annum.  These notes receivable are reflected as a reduction of minority
       interest in the accompanying consolidated financial statements as they
       represent  subscription notes receivable.

(13)   INCOME TAXES

       Liberty files a consolidated Federal income tax return with all of its
       80% or more owned subsidiaries.  Consolidated subsidiaries in which the
       Company owns less than 80% each file a separate income tax return.
       Liberty and such subsidiaries calculate their respective tax liabilities
       on a separate return basis which are combined in the accompanying
       consolidated financial statements.

       The Predecessor Companies were included in the consolidated Federal
       income tax return of TCI.  Income tax expense for the Predecessor
       Companies was based on those items in the consolidated calculation
       applicable to the Predecessor Companies.  Intercompany tax





                                     F-93
                                                                     (continued)
<PAGE>   113
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       allocation represented an apportionment of tax expense or benefit (other
       than deferred taxes) among subsidiaries of TCI in relation to their
       respective amounts of taxable earnings or losses.  The receivable or
       payable arising from the intercompany tax allocation was recorded as an
       increase or decrease in amounts due from TCI.  Upon consummation of the
       Transactions, TCI repaid such amounts.

       In connection with the Transactions, TCI and Liberty entered into a tax
       sharing agreement.  TCI agreed to reimburse Liberty for the benefit from
       investment tax credits and net operating losses generated by Liberty
       which were utilized in the consolidated Federal income tax return of
       TCI.  Upon the consummation of the Transactions, Liberty was no longer
       included in the consolidated Federal income tax return of TCI.  At that
       time, all investment tax credits and net operating losses generated by
       Liberty, but not previously utilized by TCI in TCI's consolidated
       Federal income tax return, became available for use by Liberty in its
       own consolidated Federal income tax return.

       Certain of the Federal income tax returns of TCI are presently under
       examination by the Internal Revenue Service ("IRS") including the years
       1979 through the date of the Transactions.  These examinations may
       result in proposed adjustments for additional income taxes relating to
       Liberty.  If and when future settlements with the IRS become final and
       nonappealable and if adjustments relating to Liberty are required to any
       consolidated return year as previously filed,  Liberty and TCI have
       agreed to give effect to such adjustments as if they had been made a
       part of the original calculation of tax liabilities and benefits.  Any
       amount remaining due or previously overpaid shall be paid or refunded as
       the case may be.

       Certain of the Federal income tax returns of a less than 80% owned
       subsidiary of Liberty (the "Subsidiary") are presently under examination
       by the IRS.  During 1993, the IRS completed its examination of the
       Subsidiary's Federal income tax returns for its 1989 and 1988 fiscal
       years, proposing adjustments of approximately $11 million, not including
       interest thereon.  The adjustments related primarily to issues currently
       under protest for the Subsidiary's 1987 and 1986 fiscal years, including
       the Subsidiary's amortization of acquired FCC broadcast licenses and
       related intangible assets and the Subsidiary's deduction of certain
       royalty payments to a related party.  The Subsidiary's management
       believes that it has valid positions related to the adjustments and
       intends to vigorously defend its interests.  The Subsidiary has
       protested all proposed adjustments to the Appellate Division of the IRS.
       Management of the Subsidiary believes that the ultimate resolution of
       the matters will not have a material effect on the results of operations
       of the Subsidiary.





                                     F-94
                                                                     (continued)
<PAGE>   114
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       On February 9, 1994, the IRS announced a comprehensive Settlement
       Initiative which broadly addresses intangibles issues currently being
       contested by various taxpayers.  The intangibles issues currently being
       protested by the Subsidiary are subject to this Settlement Initiative.
       At this time, it is not certain whether the IRS will make a settlement
       offer to the Subsidiary, nor whether the Subsidiary would accept such an
       offer if made.

       The Financial Accounting Standards Board Statement No. 109 requires a
       change from the deferred method of accounting for income taxes of APB
       Opinion No. 11 to the asset and liability method of accounting for
       income taxes.  Under the asset and liability method of Statement No.
       109, deferred tax assets and liabilities are recognized for the
       estimated future tax consequences attributable to differences between
       the financial statement carrying amounts of existing assets and
       liabilities and their respective tax bases.  Deferred tax assets and
       liabilities are measured using enacted tax rates in effect for the year
       in which those temporary differences are expected to be recovered or
       settled.  Under Statement No. 109, the effect on deferred tax assets and
       liabilities of a change in tax rates is recognized in income in the
       period that includes the enactment date.

       The Company adopted Statement No. 109 in 1993 and has applied the
       provisions of Statement No. 109 retroactively to the Predecessor
       Companies to January 1, 1986.  The Company restated its financial
       statements for January 1, 1986 through March 28, 1991 for the
       Predecessor Companies and for March 29, 1991 through December 31, 1992
       for Liberty.  The effect of the implementation of Statement No. 109 was
       a net increase to stockholders' equity and a reduction to deferred taxes
       payable of $60,172,000 and $41,802,000 at March 28, 1991 and December
       31, 1992, respectively.





                                     F-95
                                                                     (continued)
<PAGE>   115
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The financial statements for the years ended December 31, 1992 and 1991 have
been restated to comply with the provisions of Statement No. 109. The following
summarizes the impact of applying Statement No. 109 on net earnings and net
earnings (loss) per common share attributable to common shareholders:
 
<TABLE>
<CAPTION>
                                                                                   PREDECESSOR
                                                           LIBERTY                  COMPANIES
                                                -----------------------------      ------------
                                                                 NINE MONTHS       THREE MONTHS
                                                 YEAR ENDED         ENDED             ENDED
                                                DECEMBER 31,     DECEMBER 31,       MARCH 31,
                                                    1992             1991              1991
                                                ------------     ------------      ------------
                                                AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<S>                                             <C>              <C>               <C>
Net earnings as previously reported             $   13,933          42,331     |         613
Effect of restatements:                                                        |
  Mile Hi and the Mile Hi Note (note 9)              2,329           1,851     |         367
  Lenfest and TKR (note 6)                           7,603          (3,276)    |      (1,093)
  Statement No. 109                                 (1,481)           (585)    |         339
                                                 ---------        --------     |   ---------
          As restated                           $   22,384          40,321     |         226
                                                 =========        ========     |   =========
Per share amounts as previously reported        $    (0.22)           0.15     |
Effect of restatements:                                                        |
  Mile Hi and the Mile Hi Note (note 9)               0.02            0.02     |
  Lenfest and TKR (note 6)                            0.05           (0.03)    |
  Statement No. 109                                  (0.01)          (0.01)    |
                                                 ---------        --------     |
          As restated                           $    (0.16)           0.13     |
                                                 =========        ========     |
                                                                                   (continued)
</TABLE>
 
                                     F-96
<PAGE>   116
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Income tax benefit (expense) consists of:
 
<TABLE>
<CAPTION>
                                                                                              PREDECESSOR
                                                               LIBERTY                         COMPANIES
                                             --------------------------------------------     ------------
                                                                             NINE MONTHS      THREE MONTHS
                                              YEAR ENDED      YEAR ENDED        ENDED            ENDED
                                             DECEMBER 31,    DECEMBER 31,    DECEMBER 31,      MARCH 31,
                                                 1993            1992            1991             1991
                                             ------------    ------------    ------------     ------------
                                                                  AMOUNTS IN THOUSANDS     
<S>                                          <C>             <C>             <C>              <C>
Current Federal tax expense                  $  (19,396)         (1,253)         (1,080)  |         --
Current state tax expense                        (4,332)         (1,238)           (700)  |        (47)
Intercompany tax benefit allocation                  --              --              --   |        150
                                              ---------      ----------       ---------   |        ---
                                                (23,728)         (2,491)         (1,780)  |        103
Deferred Federal tax benefit (expense)           11,423          (6,759)        (12,903)  |        552
Deferred state tax benefit (expense)                783          (1,193)         (2,278)  |         98
                                              ---------      ----------       ---------   |        ---       
                                                 12,206          (7,952)        (15,181)  |        650
                                              ---------      ----------       ---------   |        ---
                                             $  (11,522)        (10,443)        (16,961)  |        753
                                              =========       ==========       =========  |        ===      
</TABLE>
 
Income tax benefit (expense) differs from the amounts computed by the Federal
income tax rate of 35% in 1993 and 34% in all previous periods as a result of
the following:
 
<TABLE>
<CAPTION>
                                                                                              PREDECESSOR
                                                               LIBERTY                         COMPANIES
                                             --------------------------------------------     ------------
                                                                             NINE MONTHS      THREE MONTHS
                                              YEAR ENDED      YEAR ENDED        ENDED            ENDED
                                             DECEMBER 31,    DECEMBER 31,    DECEMBER 31,      MARCH 31,
                                                 1993            1992            1991             1991
                                             ------------    ------------    ------------     ------------
                                                                  AMOUNTS IN THOUSANDS      
<S>                                          <C>             <C>             <C>              <C>
Computed expected tax benefit (expense)        $ (6,478)        (11,161)        (19,476)   |       179
Dividends excluded for income tax purposes          182           4,144           2,849    |       976
Amortization not deductible for income tax                                                 |
  purposes                                       (3,944)           (155)           (116)   |       (39)
Excess executive compensation                      (689)             --              --    |        --
Minority interest in consolidated corporate                                                |
  subsidiaries                                      386            (132)             40    |        --
State and local income taxes, net of                                                       |
  Federal income tax benefit                     (2,307)         (1,604)         (1,965)   |        (8)
Effect of change in anticipated state tax                                                  |
  rate                                            2,043              --              --    |        --
Effect of change in Federal tax rate               (707)             --              --    |        --
Other, net                                           (8)         (1,535)          1,707    |      (355)
                                              ---------      ----------       ---------    |       ---       
                                               $(11,522)        (10,443)        (16,961)   |       753
                                              =========      ==========       =========    |       ===      
</TABLE>
 
                                                                     (continued)
 
                                     F-97
<PAGE>   117
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The significant components of deferred income tax benefit (expense) are as
follows:
 
<TABLE>
<CAPTION>
                                                         LIBERTY                        PREDECESSOR
                                       --------------------------------------------      COMPANIES
                                                                       NINE MONTHS      ------------
                                        YEAR ENDED      YEAR ENDED        ENDED         THREE MONTHS
                                       DECEMBER 31,    DECEMBER 31,    DECEMBER 31,     ENDED MARCH
                                           1993            1992            1991           31, 1991
                                       ------------    ------------    ------------     ------------
                                                           AMOUNTS IN THOUSANDS      
    <S>                                  <C>              <C>             <C>              <C>
    Differences in recognition of                                                   |
      earnings or losses of affiliates                                              |
      for income tax and financial                                                  |
      statement purposes                 $  3,098         (4,679)         (17,067)  |      (2,564)
    Dividend income, including premium                                              |
      on redemption, recognized for                                                 |
      financial statement purposes in                                               |
      excess of income recognized for                                               |
      income tax purposes                    (814)        (4,179)            (660)  |        (153)
    Interest income recognized for                                                  |
      income tax purposes in excess of                                              |
      income recognized for financial                                               |
      statement purposes                       --          4,287            2,509   |         331
    Recognition of deferred gain for                                                |
      financial statement purposes in                                               |
      excess of gain recognized for                                                 |
      income tax purposes                      --         (9,020)          (4,413)  |          --
    Differences in recognition of                                                   |
      compensation relating to stock                                                |
      appreciation rights and unearned                                              |
      compensation arrangements             8,517          6,775              560   |          --
    Litigation settlement expenses                                                  |
      recognized for financial                                                      |
      statement purposes in excess of                                               |
      amount recognized for income tax                                              |
      purposes                              2,766             --               --   |          --
    Inventory costing                       4,057             --               --   |          --
    Accrued liabilities for financial                                               | 
      statement purposes in excess of                                               |
      amount recognized for income tax                                              |
      purposes attributable primarily                                               |
      to home shopping programming                                                  |
      services                              3,200             --               --   |          --
    Generation (utilization) of net                                                 |
      operating loss, capital loss,                                                 |
      investment tax credit and                                                     |
      alternative minimum tax              (8,931)        (1,113)           3,584   |          70
    Change in valuation allowance                                                   |
      during the period                      (134)            --               --   |          --
    Differences in depreciation and                                                 |
      amortization for income tax and                                               |
      financial statement purposes           (871)            --              300   |       2,820
    Net benefit realized due to change                                              |
      in state and Federal income tax                                               |
      rates                                 1,336             --               --   |          --
    Other, net                                (18)           (23)               6   |         146
                                          -------      ---------          -------   |      ------
                                         $ 12,206         (7,952)         (15,181)  |         650
                                          =======      =========          =======   |      ======
</TABLE>
 
                                                                     (continued)
 
                                     F-98
<PAGE>   118
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1993 and
1992 are presented below:
 
<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                     ---------------------
                                                                       1993         1992
                                                                     --------     --------
                                                                     AMOUNTS IN THOUSANDS
    <S>                                                              <C>           <C>
    Deferred tax assets:
      Net operating and capital loss carryforwards                   $  8,833       22,507
      Charitable contribution carryforward                                910           --
      Investment tax credit carryforward                                3,422        4,095
      Alternative minimum tax carryforward                              5,317        2,499
      Investments in affiliates, due principally to losses
         of affiliates recognized for financial statement
         purposes in excess of losses recognized for income
         tax purposes                                                  44,209       59,819
      Inventory costing                                                 7,248           --
      Provision for returns and allowance                               4,669           --
      Provision for uncollectable amounts                               3,193          128
      Future deductible amount attributable to accrued
         stock appreciation rights and deferred compensation           15,240        7,269
      Future deductible amount related to accrued litigation
         settlements                                                    2,766           --
      Other future deductible amounts primarily due to
         non-deductible accruals                                        8,672          596
                                                                      -------      -------
      Total gross deferred tax assets                                 104,479       96,913
         Less valuation allowance of deferred tax assets                2,017        1,138
                                                                      -------      -------
              Net deferred tax assets                                 102,462       95,775
                                                                      -------      -------
    Deferred tax liabilities:
      Property and equipment, principally due to
         differences in depreciation                                    9,274        1,258
      Intangible assets, principally due to differences in
         amortization                                                   6,170           --
      Investments in affiliates, due principally to undistributed
         earnings of affiliates                                        88,671      109,491
                                                                      -------      -------
         Total gross deferred tax liabilities                         104,115      110,749
                                                                      -------      -------
              Net deferred tax liability                             $  1,653       14,974
                                                                      =======      =======
</TABLE>
 
The valuation allowance for deferred tax assets as of December 31, 1992 was
$1,138,000.
                                                                     (continued)
 
                                     F-99
<PAGE>   119
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       At December 31, 1993, the Company had net operating and capital loss
       carryforwards for income tax purposes aggregating approximately
       $23,872,000 which, if not utilized to reduce taxable income in future
       periods, expire as follows: $8,345,000 in 1997, $15,353,000 in 2004 and
       $174,000 in 2005.

       At December 31, 1993, the Company had remaining available investment tax
       credits of approximately $3,422,000 which, if not utilized to offset
       future Federal income taxes payable, expire at various dates through
       2004.

       New tax legislation was enacted in the third quarter of 1993 which,
       among other matters, increased the corporate Federal income tax rate
       from 34% to 35%.  In addition, the Company recognized the benefit of a
       reduction in its state income tax rate relating to its receipt of
       favorable tax rulings from certain state tax authorities.  The Company
       has reflected the tax rate changes in its consolidated statements of
       operations in accordance with the treatment prescribed by Statement No.
       109.  Such tax rate changes resulted in a net decrease of $1,336,000 in
       income tax expense.

(14)   PREFERRED STOCKS SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS

       CLASS A REDEEMABLE CONVERTIBLE PREFERRED STOCK

       The 10,794 shares of Class A Preferred Stock outstanding at December 31,
       1992 held by TCI (representing 100% of the issued and outstanding shares
       at that time) were converted on January 15, 1993 in accordance to its
       terms, into 4,405,678 shares of Liberty Class A common stock and 55,070
       shares of Liberty Class E Preferred Stock.  Such Class A Preferred Stock
       was retired and may not be reissued.

       CLASS B REDEEMABLE EXCHANGEABLE PREFERRED STOCK

       The Company is authorized to issue up to 106,000 shares of the Class B
       Preferred Stock.  The aggregate number of shares of such Class B
       Preferred Stock that was issued to TCI and outstanding at December 31,
       1993 is 105,353 shares (representing 100% of the issued and outstanding
       shares).  The accretion rate for the Class B Preferred Stock is 8.5% per
       annum, compounded semi-annually.

       At the option of the Company, the shares of the Class B Preferred Stock
       are redeemable at any time, in whole or in part, at a redemption price
       equal to the accreted value per share as of the redemption date, payable
       solely in cash, and at the option of the Company will also be
       exchangeable, in whole but not in part, for shares of a series of Class
       F Serial





                                    F-100
                                                                     (continued)
<PAGE>   120
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       Preferred Stock or of any other class or series of preferred stock of
       the Company then authorized to be issued (the "Convertible Exchangeable
       Preferred Stock"), the rights, preferences and qualifications of which
       shall be substantially similar to those of the Class B  Preferred Stock
       as to ranking, voting rights, rights of redemption for cash at the
       option of the Company and mandatory redemption on March 28, 2006.  If
       the Company elects to issue shares of Convertible Exchangeable Preferred
       Stock in exchange for Class B  Preferred Stock, such shares will be
       convertible, in whole or in part, at the option of the holder into
       shares of Liberty Class A common stock, but will not be exchangeable at
       such holder's option for TCI common stock. The holder will have optional
       redemption rights equivalent to those for the Class B Preferred Stock,
       as described below, but the Company will not have the right to satisfy
       its redemption obligations with respect thereto through the issuance of
       additional shares of Convertible Exchangeable Preferred Stock.  The
       shares of Convertible Exchangeable Preferred Stock may accrete dividends
       at a rate different from the accretion rate then applicable to the
       shares of Class B Preferred Stock for which they are exchanged or may
       provide for the accrual and payment of cash dividends (which may or may
       not be cumulative).  At the option of the Company, at any time after
       March 28, 1995, the shares of Convertible Exchangeable Preferred Stock
       will be exchangeable, in whole but not in part, for subordinated notes
       of the Company that will be convertible, in whole or in part, at the
       option of the holder into shares of Liberty Class A common stock (the
       "Convertible Subordinated Notes").  If the shares of Convertible
       Exchangeable Preferred Stock that are being exchanged for Convertible
       Subordinated Notes accrete dividends, then the Convertible Subordinated
       Notes will be zero coupon notes, the issue price of which shall be equal
       to the liquidation price of the shares of Convertible Exchangeable
       Preferred Stock for which they are exchanged as of the date of such
       exchange, and the principal amount of which shall be equal to the
       liquidation price of such shares of Convertible Exchangeable Preferred
       Stock at March 28, 2006. If the shares of Convertible Exchangeable
       Preferred Stock that are being exchanged for Convertible Subordinated
       Notes provide for the accrual and payment of cash dividends, the
       principal amount of such Convertible Subordinated Notes shall be equal
       to the liquidation price of the shares of Convertible Exchangeable
       Preferred Stock for which they are exchanged as of the date of such
       exchange, plus (to the extent not already included in such liquidation
       price) all accumulated or accrued and unpaid dividends, if any, to the
       date of such exchange, and interest will accrue, and be payable
       semiannually, on such principal amount at a rate per annum equivalent to
       the annual dividend rate for such shares of Convertible Exchangeable
       Preferred Stock.  The terms of the Convertible Subordinated Notes shall
       otherwise be substantially similar to those of the shares of Convertible
       Exchangeable Preferred Stock for which they are exchanged, except for
       such variations as may be appropriate to reflect the differences between
       debt securities and equity securities and except that such Convertible
       Subordinated Notes will not be exchangeable for another issue of
       Convertible Subordinated Notes.





                                    F-101
                                                                     (continued)
<PAGE>   121
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




       In addition, at any time after March 28, 1995, the shares of Class B
       Preferred Stock shall each be exchangeable, at the Company's option, in
       whole but not in part, for zero coupon subordinated notes of the Company
       (the "Exchangeable Subordinated Notes").  The principal amount of such
       Exchangeable Subordinated Notes shall be equal to the accreted value of
       the shares for which they are exchanged as of March 28, 2006 (rounded
       down to the nearest $1,000) and the issue price of such Exchangeable
       Subordinated Notes (plus the amount of any cash adjustment payable in
       lieu of issuing Notes in other than authorized denominations) shall be
       equal to the accreted value of such shares as of the date of exchange.
       The terms of the Exchangeable Subordinated Notes shall otherwise be
       substantially similar to those of the Class B Preferred Stock for which
       they are exchanged, except for such variations as may be appropriate to
       reflect the differences between debt securities and equity securities
       and  except that such Exchangeable Subordinated Notes will be
       exchangeable at the option of the Company at any time after issuance
       thereof for Convertible Subordinated Notes of the Company, but will not
       be exchangeable or redeemable for shares of Convertible Exchangeable
       Preferred Stock or for another issue of Exchangeable Subordinated Notes.
       The rate at which the Exchangeable Subordinated Notes may be exchanged
       for shares of TCI common stock at the option of the holder shall be
       calculated so that the aggregate principal amount of the Exchangeable
       Subordinated Notes issued in exchange for shares of the Class B
       Preferred Stock will be exchangeable into the same aggregate number of
       shares of TCI common stock as the shares of Class B Preferred Stock for
       which they were exchanged.

       The shares of Class B Preferred Stock are also exchangeable or
       redeemable at the option of the holder as described below.

       The shares of Class B Preferred Stock, unless previously redeemed, will
       be exchangeable at the option of the holder at any time in whole or in
       part for shares of TCI common stock. The Company will have the option of
       delivering shares of TCI Class A common stock or TCI Class B common
       stock or any combination thereof upon such exchange.  The exchange rate
       for the Class B Preferred Stock is 54.34 shares of TCI common stock for
       each share of Class B Preferred Stock, subject to adjustment under
       certain conditions.

       The exchange rights of the shares of Class B Preferred Stock will expire
       at the close of business on the business day immediately preceding March
       28, 2006 or, in the case of shares of Class B Preferred Stock called for
       redemption or exchange, at the close of business on the date specified
       for such redemption or exchange, unless in either case the Company
       defaults in the payment of the redemption price or the making of the
       exchange.





                                    F-102
                                                                     (continued)
<PAGE>   122

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       The Company deposited with an escrow agent all shares of TCI common
       stock acquired by the Company in connection with the Exchange.  The TCI
       common stock is held by the escrow agent for delivery to holders of
       Class B Preferred Stock upon exchange.  Upon surrender of shares of
       Class B Preferred Stock for exchange, the holder thereof shall be
       entitled to receive the shares of TCI common stock at the then
       applicable exchange rate.  Any shares of TCI common stock remaining in
       escrow after March 28, 2006 will be returned to and become the sole
       property of the Company.

       The holders of shares of Class B Preferred Stock may, by delivery of a
       written notice of demand (a "Demand Notice"), require the Company to
       redeem all shares of Class B Preferred Stock covered by such Demand
       Notice on March 28, 1996 and March 28, 2001 (each such date a "Special
       Redemption Date"), at a redemption price (the "Special Redemption
       Price") equal to the accreted value of such shares as of such Special
       Redemption Date.

       The Special Redemption Price will be payable by the Company, at its
       option, in cash, Liberty Class A common stock, Convertible Exchangeable
       Preferred Stock, TCI common stock, the Company's convertible
       subordinated extension notes due on March 28, 2006, which are
       convertible into Liberty Class A common stock (the "Convertible
       Extension Notes"), the Company's subordinated extension notes due on
       March 28, 2006 (the "Non-Convertible Extension Notes", and together with
       the Convertible Extension Notes, the "Extension Notes") or any
       combination thereof; provided, however, that if any Convertible
       Extension Notes are issued as such payment, Convertible Extension Notes
       shall constitute no less than 25% of the Special Redemption Price and if
       Non-Convertible Extension Notes are issued as such payment,
       Non-Convertible Extension Notes shall constitute no less than 25% of the
       Special Redemption Price.

       Unless all outstanding shares of Class B Preferred Stock to be redeemed
       or exchanged are at the time held by TCI, the Company's right to redeem
       shares of Class B Preferred Stock through the delivery of Extension
       Notes or shares of Liberty Class A common stock, Convertible
       Exchangeable Preferred Stock or TCI common stock is subject to the
       Company satisfying various conditions.

       CLASS D REDEEMABLE VOTING PREFERRED STOCK

       The Company is authorized to issue up to 18,000 shares of Class D
       Redeemable Voting Preferred Stock (the "Class D Preferred Stock").  The
       aggregate number of shares of such Class D Preferred Stock issued to TCI
       and outstanding at December 31, 1993 is 17,238 shares (representing 100%
       of the issued and outstanding shares).  The accretion rate for the Class
       D Preferred Stock is 10% per annum, compounded semi-annually.





                                    F-103
                                                                     (continued)
<PAGE>   123
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




       The Class D Preferred Stock is redeemable at the option of the Company
       at any time and from time to time on and after March 28, 1996, in whole
       or in part, for a redemption price, payable solely in cash, equal to the
       accreted value per share of such class as of the redemption date.  The
       Class D Preferred Stock is subject to a mandatory redemption requirement
       on March 28, 2006.

       Originally, TCI had the exclusive right to elect a number of directors
       equal to not less than 20% (rounded upward to the nearest whole number)
       of the total number of members of the Company's Board of Directors for
       so long as all of the outstanding shares of Class D Preferred Stock are
       owned by TCI, voting together as a separate class.  On March 26, 1993 in
       conjunction with the Recapitalization Agreement described in note 16,
       the terms of the Class D Preferred was amended to reduce the number of
       directors elected by the holders of the Class D Preferred from 20% of
       the total number of the Company's Board of Directors to 11% (which shall
       include the right to fill any vacancy created by the death or
       resignation of any director elected by the holders of Class D Preferred
       Stock or by the removal by such holders of any director elected by them,
       and to elect such number of additional directors to fill any newly
       created directorships as is necessary to maintain such level of
       representation).  In the event that TCI ceases to own in the aggregate
       100% of the outstanding shares of Class D Preferred Stock, the foregoing
       special voting rights of such class shall terminate.





                                    F-104
                                                                     (continued)
<PAGE>   124
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
The following table reflects the changes in each issue of preferred stock
subject to mandatory redemption requirements from the date of issuance through
December 31, 1993:
 
<TABLE>
<CAPTION>
                                                                                           TOTAL
                                                                                         PREFERRED
                                                                                           STOCK
                                                                                         SUBJECT TO
                                                CLASS B   CLASS B                        MANDATORY
                                                SERIES    SERIES               CLASS     REDEMPTION
                                     CLASS A       1         2      CLASS C      D      REQUIREMENTS
                                     --------   -------   -------   --------   ------   ------------
                                                         AMOUNTS IN THOUSANDS
<S>                                  <C>        <C>       <C>       <C>        <C>      <C>
LIBERTY
Net effect of Transactions (note 2)  $ 10,794   105,353    91,611    399,299   17,238      624,295
Redemption of Class B Preferred
  Stock                                    --        --   (91,611)        --       --      (91,611)
Accreted dividends                        798     6,954        --     15,404    1,343       24,499
Retroactive effect of the
  Recapitalization (note 2)                --        --        --   (414,703)      --     (414,703)
                                      -------   -------   -------   --------   ------   ----------
BALANCE AT DECEMBER 31, 1991           11,592   112,307        --         --   18,581      142,480
Accreted dividends                      1,128     9,749        --         --    1,904       12,781
                                      -------   -------   -------   --------   ------   ----------
BALANCE AT DECEMBER 31, 1992           12,720   122,056        --         --   20,485      155,261
Accreted dividends                         47    10,596        --         --    2,100       12,743
Conversion of Class A Preferred
  Stock for Class A common stock      (12,767)       --        --         --       --      (12,767)
                                      -------   -------   -------   --------   ------   ----------
BALANCE AT DECEMBER 31, 1993         $     --   132,652        --         --   22,585      155,237
                                      =======   =======   =======   ========   ======   ==========
</TABLE>
 
                                                                     (continued)
 
                                    F-105
<PAGE>   125

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(15)   STOCKHOLDERS' EQUITY

       (A)     PREFERRED STOCKS NOT SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS

               CLASS C REDEEMABLE EXCHANGEABLE PREFERRED STOCK

               On March 26, 1993, pursuant to the Recapitalization Agreement
               described in note 16, the 399,299 shares of Class C Redeemable
               Exchangeable Preferred Stock (the "Class C Preferred Stock")
               held by TCI (representing 100% of the issued and outstanding
               shares) were repurchased and retired and may not be reissued.

               CLASS E, 6% CUMULATIVE REDEEMABLE EXCHANGEABLE JUNIOR PREFERRED 
               STOCK

               The Company is authorized to issue 2,000,000 shares of Class E
               Preferred Stock.  The aggregate number of shares of such Class E
               Preferred Stock issued upon consummation of the Recapitalization
               approved by the shareholders on March 12, 1992 was 1,620,026.
               When issued, the shares had a liquidation value of $100 per
               share. Dividends accrue on the Class E Preferred Stock at the
               rate of 6% per annum and are payable on March 1 of each year in
               cash or, at the option of the Company, in whole or in part, in
               shares of its Class A common stock.  No interest or additional
               dividends will accrue or be payable on accumulated, accrued and
               unpaid dividends.

               The Class E Preferred Stock is redeemable at the option of the
               Company at any time or from time to time, in whole or in part,
               for a redemption price payable solely in cash equal to the
               liquidation value of each share (including any accrued and
               unpaid dividends).  There is no mandatory redemption
               requirement.

               In addition, the shares of Class E Preferred Stock may, at any
               time, at the option of the Company, be exchanged in whole for
               junior subordinated notes of the Company (the "Junior Exchange
               Notes").  The principal amount of the Junior Exchange Notes
               shall be equal to the liquidation value of each share (including
               accrued and unpaid dividends) on the exchange date.

               The Junior Exchange Notes will bear interest, payable annually,
               at a rate equal to the prevailing Fifteen Year Treasury Rate (as
               defined) plus 2.15% and will have a maturity date 15 years from
               the date of issuance.





                                    F-106
                                                                     (continued)
<PAGE>   126
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



               CLASS F SERIAL PREFERRED STOCK

               The Company is authorized to issue 5,000,000 shares of Class F
               Serial Preferred Stock (the "Class F Preferred Stock") in one or
               more series and to fix and state the designations, powers,
               preferences, qualifications, limitations, restrictions and
               relative rights of the shares of each such series.  At any time
               that shares of any class or series of the above-described
               preferred stock (other than the Class F Preferred Stock) are
               issued and outstanding, the number of shares of Class F
               Preferred Stock of any series that may be issued shall not
               exceed the difference between five million (the number of Class
               F Preferred Stock currently authorized) and the sum of (i) the
               number of shares of all classes and series of the
               above-described preferred stock (other than the Class F
               Preferred Stock) issued and outstanding and (ii) the number of
               shares of all series of Class F Preferred Stock issued and
               outstanding, in each case at the time the resolution of the
               Board of Directors authorizing the issuance of shares of such
               series of Class F Preferred Stock is adopted.

       (B)     COMMON STOCK

               GENERAL

               Liberty is authorized to issue 300,000,000 Class A shares and
               100,000,000 Class B shares.  Liberty had 87,515,378 Class A
               shares and 43,338,720 Class B shares outstanding at December 31,
               1993, and 76,036,000 Class A shares and 43,340,320 Class B
               shares outstanding at December 31, 1992.

               The Class A common stock has one vote per share and the Class B
               common stock has ten votes per share.  Each share of Class B
               common stock is convertible, at the option of the holder, into
               one share of Class A common stock.

               STOCK OPTION

               The Company has an employment agreement with an officer (who is
               also a director).  Pursuant to this agreement, such officer was
               granted an option to acquire 100,000 shares of Liberty Class B
               common stock at a purchase price of $256 per share (reflects
               actual shares issued).  The employment agreement was amended and
               the option was exercised with cash and a $25,500,000 note.  This
               note bears interest at 7.54% per annum.  During October 1991,
               such officer tendered to the Company in partial payment of such
               note 800,000 shares of TCI





                                    F-107
                                                                     (continued)
<PAGE>   127
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



               Class B common stock, resulting in a net reduction of
               $12,195,000 in the amount payable under the note.

               The 100,000 shares issued by Liberty upon exercise of this
               option, together with all subsequent dividends and distributions
               thereon, including shares issued in the Stock Splits
               (collectively totaling 16,000,000 shares of Liberty Class B
               common stock and 200,000 shares of Class E Preferred Stock at
               December 31, 1993, the "Option Units"), are subject to
               repurchase by the Company under certain circumstances.  The
               Company's repurchase right will terminate as to 20% of the
               Option Units per year, commencing March 28, 1992, and will
               terminate as to all of the Option Units in the event of death,
               disability or under certain other circumstances.

               On October 24, 1992, said officer of the Company entered into a
               letter agreement with respect to the timing and method of
               payment under the promissory note and the release of the 200,000
               shares of Class E Preferred Stock from the collateral securing
               the promissory note.  A payment of approximately $984,000 for
               all interest accruing during calendar 1993 (after giving effect
               to a discount at the rate of 7.54% per annum to reflect the time
               value of money received prior to the scheduled payment date)
               was made in March 1993.  After giving effect to the payment and
               the terms of the letter agreement, the remaining principal
               balance on the note is approximately $14,500,000.  The next
               scheduled payment will be on October 24, 1994 in the principal
               amount of approximately $4,300,000 plus interest accrued from
               December 31, 1993 to the payment date.

               STOCK PLAN

               The Company has a Stock Incentive Plan (the "Stock Plan") in
               order to provide a special incentive to officers and other
               persons.  Under the Stock Plan, stock options, stock
               appreciation rights, restricted stock and other awards valued by
               reference to, or that are otherwise based on, the value of Class
               A common stock may be granted in respect to a maximum of
               40,000,000 shares of Class A common stock.  Shares to be
               delivered under the Stock Plan will be available from authorized
               but unissued shares of Class A common stock or from shares of
               Class A common stock reacquired by the Company.  Shares of Class
               A common stock that are subject to options or other awards that
               terminate or expire unexercised will return to the pool of such
               shares available for grant under the Stock Plan.





                                    F-108
                                                                     (continued)
<PAGE>   128
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


               In June 1993, the Company granted an aggregate of 56,000
               non-qualified stock options with stock appreciation rights to
               certain officers and key employees under the Stock Plan. Each
               option is exercisable for one share of Class A common stock at
               an exercise price of $19.08. The options vest in five equal
               annual installments commencing June 3, 1994 and expire in June
               2003. Estimates of compensation relating to these stock options
               with stock appreciation rights have been recorded through
               December 31, 1993, but are subject to future adjustments based
               upon market value and, ultimately, on the final determination of
               market value when the rights are exercised.

               Stock Appreciation Rights

               The Company has granted to certain of its officers stock
               appreciation rights with respect to 2,240,000 shares of Liberty
               Class A common stock. These rights have an adjusted strike price
               of $0.80 per share, become exercisable and vest evenly over
               seven years. Stock appreciation rights expire on March 28, 2001.
               Estimates of compensation relating to these stock appreciation
               rights have been recorded through December 31, 1993, but are
               subject to future adjustment based upon market value and,
               ultimately, on the final determination of market value when the
               rights are exercised. On December 31, 1992, one of the Company's
               officers exercised stock appreciation rights with respect to
               14,000 shares. Said officer was paid $166,425 (the difference
               between the market price and strike price on the date
               exercised). Stock appreciation rights with respect to 526,000
               shares were exercised on October 29, 1993 and on November 2,
               1993 stock appreciation rights with respect to 240,000 shares
               were exercised resulting in an aggregate payment of $21,541,200
               (the difference between the market price and exercise price on
               the dates exercised) to the officers exercising such rights.

               In 1993, the President of HSN received stock appreciation
               rights with respect to 984,876 shares of HSN's common stock at
               an exercise price of $8.25 per share. These rights vest over a
               four year period and are exercisable until February 23, 2003.
               The stock appreciation rights will vest upon termination of
               employment other than for cause and will be exercisable for up
               to one year following the termination of employment. In the
               event of a change in ownership control of HSN, all unvested
               stock appreciation rights will vest immediately prior to the
               change in control and shall remain exercisable for a one year
               period. Stock appreciation rights not exercised will expire to
               the extent not exercised. These rights may be exercised for cash
               or, so long as HSN is a public company, for shares of HSN's
               common stock equal to the excess of the fair market value of
               each share of common stock over $8.25 at the exercise date. The
               stock appreciation rights also will vest in the event of death
               or disability.



                                       F-109                        (continued)
<PAGE>   129
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

         Estimated compensation relating to these stock appreciation
         rights has been recorded through December 31, 1993, but is subject to
         future adjustment based upon market value, and ultimately, on the
         final determination of market value when the rights are exercised.


(16)    TRANSACTIONS WITH TCI AND OTHER RELATED PARTIES

    On December 30, 1991, TCI Liberty, Inc. ("TCIL"), a wholly-owned
    subsidiary of TCI, entered into a Commercial Paper Purchase Agreement with
    Liberty whereby Liberty could from time to time purchase short-term notes
    from TCIL of up to an aggregate amount of $100 million. TCIL borrowed
    $22,000,000 from Liberty on December 31, 1991, pursuant to the Commercial
    Paper Purchase Agreement. The full amount, including interest, was repaid
    on January 15, 1992. Interest rates on the short-term notes were
    determined by the parties by reference to prevailing money-market rates. 
    This agreement was terminated on March 23, 1993.

    Certain subsidiaries of Liberty produce and/or distribute sports and
    other programming to cable television operators (including TCI) and others. 
    Charges to TCI are based upon customary rates charged to others.  

    Certain subsidiaries of Liberty purchase, at TCI's cost plus an
    administrative fee, certain pay television and other programming through a
    subsidiary of TCI. In addition, HSN pays a commission to TCI for
    merchandise sales to customers who are subscribers of TCI's cable systems. 
    Aggregate commissions and charges to TCI were approximately $10,650,000,
    $3,290,000, $1,532,000 and $495,000 for the years ended December 31, 1993
    and 1992, the nine months ended December 31, 1991 and the three months
    ended March 31, 1991, respectively.  

    On December 31, 1991, Liberty Program Investments, Inc, a wholly-owned
    subsidiary of the Company, purchased certain securities of QVC from TCI for
    approximately $28,339,000 in cash. The consideration for the QVC
    securities was based upon published prices. At the same time, Liberty
    Cable, Inc., a wholly-owned subsidiary of the Company, sold a certain note
    receivable from American TeleVenture Corporation ("ATV") to TCI Holdings,
    Inc. (a wholly-owned subsidiary of TCI) for $5,523,000 in cash, and LMC
    Cable AdNet II, a wholly-owned subsidiary of the Company, sold all of the
    common stock of Cable Television Advertising Group, Inc. ("CTAG") to TCI 



                                      
                                    F-110                          (continued)
<PAGE>   130
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       Development Corporation ("TCID"), a wholly-owned subsidiary of TCI, for
       $22,667,000 in cash.  The only asset held by CTAG is a 49% general
       partnership interest in Cable AdNet Partners.  The remaining 51% general
       partnership interest in Cable AdNet Partners is held by another
       subsidiary of TCID.  The consideration for the ATV note was determined
       by reference to its face value, plus accrued interest.  The ATV note
       bears interest at 2% above the prime rate.  The consideration for the
       stock of CTAG was determined by reference to the price paid for the 51%
       general partnership interest in Cable AdNet Partners, which was acquired
       by an indirect, wholly-owned subsidiary of TCI from Cable AdNet, Inc., a
       subsidiary of Lenfest on November 25, 1991.  At such date, Mr. H. F.
       Lenfest (a director of the Company) was President and Chief Executive
       Officer of Lenfest.

       Also, on December 31, 1991, an Exchange Agreement among TCI (and certain
       of its subsidiaries) and Liberty (and certain of its subsidiaries) was
       consummated.  Pursuant to this Exchange Agreement, TCI received 69% of
       the stock of ATV, 2,024,063 shares of common stock of International
       Cablecasting Technologies, Inc., a release from an obligation to
       reimburse Liberty related to the repurchase of certain QVC stock, a
       release of the option with respect to Cencom Cable Associates, Inc. and
       a note in the amount of $4,322,000 issued by LMC Chicago Sports, Inc., a
       subsidiary of the Company.  Liberty received a release from an
       obligation to provide two free months of Courtroom Television Network
       service, a 0.1% general partnership interest in US Cable of Northern
       Indiana, a 25% general partnership interest in Sports, an option to
       acquire an additional 25% general partnership interest in Sports, and
       $149,000 in cash.  In the opinion of the respective managements of TCI
       and Liberty, the aggregate values of the assets exchanged were
       substantially equivalent.  Further, the Exchange Agreement was approved
       by the respective Boards of Directors of TCI and Liberty.

       The foregoing related party transactions have been recorded based on
       historical cost.  For acquisitions, the excess of the amount paid by
       Liberty over TCI's historical cost has been accounted for by the Company
       similar to a "preferential dividend" by deducting such amount from
       retained earnings. For dispositions, the excess of the amount paid by
       TCI over Liberty's historical cost has been accounted for as an increase
       in additional paid-in capital.

       In January 1992, the Company and TCI formed CCT, a general partnership
       created for the purpose of acquiring and operating cable television
       systems.  The definitive partnership agreement was executed in March
       1992.  TCI and the Company each agreed to contribute certain non-cash
       assets and up to $25 million in cash as needed to fund mutually
       acceptable acquisitions.  In June 1992, CCT acquired certain cable
       television





                                    F-111
                                                                     (continued)
<PAGE>   131
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       assets in Texas from a third party for aggregate consideration of
       $15,175,000.  Funds for the acquisition were borrowed by CCT ratably
       from its two partners.  Pursuant to a Cable Television Management
       Agreement, a subsidiary of TCI provides management services for cable
       television systems owned by CCT.  The subsidiary receives a fee equal to
       3% of the gross cable television revenue of the partnership.

       On December 29, 1992, the Company and TCI, as the sole partners of CCT,
       agreed to amend the CCT General Partnership Agreement.  Pursuant to the
       amendment, the contributions by the Company and TCI of non-cash assets
       (other than the contribution by the Company of its partnership interest
       in Greater Media of Western Oakland County Limited ("Greater Media")) to
       CCT by Liberty and TCI were rescinded, retroactive to the date of
       contribution.  All economic and tax attributes were allocated entirely
       to Liberty with respect to all of the assets contributed by Liberty
       (other than the partnership interest in Greater Media, the allocations
       of which remained unchanged) and entirely to TCI with respect to the
       Class C Preferred Stock contributed by TCI, all effective from and after
       the date of contribution.    TCI contributed to CCT a $10,590,000
       promissory note as of the date of the contribution of the originally
       contributed assets.

       On December 31, 1992, the Company sold a note receivable from an
       affiliate to TCI for $36,300,000 in cash.  A loss of $17,826,000 was
       recognized upon the sale.

       On March 26, 1993, Liberty and TCI and certain of their respective
       subsidiaries entered into a series of agreements regarding the
       repurchase by Liberty of certain shares of its common and preferred
       stock from TCI and the purchase by TCI of certain cable television
       investments from Liberty and on June 3, 1993, Liberty completed the
       transactions contemplated by said agreements.  The first such agreement
       (the "Recapitalization Agreement") was between Liberty, TCIL and
       Tele-Communications of Colorado, Inc. ("TCIC") both of which are wholly
       owned subsidiaries of TCI.  The Recapitalization Agreement provided for
       the Company's repurchase of 927,900 shares of Liberty Class A common
       stock owned by TCIL, and repurchase of all of the outstanding shares of
       the Class C Preferred Stock.  Liberty paid an aggregate purchase price
       for the Class C Preferred Stock of approximately $175 million and
       approximately $19 million for the shares of Class A common stock.  The
       aggregate price of approximately $194 million was satisfied by delivery
       of approximately $12 million in cash and four promissory notes totaling
       approximately $182 million (see note 11).  The shares of Class A common
       stock sold by TCIL are part of those received upon conversion of the
       Class A Preferred Stock into 4,405,678 shares of Liberty Class A common
       stock and 55,070 shares of Class E Preferred Stock.





                                    F-112
                                                                     (continued)
<PAGE>   132
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       In connection with the Recapitalization Agreement, TCIC and LCP entered
       into an Option-Put Agreement (the "Option-Put Agreement") which was
       amended on November 30, 1993.  Under the amended Option-Put Agreement,
       between June 30, 1994 and September 28, 1994, and between January 1,
       1996 and January 31, 1996, TCIC will have the option to purchase LCP's
       interest in CCT and the Mile Hi Note for an amount equal to $77 million
       plus interest on such amount from June 3, 1993.  Between April 1, 1995
       and June 29, 1995, and between January 1, 1997 and January 31, 1997, LCP
       will have the right to require TCIC to purchase LCP's interest in CCT
       and the Mile Hi Note for an amount equal to $77 million plus interest on
       such amount from June 3, 1993.


       Also on June 3, 1993, Liberty and a subsidiary of TCI entered into the
       second such agreement (the "Purchase and Sale Agreement") pursuant to
       which a TCI subsidiary purchased from the Company a 16% limited
       partnership interest in Intermedia Partners from LCP and all of LCP's
       interest in a special allocation of income and gain of $7 million under
       the partnership agreement of Intermedia Partners, for a purchase price
       of approximately $9 million (which resulted in a loss in the Company's
       statement of operations of approximately $22 million).  Also pursuant to
       which TCI has an option to purchase the Company's remaining 6% interest
       in Intermedia Partners prior to December 31, 1995 for approximately $3.6
       million plus interest at 8% per annum from June 3, 1993 (which resulted
       in a provision for impairment of investment in the Company's statement
       of operations of approximately $8 million).  The Company's obligation to
       sell such partnership interest and to grant such option were conditioned
       upon consummation of the transactions contemplated by the
       Recapitalization Agreement.

       In September 1993, Encore QE Programming Corp. ("QEPC"), a wholly owned
       subsidiary of Encore Media Corporation ("Encore"), a 90% owned
       subsidiary of Liberty, entered into a limited partnership agreement with
       TCI Starz, Inc. ("TCIS"), a wholly owned subsidiary of TCI, for the
       purpose of developing, operating and distributing STARZ!, a first-run
       movie premium programming service launched in 1994.  QEPC is the general
       partner and TCIS is the limited partner.  Losses are allocated 1% to
       QEPC and 99% to TCIS.  Profits are allocated 1% to QEPC and 99% to TCIS
       until certain defined criteria are met.  Subsequently, profits are
       allocated 20% to QEPC and 80% to TCIS.  TCIS has the option, exercisable
       at any time and without payment of additional consideration, to convert
       its limited partnership interest to an 80% general partnership interest
       with QEPC's partnership interest simultaneously converting to a 20%
       limited partnership interest.  In addition, during specified periods
       commencing April 1999 and April 2001, respectively, QEPC may require
       TCIS to purchase, or TCIS may require QEPC to sell, the partnership
       interest of QEPC in the partnership for a formula-based price.  Encore
       manages the service and has agreed to provide the limited partnership
       with





                                    F-113
                                                                     (continued)
<PAGE>   133
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       certain programming under a programming agreement whereby the
       partnership will pay its pro-rata share of the total costs incurred by
       Encore for such programming.  Encore will account for its interest in
       the partnership under the cost method.

(17)   FAIR VALUE OF FINANCIAL INSTRUMENTS

       CASH AND CASH EQUIVALENTS, TRADE AND OTHER RECEIVABLES, DUE TO/FROM TCI,
       PREPAID EXPENSES, ACCOUNTS PAYABLE, ACCRUED LIABILITIES, SALES RETURNS
       AND INCOME TAXES PAYABLE

       The carrying amount approximates fair value because of the short
       maturity of these instruments.

       DEBT AND DEBT DUE TCI

       The carrying amount approximates fair value.

       PREFERRED STOCKS, SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS

       The fair values of the Company's preferred stocks subject to mandatory
       redemption requirements were based on management's estimates.  These
       estimates were made by reference to the market values of other similar
       publicly traded instruments.  Neither independent external appraisals
       nor dealer quotes were obtained.  The estimated fair value of the
       Company's preferred stocks subject to mandatory redemption at December
       31, 1993 was $199,366,000.

       LIMITATIONS

       Fair value estimates are made at a specific point in time, based on
       relevant market information and information about the financial
       instrument.  These estimates are subjective in nature, involve
       uncertainties and matters of significant judgment and therefore cannot
       be determined with precision. Changes in assumptions could significantly
       affect the estimates.

(18)   COMMITMENTS AND CONTINGENCIES

       In February of 1991, the Company entered into an agreement with certain
       of its stockholders which provides the Company the right upon the
       occurrence of a "call triggering event" to require such persons to sell
       the shares of Liberty common stock





                                    F-114
                                                                     (continued)
<PAGE>   134
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       owned by them, and would provide such persons the right upon the
       occurrence of a "put triggering event" to sell their shares of Liberty
       common stock, in a registered public offering or to one or more third
       parties selected by the Company.  A "call triggering event" consists of
       the issuance or adoption of a decree by a governmental authority and the
       determination by an independent committee of the Board of Directors that
       divestiture by any or all of such persons of his or its Liberty common
       stock is necessary in order to comply with the decree or is in the best
       interest of the Company in light of material restrictions that would be
       imposed on the Company's business absent such divestiture.  A "put
       triggering event" consists of the issuance or adoption of a decree by a
       governmental authority requiring any or all of such persons to divest
       his or its shares of Liberty common stock or TCI common stock or
       rendering such person's continued ownership thereof illegal or subject
       to fine or penalty or imposing material restrictions on such person's
       full rights of ownership of such shares, provided that one of the
       essential facts giving rise to such decree or that renders such decree
       applicable to such person is the dual ownership by such person of voting
       securities of both the Company and TCI.  In each case, the Company would
       guarantee the sale price for certain of the shares to be sold.  The
       Company believes that it would not be required to make any material
       payments in such event as the Company anticipates that the aggregate
       proceeds derived from any sale of such stock to the public or other
       third parties would approximate the guaranteed sales price, before
       giving effect to any required tax adjustment.

       The guaranteed sale price for shares of Liberty common stock that
       constitute "Covered Shares" (as defined) would be determined on the
       basis of the proportionate share that such shares represent of the fair
       market value of the Company on a going concern or liquidation value
       basis (whichever method yields a higher valuation), subject to an upward
       adjustment for taxes.  If income taxes are payable by such persons with
       respect to such sales, the amount of the adjustment would be
       approximately $10.78 per share (assuming an effective tax rate of 37%
       based on Federal and state income tax rates in effect on December 31,
       1993 and a sale price of $29-1/8 per share based on the last reported
       sale price for the Class A common stock on that date).  In the
       aggregate, 41,162,880 shares of Liberty common stock are currently
       covered by the agreement.  The Company believes that the likelihood of
       the occurrence of a put triggering event is remote.

       On October 5, 1992, Congress enacted the Cable Television Consumer
       Protection and Competition Act of 1992 ("1992 Cable Act").  In 1993, the
       FCC adopted certain rate regulations required by the 1992 Cable Act and
       imposed a moratorium on certain rate increases.  Such rate regulations
       became effective on September 1, 1993.  The rate increase moratorium,
       which began on April 5, 1993, continues in effect through May 15, 1994.
       As a result of such actions, the Company's basic and tier service rates
       and its





                                    F-115
                                                                     (continued)
<PAGE>   135
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       equipment and installation charges (the "Regulated Services") are
       subject to the jurisdiction of local franchising authorities and the
       FCC.  Basic and tier service rates are evaluated against competitive
       "benchmark" rates as published by the FCC, and equipment and
       installation charges are based on actual costs.  Any rates for Regulated
       Services that exceeded the "benchmarks" were reduced as required by the
       1993 rate regulations.  The rate regulations do not apply to the
       relatively few systems which are subject to "effective competition" or
       to services offered on an individual service basis, such as premium
       movie and pay-per-view services.  Subsequent to September 1, 1993, any
       cable system charging basic cable rates that exceed the FCC's benchmark
       rate may be required to substantiate its rates by demonstrating its cost
       of providing basic cable services to subscribers.  If, as a result of
       this process, a system cannot substantiate its rates, it could be
       required to retroactively reduce its rates to the appropriate benchmark
       and refund the excess portion of rates received since September 1, 1993.

       The Company believes that it has complied with all provisions of the
       1992 Cable Act, including its rate setting provisions.  However, since
       the Company's rates for regulated services are subject to review, the
       Company may be subject to a refund liability.  The amount of refunds, if
       any, which could be payable by the Company in the event that systems'
       rates are successfully challenged by franchising authorities is not
       currently estimable.

       The Company has long-term sports program rights contracts which require
       payments through 1998.  Future payments by year are as follows (amounts
       in thousands):

<TABLE>
               <S>     <C>
               1994    $    15,345
               1995         11,503
               1996          8,580
               1997          5,926
               1998          1,300
</TABLE>

       Liberty leases business offices, has entered into pole rental agreements
       and transponder lease agreements, and uses certain equipment under lease
       arrangements.  Rental expense under such arrangements amounted to
       approximately $22,515,000, $11,607,000, $2,977,000 and $844,000 for the
       years ended December 31, 1993 and 1992, the nine months ended December
       31, 1991 and the three months ended March 31, 1991, respectively.





                                    F-116
                                                                     (continued)
<PAGE>   136
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



       Future minimum lease payments under noncancellable operating leases for
       each of the next five years are summarized as follows (amounts in
       thousands):

<TABLE>
               <S>     <C>
               1994    $    22,810
               1995         20,029
               1996         19,526
               1997         19,296
               1998         14,985
</TABLE>

       It is expected that in the normal course of business, leases that expire
       will be renewed or replaced by leases on other properties; thus, it is
       anticipated that future minimum lease commitments will not be less than
       the amounts shown for 1994.

       The Company is obligated to pay fees for the license to exhibit certain
       qualifying films that are released theatrically by various motion
       picture studios through December 31, 2006 (the "Film License
       Obligations").  As of December 31, 1993, these agreements require
       minimum payments aggregating approximately $189 million.  The aggregate
       amount of the Film License Obligations is not currently estimable
       because such amount is dependent upon the number of qualifying films
       produced by the motion picture studios, the amount of United States
       theatrical film rentals for such qualifying films, and certain other
       factors.  Nevertheless, the Company's aggregate payments under the Film
       License Obligations could prove to be significant.

(19)   INFORMATION ABOUT LIBERTY'S OPERATIONS

       Liberty operates primarily in the United States in two industry
       segments, cable television systems ("Cable") and production and
       distribution of cable television programming services ("Programming").
       Home shopping is a programming service which includes a retail function.
       Separate amounts have been provided for home shopping programming
       services to enhance the reader's understanding of the Company.
       Operating income is total revenue less operating costs and expenses
       which includes an allocation of corporate general and administrative
       expenses.  Identifiable assets by industry are those assets used in
       Liberty's operations in each industry.  Liberty has  investments,
       accounted for under the equity method, which also operate in the United
       States in the Cable and Programming industries. The following is
       selected information about Liberty's operations for the years ended
       December 31, 1993 and 1992, the nine months ended December 31, 1991 and
       the three months ended March 31, 1991:





                                    F-117
                                                                     (continued)
<PAGE>   137
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                         HOME
                LIBERTY:                   CORPORATE   SHOPPING    CABLE     PROGRAMMING      TOTAL
                                           ---------   --------   --------   -----------   -----------
                                                              AMOUNTS IN THOUSANDS
<S>                                        <C>         <C>        <C>        <C>           <C>
YEAR ENDED DECEMBER 31, 1993:
Revenue                                    $      --    942,940     56,744      153,572      1,153,256
                                            ========   ========   ========   ==========      =========
Revenue from TCI                           $      --         --         --       44,074         44,074
                                            ========   ========   ========   ==========      =========
Operating income (loss)                    $ (43,327)    15,975      9,834       16,615           (903)
                                            ========   ========   ========   ==========      =========
Depreciation and amortization              $     164     24,029     11,169       13,907         49,269
                                            ========   ========   ========   ==========      =========
Capital expenditures, including
  acquisitions                             $     426     13,156      8,374        3,520         25,476
                                            ========   ========   ========   ==========      =========
Identifiable assets                        $ 142,430    781,258    283,552      229,308      1,436,548
                                            ========   ========   ========   ==========      =========
YEAR ENDED DECEMBER 31, 1992:
Revenue                                    $      --         --     21,549      134,964        156,513
                                            ========   ========   ========   ==========      =========
Revenue from TCI                           $      --         --         --       42,834         42,834
                                            ========   ========   ========   ==========      =========
Operating income (loss)                    $ (14,337)        --      5,617        5,324         (3,396)
                                            ========   ========   ========   ==========      =========
Depreciation and amortization              $     126         --      3,406       12,014         15,546
                                            ========   ========   ========   ==========      =========
Capital expenditures, including
  acquisitions                             $      37         --     10,655        1,826         12,518
                                            ========   ========   ========   ==========      =========
Identifiable assets                        $ 199,846     61,536    355,372      213,433        830,187
                                            ========   ========   ========   ==========      =========
</TABLE>
                                                                     (continued)

                                    F-118
<PAGE>   138
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                         HOME
                                           CORPORATE   SHOPPING    CABLE    PROGRAMMING    TOTAL
                                           ---------   --------   --------  -----------   -------
                                                            AMOUNTS IN THOUSANDS
<S>                                        <C>         <C>        <C>         <C>         <C>
LIBERTY CONTINUED:
NINE MONTHS ENDED DECEMBER 31, 1991:
Revenue                                    $     --         --       9,479     75,918      85,397
                                            =======    =======     =======    =======     =======     
Revenue from TCI                           $     --         --          --     25,191      25,191
                                            =======    =======     =======    =======     =======     
Operating income (loss)                    $ (2,278)        --       2,273        790         785
                                            =======    =======     =======    =======     =======     
Depreciation and amortization              $     89         --       1,511      8,992      10,632
                                            =======    =======     =======    =======     =======     
Capital expenditures, including
  acquisitions                             $     65         --       1,202      2,086       3,353
                                            =======    =======     =======    =======     =======     
Identifiable assets                        $104,658     45,291     284,432    305,463     739,844
                                            =======    =======     =======    =======     =======
     
- -------------------------------------------------------------------------------------------------

PREDECESSOR COMPANIES:
THREE MONTHS ENDED MARCH 31, 1991:
Revenue                                    $     --         --       2,981     18,427      21,408
                                            =======    =======     =======    =======     =======     
Revenue from TCI                           $     --         --          --      3,879       3,879
                                            =======    =======     =======    =======     =======     
Operating income (loss)                    $ (3,023)        --       1,051     (6,066)     (8,038)
                                            =======    =======     =======    =======     =======     
Depreciation and amortization              $     --         --         563      3,430       3,993
                                            =======    =======     =======    =======     =======     
Capital expenditures, including
  acquisitions                             $     --         --         196        649         845
                                            =======    =======     =======    =======     =======     
Identifiable assets                        $  1,607     44,801     286,864    202,349     535,621
                                            =======    =======     =======    =======     =======     
</TABLE>
 
                                                                     (continued)
 
                                    F-119
<PAGE>   139
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(20) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
<TABLE>
<CAPTION>
                                                      1ST          2ND         3RD         4TH
                                                    QUARTER      QUARTER     QUARTER     QUARTER
                                                    --------     -------     -------     -------
                                                    AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<S>                                                 <C>          <C>         <C>         <C>
1993:
Revenue                                             $179,072     303,685     313,083     357,416
Operating income (loss)                             $  2,089      (2,603)      1,302      (1,691)
Gain on sale of investment                          $ 10,613         --           --      21,359
Loss on transactions with TCI                       $     --     (30,296)         --          --
Extraordinary item, net                             $ (1,792)       (399)         --          --
Net earnings (loss)                                 $ 10,454     (18,016)     11,161       1,196
Net earnings (loss) attributable to common
  shareholders                                      $   (441)    (27,520)      5,429      (4,645) 
Primary and fully diluted earnings (loss) per
  common and common equivalent share                $   0.00       (0.21)       0.04       (0.04)
</TABLE>
 
                                                                     (continued)
 
                                    F-120
<PAGE>   140
 
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(20) QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
 
<TABLE>
<CAPTION>
                                                            1ST         2ND        3RD        4TH
                                                          QUARTER     QUARTER    QUARTER    QUARTER
                                                          --------    -------    -------    -------
                                                         AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
<S>                                                       <C>         <C>        <C>        <C>
1992:
Revenue                                                   $ 32,733     41,025     37,481     45,274
Operating income (loss)                                   $ (4,344)     3,739      5,594     (8,385)
Loss on transactions with TCI                             $     --         --         --    (17,826)
Net earnings (loss):
  As previously reported                                  $ (1,911)     7,993     13,926     (6,075)
  Adjustment to restate share of earnings (losses) of
     Mile Hi, Lenfest, and TKR (see notes 6 and 9)           1,295      1,355      1,323      1,293
  Adjustment to restate interest income on the Mile Hi
     Note (see note 9)                                         915      1,349      1,186      1,216
  Adjustment to revise/implement Statement No. 109          (2,675)     3,712      8,448    (10,966)
                                                           -------     ------     ------    -------
     As adjusted                                          $ (2,376)    14,409     24,883    (14,532)
                                                           =======     ======     ======    =======
Net earnings (loss) attributable to common shareholders:
  As previously reported                                  $(10,807)    (2,880)     2,967    (16,978)
  Adjustment to restate share of earnings (losses) of
     Mile Hi, Lenfest, and TKR (see notes 6 and 9)           1,295      1,355      1,323      1,293
  Adjustment to restate interest income on the Mile Hi
     Note (see note 9)                                         915      1,349      1,186      1,216
  Adjustment to revise/implement Statement No. 109          (2,675)     3,712      8,448    (10,966)
                                                           -------     ------     ------    -------
     As adjusted                                          $(11,272)     3,536     13,924    (25,435)
                                                           =======     ======     ======    =======
Primary and fully diluted earnings (loss) per common and
  common equivalent share:
  As previously reported                                  $  (0.08)     (0.02)      0.02      (0.14)
  Adjustment to restate share of earnings (losses) of
     Mile Hi, Lenfest, and TKR (see notes 6 and 9)            0.01       0.01       0.01       0.01
  Adjustment to restate interest income on the Mile Hi
     Note (see note 9)                                        0.00       0.01       0.01       0.01
  Adjustment to revise/implement Statement No. 109           (0.02)      0.03       0.07      (0.08)
                                                           -------     ------     ------    -------
     As adjusted                                          $  (0.09)      0.03       0.11      (0.20)
                                                           =======     ======     ======    =======
</TABLE>
 
                                    F-121
<PAGE>   141
                         INDEPENDENT AUDITORS' REPORT


THE BOARD OF DIRECTORS AND STOCKHOLDERS
LIBERTY MEDIA CORPORATION


Under date of March 18, 1994, we reported on the consolidated balance sheets of
Liberty Media Corporation and subsidiaries (Successor) as of December 31, 1993
and 1992, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 1993 and 1992 and the
period from April 1, 1991 to December 31, 1991 (Successor Periods) and the
consolidated statements of operations, stockholders' equity, and  cash flows of
"Liberty Media" (a combination of certain programming interests and cable
television assets of Tele-Communications, Inc.) (Predecessor) for the period
from January 1, 1991 to March 31, 1991 (Predecessor Period), as contained in
the annual report on Form 10-K for the year 1993.  In connection with our
audits of the aforementioned Successor and Predecessor consolidated financial
statements, we have also audited the related financial statement schedules as
listed in the accompanying index.  These financial statement schedules are the
responsibility of the Companies' management.  Our responsibility is to express
an opinion on these financial statement schedules based on our audits.

In our opinion, the related financial statement schedules, when considered in
relation to the basic Successor and Predecessor consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.

As discussed in Note 3 and 13 to the financial statements, the Companies
changed their method of accounting for income taxes.




                                                    /s/ KPMG Peat Marwick
                                                        KPMG Peat Marwick
                                                    
Denver, Colorado
March 18, 1994





                                    F-122
<PAGE>   142

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

Marketable Securities - Other Investments
December 31, 1993                                                     Schedule I


<TABLE>
<CAPTION>
                                                               Number of
                                                             common shares,
                                                           units or principal     Cost of        Market      Carrying
      Name of Issuer                                            amounts            issue          value        value
      --------------                                       ------------------  ------------      -------     ---------
                                                                              dollar amounts in thousands
      <S>                                                      <C>             <C>               <C>          <C>
      BET Holdings, Inc.                                        3,663,200      $        722       72,348          722
      Silver King Communications, Inc.                             61,630                --          616
      International Family Entertainment, Inc.                  1,670,986            19,997       34,673       19,997
      Video Jukebox Network, Inc.                               1,203,464             5,091        3,911        5,091
      The National Registry, Inc.                                 100,000            10,000       22,500       10,000
      Silver King Communications, Inc.                         $  131,000           131,000      132,303      132,303
      International Family Entertainment, Inc.                 $   45,000            45,000      138,000       46,457
      Intermedia Partners                                              --             3,647           --        3,647
      Mark Twain Cablevision                                           --             2,001        2,001        2,001
                                                                                -----------      -------      -------
                                                                                    217,458      406,352      220,218
                                                                              
      Tele-Communications, Inc.                                 6,525,721           104,011      209,785      104,011
                                                                                -----------      -------      -------
                                                                               $    321,469      616,137      324,229
                                                                                ===========      =======      =======
</TABLE>                                                           





                                    F-123


<PAGE>   143



LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

Condensed Information as to the Financial Position of the Registrant

                                                                    Schedule III
                                                                     Page 1 of 3


<TABLE>
<CAPTION>
                                                                                       December 31,        
                                                                                   1993            1992*          
                                                                              ---------------------------------
                                                                                    amounts in thousands     
     <S>                                                                      <C>                       <C>      
     Assets                                                                                                       
     ------                                                                                                       
        Cash                                                                  $     42,748               85,925   

        Investment in TCI                                                          104,011              104,011   
                                                                                                                  
        Investments in and advances to consolidated subsidiaries -                                                
           eliminated upon consolidation                                           611,876              437,794   
                                                                                                                  
        Property and equipment, at cost                                                588                   95   
           Less accumulated depreciation                                                72                   18   
                                                                               -----------              -------
                                                                                       516                   77   
                                                                                                                  
        Other intangibles and other assets, at cost, net of amortization               699                  677   
                                                                               -----------              -------
                                                                                                                  
                                                                              $    759,850              628,484   
                                                                               ===========              =======                     
                                                                                                                  
     Liabilitites and Stockholder's Equity                                                                        
                                                                                                                  
        Accrued liabilities                                                   $      1,639                2,103   
        Accrued litigation settlements                                              13,000                   --   
        Accrued compensation relating to stock appreciation rights                  34,162               18,171   
        Due to TCI, including accrued interest payable                               8,961                1,037   
        Deferred income taxes                                                       12,758               23,161   
        Debt due TCI                                                               181,596                   --   
                                                                               -----------              -------
           Total liabilities                                                       252,116               44,472   
                                                                                                                  
        Redeemable preferred stocks                                                155,237              155,261   
                                                                                                                  
        Stockholders' equity (see detail on page II-23)                            352,497              428,751   
                                                                               -----------              -------

                                                                              $    759,850              628,484   
                                                                               ===========              =======                     
                                                                                                                  
        Guarantees (see Schedule VII)                                         $         --                        
                                                                               ===========              

</TABLE>                                                                 



     *  Restated - see notes 6, 9 and 13 to the consolidated financial
        statements.

                                    F-124



<PAGE>   144


LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

Condensed Information as to the Operations of the Registrant

                                                                    Schedule III
                                                                     Page 2 of 3


<TABLE>
<CAPTION>
                                                                                                              Nine months     
                                                                         Year ended          Year ended          ended        
                                                                        December 31,        December 31,      December 31,    
                                                                            1993               1992*             1991*        
                                                                       -------------        ------------      ------------ 
                                                                                        amounts in thousands
   <S>                                                                 <C>                    <C>                <C>        
   Management costs reimbursed by subsidiaries                         $     55,177            14,271                --     
                                                                        -----------           -------           -------

   Operating income (expenses):                                                                                             
      Selling, general and administrative                                    (6,734)           (1,876)             (790)    
      Compensation relating to stock appreciation rights                    (37,532)          (16,939)           (1,398)    
      Litigation settlements                                                 (7,475)               --                --     
      Interest expense to TCI                                                (8,903)               --                --     
      Interest income, principally from consolidated                                                                        
         subsidiaries                                                         5,521             4,556             3,833     
      Depreciation and amortization                                             (54)              (12)               (6)    
                                                                        -----------           -------           -------
                                                                            (55,177)          (14,271)            1,639     
                                                                        -----------           -------           -------
            Earnings from operations before share                                                                           
               of earnings of consolidated subsidiaries                                                                     
               and income taxes                                                  --                --             1,639     
                                                                                                                            
   Income tax benefit                                                        10,403             6,719             1,578     
                                                                        -----------           -------           -------
                                                                                                                            
            Earnings from operations before share                                                                           
               of earnings (losses) of consolidated subsidiaries             10,403             6,719             3,217     
                                                                                                                            
   Share of earnings (losses) of consolidated subsidiaries                   (5,608)           15,665            37,104     
                                                                        -----------           -------           -------
                                                                                                                            
            Net earnings                                               $      4,795            22,384            40,321     
                                                                        ===========           =======           =======
</TABLE>     





*  Restated - see notes 6, 9 and 13 to the consolidated financial statements.

                                    F-125


<PAGE>   145



LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

Condensed Information as to the Cash Flows of the Registrant

                                                                    Schedule III
                                                                     Page 3 of 3


<TABLE>
<CAPTION>
                                                                                                              Nine months  
                                                                         Year ended          Year ended          ended     
                                                                        December 31,        December 31,      December 31, 
                                                                            1993               1992*             1991*     
                                                                       -------------        ------------      ------------ 
                                                                                        amounts in thousands
   <S>                                                                 <C>                    <C>                <C>    
    Cash flows from operating activities:                                                                       
                                                                                                                             
       Earnings from operations before share of earnings                                                                     
          (losses) of consolidated subsidiaries                        $     10,403            6,719               3,217     
       Adjustments to reconcile earnings to                                                                             
        net cash provided by operating activities:                                                                         
          Depreciation and amortization                                          54               12                   6     
          Deferred income taxes                                             (10,403)          (6,719)             (1,578)    
          Compensation relating to stock appreciation rights                 37,532           16,939               1,398     
          Payment of compensation relating to stock                                                                          
             appreciation rights                                            (21,541)            (166)                 --     
          Noncash interest and dividends                                         --           (1,195)               (204)    
          Litigation settlements                                              7,475               --                  --     
          Change in due to TCI, other than for                                                                               
             commercial paper                                                 7,924              168                 869     
          Change in accrued liabilities                                        (464)           1,608                 495     
                                                                        -----------          -------             -------     
                   Net cash provided by operating activities                 30,980           17,366               4,203     
                                                                        -----------          -------             -------     

    Cash flows from investing activities:                                                                                    
       (Reduction) in or additional investments in and                                                                       
          advances to consolidated subsidiaries, net                       (174,561)          (6,654)             79,417     
       Capital expended for property and equipment and                                                                       
          other assets, net                                                    (493)             (29)                (66)    
       Purchase of commercial paper from TCI                                     --               --             (22,004)    
       Repayment for commercial paper from TCI                                   --           22,004                  --     
       Other investing activities                                               (22)             287                (555)    
                                                                        -----------          -------             -------     
                   Net cash provided (used) by investing activities        (175,076)          15,608              56,792     
                                                                        -----------          -------             -------     
                                                                                                                             
    Cash flows from financing activities:                                                                                    
       Cash paid for redemption of preferred stock                          (12,338)              --                  --     
       Dividends on preferred stock                                          (9,743)              --                  --     
       Issuance of common stock                                             123,000               --                 100     
       Purchases and retirements of common stock                                 --          (57,370)               (774)    
                                                                        -----------          -------             -------     
                   Net cash provided (used) by financing activities         100,919          (57,370)               (674)    
                                                                        -----------          -------             -------     
                        Increase (decrease) in cash                         (43,177)         (24,396)             60,321     
                        Cash at beginning of year                            85,925          110,321              50,000     
                                                                        -----------          -------             -------     
                        Cash at end of year                            $     42,748           85,925             110,321     
                                                                        ===========          =======             =======

    Supplemental disclosure of cash flow information -                                                                       
       Cash paid during the year for interest                          $         --               --                  --     
                                                                        ===========          =======             =======

</TABLE>
     
    See also note 5 to the consolidated financial statements.         

                                    F-126
                                      

<PAGE>   146


LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

Indebtedness of Related Parties
                                                                    Schedule  IV



<TABLE>
<CAPTION>
                                                                                                              
                                                  Balance at                                 Balance          
                                                  beginning                                  at end           
     Name of Person                               of period     Additions     Deductions    of period 
     --------------                               ---------     ---------     ----------    ---------
                                                                   amounts in thousands
<S>                                              <C>              <C>          <C>            <C>             
Liberty                                                                                                       
 Year ended                                                                                                   
  December 31, 1993 -                                                                                         
   Tele-Communications, Inc.                     $   4,786        33,229       (38,015)           --          
                                                  ========        ======       =======        ======

 Year ended                                                                                                   
  December 31, 1992 -                                                                                         
   Tele-Communications, Inc.                     $  26,055        39,604       (60,873)        4,786          
                                                  ========        ======       =======        ======
                                                                                                              
 Nine months ended                                                                                            
  December 31, 1991 -                                                                                         
   Tele-Communications, Inc.                     $      --        44,382       (18,327)       26,055          
                                                  ========        ======       =======        ======
                                                                                                              
Predecessor Companies                                                                                         
 Three months ended                                                                                           
  March 31, 1991 -                                                                                            
   Tele-Communications, Inc.                     $  39,267           150       (39,417)           --          
                                                  ========        ======       =======        ======
</TABLE>  


Note - Columns which would have been answered "none" have been omitted.





                                    F-127




<PAGE>   147


LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

Guarantees of Securities of Other Issuers
December 31, 1993
                                                                    Schedule VII


<TABLE>
<CAPTION>
                                                        Title of issue
         Name of issuer of securities                   of each class        Total amount       Nature
           guaranteed by person for                     of securities       guaranteed and        of
           which statement is filed                       guaranteed         outstanding       guarantee
- ---------------------------------------------          ---------------      --------------   -------------
                                                                         amounts in thousands
<S>                                                    <C>                     <C>           <C>
Subsidiaries' guarantees:
                                                       Sports program                         Contractual
    Sunshine Network Joint Venture                     rights contract          $1,140          payments

                                                       Sports program                         Contractual
    Prime Sports Network Upper Midwest                 rights contract           1,825          payments

                                                                                             Principal and
    US Cable of Evangola, Limited Partnership             Bank loan              8,875          interest
                                                                                ------

                                                                               $11,840
                                                                                ======
</TABLE>

Note - Columns which would have been answered "none" have been omitted.





                                    F-128




<PAGE>   148


LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

Valuation and Qualifying Accounts
                                                                   Schedule VIII


<TABLE>
<CAPTION>
                                                           Additions     Deductions                             
                                              Balance     Charged to     Write-offs                   Balance         
                                             beginning      profit        net of                      at end          
       Description                           of period     and loss      recoveries       Other      of period        
- -------------------------                   ----------    ----------     ----------      ------      ---------
                                                                    amounts in thousands                                   
<S>                                         <C>               <C>          <C>           <C>            <C>           
Liberty                                                                                                               
 Year ended                                                                                                           
  December 31, 1993                                                                                                   
   Allowance for doubtful                                                                                             
     receivables - trade                    $   2,404         3,786        (4,541)       1,383*         1,649         
                                             ========         =====        ======        ======         =====

 Year ended                                                                                                           
  December 31, 1992:                                                                                                  
   Allowance for doubtful                                                                                             
     receivables - trade                    $     750         2,717        (1,063)           --         2,404         
                                             ========         =====        ======        ======         =====
                                                                                                                      
 Nine months ended                                                                                                    
  December 31, 1991:                                                                                                  
   Allowance for doubtful                                                                                             
     receivables - trade                    $     912           563          (725)           --           750         
                                             ========         =====        ======        ======         =====
                                                                                                                      
Predecessor Companies                                                                                                 
 Three months ended                                                                                                   
  March 31, 1991:                                                                                                     
   Allowance for doubtful                                                                                             
     receivables - trade                    $     900            30           (18)           --           912         
                                             ========         =====        ======        ======         =====

</TABLE>   





*  Allowance for doubtful accounts recorded in acquisition of HSN.


                                    F-129


<PAGE>   149



LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

Supplementary Statement of Operations Information                     Schedule X


<TABLE>
<CAPTION>
                                                                           Charged to expense                
                                                 --------------------------------------------------------------
                                                                                                   Predecessor     
                                                                    Liberty                         Companies
                                                 ---------------------------------------------    -------------
                                                                                  Nine months      Three months    
                                                   Year ended      Year ended        ended            ended        
                                                  December 31,    December 31,    December 31,      March 31,      
                                                      1993            1992            1991             1991        
                                                  ------------    ------------    ------------    -------------
                                                                       amounts in thousands                     
<S>                                              <C>                  <C>             <C>              <C>         
Maintenance and repairs                          $      9,213            744            656              166       
                                                  ===========         ======          =====            =====

Amortization:
  Franchise costs                                $      3,495          1,148             91               52       
  Excess cost over acquired net assets                  6,639            110            104                6       
  Other intangibles                                    13,569          9,945          7,898            2,643       
  Other                                                   608            528            261               46       
                                                  -----------         ------          -----            -----
                                                 $     24,311         11,731          8,354            2,747       
                                                  ===========         ======          =====            =====
                                                                                                                   
Taxes, other than payroll and income             $      5,906            688            758              324       
                                                  ===========         ======          =====            =====
                                                                                                                   
Advertising costs                                $     18,426          7,299          1,660              729       
                                                  ===========         ======          =====            =====
                                                                                                                   
Royalties                                        $      2,579          1,412            612              208       
                                                  ===========         ======          =====            =====
</TABLE>   





                                    F-130
<PAGE>   150
STEVEN PRESSMAN & CO.
CERTIFIED PUBLIC ACCOUNTANTS                             Members of:
                                                  American Institute of CPA's
                                               Pennsylvania Institute of CPA's


                         INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:


We have audited the accompanying consolidated balance sheets of Lenfest
Communications, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income (loss), changes in stockholders'
equity (deficit) and cash flows for each of the years in the three-year period
ended December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits 
provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lenfest
Communications, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.

As discussed in Note R to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".

/s/ STEVEN PRESSMAN & CO.
March 4, 1994



                                    F-131
345 N. York Road  / /  Hatboro, Pennsylvania 19040-2045  / /  215-672-8880
<PAGE>   151
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES     
CONSOLIDATED BALANCE SHEETS                      
December 31, 1993 and 1992                       
                                                 
                                                   
                 
<TABLE>          
<CAPTION>        
                                                                1993                1992                      
                                                             ----------          ----------             
                                                                (Dollars in thousands)                                           
<S>                                                          <C>                 <C>              
ASSETS                                                                                                      
                                                                                                            
Cash and cash equivalents                                    $    2,716          $    9,440                  

Marketable securities                                             3,349               6,830                  
                                                                                                            
Accounts receivable - trade and other (less                                                                 
allowance for doubtful accounts of $861 in                                                                  
1993 and $1,287 in 1992)                                         13,479              10,823                 
                                                                                                            
Inventory                                                         4,535               1,017                 
                                                                                                            
Prepaid expenses                                                  6,651               6,430                 
                                                                                                            
Property and equipment                                          452,648             388,988                 
 Less accumulated depreciation                                  241,705             201,433                 
                                                             ----------          ----------             
                                                                210,943             187,555                 
                                                                                                            
Property and equipment under capital leases                       5,919               4,965                 
 Less accumulated depreciation                                    1,779               1,295                 
                                                             ----------          ----------             
                                                                  4,140               3,670                 
Investments in affiliates, accounted for                                                                    
 under the equity method, and related                                                                       
 receivables                                                     22,545               4,262                 
                                                                                                            
Other investments, at cost, and related receivables             106,172                  --                  
                                                                                                            
Goodwill, net of amortization                                    53,740              55,904                        
                                                                                                            
Deferred franchise costs, net of amortization                   162,661             107,594                      
                                                                                                          
Other intangible assets, net of amortization                     24,377              13,575                     
                                                                                                          
Deferred federal tax asset (net)                                 18,781              15,583                     
                                                                                                          
Other assets                                                      1,920               2,050                    
                                                             ----------          ----------               
                                                             $  636,009          $  424,733                      
                                                             ----------          ----------             
                                                             ----------          ----------             
</TABLE>

See accompanying notes.
                                                                     (continued)

                                    F-132
<PAGE>   152

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES     
CONSOLIDATED BALANCE SHEETS, (continued)                      
December 31, 1993 and 1992                       

                   
<TABLE>            
<CAPTION>          
                                                                1993                1992         
                                                             ----------          ----------      
                                                                (Dollars in thousands)           
<S>                                                          <C>                 <C>              
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)

Notes and mortgages payable                                  $  606,922          $  401,132

Bond payable                                                         67                 434

Obligations under capital leases                                  5,403               4,472

Accounts payable and accrued expenses                            25,960              23,265

Customer service prepayments                                      4,968               4,250

Deposits on converters                                            5,497               3,931

Deferred state tax liability (net)                               12,812              12,912

Investment in Garden State Cablevision L.P.                      26,239              18,499
                                                             ----------          ----------      

                                  TOTAL LIABILITIES             687,868             468,895

MINORITY INTEREST in equity of South Jersey
 Cablevision Associates                                           3,922                  --

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
 Common stock

  $.01 par value, 158,896 shares authorized, issued and 
  outstanding                                                         2                   2

 Additional paid-in capital                                      50,747              50,747

 Accumulated deficit                                           (106,530)            (94,911)
                                                             ----------          ----------      
                                                                (55,781)            (44,162)
                                                             ----------          ----------      
                                                             $  636,009          $  424,733
                                                             ----------          ----------             
                                                             ----------          ----------             
</TABLE>

See accompanying notes.

                                    F-133
<PAGE>   153

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
Years Ended December 31, 1993, 1992, and 1991




<TABLE>            
<CAPTION>          
                                                             1993                1992                1991      
                                                          ----------          ----------          ----------   
                                                                        (Dollars in thousands)                 
<S>                                                       <C>                 <C>                 <C>          
INCOME                                                    $  213,240          $  179,940          $  161,365
                                                                                                            
OPERATING EXPENSES
 Service                                                      16,254              14,342              14,295
 Programming                                                  51,783              43,388              36,832
 Selling and marketing                                         6,411               5,814               5,034
 General and administrative                                   43,332              35,641              34,233
 Cost of sales - equipment                                       279                 733               1,103
 Depreciation                                                 45,348              39,599              35,728
 Amortization                                                 19,847              16,593              15,868
                                                          ----------          ----------          ----------
                                                             183,254             156,110             143,093
                                                          ----------          ----------          ----------
                                      OPERATING INCOME        29,986              23,830              18,272
                                         
OTHER INCOME (EXPENSE)
 Interest expense                                            (35,090)            (32,563)            (35,137)
 Equity in net (losses) of unconsolidated affiliates          (8,068)            (12,300)            (18,343)
 Other income (expense)                                       (1,347)             (1,345)              6,427
                                                          ----------          ----------          ----------
                                                             (44,505)            (46,208)            (47,053)
                                                          ----------          ----------          ----------
                                  LOSS FROM CONTINUING
                                     OPERATIONS BEFORE
                                          INCOME TAXES       (14,519)            (22,378)            (28,781)

INCOME TAX BENEFIT (EXPENSE)
 Current                                                        (400)                 --                  --
 Deferred                                                      3,300               5,408               5,246
                                                          ----------          ----------          ----------
                                                               2,900               5,408               5,246
                                                          ----------          ----------          ----------
                                  LOSS FROM CONTINUING
                                            OPERATIONS       (11,619)            (16,970)            (23,535)

DISCONTINUED OPERATIONS
 Income (loss) from operations of discontinued
  Cable AdNet Partners - less applicable income
  tax of $417 in 1991                                             --                  --                 810
 Gain on sale of Cable AdNet Partners - less
  applicable income tax of $6,575 in 1991                         --                  --              12,893
                                                          ----------          ----------          ----------
                                                                  --                  --              13,703
                                                          ----------          ----------          ----------

                                            NET (LOSS)    $  (11,619)         $  (16,970)         $   (9,832)
                                                          ----------          ----------          ----------
                                                          ----------          ----------          ----------
</TABLE>

See accompanying notes.

                                    F-134

<PAGE>   154

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY (DEFICIT)
Years Ended December 31, 1993, 1992 and 1991

<TABLE>                  
<CAPTION>                
                                                             1993                1992                1991       
                                                          ----------          ----------          ----------    
                                                                        (Dollars in thousands)                  
<S>                                                       <C>                 <C>                 <C>           
COMMON STOCK
 Balance at beginning of year                             $        2          $       --          $       --
 Retirement of Class A and Class B stock                          --                  --                  --
 Issuance of new stock                                            --                   2                  --
                                                          ----------          ----------          ----------   
                                BALANCE AT END OF YEAR             2                   2                  --
                                                          ----------          ----------          ----------    
                                                          ----------          ----------          ----------    

ADDITIONAL PAID-IN CAPITAL
 Balance at beginning of year                             $   50,747          $   61,749          $   61,749
 Retirement of Class A stock held in
  treasury                                                        --             (11,000)                 --
 Issuance of new stock                                            --                  (2)                 --
                                                          ----------          ----------          ----------   
                                BALANCE AT END OF YEAR        50,747              50,747              61,749
                                                          ----------          ----------          ----------   
                                                          ----------          ----------          ----------   

ACCUMULATED DEFICIT
 Balance at beginning of year, as previously
  reported.                                               $ (127,446)         $ (107,016)         $ (100,748)
 Adjustment for the cumulative effect on prior
  years of applying retroactively the new method
  of accounting for income taxes                              32,535              29,075              32,639
                                                          ----------          ----------          ----------   
 Balance at beginning of year, as adjusted                   (94,911)            (77,941)            (68,109)
 Net loss for the year                                       (11,619)            (16,970)             (9,832)
                                                          ----------          ----------          ----------   
                                BALANCE AT END OF YEAR    $ (106,530)         $  (94,911)         $  (77,941)
                                                          ----------          ----------          ----------   
                                                          ----------          ----------          ----------   
TREASURY STOCK
 Balance at beginning of year                             $       --          $  (11,000)         $  (11,000)
 Retirement of Class A stock held in
  treasury                                                        --              11,000                  --
                                                          ----------          ----------          ----------   
                                BALANCE AT END OF YEAR    $       --          $       --          $  (11,000)
                                                          ----------          ----------          ----------   
                                                          ----------          ----------          ----------   

                                   TOTAL STOCKHOLDERS'    $  (55,781)         $  (44,162)         $  (27,192)
                                      EQUITY (DEFICIT)    ----------          ----------          ----------   
                                                          ----------          ----------          ----------   

</Table

See accompanying notes.

                                    F-135

<PAGE>   155

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES               
CONSOLIDATED STATEMENTS OF CASH FLOWS                       
Years Ended December 31, 1993, 1992 and 1991                
                                                            

</TABLE>
<TABLE>                                                     
<CAPTION>                                                   
                                                             1993                1992                1991        
                                                          ----------          ----------          ----------     
                                                                        (Dollars in thousands)                   
<S>                                                       <C>                 <C>                 <C>            
CASH FLOWS FROM OPERATING ACTIVITIES
 Net (loss)                                               $  (11,619)         $  (16,970)         $   (9,832)
 Adjustments to reconcile net (loss) to net cash
 provided by operating activities
  Depreciation and amortization                               65,195              56,192              51,596
  Net (gains) losses on sales of marketable securities        (3,292)                 36              (8,549)
  Deferred income tax (benefit)                               (3,300)             (5,408)             (5,246)
  Disposal of assets upon rebuild of cable systems             1,445               2,633                  --
  (Gain) on sale of property and equipment                    (1,150)                (85)                 --
  Equity in net losses of unconsolidated affiliates            8,068              12,300              18,343
  (Income) from operations of discontinued
   Cable AdNet Partners                                           --                  --                (810)
  (Gain) on sale of Cable AdNet Partners                          --                  --             (12,893)         
  Stock dividend                                                  --                  --                (673)
  Deferred interest on capital leases                             49                  74                  79
  Minority interest in net loss of South Jersey
   Cablevision Associates                                        (78)                 --                  --
Changes in operating assets and liabilities:
  Accounts receivable                                         (2,219)             (1,350)               (542)
  Inventory                                                   (3,502)                237                 759
  Prepaid expenses                                               204              (2,641)               (695)
  Other assets                                                  (278)               (576)               (387)
  Accounts payable and accrued expenses                        2,516               4,157               6,199
  Customer service prepayments                                   670                 203                 375
  Deposits on converters                                         166                 125                  (8)
                                                          ----------          ----------          ----------    
                                  NET CASH PROVIDED BY
                                  OPERATING ACTIVITIES        52,875              48,927              37,716

</TABLE>

See accompanying notes                                               (continued)

                                    F-136

<PAGE>   156

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES                
CONSOLIDATED STATEMENTS OF CASH FLOWS, (continued)           
Years Ended December 31, 1993, 1992 and 1991                 
                                                             
<TABLE>                                                      
<CAPTION>                                                    
                                                             1993                1992                1991        
                                                          ----------          ----------          ----------     
                                                                        (Dollars in thousands)                   
<S>                                                       <C>                 <C>                 <C>            
CASH FLOWS FROM INVESTING ACTIVITIES
 Purchases of cable systems                               $  (80,557)         $  (47,100)         $   (5,523)
 Non-cable acquisitions                                           --              (2,125)                 --
 Purchases of property and equipment                         (45,584)            (45,724)            (33,477)
 Purchases of marketable securities                          (30,981)            (14,805)            (21,453)
 Purchases of other investments                              (15,200)                 --                  --
 Proceeds from sale of Cable AdNet Partners                       --                  --              24,083
 Proceeds from sale of property and equipment                  1,860                 492                  --
 Proceeds from sales of marketable securities                 37,744              10,327              38,517
 Investments in unconsolidated affiliates                    (18,625)                (50)                (95)
 Distributions from unconsolidated affiliates                  1,450                 463                  50
 (Increase) in other intangible assets - investing              (170)               (554)               (647)
 Loans and advances to unconsolidated affiliates (net)        (1,436)               (136)                152
                                                          ----------          ----------          ----------     
                                  NET CASH PROVIDED BY                         
                        (USED BY) INVESTING ACTIVITIES      (151,499)            (99,212)              1,607
                       
CASH FLOWS FROM FINANCING ACTIVITIES
 Bond escrow funds
  Additions to and interest reinvestment                          --              (2,926)             (1,943)
  Withdrawals for bond principal and interest
   payment                                                        --               3,774               1,946
 (Increase) in other intangible assets - financing            (3,319)                (19)               (541)
 Increases in debt                                           187,590              61,806                  --
 Debt reduction                                                                                               
  Notes and mortgages                                        (91,932)            (13,362)            (25,159) 
  Bonds                                                         (367)             (3,845)             (1,925) 
  Obligations under capital leases                               (72)               (116)               (456)
                                                          ----------          ----------          ----------     
                                  NET CASH PROVIDED BY 
                        (USED BY) FINANCING ACTIVITIES        91,900              45,312             (28,078)
                                                          ----------          ----------          ----------     

                       NET INCREASE (DECREASE) IN CASH        (6,724)             (4,973)             11,245

CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR                                              9,440              14,413               3,168
                                                          ----------          ----------          ----------     
                             CASH AND CASH EQUIVALENTS
                                        AT END OF YEAR    $    2,716          $    9,440          $   14,413
                                                          ----------          ----------          ----------     
                                                          ----------          ----------          ----------     

</TABLE>

See accompanying notes

                                    F-137

<PAGE>   157


LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993, 1992 and 1991

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Lenfest Communications, Inc.
and subsidiaries ("the Company") is presented to assist in understanding its
financial statements.  These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the consolidated financial statements.

Business Activities and Concentrations of Credit Risk

The Company, through its cable subsidiaries, owns and operates various clusters
of cable television systems located in the New Jersey and Pennsylvania suburbs
of Philadelphia, Pennsylvania westward through Lancaster County, Pennsylvania,
and in Oakland, California and Berkeley, California and other nearby
municipalities in the East San Francisco Bay Area. In addition, the Company,
through its non-cable subsidiaries, provides satellite delivered cross channel
tune-in promotional services for cable television, microwave transmission of
video, voice and data and is developing cable advertising and billing software
and commercial insertion equipment which it intends to market.  The Company's
ability to collect the amounts due from customers is affected by economic
fluctuations in these geographic areas and in the cable television industry
generally.

The Company maintains cash balances at several financial institutions located
primarily in the Philadelphia and East San Francisco Bay Areas.  Accounts at
each institution are insured by either the Bank Insurance Fund or another
institutional insurance fund up to $100,000 and $500,000, respectively.  The
Company maintains cash balances in excess of the insured amounts.

Basis of Consolidation

The consolidated financial statements include the accounts of Lenfest
Communications, Inc. and those of all wholly-owned subsidiaries.  In addition,
effective April 2, 1993, the accounts of South Jersey Cablevision Associates, a
newly formed partnership that is owned sixty percent (60%) by the Company, are
also included.  Significant intercompany accounts and transactions have been
eliminated in consolidation.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all
short-term debt securities purchased with an original maturity of three (3)
months or less to be cash equivalents.

Inventory

Inventory is stated at the lower of cost or market on a first-in, first-out
basis.  Inventory consists of equipment sold by the Company's promotional and
advertising subsidiaries.

Property and Equipment

Property and equipment are stated at cost.   For the newly acquired systems or
companies, the purchase price has been allocated to net assets on the basis of
fair market values as determined by an independent appraiser.  Depreciation is
provided using the accelerated and straight line methods of depreciation for
financial reporting purposes at rates based on estimated useful lives.  For
income tax purposes, recovery of capital costs for property and equipment is
made using accelerated methods over statutory recovery periods.

                                    F-138

<PAGE>   158

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

Expenditures for renewals and betterments that extend the useful lives of
property and equipment are capitalized.  Expenditures for maintenance and
repairs are charged to expense as incurred.

Property and Equipment Under Capital Leases

Property and equipment capitalized under capital leases are amortized on the
straight line method over the term of the leases or the estimated useful lives
of the assets.

Capitalization of Costs

All costs properly attributable to capital items, including that portion of
employees' compensation allocable to installation, engineering, design,
construction and various other capital projects are capitalized. Installation
income has been fully recognized.

Deferred Franchise Costs, Goodwill and Other Intangible Assets

Deferred franchise costs, goodwill and other intangible assets acquired in
connection with the purchases of cable systems and other companies have been
valued at acquisition cost on the basis of the allocation of the purchase
price on a fair market value basis to net assets as determined by an independent
appraiser.  Additions to these assets are stated at cost.  Other intangible
assets consist of debt acquisiton costs, organization costs, covenants not to
compete and software development costs in connection with software to be
marketed.  Goodwill represents the cost of acquired cable systems and companies
in excess of amounts allocated to specific assets based on their fair market
values.  Deferred franchise costs are amortized on the straight-line method over
the legal franchise lives, generally 10 to 20 years.  Other intangible assets
are being amortized on the straight-line method over their legal or estimated
useful lives, generally ranging from 5 to 10 years.  Goodwill is amortized on
the straight-line method over 20 to 40 years.

Income Taxes

The Company files a consolidated Federal tax return.  Investment and other tax
credits are recognized under the flow-through method of accounting.  The amount
of available investment credit on property and equipment acquired after
December 31, 1982 and prior to January 1, 1986 has been reduced by two percent
(2%), in accordance with the 1982 Tax Act.

Interest Rate Protection Agreements

The amount to be paid or received is accrued as interest rates change and is
recognized over the life of the agreements as an adjustment to interest expense.

Restatement

The 1992 and 1991 amounts have been restated because the Company adopted
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (see Note R).  In addition, certain amounts have been reclassified for
comparability with the 1993 presentation.

NOTE B - RECAPITALIZATION AND OWNERSHIP

On April 9, 1992, the Company approved a plan of recapitalization under which it
converted each outstanding share of Class A and Class B common stock into one
hundred (100) shares of newly created shares of $.01 par value common stock and
retired the former classes of common stock, including the shares of treasury
stock.  As a result of the recapitalization, common stock increased by $2,000,
treasury stock decreased by $11,000,000 and additional paid-in capital decreased
by $11,002,000.

                                    F-139

<PAGE>   159

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

Prior to the recapitalization, the outstanding number of shares (excluding
treasury stock) was 1588.9655. H.F. Lenfest, his children and affiliated
entities owned 827.5862 shares of Class A (52.083% of the total outstanding
common stock).  The outstanding 761.3793 shares of Class B (47.917% of the
total outstanding common stock) were owned by a wholly-owned subsidiary of
Liberty Media Corporation ("Liberty").  Liberty acquired the Class B shares
from affiliates of Tele-Communications, Inc. ("TCI").  On March 28, 1991, TCI
contributed the Class B stock to Liberty in connection with the spin off of
Liberty fron TCI. Class A stock and Class B stock were identical in every
respect except that Class A stock had 20 votes per share and Class B had one
vote per share.  On April 9, 1992, members of the Lenfest family and affiliated
entities entered into agreements with Liberty to bring Liberty's ownership in
the Company to fifty percent (50%).  As part of these agreements, the two
classes of stock were eliminated and were replaced with 158,896 shares of
common stock with equal votes per share.  The agreements further provide that
for ten years from the date of the agreement, H.F. Lenfest has the right to
continue as chief executive officer of the Company and that as long as H.F.
Lenfest and his spouse serve as directors, the Lenfest family will have
majority representation on the board of directors of the Company.

NOTE C - SUPPLEMENTAL DISCLOSURE TO STATEMENT OF CASH FLOWS


<TABLE>      
<CAPTION>    
                                                                                                
                                                     1993              1992            1991     
                                                   ---------        ---------       ---------   
                                                             (Dollars in thousands)             
<S>                                                <C>              <C>             <C>         
Cash paid during the year for:                                                               
                                                   
 Interest                                          $  36,908        $  31,472       $  31,834
                                                   ---------        ---------       ---------
                                                   ---------        ---------       ---------

 Income taxes - continuing operations              $     400        $      --       $      --
                                                   ---------        ---------       ---------
                                                   ---------        ---------       ---------

 Income taxes - discontinued operations            $      --        $      --       $     130
                                                   ---------        ---------       ---------
                                                   ---------        ---------       ---------
</TABLE>

Supplemental Schedules Relating to Acquisitions

<TABLE>
<CAPTION>
                                           1993                  1992                  1991
                                        ---------     -------------------------      ---------
                                          Cable        Non-cable        Cable          Cable
                                         Systems      Subsidiaries     Systems        Systems
                                        ---------     ------------     --------      ---------
                                                       (Dollars in thousands)
<S>                                     <C>            <C>             <C>           <C>
Property and equipment                  $  24,839      $     213       $ 20,105      $   3,890
Deferred franchise costs                   69,988             --         24,000          1,630
Intangible and other assets                10,518          1,912          2,995
Debt assumed                              (19,160)            --             --
Liability assumed                          (1,628)            --             --
Minority interest in
 partnership equity                        (4,000)            --             --
                                        ---------      ---------       --------      ---------
                                        $  80,557      $   2,125       $ 47,100      $   5,520
                                        ---------      ---------       --------      ---------
                                        ---------      ---------       --------      ---------
</TABLE>

<TABLE>            
<CAPTION>          
                                                                                                
                                                     1993              1992            1991     
                                                   ---------        ---------       ---------   
                                                             (Dollars in thousands)             
<S>                                                <C>              <C>             <C>         
Unrealized gains on marketable securities          $  12,739        $  11,822       $   3,700
                                                   ---------        ---------       ---------   
                                                   ---------        ---------       ---------   
</TABLE>

                                    F-140

<PAGE>   160

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


Noncash Investing and Financing Transactions

The Company's 1993 investment in Australis Media, Ltd. was financed by notes
payable to a group of banks in the amount of $85,000,000 and by a promissory
note to a principal stockholder of the Company in the amount of $5,972,000.

In 1993, the Company refinanced $19,160,000 of debt assumed by South Jersey
Cablevision Associates. In 1992, the Company financed the payment of 
$44,394,000 of maturing debt, (including a $30,000,000 bridge loan incurred in 
the acquisition of the Hershey, Pennsylvania cable TV system), $3,114,000 of 
interest and $2,280,000 of loan costs. The Company refinanced $100,000,000 of 
its long-term debt in 1991.

During 1993, 1992 and 1991, the Company disposed of $307,000, $2,435,000 and
$10,210,000, respectively, of fully depreciated plant in connection with the
rebuild of certain of its systems. In addition, $661,000 of fully depreciated
plant was destroyed in a fire loss in 1991. The Company retired $356,000 of
fully depreciated equipment in 1992.

In 1992, the Company retired its Class A and Class B common stock and issued
new common stock in its place.

The Company incurred additional capital lease obligations in the amount of
$954,000 in 1993 and $948,000 in 1991. Additionally, the Company reclassified
$1,595,000 of equipment under capital lease as property and equipment in 1991
at the conclusion of the lease obligations.

The Company elected to receive stock valued at $673,000 instead of cash for its
annual dividend from Turner Broadcasting System, Inc. in 1991.

NOTE D - NEW BUSINESS AND ACQUISITIONS

Cable Systems

On August 20, 1993, the Company, through its subsidiary, Suburban Cable TV Co.
Inc, acquired the assets of a cable television system serving a total of
approximately 25,000 subscribers located in Norristown, Pennsylvania and
surrounding areas. The acquisition was accounted for under the purchase method.
The purchase price was $75,500,000.

On May 28, 1993, the Company, through its newly formed subsidiary, Lenfest
York, Inc., acquired 14.9% of the voting stock of Susquehanna Cable Co.
("Susquehanna"), a majority-owned subsidiary of Susquehanna Pfaltzgraff Co., and
17.75% of the voting stock of four of Susquehanna's subsidiaries for
$11,000,000. On November 30, 1993, Lenfest York, Inc. acquired 17.75% of the
voting stock of a fifth subsidiary of Susquehanna for $14,000,000. The
Company's direct and indirect investment in each of the five subsidiaries
("Subsidiaries") aggregates 30%. The Company utilizes the equity method to
account for its investment in the Subsidiaries and the cost method to account
for its investment in Susquehanna. Susquehanna and Subsidiaries own and operate
several cable systems serving a total of over 120,000 subscribers, the largest
of which is located in York County, Pennsylvania and is contiguous to the
Company's cable systems located in Lancaster County, Pennsylvania. The Company
has the right of first refusal on any sale of stock of the Subsidiaries owned
by Susquehanna and on any sale of cable television system assets owned by
Susquehanna or Subsidiaries. In addition, after the fifth anniversary of the
closing, the agreement provides that either the Company of Susquehanna can
initiate a buy-sell transaction for all of the outstanding ownership interests
in Susquehanna and Subsidiaries.


                                    F-141
<PAGE>   161
        
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


On April 2, 1993, the Company, through its newly formed subsidiary, Lenfest
Atlantic, Inc., formed a general partnership named South Jersey Cablevision
Associates ("South Jersey"). The Company made a capital contribution of
$6,000,000 for a sixty percent (60%) general partnership interest. The remaining
forty percent (40%) general partnership interest is held by CMS Cable
Partnership ("CMS Cable") which had contributed the tangible and intangible
assets of contiguous cable TV systems serving approximately 16,000 subscribers
in southern New Jersey, having an appraised value of $29,322,200, working
capital of $196,000, senior debt of $19,159,600 and liabilities of $162,600.
Immediately after the partnership formation, South Jersey made distributions
amounting to $6,196,000 to CMS Cable. A subsidiary of the Company manages South
Jersey and is paid a management fee equal to five percent (5%) of revenue. The
payment of the management fee is subordinated to the loan and may be paid
currently to the extent permitted by the partnership lenders. On the fifth
anniversary of closing, the Company has the right to purchase all of CMS
Cable's remaining interest at the greater of fair market value or a specified
minimum price.

In 1992, the Company acquired the assets of five cable television systems
serving a total of approximately 25,000 subscribers located in Hershey, Newtown
and near West Chester, Pennsylvania. The acquisitions were accounted for under
the purchase method. The aggregate purchase price was $47,100,000.

In 1991, the Company acquired the assets of two cable television systems
serving a total of approximately 2,700 subscribers located in Hopewell
Township, New Jersey and Lancaster County, Pennsylvania. The acquisitions were
accounted for under the purchase method. The aggregate purchase price was
$5,523,000.

International

In December 1993, the Company, through its newly formed subsidiary, Lenfest
Australia, Inc., acquired approximately 8.2% of the voting stock and of
nonvoting debentures for a total equity interest of approximately 50.5% (49.1%
on a fully-diluted basis) of Australis Media, Ltd. ("Australis"), a publicly
traded Australian company for $90,972,000, which includes a reimbursement of
$7,500,000 to H.P. Lenfest for his payment of deposits for a Pay TV license. In
addition, the Company incurred transaction costs including loan placement fees
of $1,501,000, which are included in the balance sheet under the caption,
"other intangible assets". Australis holds one of two Australian commercial Pay
TV Direct Broadcast Satellite licenses as well as a number of MDS licenses
serving several major metropolitan areas of Australia. The Company accounts for
the investment under the cost method.

In April 1993, the Company, through its newly formed subsidiary, Lenfest
International, Inc., formed L-TCI Associates (L-TCI), a general partnership
with UA-France, Inc. ("UAF"), an indirect wholly-owned subsidiary of
Tele-Communications, Inc. L-TCI was formed to subscribe to and acquire shares
of stock in Videopole, a French cable television holding and management company
that franchises, builds and operates cable television systems in medium to
smaller communities (2,000 - 50,000 inhabitants) in France. In May 1993, L-TCI
acquired 29% of the issued and outstanding stock of Videopole. The  Company
invested $4,860,000 to fund its pro-rata share of the L-TCI acquisition. The
Company uses the investment-cost method to account for its investment since its
indirect ownership in Videopole is 14.5%. In addition, L-TCI is obligated to
make additional capital contributions pursuant to its stock subscription
agreement. The Company's share of L-TCI's commitment amounts to 24,220,000,
12,905,000, 11,600,000 and 10,005,000 French francs in 1994-1997 respectively,
which, as of the date of these statements, amounted to approximately
$4,152,000, $2,212,000, $1,989,000 and $1,715,000, respectively. In addition,
pursuant to the L-TCI partnership agreement, the Company is contingently liable
for the UAF share of L-TCI's commitment in the above amounts for the years
1995-1997 should UAF fail to fund its share in any of these three years.

                                    F-142




<PAGE>   162
        
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

Other

On August 24, 1993, the Company, through its newly formed subsidiary, StarNet
Interactive Entertainment, Inc., formed a partnership with CEA Investors
Partnership II, Ltd. ("Investors") for the sole purpose of jointly holding a
substantial equity interest in Video JukeBox Network, Inc. ("VJN"), a
publicly-traded Florida corporation. The name of the partnership is StarNet/CEA
II Partners ("Partners"). The Company contributed $3,305,808 for a fifty
percent (50%) partnership interest and Investors contributed cash of $105,808
and 2,834,908 shares of VJN common stock valued at $3,200,000. On August 30,
1993, Partners acquired 2,014,520 shares of VJN common stock from New Vision
Music for $1,611,616, 687,500 shares of newly issued VJN common stock for 
$550,000 and a convertible promissory note issued by VJN for $1,200,000, with 
interest accruing at the rate of prime plus 1%, with the note convertible at 
the rate of $.80 per share and accrued interest on the note at the rate of 
$1.25 per share. As of December 16, 1993, the $1,200,000 convertible promissory 
note was converted into 1,500,000 shares of VJN common stock and the related 
accrued interest of $24,855 was converted into 19,884 shares of VJN common 
stock. At December 31, 1993, Partners owned a total of 7,056,812 shares of VJN 
common stock, which represents direct ownership by Partners of approximately 
41% of VJN's outstanding shares of common stock. In addition, Investors also 
controls irrevocable proxies in its favor on an additional 3,308,810 shares. 
Investors has agreed that it will vote the proxy shares in the same manner of 
Partners, thereby giving Partners and Investors voting control over 
approximately 60.2% of VJN voting stock. The Company utilizes the equity method 
to account for its indirect 20.5% investment in VJN.

In connection with the above stock acquisitions, StarNet, Inc. ("StarNet"), a
subsidiary of the Company, entered into consulting, management and service
agreements with VJN, whereby StarNet is responsible for the day-to-day
management and supervision of VJN and whereby StarNet will provide technology
relating to a system for digital satellite distribution, headend storage and
playback of discrete video segments.  StarNet was compensated at the rate of
$25,000 per month during the consulting period (August 24, 1993 to December 16,
1993). Under the management agreement (commenced December 16, 1993), StarNet
shall be compensated at the rate of $300,000 per annum for the first year and
no less than $150,000 per annum for the second and third years of the
management agreement plus costs incurred by StarNet in developing the above
technology. Under the service agreement, StarNet is providing analog uplink
service and satellite capacity to VJN on Satcom C-4 for the delivery of VJN's
programming service known as "The Box" for a fee of $200,000 per month. Upon
conversation of The Box from analog to digital transmission, the monthly charge
shall be reduced to $125,000 per month. StarNet shall also be entitled to
receive a fee equal to $.02 per month per VJN subscriber who receive digital
transmission. The term of the service agreement commenced on August 30, 1993
and ends on March 31, 1999. VJN, at its sole option, may defer the frist twelve
months of payments due under the service agreement by the issuance of
convertible promissory notes for such deferred amount, such notes bearing
interest at prime plus one percent (1%). Payments on the outstanding balance of
the notes commence on September 1, 1996, and are payable in 30 equal
installments plus interest on each installment. StarNet has the option to
convert all or any part of the principal or accrued interest of each note into
VJN common stock at a price of $1.25 per share. At December 31, 1993, StarNet
held four convertible promissory notes amounting to $800,000 which collectively
had accrued interest of $23,000.

In 1992, the Company acquired the assets related to the cable TV series
division of LJ Development, Inc. and Unibase Data Entry, Inc., located in Salt
Lake City, Utah. Included among the assets purchased are all rights and
privileges to the development of traffic and billing software known as Traffic
Pro 2000 and to the development of software for use in commercial insertion
equipment known as the StarNet inserter. The acquisition was accounted for
under the purchase method. An initial amount of $2,125,000 has been paid.
Additional amounts were initially payable upon the achievement of certain
"milestones" in the development of the software. However, these installments
were not paid because the Company was not satisfied that the milestones were
achieved. In 1993, LJ Development initiated legal proceedings in connection
with the purchase agreement (see Note U). Also in 1993, the Company recorded a
charge against income of $1,507,000 for the write-off of Traffic Pro 2000
capitalized software development costs (See Note T).

                                    F-143






     
<PAGE>   163
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE E -- PROPERTY AND EQUIPMENT

The schedule of property and equipment at December 31, 1993 and 1992 as
follows:

<TABLE>
<CAPTION>
                                                      Estimated
                                                     Useful Lives
                              1993          1992      in Years
                              ----          ----     ------------
                            (Dollars in thousands)
<S>                         <C>           <C>            <C>

Land                        $  4,456      $  4,240         -
Building and improvements     12,616        11,471       10-39
Cable distribution systems   401,192       341,243        5-12
Microwave equipment           20,897        20,939          7
Satellite communications       
  equipment                      989           647          7
Office equipment,
  furniture and fixtures      12,498        10,448        4-15
                            --------      --------

                            $452,648      $388,988
                            --------      --------
                            --------      --------

</TABLE>

During 1993 and 1992, certain portions of the Company's cable systems were torn
down and rebuilt. For the years ended December 31, 1993 and 1992, the net loss
on the disposal of these assets was $1,445,000 and $2,633,000 and has been
classified as other expense.

NOTE F -- INVESTMENTS IN AFFILIATES INCLUDING GARDEN STATE
          CABLEVISION L.P.

The Company, through several subsidiaries, owns non-controlling partnership
interests in several general partnerships. Any subsidiary of the Company that
is a general partner is, as such, liable, as a matter of partnership law, for
all debts of such partnership in the event liabilities of that partnership were
to exceed its assets. Investments and advances in affiliates accounted for
under the equity method amounted to $22,545,000 and $4,262,000 at December 31,
1993 and 1992, respectively. Net losses recognized under the equity method for
the years ended December 31, 1993, 1992 and 1991 were $8,068,000, $12,300,000
and $18,343,000, respectively. Under the equity method, the initial investments
are recorded at cost. Subsequently, the carrying amount of the investments are
adjusted to reflect the Company's share of net income or loss of the affiliates
as they occur. Losses in excess of amounts recorded as investments on the
Company's books have been offset against loans and advances to these
unconsolidated affiliates to the extent they exist.

The Company, through its subsidiary, Lenfest Jersey, Inc., owns a 39.995%
limited partnership interest in Garden State Cablevision L.P. (Garden State), a
cable company now serving over 190,000 subscribers in southern New Jersey.
Under a consulting agreement, the Company advises Garden State on various
operational and financial matters for a consulting fee equal to 2% of gross
revenue. However, due to restrictions contained in Garden State's debt
agreements, the payment of these fees has been deferred. The Company accounts
for its investment in Garden State under the equity method. Under the terms of
the limited partnership agreement, the Company is allocated 49.50% of Garden
State's losses. In addition, the Company is required to make up its partner
capital deficits upon the termination or liquidation of the Garden State
partnership. Because of the requirement to make up capital deficits, the
accompanying financial statements reflect equity in accumulated losses, net of
related receivable, in excess of the initial investment in Garden State in the
amount of $26,239,000 and $18,499,000 at December 31, 1993 and 1992.

                                    F-144

<PAGE>   164
LENFEST COMMUNICAITONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


The Garden State Financial statements have been prepared assuming that Garden
State will continue as a going concern. Garden State has begun requesting
financing proposals to finance the scheduled 1994 buyout of the general partner
as well as repayment of its senior debt and subordinated debt which become due
in 1994. As of the date of the Company's financial statements, Garden State has
not received a written commitment for the required financing and this raises
substantial doubt about its ability to continue as a going concern. Garden
State's financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

Summarized unaudited financial information of Garden State, accounted for under
the equity method, at December 31, 1993 and 1992, is as follows:

<TABLE>
<CAPTION>
                                                                         1993           1992    
                                                                     -----------     ---------- 
                                                                       (Dollars in thousands)   
<S>                                                                  <C>             <C>        
Financial Position                                                                              
- ------------------                                                                              
                                                                                                
Cash                                                                 $    5,215      $   13,525 
Accounts receivable, net                                                  1,842           2,179 
Prepaid expenses                                                            270             157 
Property and equipment, net                                              76,704          82,847 
Other deferred assets, net                                              169,809         202,981 
                                                                     ----------      ---------- 
                                               TOTAL ASSETS          $  253,840      $  301,689 
                                                                     ----------      ---------- 
                                                                     ----------      ---------- 
                                                                                                
Debt                                                                 $  264,878      $  299,406 
Liabilities to the Company                                                5,208           3,870 
Accounts payable and accrued expenses                                    23,230          18,647 
Customer prepayments and deposits                                         1,009             964 
Other liabilities                                                           779               - 
Partners' equity (deficit)                                              (41,264)        (21,198)
                                                                     ----------      ---------- 
                                                                                                
                                       TOTAL LIABILITIES AND                                    
                                         EQUITY (DEFICIT)            $  253,840      $  301,689 
                                                                     ----------      ---------- 
                                                                     ----------      ---------- 
</TABLE>

<TABLE>
<CAPTION>
                                                                 1993              1992           1991
                                                              ----------       ----------      ----------
                                                                         (Dollars in thousands)
<S>                                                           <C>              <C>             <C>
Results of Operations
- ---------------------

Revenue                                                       $   90,824       $   84,877      $   78,833
Operating expenses                                               (38,014)         (36,794)        (36,818)
Depreciation and amortization                                    (47,682)         (49,512)        (49,068)
                                                              ----------       -----------     ----------              
                            OPERATING INCOME (LOSS)                5,128           (1,429)         (7,053)


Interest expense                                                 (20,904)         (25,128)        (31,272)
Other expense                                                     (3,633)          (3,395)         (3,153)
Effect of accounting change                                         (657)               -               -
                                                              ----------       -----------     ----------              
                                            NET LOSS          $  (20,066)      $  (29,952)     $  (41,478)
                                                              ----------       ----------      ----------              
                                                              ----------       ----------      ----------              
</TABLE>

                                    F-145

<PAGE>   165
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

Summarized unaudited financial information of affiliates other than Garden
State, accounted for under the equity method, at December 31, 1993 and 1992, is
as follows:

                                                      1993            1992
                                                    --------        --------
                                                     (Dollars in thousands)
Financial Position
- ------------------

Cash                                                 $  5,052        $  2,452
Accounts receivable, net                                9,283           5,450
Prepaid expenses                                        1,194             537
Property and equipment, net                            37,202           4,693
Other assets, net                                      24,611           3,832
                                                     --------        --------
                             TOTAL ASSETS            $ 77,342        $ 16,964
                                                     --------        --------
                                                     --------        --------

Financial Position
- ------------------

Liabilities to the Company                           $  1,419        $  1,352
Accounts payable and accrued expenses                  19,197           3,053
Debt                                                   14,268             --
Deferred tax liability                                  6,399             --
Payable to related party (not the Company)             60,422             --
Equity                                                (24,363)         12,559
                                                     --------        --------
                        TOTAL LIABILITIES
                               AND EQUITY            $ 77,342        $ 16,964
                                                     --------        --------
                                                     --------        --------


                                      1993             1992            1991
                                    --------         --------        --------
                                             (Dollars in thousands)
Results of Operations
- ---------------------

Revenue                             $ 81,073         $ 23,346        $ 20,043
Operating expenses                   (63,209)         (18,661)        (16,513)
Depreciation and amortization         (7,538)          (1,282)         (1,064)
                                    --------         --------        --------
            OPERATING INCOME          10,326            3,403           2,466

Interest expense                      (4,495)             (83)            (95)
Other income (expense)                (3,270)            (142)             23
                                    --------         --------        --------
                  NET INCOME        $  2,561         $  3,178        $  2,394
                                    --------         --------        --------
                                    --------         --------        --------

                                    F-146


                          
<PAGE>   166
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

The following table reflects the carrying value of the Company's investments,
other than Garden State, accounted for under the equity method, including
related receivables, as of December 31, 1993:

                                                              (Dollars in
                                                               thousands)

Video JukeBox Network, Inc. ("VJN") (Note D)                    $ 3,969
Susquehanna Cable Co. Subsidiaries ("SCC Subs") (Note D)         14,005
Bay Cable Advertising ("BCA")                                     2,788
Cable Adcom ("Adcom")                                               451
Philadelphia Cable Advertising ("PCA")                              329
MetroNet Communications ("MetroNet")                                880
Other                                                               123
                                                                -------
                                                                $22,545

CAH, Inc. (formerly Cable AdNet, Inc.), a subsidiary of the Company, owns a
41.667% general partnership interest in Bay Area Interconnect d/b/a Bay Cable
Advertising, a cable advertising interconnect serving the San Francisco,
California Area of Dominant Influence ("ADI"). Suburban Cable TV Co. Inc., a
wholly-owned subsidiary of the Company, owns a 25% and a 20% general
partnership interest in Cable Adcom and Greater Philadelphia Cable Interconnect
d/b/a Philadelphia Advertising, respectively. These partnerships are cable
advertising interconnects that serve the Harrisburg, Pennsylvania and
Philadelphia, Pennsylvania ADI's. The Company's wholly-owned subsidiary,
LenNet, Inc., owns a 50% general partnership interest in MetroNet
Communications, a company that provides microwave transmissions of voice and
data between two points of presence for its customers located throughout the
United States.

The following table reflects the Company's share of earnings or losses of
Garden State and each of the aforementioned affiliates:

                                1993         1992        1991
                              --------    ---------    --------
                                   (Dollars in thousands)
Results of Operations
- ---------------------

VJN                           $   (74)    $     --     $     --
SCC Subs                         (857)          --           --
Garden State                   (8,570)     (13,552)     (19,349)
BCA                             1,457        1,130          887
Adcom                             153          137          113
PCA                               (36)           3           24
MetroNet                           94           55           38
Other                            (235)         (73)         (56)
                              -------     --------     --------
                              $(8,068)    $(12,300)    $(18,343)
                              -------     --------     --------
                              -------     --------     --------

                                    F-147
<PAGE>   167
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE G - OTHER INVESTMENTS

Other investments, accounted for under the cost method, are summarized as
follows:

                                                 1993             1992
                                               --------          ------
                                                (Dollars in thousands)

Australis Media, Ltd.(a)                       $ 90,972          $   --
Susquehanna Cable Co., Inc.(b)                   10,359              --
Videopole(c)                                      4,841              --
                                               --------          ------
                                               $106,172          $   --
                                               --------          ------
                                               --------          ------

(a)  The Company's investment in the various classes of stock of this company
     is accounted for under the cost method. Although the Company's ownership
     approximates 50.5%, the cost method of accounting is considered
     appropriate because the Company's ownership represents less than 10%
     of the voting power and Australian regulations prohibit greater than 20%
     ownership in voting stock by one foreign investor.

(b)  The Company has 14.9% ownership of the voting stock of Susquehanna Cable
     Co. Inc. and accounts for this investment under the cost method.
     Susquehanna is an indirect subsidiary of Susquehanna Pfaltzgraff Co. and
     is the parent company of five cable operating subsidiaries, of which
     the Company has a direct ownership interest of the voting stock of 17.75%.
     The Company's investment in these subsidiaries are accounted for under the
     equity method because the Company's direct and indirect ownership
     interests in these subsidiaries approximate thirty percent(30%).

(c)  The Company has a fifty percent (50%) ownership in L-TCI Associates, a
     partnership, which owns 29% of the outstanding voting stock of Videopole,
     a French holding company which manages and owns numerous CATV 
     subsidiaries in France. L-TCI Associates has no other activities. As a
     result, the Company has an indirect ownership of 14.5% in the stock of
     Videopole and accounts for this investment under the cost method.


NOTE H - DISCONTINUED OPERATIONS

On November 24, 1991, Cable Investment Properties, Inc., a subsidiary, sold its
remaining fifty-one percent (51%) interest in Cable AdNet Partners (AdNet) to
an affiliate of TCI. Previously, effective January 1, 1990, CAH, Inc. sold a
forty-nine percent (49%) interest in AdNet to an affiliate of TCI. The sales
represented the disposition of a major segment of the Company's cable
advertising business. The selling price of the fifty-one percent (51%)
interest, including post-closing adjustments, was $24,083,000 in 1991. The
sales resulted in a gain in 1991 of $12,893,000 net of applicable income tax of
$6,575,000 of which $130,000 was payable in 1991 and the balance representing a
charge against deferred taxes.

The consolidated financial statements and notes thereto have been restated to
reflect continuing operations of the Company for the years ended December 31,
1991. The net operating results of AdNet and the net gain on the sale of the
partnership interests are included in the consolidated statements of income
(loss) under the caption "Discontinued Operations".

                                    F-148

     


       
<PAGE>   168
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


The following is a summary of income (loss) from operations of the discontinued
Cable AdNet Partners:


                                                      Period from
                                                     January 1, to
                                                        November
                                                        24, 1991
                                                     -------------
                                                 (Dollars in thousands)

Results of Operations
- ---------------------

Income                                                   $ 24,305
Operating expenses                                        (19,490)
Depreciation and amortization                              (4,020)
                                                         --------
                        OPERATING INCOME                      795

Interest expense                                              (28)
Other income                                                   66
                                                         --------
                              NET INCOME                 $    833
                                                         --------
                                                         --------

As Recorded by the Company
- --------------------------

Equity in net income                                     $    425
Depreciation and amortization adjustment                      802
Provision for income taxes                                   (417)
                                                         --------
                                                         $    810
                                                         --------
                                                         --------


The net income separately reported by AdNet differs from the net income
utilized by the Company to report income from discontinued operations. The
difference is due to the Company recognizing depreciation and amortization on
the assets it had contributed to the AdNet partnership based on the contributed
assets historical costs. The AdNet partnership recorded depreciation and
amortization on the contributed assets at their fair market value as of the
inception date of the partnership.

NOTE I - GOODWILL

The excess of the purchase price paid over the acquired net assets has been
allocated to goodwill. Accumulated amortization at December 31, 1993 was
$16,374,000 and at December 31, 1992 was $13,632,000.


                                    F-149

<PAGE>   169
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


NOTE J - DEFERRED FRANCHISE COSTS AND OTHER INTANGIBLE ASSETS

A schedule of deferred franchise costs and other intangible assets and
accumulated amortization at December 31, 1993 and 1992 is as follows:

<TABLE>  
<CAPTION>
                                                         December 31, 1993          
                                                ------------------------------------
                                                            Accumulated             
                                                 Amount     Amortization      Net   
                                                --------  ---------------  ---------
                                                       (Dollars in thousands)       
<S>                                             <C>           <C>          <C>      
Description 
- ----------- 

Deferred franchise costs                        $ 258,041     $ 95,380     $ 162,661
Organization, development, loan and       
 bond issuanse costs, deferred lease      
 costs, covenants not to compete, software
 development costs                              $  29,325     $  4,948     $  24,377
</TABLE>

<TABLE>  
<CAPTION>
                                                         December 31, 1992          
                                                ------------------------------------
                                                            Accumulated             
                                                 Amount     Amortization      Net   
                                                --------  ---------------  ---------
                                                       (Dollars in thousands)       
<S>                                             <C>           <C>          <C>      
Description 
- ----------- 

Deferred franchise costs                        $ 187,919     $  80,325    $ 107,594
Organization, development, loan and       
 bond issuande costs, deferred lease      
 costs, covenants not to compete, software
 development costs                              $  16,557     $   2,982    $  13,575
</TABLE>

NOTE K - MARKETABLE SECURITIES

Marketable securities are shown in the balance sheet at the lower of aggregate
cost or market value. Market values at December 31, 1993 and 1992, are as
follows:

                                                  1993          1992
                                                --------      --------
                                                (Dollars in thousands)

Aggregate cost                                  $  3,349      $  6,830

Gross unrealized gain                             12,739        11,822
                                                --------      --------

Market value                                    $ 16,088      $ 18,652
                                                --------      --------
                                                --------      --------

Net realized gains (losses) from the sale of marketable securities, in the
amount of $3,292,000, $(36,000) and $8,549,000, are classified as other income
(expense) in 1993, 1992 and 1991, respectively. The specific identificaiton
method is used to determine the cost of each security at the time of sale.

                                    F-150
<PAGE>   170
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


NOTE L - NOTES, MORTGAGES AND BONDS PAYABLE

Notes, mortgages and bonds payable consisted of the following at December 31,
1993 and 1992:

<TABLE>
<CAPTION>
                                                                     1993            1992
                                                                   ---------      ---------
                                                                    (Dollars in thousands)
<S>                                                                <C>            <C>
Notes payable to banks (a)                                         $ 252,450      $  76,200
Notes payable to banks (b)                                                --         67,500
10.15% senior promissory notes due September 1, 2000 (c)              97,000        107,000
10.69% senior promissory notes due May 15, 1998 (d)                   47,000         50,000
9.93% senior promissory notes due September 30, 2001 (e)             100,000        100,000
Notes payable to banks (f)                                            85,000             --
Notes payable to banks (g)                                            19,500             --
Promissory note payable to stockholder (h)                             5,972             --
Mortgage payable (i)                                                      --            432
                                                                   ---------      ---------
                                   Notes and mortgages payable       606,922        401,132
Bond payable (j)                                                          67            434
                                                                   ---------      ---------
                                                                   $ 606,989      $ 401,566
                                                                   ---------      ---------
                                                                   ---------      ---------
</TABLE>

(a)  The credit agreement related to these notes are with a group consisting
     of several banks dated August 28, 1992, amended and restated as of August
     18, 1993, provides up to $260,000,000 of borrowings. The credit agreement
     provides for three facilities:

     Facility A - a reducing revolving credit facility in an aggregate
     principal amount not to exceed $83,750,000 to fund acquisitions,
     investments, capital expenditures and working capital needs.

     Facility B - a $120,000,000 term loan facility to refinance an existing
     loan and intercompany debt and provide funds for acquisitions and general
     corporate purposes.

     Facility C - a $56,250,000 term loan facility used to refinance another 
     loan.

     The interest rate on all loans made under the three facilities is based
     upon the agen bank's base rate plus 1/8% - 3/4% or the Euro-rate plus 1
     1/8% - 1 3/4%. The level of borrowing margin is based upon the Company's
     and certain of its subsidiaries leverage ratio. The Company also pays a
     commitment fee of 3/8% per annum on the average daily unused portion of
     the Facility A commitment and a commitment fee of 1/2% on the average
     daily unused portion of the Facility C commitment. In addition, the
     Company incurred facility fees and other costs amounting to $2,280,000.
     These costs have been deferred and are being amortized over the term of
     the credit agreement.

     The Facility A commitment reduces quarterly commencing June 30, 1995
     and terminates March 31, 2001. The Facility B and Facility C term loans
     require quarterly payments of principal commencing June 30, 1995 and have
     final maturity of March 31, 2001. Interest is payable quarterly in
     arrears. The effective interest rates at December 31, 1993 and 1992 were
     4.877% and 4.935%, respectively.

                                    F-151
<PAGE>   171
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


(b)  These notes payable related to a revolving credit facility agreement
     with a group consisting of several international banks dated January 20,
     1989. In December 1993, the credit facility was refinanced in the amount
     of $56,250,000 per Facility C of the credit facility explained in (a)
     above. The effective interest rate at December 31, 1992 was 4.188%.

(c)  These notes are payable to a group consisting of several insurance
     companies. The notes are payable in annual installments, with the final
     payment due September 1, 2000. Interest is at the fixed rate of 10.15% per
     annum, payable quarterly.

(d)  These notes are payable to an insurance company and to its assignees.
     The notes are payable in annual installments, with the final payment due 
     May 15, 1998. Interest is at a fixed rate of 10.69% per annum, payable 
     quarterly.

(e)  These notes are payable to a group consisting of several insurance
     companies. The notes are scheduled to be repaid starting September 30,
     1995, with the final payment due September 30, 2001. Interest is at the
     fixed rate of 9.93%, per annum, payable semi-annually.

(f)  The credit agreement related to these notes are with a group consisting of 
     several banks dated November 16, 1993, which provides up to $85,000,000 of
     borrowings. The credit agreement provided the financing for the Company's 
     subsidiary, Lenfest Australia, Inc., investment in Australis Media, Ltd.,
     a publicly traded corporation that is the holder of the Australian Pay
     Television license known as License "B", to repay a portion of the deposit
     on License "B", funded by H.F. Lenfest, and fund transactional fees and
     expenses. Prior to November 30, 1994, the Company has the option to choose
     to pay interest based upon the agent bank's base rate plus 1 1/8% - 1 3/4%
     on the earlier of the last day of the Euro-rate interest period or
     quarterly. After November 30, 1994, the Company shall pay interest at a
     per annum rate equal to the sum of the Base Rate plus 2% and, on the first
     day of each calendar month thereafter, the per annum interest rate shall
     increase by an additional one percent (1%). The level of borrowing margin
     is based upon the Company's and certain of its subsidiaries leverage
     ratio. The Company incurred facility fees of $1,501,000. These costs have
     been deferred and are being amortized over the term of the credit 
     agreement. In addition, the Company pays an administrative agency fee of 
     $25,000 per annum to the agent bank. The credit facility terminates on 
     July 1, 1995.

     The above debt agreements place certain financial restriction on the
     Company and restricted subsidiaries which, among others, require meeting
     certain ratios relating to interest coverage and principal coverage.

(g)  These notes are payable by the Company's sixty percent (60%) owned
     subsidiary, South Jersey Cablevision Associates, to two banks, pursuant
     to a credit agreement dated April 2, 1993. The agreement provides for a 
     revolving and term loan not to exceed $20,000,000 for a period of one year
     at which time the outstanding balance under the revolving loan converts to
     a loan to be repaid in 24 consecutive quarterly installments commencing 
     June 30, 1994, and maturing March 31, 2000.  The loan is secured by the 
     partnership interests and by the real and personal property of South 
     Jersey including franchises, contracts, licenses and any lease assignments
     with landlord waivers. Interest is payable quarterly based upon the
     agent bank's base rate plus 3/8% - 1 3/8% or LIBOR plus 1 1/2% - 2 1/2%.
     The level of borrowing margin is based upon South Jersey's leverage ratio.
     In addition, South Jersey paid a facility fee of $200,000 and is required
     to enter into interest rate protection agreements of a duration of at
     least 2 years whereby in respect of a notional principle amount equal
     to at least 50% of the then outstanding principal amount of the notes. The
     credit agreement places certain financial restriction on South Jersey
     which, among others, require meeting certain ratios relating to interest 
     coverage and principal coverage.

                                    F-152

<PAGE>   172
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

(h)  This note is payable to a principal stockholder who advanced $5,972,000 in
     connection with the Company's subsidiary, Lenfest Australia, Inc.,
     investment in Australis Media, Ltd. The note bears interest at 4.8125%,
     payable quarterly. The maturity date of the note is the first to occur of
     March 31, 1994 or demand.

(i)  This mortgage is in connection with the purchase of an office and
     warehouse building. The balance was paid off on March 1, 1993.

(j)  This bond is held by PNC Bank and was issued through the Berks County (Pa)
     Industrial Development Authority. The bond is payable monthly with
     principal payments of $33,333 plus interest at the rate of seventy percent
     (70%) of the prime rate in effect from time to time. The effective
     interest rate at December 31, 1993 and 1992 was 4.2%. These bonds were
     paid in full in January 1994. Certain assets of Suburban Cable TV Co. Inc.
     were pledged as collateral.

Maturities of notes, mortgage and bonds payable are as follows:

<TABLE>
<CAPTION>
                                             (Dollars in thousands)
    Year Ending December 31,                 
    ------------------------
<S>                                                  <C>
             1994                                    $ 24,477
             1995                                     139,995
             1996                                      69,069
             1997                                      76,617
             1998                                      84,667
          Thereafter                                  212,164
                                                     --------
                                                     $606,989
                                                     --------
                                                     --------

</TABLE>

The Company has entered into interest rate cap agreements to reduce the impact
of changes in interest rates on its floating rate long-term debt. At December
31, 1993, the Company had outstanding an interest rate cap agreement with a
commercial bank, having a notional principal amount of $50,000,000. This
agreement effectively changes the Company's interest rate exposure on
$50,000,000 of its floating rate debt to a maximum LIBOR rate of eight percent
(8%) plus applicable level of borrowing margin. The interest rate cap agreement
terminates on November 28, 1994. Likewise, the Company's subsidiary, South
Jersey Cablevision Associates also entered into an interest rate cap agreement
with a commercial bank, having a notional principal amount of $10,000,000. This
agreement effectively changes South Jersey's interest rate exposure on
$10,000,000 of its floating rate debt to a maximum LIBOR rate of seven percent
(7%) plus applicable level of borrowing margin. South Jersey's interest rate
cap agreement terminates on August 30, 1995. The Company is exposed to credit
loss in the event of nonperformance by the other party to the interest rate cap
agreement. However, the Company does not anticipate nonperformance by the
counterparties.

In addition, the Company has entered into an interest rate swap agreement with
a commercial bank, having a notional principal amount of $50,000,000. This
agreement effectively decreases the Company's fixed rate interest expense on
$50,000,000 of its senior promissory notes when LIBOR is less than 6% and
increases the effective interest expense when LIBOR exceeds 6%. For the years
ended December 31, 1993 and 1992, the interest rate swap agreement decreased
the Company's effective interest expense by $1,347,000 and $695,000. The
agreement expires March 31, 1994. The Company is exposed to credit loss in the
event of nonperformance by the other party to the interest rate swap agreement.
However, the Company does not anticipate nonperformance by the counterparty,
Mellon Bank N.A.

                                    F-153

<PAGE>   173
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


NOTE M - LEASES

The Company has entered into four leases for office and warehouse space from a
principal stockholder of Lenfest Communications, Inc. The leases are classified
as capital leases. At December 31, 1993, three of the leases provide for an
aggregate minimum monthly payment of $45,000. On each anniversary date of these
three leases, the monthly payment will increase by a minimum of 6%. At December
31, 1993, the minimum monthly payment of the fourth lease is $21,000. On each
anniversary date of the fourth lease, the minimum monthly payment will increase
by $957. For the years ended December 31, 1992, 1991 and 1990, interest expense
in the amounts of $49,000, $74,000 and $79,000 in excess of the minimum monthly
payments has been accrued and added to obligations under capital leases.

The Company has entered into various capital lease agreements. The agreements
are for the financing of equipment. The economic substance of the leases is
that the Company is financing the acquisition of the assets through the leases
and, accordingly, they are recorded in the Company's assets and liabilities.

Future minimum lease payments under all capital leases and non-cancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1993:


                                          Capital        Capital
                                          Leases -       Leases -
                                         Principal      Unrelated   Operating
                                        Stockholder      Parties      Leases
                                        -----------     ---------   ---------
                                               (Dollars in thousands)

        1994                              $    759       $   98      $  5,346
        1995                                   801            2         5,021
        1996                                   845           --         4,729
        1997                                   891           --         2,916
        1998                                   938           --         2,210
      1999-2003                              5,486           --           737
      2004-2006                              2,219           --            80
                                          --------       ------      --------
TOTAL MINIMUM LEASE
PAYMENTS                                    11,939          100      $ 21,039
                                                                     --------
                                                                     --------
LESS AMOUNT REPRESENTING
INTEREST                                    (6,606)         (30)
                                          --------       ------
REPRESENT VALUE OF MINIMUM
LEASE PAYMENTS                            $  5,333       $   70
                                          --------       ------
                                          --------       ------

                                    F-154
<PAGE>   174
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

Property and equipment under capitalized leases at December 31, 1993 and 1992
are summarized as follows:

                                             1993        1992
                                           -------      ------
                                          (Dollars in thousands)

Buildings -- related party                  $5,132      $4,178
Converters                                     672         672
Computer                                       105         105
Office equipment                                10          10
                                            ------      ------
                                            $5,919      $4,965
                                            ======      ======

Amortization of leased assets is included in depreciation expense.

Rental expense for all operating leases, principally office and warehouse
facilities, pole rent and satellite transponder, amounted to $6,697,000,
$4,973,000 and $4,977,000 for the years ended December 31, 1993, 1992 and 1991,
respectively. Included in these amounts are rental payments under operating
leases to a principal stockholder for office and warehouse space of $77,000 in
1991. In addition, the Company made total payments to a principal stockholder
for buildings under capitalized leases of $755,000, $593,000 and $483,000 in
1993, 1992 and 1991, respectively.

In addition to fixed rentals, certain leases require payment of maintenance and
real estate taxes and contain escalation provisions based on future adjustments
in price indices. It is expected that, in the normal course of business,
expiring leases will be renewed or replaced by leases on other properties;
thus, it is anticipated that future minimum operating lease commitments will
not be less than the amount shown for 1994.

In June 1989, the Company entered into a four-year agreement with GE American
Communications, Inc. requiring monthly payments of $160,000 to lease a
transponder on a communications satellite designated at Satcom C-4. The lease
commenced on January 1, 1993, the commercial operational date. The Company has
an option to renew the satellite service agreement for a first renewal term of
four (4) years at $160,000 per month and and a second renewal term of four (4)
years at $170,000 per month.

On September 20, 1991, the Company entered into a six-year satellite service
agreement with GE American Communications, Inc. requiring monthly payments of
$162,500 to lease a second transponder on the Satcom C-4 communications
satellite. The lease payments commenced on March 31, 1993. The Company has an
option to renew the satellite service agreement for a term of six (6) years at
$170,000 per month.

NOTE N -- FRANCHISES

The Company's operating cable television subsidiaries hold various CATV
franchises and, in connection therewith, are obligated to pay franchise fees
based on certain gross revenues. For the year ended December 31, 1993,
franchise fees in the amount of $7,454,000 will be paid. For the years ended
December 31, 1992 and 1991, franchise fees in the amount of $6,136,000 and
$5,123,000 were paid.


                                    F-155





<PAGE>   175
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


NOTE O -- RESEARCH AND DEVELOPMENT

The Company, through its subsidiaries StarNet Development, Inc., StarNet, Inc.
and NuStar, incurred research and development costs of $2,053,000 and
$2,364,000 for the years ended December 31, 1993 and 1992, respectively, in
connection with the development of new equipment and computer software. These
costs have been included with programming expenses on the accompanying
consolidated statements of income (loss).

NOTE P -- EMPLOYEE HEALTH BENEFIT PLAN

On February 1, 1984, the Company established the Lenfest Group Employee Health
Benefit Plan (a trust), which provides health insurance for the employees of
most of its subsidiaries and affiliates. This trust is organized under Internal
Revenue Code Section 501(c)(9) -- Voluntary Employees Beneficiary Association
(VEBA). Benefits are prefunded by contributions from each particpating
subsidiary. Insurance expense is recognized as benefits are incurred. The
Company does not provide postretirement benefits to its employees. Therefore,
Statement of Financial Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other than Pensions, does not have an impact on the
Company's financial statements.

NOTE Q -- 401(K) PLAN

The Company provides a 401(k) profit sharing plan. The Company matches the
entire amount contributed by an employee up to five percent (5%) of their
salary. For the years ended December 31, 1993, 1992 and 1991, the Company
matched $652,000, $433,000 and $421,000, of contributions, respectively.

NOTE R -- COPORATE INCOME TAXES

Income Taxes

In 1993, the Company changed its method of accounting for income taxes to
conform to the requirements of Financial Accounting Standards Board Statement
(SFAS) No. 109, "Accounting for Income Taxes". The adoption of SFAS 109 changed
the Company's method of accounting for income taxes from the deferred method to
the asset and liability method. SFAS 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Differences between financial
reporting and tax bases arise most frequently from differences in timing of
income and expense recognition and as a result of business acquisitions.

The change in accounting method has been applied retroactively to January 1,
1989 and the prior years financial statements have been restated. Upon
restatement, the Company's accumulated deficit decreased by $32,535,000 and
$29,075,000 at December 31, 1992 and 1991, respectively, and net loss decreased
by $3,460,000 and increased by $3,564,000 for the years ended December 31, 1992
and 1991, respectively.

                                    F-156


<PAGE>   176


LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

The provision for income tax benefit (expense) consists of the following
components:

                   1993          1992          1991
                 --------      --------      --------
                        (Dollars in thousands)
Current
 Federal         $   (300)     $     --     $      --
 State               (100)           --            --
                 --------      --------      --------
                     (400)           --            --

Deferred
 Federal            3,200         5,066         6,213
 State                100           342          (967)
                 --------      --------      --------
                    3,300         5,408         5,246
                 --------      --------      --------
                 $  2,900      $  5,408      $  5,246
                 --------      --------      --------
                 --------      --------      --------


The categories of temporary differences that give rise to deferred tax assets
and liabilities are as follows:



<TABLE>
<CAPTION>
                                                         Federal                                 State
                                              ----------------------------           -----------------------------
                                                 1993                1992               1993                1992
                                              ---------           ---------          ---------           ---------
                                                                        (Dollars in thousands)
<S>                                           <C>                 <C>                <C>                 <C>
Deferred Tax Assets:
 Allowance for doubtful accounts              $     263           $     392          $      98           $     135
 Net operating loss carryforward                 53,172              50,144                960               1,107
 Investments and other tax credits                2,377               2,138                249                   -
                                              ---------           ---------          ---------           ---------
              Gross Deferred Tax Asset           55,812              52,674              1,307               1,242

Deferred Tax Liabilities:
 Property and equipment, principally
  due to differences in depreciation            (12,734)            (12,115)            (4,985)             (4,650)
 Investments in affiliates, principally
  due to differences in taxable income           (5,914)             (4,976)            (1,741)             (1,416)
 Property and equipment and intangible
  assets arising from purchase
  accounting adjustments                        (18,005)            (19,699)            (7,393)             (8,088)
                                              ---------           ---------          ---------           ---------
              Gross Deferred Tax Liability      (36,653)            (36,790)           (14,119)            (14,154)
                                              ---------           ---------          ---------           ---------
                                              
 Net deferred tax asset (liability)
  before valuation allowance                     19,159              15,884            (12,812)            (12,912)
 Valuation allowance                               (378)               (301)                --                  --
                                              ---------           ---------          ---------           ---------

     Net Deferred Tax Asset (Liability)       $  18,781           $  15,583          $ (12,812)          $ (12,912)
                                              ---------           ---------          ---------           ---------
                                              ---------           ---------          ---------           ---------
</TABLE>


Total income tax expense differs from the amounts computed by applying the U.S.
Federal income tax rate of 34% for 1993, 1992, and 1991 to loss before income
taxes and discontinued operations primarily from nondeductible amortization on
goodwill and certain other intangibles.  Provision for state income taxes,
charitable contributions expected to expire unused and differences in losses 
for tax purposes on the disposition of assets. The Company has provided a 
valuation allowance for investment tax credits that the Company believes will 
expire unused.

                                    F-157
<PAGE>   177


LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

The Company has a net operating loss carryforward of approximately $157,000,000
on a tax reporting basis.  The carryforward will begin to expire in 2001, if
not utilized.  The Company has available unused general business tax credits,
after reduction required under the Tax Reform Act of 1986, of approximately
$1,947,000 for carryover to subsequent years.

These expire as follows:

                   Year Ending December 31,
                   ------------------------

                             1994                    $   148,000
                             1995                         98,000
                             1996                        129,000
                             1997                        166,000
                             1998                        252,000
                           1999-2005                   1,154,000
                                                     -----------
                                                     $ 1,947,000
                                                     -----------
                                                     -----------
NOTE S - CARRIED INTERESTS

Carried interests are potential equity interests in a subsidiary of the
Company, not earned at the time of issuance.  They are earned only upon the
recoupment of investment and advances, plus a stipulated interest factor, by
the Company and all its subsidiaries.

As of December 31, 1993, carried interests have been granted to employees of
StarNet Development, Inc., StarNet, Inc., and Stockdale Productions, Inc. 
These carried interests have not been earned and, therefore, no expense was
recorded.

NOTE T-OTHER INCOME (EXPENSE)

The schedules of other income (expense) for the years ended December 31, 1993,
1992 and 1991 are as follows:

                                            1993         1992         1991
                                          --------     --------     --------
                                                (Dollars in thousands)
Provision for litigation settlement
 (See Note U)                             $ (4,348)    $     --     $     --
Gane (loss) on sales of marketable         
 securities                                  3,292          (36)       8,549
Interest income                                598          421          641
Dividend income                                 34           28          677
Gain on sale of property                     1,150           85           --
(Loss) on disposal of assets                           
 upon rebuild of cable systems              (1,445)      (2,633)          --
Miscellaneous income (expense)                  58          790          575
Ad Valorem tax reassessment                    821           --       (2,515)
CMS loan gurantee                               --           --       (1,500)
Traffic Pro 2000 costs                      (1,507)          --           --
                                          --------     --------     --------
                                          $ (1,347)    $ (1,345)    $  6,427
                                          --------     --------     --------
                                          --------     --------     --------

                                    F-158

<PAGE>   178


LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


As mentioned in Note D, the Company, through its subsidiary, StarNet
Development, Inc. ("SDI") acquired the assets related to the cable TV services
division of LJ Development, Inc. and Unibase Data Entry, Inc.  Included in the
assets were all rights and privileges to the development of traffic and billing
sofware known as Traffic Pro 2000.  Included in the acquisition of these
assets by SDI was capitalized software development costs of $1,265,000 net of
1992 amortization of $31,000.  In 1993, SDI incurred additional capitalized
software development costs of $242,000.  In January 1994, the Company responded
to pressure from its customer base to port the Traffic Pro 2000 over a more
flexible operating system Therefore, the Company decided to reformat the
Traffic Pro 2000 programs to make it easier to use and more widely accepted. 
As a result, the Company has recorded as a charge against income all software
development costs that we acquired or capitalized.  This charge amounts to
$1,507,000 for the year ended December 31, 1993

The Company, through its subsidiary, LenComm, Inc., was reassessed for prior
years' ad valorem taxes, namely California Business Personal Property and
Possessory Interest taxes.  The Company contested the reassessment and, in
1993, received a reduction in the amount of the reassessments.  The reassessed
taxes are payable in installments over five years.

In 1991, the Company made a $1,500,000 payment to a principal stockholder to
reimburse him for his loss incurred from personal advances to Creative
Management Systems, Inc. (CMS), a Toms River, New Jersey company that provides
subscriber billing software and services to the Company's cable subsidiaries.  
At the time of the advances, management determined that it would be a
substantial burden and expense to change systems and, therefore, had agreed to
hold the stockholder harmless from any loss or liability arising out of his
advances to CMS. As a result of negotiations with Electronic Data Systems
Corporation (EDS), a Texas corporation, EDS agreed to purchase CMS and to
continue to provide the CMS subscriber billing and software services to the
Company. In addition, EDS agrees to pay the Company a royalty equal to $0.01
per month, per royalty subscriber, as defined in an agreement between the
Company and EDS, over a six year period commencing June 1, 1992. EDS agrees
that the total of such royalty payments will not be less than $1,300,000 during
the six year period. As of December 31, 1993, cumulative royalty payments 
received were less than $2,000.  

NOTE U - COMMITMENTS AND CONTINGENCIES

On November 12, 1993, the Company entered into a letter of intent with Raystay
Co. ("Raystay"), an owner and operator of cable TV systems serving over 40,000
subscribers in Cumberland, Franklin and Lycoming counties, Pennsylvania,
Maryland and West Virginia. The letter of intent provides that the Company
shall invest $4,125,000 in Raystay for a 20% ownership of newly issued common
stock. In addition, the Company shall purchase from existing Raystay
shareholders no more that 25% equity interest for an amount not exceed
$5,126,250 and should the Company not be able to purchse a minimum 10% from
existing shareholders, Raystay shall sell additional newly issued common stock
to provide the Company with a minimum 30% interest. Raystay shall grant the
Company the right to first refusal on any newly issued stock and on any sale of
cable television system assets. The Company shall not sell all or any part of
its stock in Raystay without first offering such stock to Raystay or its
shareholders. Other Raystay shareholders may not sell any Raystay stock without
first offering such stock to the Company. The Company shall assume management
control of Raystay no later that May 1, 1999. Effective September 30, 2002,
either the Company or all other Raystay stockholders may initiate a buy-sell
offer.

On December 14, 1993, the United States government filed a civil action
alleging false filings of copyright royalty statements with the Register of
Copyrights of the United States. The complaint alleges that the Company
misreported its subscriber rates to the copyright office and underpaid
copyright royalty fees. The Company is discussing a possible settlement of all
civil claims. The accompanying financial statements include an accrual for the
possible settlement amount in the balance sheet under the caption "accounts
payable and accrued expenses". In the statement of income, the Company has
classified $4,348,000 relating to potential prior year copyright fee liability
as "other expense" and $652,000 relating to potential 1993 liability as general
and administrative expense.


                                    F-159
<PAGE>   179
LENFEST COMMUNICATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

On August 16, 1993, LJ Development, Inc. ("LJ") (See Note T) served a complaint
against StarNet Development, Inc. ("SDI"), a subsidiary of the Company. In the
complaint, LJ seeks $1,000,000 in damages plus attorney's fees and costs for an
alleged breach of an Asset Purchase Agreement. On October 29, 1993, SDI answered
LJ's complaint and filed a counter-claim against LJ and a third party complains
against an affiliated company and an employee. The counter claim and third
party complaint filed by SDI seek $1,000,000 in damages plus attorney's fees
and costs for fraud and misrepresentation. The claims asserted against SDI and
SDI's claims against LJ involve SDI's purchase of computer software called
Traffic Pro 2000 and other assets from LJ Development. The parties have
commenced discovery. No trial date has been set. Management intends to
vigorously defend against the claims for relief brought by LJ and to vigorously
prosecute its claims against LJ.

The Company's subsidiary, Lenfest West, Inc. d/b/a Cable Oakland was named in
a purported class action alleging that the charges imposed by Cable Oakland for
delinquent payments from subscribers are or were illegally high. Plaintiffs
have done little to prosecute this action other than obtain routine discovery,
although plaintiffs' counsel also represents plaintiffs in a similar class
action against another cable operator which is scheduled to go to trail in
1994. Management is preparing to defend this case vigorously. A preliminary
estimate of the maximum potential liability of Cable Oakland is $2,500,000 in
damages plus the plaintiffs' attorneys' fees and litigation costs.

The Company's subsidiary, LenComm, Inc. d/b/a Bay Cablevision was named in a
breach of contract action brought by a contractor against Bay Cablevision. Bay
Cablevision prevailed at the trail court and this case is on appeal. Should the
Court of Appeals reverse and send the case back to the trail court, Bay
Cablevision may face potintial liability in excess of $1,000,000.

A division of the Company's subsidiary, MicroNet, Inc., did not collect sales
tax on the sales of its services in Texas. The Texas Comptroller's auditor
determined a sales tax deficiency and proposed the civil fraud penalty. The
customers of MicroNet, Inc. have assumed responsibility for the tax, left open
the question of liability, if any, for penalties, and undertook prosecution of
the tax dispute with the Comptroller, on behalf of MircoNet, Inc. The case is
begin set for an administrative hearing before an Administrative Law Judge in
the Texas Comptroller's office.

The Internal Revenue Servic has completed the examination of the Company's
Federal income tax returns for the years ended December 31, 1988, 1989, 1990 and
1991. The Company received a Revenue Agent's report dated June 28, 1993, in
connection with the audit. The only adjustment proposed in the report was the
disallowance of the deduction for franchise amortization. The report proposed a
deficiency in the Company's Federal income tax in the amount of $182,371 for
the year ended December 31, 1991. The Company is contesting the proposed
deficiency and the case is currently at the Appeals Office of the Regional
Commissioner's Office. Management believes that in light of recent court
decisions involving the same issued settled in favor of the taxpayers, the
Company will be able to negotiate a favorable settlement of this issue.

The Company has also been named as a defendant in various legal proceedings
arising in the ordinary course of business. In the opinion of management, the
ultimate amount of liablity in excess of the amount which has been accrued in
connection with copyright royalty fees with respect to the above actions, will
not materially affect the financial position of the Company.

As mentioned in Note D, the Company is obligated to purchase additional shares
of stock valued at a total of 58,730,00 French francs (approximately
$10,068,000) in Videopole for the years 1994-1997 and may be contingently
liable for up to 34,510,000 French francs (approximately $5,916,000) in the
years 1995-1997. The Company's future commitment in dollars is subject to
changes in the exchange rate.

                                    F-160
<PAGE>   180
LENEFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)

NOTE V - RELATED PARTY TRANSACTIONS

The Company has entered into an agreement whereby Satellite Services, Inc., an
affiliate of Tele-Communications, Inc. (TCI) a former shareholder and a former
parent company of Liberty Media Corporation, will provide certain cable
television programming to the Company. This agreement provides the Company with
programming services at a rate which is not more than the Company could obtain
independently. For the years ended December 31, 1993, 1992 and 1991, the
Company recorded programming expenses of $26,166,000, $25,573,000 and
22,809,000, respectively, under this agreement.

The Company, through its subsidiary, NuStar, generates revenue from cross
channel tune-in promotional services for cable television from affiliates of
TCI. For the years ended December 31, 1993, 1992 and 1991, the Company has
generated revenue of $1,561,000, $1,602,000, and $1,279,000, respectively, from
affiliates of TCI.

The Company has entered into various leasing arrangements with a principal
stockholder for office and warehouse facilities. See Note M - Leases. In
addition, the Company has a promissory note payable to the same principal
stockholder. See Note L - Notes, Mortgages and Bonds Payable.

NOTE W - SEGMENT INFORMATION

The Company operates primarily in the cable television industry. Certain
subsidiaries of the Company operate in other industries which provide microwave
transmission and promotional, cable advertising traffic and billing services.


<TABLE>
<CAPTION>
                                             Cable                Other              Total
                                          -----------           ----------        -----------
                                                          (Dollars in thousands)
<S>                                       <C>                   <C>               <C>
Year Ended December 31, 1993
- ----------------------------                                                                                     
Revenue                                   $   197,648           $   15,592        $   213,240
                                          -----------           ----------        -----------
Operating income (loss)                        39,476               (9,490)            29,986
                                          -----------           ----------        -----------
Depreciation and amortization                  60,662                4,533             65,195
                                          -----------           ----------        -----------
Capital expenditures, including               
 acquisitions                                 117,394               33,535            150,929
                                          -----------           ----------        -----------
Identifiable assets                           477,010              158,999            636,009
                                          -----------           ----------        -----------
Year Ended December 31, 1992
- ----------------------------
Revenue                                   $   166,081           $   13,859        $   179,940
                                          -----------           ----------        -----------
Operating income (loss)                        32,032               (8,202)            23,830
                                          -----------           ----------        -----------
Depreciation and amortization                  51,417                4,775             56,192
                                          -----------           ----------        -----------
Capital expenditures, including                90,563                4,386             94,949
 acquisitions                             -----------           ----------        -----------

Identifiable assets                           365,246               59,487            424,733
                                          -----------           ----------        -----------
</TABLE>

                                    F-161
<PAGE>   181
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)



<TABLE>
<CAPTION>
                                            Cable          Other              Total
                                         -----------    -----------        -----------
                                                   (Dollars in thousands)
<S>                                      <C>            <C>                <C>
Year Ended December 31, 1991
- ----------------------------
Revenue                                  $   148,985    $    12,380        $   161,365
                                         -----------    -----------        -----------
Operating income (loss)                       27,649         (9,377)            18,272
                                         -----------    -----------        -----------
Depreciation and amortization                 46,156          5,440             51,596
                                         -----------    -----------        -----------
Capital expenditures, including               
 acquisitions                                 34,699          5,249             39,948
                                         -----------    -----------        -----------
Identifiable assets                          327,628         51,503            379,131
                                         -----------    -----------        -----------
</TABLE>


NOTE X - FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of 
each class of financial instruments for which it is practicable to estimate 
that value:

Cash and Cash Equivalents, Accounts Receivable, Prepaid Expenses, Accounts 
Payable, Accrued Expenses, Customer Service Prepayments and Deposits on 
Converters

The carrying amount approximates fair market value because of the short 
maturity of those instruments

Marketable Securities

The fair market values of securities are estimated based on quoted market 
prices for those investments.

Long-term Investments

The fair values of some investments are estimated based on quoted market 
prices for those or similar investments. For two investments acquired in 1993 
(Videopole and Susquehanna and its subsidiaries) for which there are no quoted 
market prices, the Company believes that the carrying amount approximates fair 
value because of the recent nature of these transactions.

Long-term Debt

The carrying amount approximates fair value.

Interest Rate Swap Agreement

The value represents the estimated amount the Company would receive to terminate
the agreement.

                                    F-162
<PAGE>   182
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (continued)


The estimated fair values of the Company's financial instruments as of December
31, 1993 are as follows:


                                         Carrying         Fair
                                          Amount          Value
                                         --------       --------
                                          (Dollars in thousands)

Marketable securities                    $  3,349       $ 16,088
Long-term investments                     100,200        134,043
Interest rate swap agreement                   --            300

Limitations

Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates are subjective in nature, involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.

NOTE Y- SUBSEQUENT EVENTS

On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competiton Act of 1992 which substantially expanded federal and local
regulations of the cable communication industry. Effective September 1993, the
Federal Communications Commission (FCC) adopted comprehensive rate regulations
including an interim freeze on regulated rates. Under these regulations, cable
operators must base their rates for basic service either on FCC "benchmarks" or
"cost of service" standards. On February 22, 1994, the FCC scrapped existing
rate setting benchmarks replacing them with new benchmarks aimed at rolling
cable rates back an average of seventeen percent (17%) from rates charged in
September 1992, versus ten percent (10%) under the system announced last
September.  Regulations explaining the new benchmark rates are expected to be
released in March or April 1994. Management is currently evaluating the impact
of such principles and regulations on the Company's service income.

Pursuant to a letter of intent dated March 4, 1994, between the Company and
Tele-Communications, Inc. ("TCI"), the Company has agreed to exchange the
assets of its cable TV systems serving approximately 116,500 subscribers in the
East San Francisco Bay area and its 41.667% partnership interest in or the
Company's share of the assets of Bay Cable Advertisitng for the Wilmington,
Delaware and surrounding area cable TV system serving approximately 125,600
subscribers, owned by a subsidiary of TCI. The Company and TCI agree to
structure the transaction in such a way that to the greatest extent possible
the transfer of the Wilmington system for the Company's systems will qualify as
a tax-free exchange of like kind assets under Section 1031 of the Internal
Revenue Code. In addition to the above consideration, the Company shall pay to
TCI a total cash consideration of $12,500,000.

                                    F-163
<PAGE>   183
STEVEN PRESSMAN & CO.
                                                        Members of:          
Certified Public Accountants                    American Institute of CPA's  
                                              Pennsylvania Institute of CPA's



                   INDEPENDENT AUDITORS' REPORT ON SCHEDULES


To the Board of Directors and Stockholders
Lenfest Communications, Inc. and Subsidiaries:


We have audited in accordance with generally accepted auditing standards, the
consolidated balance sheets of Lenfest Communications, Inc. and subsidiaries as
of December 31, 1993 and 1992, and the related consolidated statements of income
(loss), changes in stockholder's equity (deficit) and cash flows for each of the
years in the three-year period ended December 31, 1993, as included in the
annual report on Form 10-K of Liberty Media Corporation for the year 1993 and
have issued our report thereon dated March 4, 1994.  In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related financial statement schedules V, VI, VIII and X.  These financial
statement schedules are the responsibility of the Company's management.  Our
resopnsibility is to express an opinion on these financial statement schedules
based on our audit.

In our opinion, the related financial statement schedules, when considered in
relation to the basic consolidated financial statement taken as a whole, present
fairly, in all material respects, the information set forth therein.

/s/ STEVEN PRESSMAN & CO.

March 4, 1994
                                                       
                                    F-164
   345 N. York Road / /  Hatboro, Pennsylvania 19040-2045 / /  215-672-8880
<PAGE>   184
LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991





<TABLE>
<CAPTION>
            Column A                      Column B          Column C          Column D          Column E          Column F
- -----------------------------------   ---------------   ---------------   ---------------   ---------------   ---------------
                                         Balance at                                               Other            Balance
                                         Beginning         Additions                             Changes           at end
                                          of Year           at Cost         Retirements        Add (Deduct)        of Year
                                      ---------------   ---------------   ---------------   ---------------   ---------------
                                                                    (Dollars in thousands)
<S>                                   <C>               <C>               <C>               <C>               <C>
Classification
- --------------

FOR THE YEAR ENDED                    
 DECEMBER 31, 1993:                   
  Land                                $      4,240      $        389      $       (173)     $         --      $      4,456
  Building and improvements                 11,471             1,291              (146)               --            12,616
  Cable distribution systems               341,243            64,527            (5,365)               --           400,405
  Microwave equipment                       20,939             1,479              (734)               --            21,684
  Satellite communications            
   equipment                                   647               351                (9)               --               989
  Office equipment, furniture         
   and fixtures                             10,448             2,388              (338)               --            12,498
  Property and equipment under        
   capital leases                            4,965               954                --                --             5,919
                                      ------------      ------------      ------------      ------------      ------------
                                      $    393,953      $     71,379      $     (6,765)     $         --      $    458,567
                                      ------------      ------------      ------------      ------------      ------------
                                      ------------      ------------      ------------      ------------      ------------

FOR THE YEAR ENDED                    
 DECEMBER 31, 1992:                   
  Land                                $      4,063      $        177      $         --      $         --      $      4,240
  Building and improvements                 10,451             1,020                --                --            11,471
  Cable distribution systems               290,477            61,122           (10,356)               --           341,243
  Microwave equipment                       20,221             1,300              (582)               --            20,939
  Satellite communications            
   equipment                                   327               320                --                --               647
  Office equipment, furniture         
   and fixtures                              8,476             2,103              (131)               --            10,448
  Property and equipment under        
   capital leases                            4,965                --                --                --             4,965
                                      ------------      ------------      ------------      ------------      ------------
                                      $    338,980      $     66,042      $    (11,069)     $         --      $    393,953
                                      ------------      ------------      ------------      ------------      ------------
                                      ------------      ------------      ------------      ------------      ------------
                                      
FOR THE YEAR ENDED                    
 DECEMBER 31, 1991:                   
  Land                                $      3,997      $         66      $         --      $         --      $      4,063
  Building and improvements                 10,000               451                --                --            10,451
  Cable distribution systems               266,761            33,409           (10,871)            1,178           290,477
  Microwave equipment                       17,914             2,307                --                --            20,221
  Satellite communications            
   equipment                                   327                --                --                --               327
  Office equipment, furniture         
   and fixtures                              7,196               864                --               416             8,476
  Property and equipment under        
   capital leases                            5,611               948                --            (1,594)            4,965
                                      ------------      ------------      ------------      ------------      ------------
                                      $    311,806      $     38,045      $    (10,871)     $         --      $    338,980
                                      ------------      ------------      ------------      ------------      ------------
                                      ------------      ------------      ------------      ------------      ------------
</TABLE>

                                    F-165
<PAGE>   185

LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
 PROPERTY AND EQUIPMENT
Years Ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>
         Column A                       Column B          Column C          Column D          Column E          Column E
- ------------------------------        ------------      ------------      ------------      ------------      ------------
                                                          Additions
                                       Balance at          Charged                              Other            Balance
                                       Beginning           to Cost                             Changes           at end
                                        of Year         and Expenses      Retirements       Add (Deduct)         of Year
                                      ------------      ------------      ------------      ------------      ------------
                                                                    (Dollars in thousands)
<S>                                   <C>               <C>               <C>               <C>               <C>
Classification
- --------------

FOR THE YEAR ENDED                    
 DECEMBER 31, 1993:                   
  Building and improvements           $      1,655      $        449      $        (15)     $         --      $      2,089
  Cable distribution systems               181,580            39,974            (3,851)               --           217,703
  Microwave equipment                       10,982             2,566              (459)               --            13,089
  Satellite communications            
   equipment                                   305               165                (2)               --               468
  Office equipment, furniture         
   and fixtures                              6,911             1,710              (265)               --             8,356
  Property and equipment under        
   capital leases                            1,295               484                --                --             1,779
                                      ------------      ------------      ------------      ------------      ------------
                                      $    202,728      $     45,348      $     (4,592)     $         --      $    243,484
                                      ------------      ------------      ------------      ------------      ------------
                                      ------------      ------------      ------------      ------------      ------------

FOR THE YEAR ENDED                    
 DECEMBER 31, 1992:                   
  Building and improvements           $      1,275      $        380      $         --      $         --      $      1,655
  Cable distribution systems               155,341            34,004            (7,765)               --           181,580
  Microwave equipment                        7,758             3,376              (152)               --            10,982
  Satellite communications            
   equipment                                   222                83                --                --               305
  Office equipment, furniture         
   and fixtures                              5,670             1,372              (131)               --             6,911
  Property and equipment under        
   capital leases                              911               384                --                --             1,295
                                      ------------      ------------      ------------      ------------      ------------
                                      $    171,177      $     39,599      $     (8,048)     $         --      $    202,728
                                      ------------      ------------      ------------      ------------      ------------
                                      ------------      ------------      ------------      ------------      ------------
                                      
FOR THE YEAR ENDED                    
 DECEMBER 31, 1991:                   
  Building and improvements           $        913      $        362      $         --      $         --      $      1,275
  Cable distribution systems               135,468            29,580           (10,885)            1,178           155,341
  Microwave equipment                        3,682             4,076                --                --             7,758
  Satellite communications            
   equipment                                   180                42                --                --               222
  Office equipment, furniture         
   and fixtures                              4,167             1,087                --               416             5,670
  Property and equipment under        
   capital leases                            1,924               581                --            (1,594)              911
                                      ------------      ------------      ------------      ------------      ------------
                                      $    146,334      $     35,728      $    (10,885)     $         --      $    171,177
                                      ------------      ------------      ------------      ------------      ------------
                                      ------------      ------------      ------------      ------------      ------------
</TABLE>

                                    F-166
<PAGE>   186


LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1993, 1992 and 1991




<TABLE>
<CAPTION>
         Column A                                   Column B          Column C          Column D          Column E       
- ------------------------------                    ------------      ------------      ------------      ------------     
                                                                      Additions                                          
                                                   Balance at        Charged to                            Balance       
                                                   Beginning          Cost and                             at end        
                                                    of Year           Expenses         Deductions          of Year       
                                                  ------------      ------------      ------------      ------------     
                                                                        (Dollars in thousands)
<S>                                               <C>               <C>               <C>               <C>
FOR THE YEAR ENDED
 DECEMBER 31, 1993:
  Allowance for doubtful accounts                 $      1,287      $      3,182      $     (3,608)     $        861
                                                  ------------      ------------      ------------      ------------     
                                                  ------------      ------------      ------------      ------------     


FOR THE YEAR ENDED
 DECEMBER 31, 1992:
  Allowance for doubtful accounts                 $      1,268      $      2,239      $     (2,220)     $      1,287
                                                  ------------      ------------      ------------      ------------     
                                                  ------------      ------------      ------------      ------------     


FOR THE YEAR ENDED
 DECEMBER 31, 1991:
  Allowance for doubtful accounts                 $      1,454      $      2,761      $     (2,947)     $      1,268
                                                  ------------      ------------      ------------      ------------     
                                                  ------------      ------------      ------------      ------------     
</TABLE>

                                    F-167
<PAGE>   187


LENFEST COMMUNICATIONS, INC. AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY CONSOLIDATED STATEMENTS OF
 INCOME (LOSS) INFORMATION
Years Ended December 31, 1993, 1992 and 1991





<TABLE>
<CAPTION>
Column A                                                               Column B
- --------                                                               --------

Item                                                        Charged to Costs and Expenses
- ----                                                        -----------------------------

                                                      1993              1992              1991
                                                  ------------      ------------      ------------      
                                                               (Dollars in thousands)
<S>                                               <C>               <C>               <C>
Maintenance and repairs                           $      1,925      $      1,440      $      1,417
                                                  ------------      ------------      ------------      
                                                  ------------      ------------      ------------      

Amortization
 Franchise costs                                  $     15,055      $     12,338      $     12,530
 Other                                                   4,792             4,255             3,338
                                                  ------------      ------------      ------------      
                                                  $     19,847      $     16,593      $     15,868
                                                  ------------      ------------      ------------      
                                                  ------------      ------------      ------------      


Advertising costs                                 $      1,530      $      1,908      $      1,176
                                                  ------------      ------------      ------------      
                                                  ------------      ------------      ------------      
</TABLE>

Amounts for taxes, other than payroll and income taxes and royalties are not
presented since these amounts are less than one percent (1%) of total revenue.

                                    F-168
<PAGE>   188

                         INDEPENDENT AUDITORS' REPORT

The Partners
The Cable Partnerships of Country Cable Co.
   and Knight-Ridder Cablevision, Inc.:


We have audited the accompanying combined balance sheets of The Cable
Partnerships of Country Cable Co. and Knight-Ridder Cablevision, Inc. as of
December 31, 1993 and 1992, and the related combined statements of earnings,
changes in partners' capital, and cash flows for each of the years in the
three-year period ended December 31, 1993.  These combined financial statements
are the responsibility of the Partnerships' 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 The Cable
Partnerships of Country Cable Co. and Knight-Ridder Cablevision, Inc. as of
December 31, 1993 and 1992, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1993, in
conformity with generally accepted accounting principles.

As discussed in notes 1 and 9 to the combined financial statements, the
Partnerships changed their method of accounting for income taxes for their
corporate subsidiaries in 1993 to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes".

                                             /s/ KPMG Peat Marwick
                                                 KPMG Peat Marwick
                                             


Princeton, New Jersey
January 28, 1994

                                    F-169
<PAGE>   189


                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                       KNIGHT-RIDDER CABLEVISION, INC.

                            Combined Balance Sheets

                           December 31, 1993 and 1992


<TABLE>
<CAPTION>
                                                     1993                1992
                                                 -------------       -----------
<S>                                              <C>                 <C>
                      Assets
                      ------
Cash                                             $   2,033,000         2,027,000

Accounts receivable (note 3)                         6,281,000         5,226,000
   Less allowance for doubtful accounts                447,000           425,000
                                                 -------------       -----------
                                                     5,834,000         4,801,000
                                                 -------------       -----------


Investment in TCI-TKR LP (note 4)                  225,670,000       231,523,000
Investment in securities, at cost (note 4)           7,890,000         7,890,000

Property and equipment (note 5 and 10)             248,067,000       231,575,000
   Less accumulated depreciation and amortization  131,439,000       112,981,000
                                                 -------------       -----------
                                                   116,628,000       118,594,000
                                                 -------------       -----------


Franchise costs (note 10)                          166,727,000       166,452,000
   Less accumulated amortization                    33,796,000        29,878,000
                                                 -------------       -----------
                                                   132,931,000       136,574,000
                                                 -------------       -----------

Other assets, net                                    5,089,000         2,511,000
                                                 -------------       -----------
                                                 $ 496,075,000       503,920,000
                                                 -------------       -----------
                                                 -------------       -----------


        Liabilities and Partners' Capital
        ---------------------------------

Debt to banks (note 7)                             298,000,000       328,000,000
Accounts payable and accrued expenses               14,301,000        11,599,000
Subscriber advance payments                          2,354,000         2,643,000
Deferred income taxes (note 9)                      20,744,000        20,205,000
Due to Tele-Communications, Inc. (note 6)            3,456,000         3,582,000
Notes payable - Knight-Ridder Investment
   Company (note 6)                                 71,258,000        71,258,000
                                                 -------------       -----------
      Total liabilities                            410,113,000       437,287,000
                                                 -------------       -----------

Partners' capital:
   Country Cable Co.                                42,981,000        33,316,500
   Knight-Ridder Cablevision, Inc.                  42,981,000        33,316,500
                                                 -------------       -----------
      Total partners' capital                       85,962,000        66,633,000

Commitments (note 11).
                                                 -------------       -----------
                                                 $ 496,075,000       503,920,000
                                                 -------------       -----------
                                                 -------------       -----------
</TABLE>

See accompanying notes to combined financial statements.

                                    F-170
<PAGE>   190


                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

                        Combined Statements of Earnings

                  Years ended December 31, 1993, 1992 and 1991


<TABLE>
<CAPTION>
                                                      1993              1992              1991
                                                  ------------       -----------       -----------
<S>                                               <C>                <C>               <C>
Revenues:
  Basic service                                   $ 99,345,000        94,461,000        81,698,000
  Pay service                                       38,801,000        35,291,000        36,790,000
  Other (including affiliate amounts
    of $3,514,000, $3,394,000 and
    $3,048,000) (note 6)                            14,361,000        12,587,000        11,584,000
                                                  ------------       -----------       -----------
                                                   152,507,000       142,339,000       130,072,000
                                                  ------------       -----------       -----------
Operating costs and expenses:
  Operation (including affiliate amounts
    of $23,124,000, $21,592,000 and
    $19,690,000) (note 6)                           42,808,000        41,448,000        38,024,000
  Selling, general and administrative               35,442,000        30,485,000        28,926,000
  Depreciation                                      19,264,000        18,834,000        17,959,000
  Amortization                                       3,925,000         4,185,000         3,819,000
                                                  ------------       -----------       -----------
                                                   101,439,000        94,952,000        88,728,000
                                                  ------------       -----------       -----------
        Operating income                            51,068,000        47,387,000        41,344,000

Other inocme (expense):
  Interest expense (including affiliate
    amounts of $2,349,000, $2,877,000
    and $4,609,000) (notes 6 and 7)                (23,677,000)      (27,084,000)      (34,688,000)
  Interest income                                        1,000            15,000             9,000
  Dividend income (note 4)                              94,000            67,000           601,000
  Other                                                (31,000)           16,000                --
  Share of loss related to TCI-TKR LP
    (note 4)                                        (5,853,000)          (97,000)               --
                                                  ------------       -----------       -----------
                                                   (29,466,000)      (27,083,000)      (34,078,000)
                                                  ------------       -----------       -----------
      Income before income tax
        expense (benefit)                           21,602,000        20,304,000         7,266,000
Income tax expense (benefit) (note 9)                2,273,000           589,000           (16,000)
                                                  ------------       -----------       -----------
      Net income                                  $ 19,329,000        19,715,000         7,282,000
                                                  ------------       -----------       -----------
                                                  ------------       -----------       -----------
</TABLE>

See accompanying notes to combined financial statements.

                                    F-171
<PAGE>   191



                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

                         Combined Statements of Changes
                              in Partners' Capital

                  Years ended December 31, 1993, 1992 and 1991





<TABLE>
<CAPTION>
                                                                    Knight-Ridder
                                                     Country         Cablevision,
                                                    Cable Co.            Inc.             Total
                                                  ------------      -------------       ----------
<S>                                               <C>                 <C>               <C>
Balance, December 31, 1990:                                                                       
                                                 
  As previously reported                          $ 19,961,000        19,961,000        39,922,000
  Cumulative effect of change
    in accounting for income
    taxes at this date (note 9)                       (143,000)         (143,000)         (286,000)
                                                  ------------        ----------        ----------
  As restated                                       19,818,000        19,818,000        39,636,000

    Net income                                       3,641,000         3,641,000         7,282,000
                                                  ------------        ----------        ----------

Balance, December 31, 1991                          23,459,000        23,459,000        46,918,000

  Net income                                         9,857,500         9,857,500        19,715,000
                                                  ------------        ----------        ----------

Balance, December 31, 1992                          33,316,500        33,316,500        66,633,000

  Net income                                         9,664,500         9,664,500        19,329,000
                                                  ------------        ----------        ----------

Balance, December 31, 1993                        $ 42,981,000        42,981,000        85,962,000
                                                  ------------        ----------        ----------
                                                  ------------        ----------        ----------
</TABLE>




See accompanying notes to combined financial statements.

                                    F-172
<PAGE>   192


                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

                       Combined Statements of Cash Flows

                  Years ended December 31, 1993, 1992 and 1991

<TABLE>
<CAPTION>
                                                     1993               1992              1991
                                                  ------------       -----------       -----------
<S>                                               <C>                <C>               <C>
Cash flows from operating activities:
  Net income                                      $ 19,329,000        19,715,000         7,282,000
  Adjustements to reconcile net income
    to net cash provided by operating
    activities:
      Depreciation and amortization                 23,189,000        23,019,000        21,778,000
      Stock dividend income                                 --                --          (164,000)
      Share of loss related to
        TCI-TKR LP                                   5,853,000            97,000                --
      Loss from sale of equipment                           --             8,000                --
      Deferred income tax expense
        (benefit)                                      539,000           241,000          (102,000)
      Changes in operating assets and
        libilities, net of the effect
        from acquisition of cable
        television system:
          Increase in accounts
            receivable, net                         (1,033,000)       (1,019,000)         (813,000)
          Increase in other assets                  (2,585,000)          (46,000)         (152,000)
          Increase (decrease) in
            accounts payable and
            accrued expenses                         2,702,000        (3,869,000)       (4,806,000)
          Increase (decrease) in
            subscriber advance
            payments                                  (289,000)         (118,000)          328,000
          Increase (decrease) in due
            to Tele-Communications,
            Inc.                                      (126,000)       (1,529,000)        1,066,000
                                                  ------------       -----------       -----------
        Net cash provided by
          operating activities                      47,579,000        36,499,000        24,417,000
                                                  ------------       -----------       -----------


Cash flows from investing activities:
  Purchase of investments                                   --                --          (247,000)
  Additions to franchise costs                        (275,000)         (174,000)         (370,000)
  Property and equipment additions                 (17,298,000)      (14,662,000)      (19,033,000)
  Payment for acquisition of cable
    television systems                                      --        (3,100,000)       (4,320,000)
  Proceeds from sale of equipment                           --             5,000                --
                                                  ------------       -----------       -----------
          Net cash used in
            investing activities                   (17,573,000)      (17,931,000)      (23,970,000)
                                                  ------------       -----------       -----------

Cash flows from financing activities:
  Payments on debt to banks                       (328,000,000)      (24,000,000)      (25,000,000)
  Proceeds from debt to banks                      298,000,000         4,000,000        25,000,000
                                                  ------------       -----------       -----------
          Net cash used in
            financing activities                   (30,000,000)      (20,000,000)               --
                                                  ------------       -----------       -----------

Net increase (decrease) in cash                          6,000        (1,432,000)          447,000
Cash, beginning of year                              2,027,000         3,459,000         3,012,000
                                                  ------------       -----------       -----------
Cash, end of year                                 $  2,033,000         2,027,000         3,459,000
                                                  ------------       -----------       -----------
                                                  ------------       -----------       -----------
</TABLE>

See accompany notes to combined financial statements.

                                    F-173
<PAGE>   193

                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

                     Notes to Combined Financial Statements

                        December 31, 1993, 1992 and 1991

(1)      Organization and Summary of Significant Accounting Policies

         Principles of combination and organization:
              The combined financial statements of The Cable Partnerships of
                 Country Cable Co. (Country Cable) and Knight-Ridder
                 Cablevision, Inc.  (KRC) (the Partnerships) include the
                 consolidated financial statements of TKR Cable Company and
                 subsidiaries (TKR) and the financial statements of TKR Cable
                 Partners (TKRCP) (formerly SCI Cable Partners).  TKR and TKRCP
                 represent the two cable partnerships jointly owned and managed
                 by Country Cable and KRC.

              The combined financial statements of the Partnerships include the
                 accounts of the six cable television systems wholly-owned by
                 TKR, along with its three wholly-owned corporate subsidiaries.
                 TKR Cable Company of Wildwood, Inc. (Wildwood),  TKR Cable
                 Company of Ramapo, Inc. (Ramapo), and TKR Cable Company of
                 Warwick, Inc. (Warwick).

              All significant intercompany transactions have been eliminated in
                 combination and consolidation.

              The General Partners of the Partnerships - Country Cable, an
                 indirect wholly-owned subsidiary of Liberty Media Corporation,
                 a related party to Tele-Communications, Inc. (TCI), and KRC, a
                 subsidiary of Knight-Ridder, Inc.  (KRI), share equally in the
                 profits and losses of the Partnership.

              TKR was organized on January 18, 1982 to engage in the
                 acquisition, development, operation and expansion of cable
                 television systems and obtaining franchises thereon.  TKRCP
                 was organized on November 1, 1988 to acquire and hold a 30%
                 limited partnership interest in TCI TKR Limited Partnership
                 (TCI-TKR LP), formerly TKR-Storer Limited Partnership, a
                 Colorado limited partnership formed between TKRCP and TCI TKR,
                 Inc. (TCI-TKR), formerly TCI Storer, Inc.  TCI-TKR is a
                 wholly-owned subsidiary of TCI and holder of a 70% general
                 partnership interest in TCI-TKR LP.  Through December 2, 1992,
                 TCI-TKR LP owned 50% of the common stock of SCI Holdings, Inc.
                 (SCI), the parent company of Storer Communications, Inc.
                 (Storer).

              On December 2, 1992, SCI completed a split-off transaction (the
                 Split-Off) in which the net assets of SCI were divided
                 approximately equally between (i) TCI-TKR LP and (ii) a
                 wholly-owned subsidiary of Comcast Corporation (Comcast).
                 Prior to the Split-Off, each of TCI-TKR LP and Comcast held a
                 50% ownership interest in SCI.  The Split-Off, which was
                 structured primarily to permit refinancing of substantially
                 all of the publicly held debt of SCI and the preferred stock
                 of SCI's wholly-owned subsidiary. Storer, was effected by the
                 distribution of approximately 50% of the net assets of SCI to
                 three holding companies formed by TCI-TKR LP (collectively,
                 the Holding Companies).  In the Split-Off, such Holding
                 Companies acquire 100% of the outstanding capital stock of
                 certain indirectly wholly- owned subsidiaries of SCI.  As a
                 result of the Holding Companies' acquisition of such SCI
                 subsidiaries, the Holding Companies are engaged in the
                 ownership and operation of cable television systems located in
                 Alabama, Florida, Kentucky, Georgia, and Texas.


                                                                     (Continued)

                                    F-174
<PAGE>   194

                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued


(1)      Organization and Summary of Significant Accounting Policies, cont.

              The Internal Revenue Service has issued private letter rulings
                 concerning the Federal income tax consequences of the
                 Split-Off (the IRS Rulings).  The IRS Rulings provide, among
                 other things, that, based upon certain representations
                 contained in the rulings, neither income nor gain for Federal
                 income tax purposes will be recognized as a result of the
                 distribution of stock of the subsidiaries to the Holding
                 Companies and certain other departing Storer subsidiaries in
                 connection with the Split-Off.

         Property and equipment:
              Land is carried at cost and property and equipment are stated at
                 cost less accumulated depreciation.  Depreciation of property
                 and equipment is provided on the straight-line basis over the
                 estimated useful lives of the respective assets which range
                 from five to fifteen years for distribution systems and five
                 to forty years for support equipment and buildings.  Leasehold
                 improvements are amortized on a straight-line basis over the
                 terms of the respective leases or estimated useful lives,
                 whichever is shorter.  Interest costs, if deemed material, are
                 capitalized in connection with cable systems under active
                 development or construction.  There were no capitalized
                 interest costs in 1993 and 1992 and there were $320,000 of
                 capitalized interest costs in 1991.

              Repair and maintenance costs are charged to operations and
                 renewals and additions are capitalized when incurred.  When
                 TKR disposes of property through ordinary retirements, sales
                 or other dispositions, it charges the original cost and cost
                 of removal of such property to accumulated depreciation, net
                 of salvage value, if any.  Gains or losses incurred in
                 connection with the sale or disposition of TKR assets are only
                 recognized in connection with the sale of properties in their
                 entirety.

              Initial hook-up and installation costs are capitalized and
                 amortized on a straight-line basis over a five-year period.
                 All other costs incurred including costs incurred with respect
                 to reconnects and disconnects and initial marketing and direct
                 selling costs, are expenses as incurred.

                                                                     (Continued)

                                    F-175
<PAGE>   195
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued


(1)      Organization and Summary of Significant Accounting Policies, cont.

         Franchise costs:
              TKR defers costs incurred applicable to the petition for the
                 award of specific franchises until a determination of the
                 outcome of such petition can be made.  Costs incurred relating
                 to successful franchises are capitalized and amortized on a
                 straight-line basis over a forty-year period.  Costs relating
                 to unsuccessful franchise applications or applications
                 anticipated to be unsuccessful are expenses during the period
                 of such determination.  Costs related to successful franchise
                 renewals are capitalized and amortized over the life of the
                 new franchise.

              Franchise costs incurred as a result of the acquisition of cable
                 television systems represent the difference between the cost
                 of cable television systems acquired and the amounts assigned
                 to their tangible assets based on the estimated fair market
                 value of such assets, as determined by independent
                 consultants.  Such franchise costs are also amortized on a
                 straight-line basis over a forty-year period.

         Income taxes:
              In February 1992, the Financial Accounting Standards Board issued
                 Statement of Financial Accounting Standards No. 109 (FAS 109)
                 "Accounting for Income Taxes".  FAS 1009 requires a change
                 from the deferred method of accounting for income taxes of APB
                 Opinion 11 to the asset and liability method of accounting for
                 income taxes.  Under the asset and liability method of FAS
                 109, deferred tax assets and liabilities are recognized for
                 the estimated future tax consequences attributable to
                 differences between the financial statement carrying amounts
                 of existing assets and liabilities and their respective tax
                 bases and operating loss and tax credit carryforwards.
                 Deferred tax assets and liability are measured using enacted
                 tax rates in effect for the year in which those temporary
                 differences are expected to be recovered or settled.  Under
                 FAS 109, the effect on deferred tax assets and liabilities of
                 a change in tax rates is recognized in income in the period
                 that includes the enactment date.

              The Partnerships adopted FAS 109 in 1993 for the three
                 wholly-owned corporate subsidiaries of TKR and have applied
                 the provisions of FAS 109 retroactively to September 1, 1987,
                 the date on which the first corporate subsidiary was acquired.
                 Beginning partners' capital as of January 1, 1991 has been
                 retroactively adjusted to account for the cumulative effect of
                 the change in the method of accounting for income taxes since
                 September 1, 1987.

         Reclassification:
              Certain amounts contained in the 1992 and 1991 combined financial
                 statement have been reclassified to conform to the 1993
                 presentation.

                                                                     (Continued)

                                    F-176
<PAGE>   196
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued

(2)      Supplemental Disclosures to Combined Statements of Cash Flows - Cash
              Flow Information and Noncash Investing and Financial Activities

         Cash paid for interest aggregated $24,100,000, $28,916,000 and
              $38,929,000 in 1993, 1992 and 1991, respectively.

         Cash paid for income taxes aggregated $1,436,000, $460,000 and $84,000
              in 1993, 1992 and 1991, respectively.

         In 1993, TKR wrote off certain fully depreciated equipment with an
              original cost of approximately $806,000, which amount was charged
              to accumulated depreciation.

         In 1991, TKR wrote off certain equipment with an original cost of
              approximately $6,376,000, which amount was charged to accumulated
              depreciation.

(3)      Accounts Receivable

         Accounts receivable as of December 31, 1993 and 1992 are summarized 
              as follows:

                                                   1993             1992
                                              ------------        ---------

            Trade receivables                 $  3,889,000        3,370,000
            Other receivables (primarily
              advertising receivables)           2,392,000        1,856,000
                                              ------------        ---------
                                              $  6,281,000        5,226,000
                                              ------------        ---------
                                              ------------        ---------


(4)      Investments

         Investment in TCI-TKR LP:
              In November 1988, TKRCP acquired a 30% limited partnership
                 interest in TCI-TKR LP for approximately $231,620,000.  On the
                 same date, TCI-TKR LP purchased 50% of SCI.  As a result of
                 this transaction, TKRCP indirectly owned 15% of SCI and
                 maintained no significant influence or direct involvement in
                 the management of SCI.  Prior to the Split-Off and the related
                 formation of the Holding Companies by TCI-TKR LP, TKRCP
                 recorded its interest in TCI-TKR LP under the cost method of
                 accounting.  Subsequent to the Split-Off, TKRCP has recorded
                 its limited partnership interest in TCI-TKR LP under the
                 equity method of accounting.  The difference between the cost
                 of the limited partnership interest in TCI-TKR LP and the net
                 assets of TCI-TKR LP at December 2, 1992 is being amortized on
                 a straight-line basis over 30 years.

                                                                     (Continued)

                                    F-177
<PAGE>   197
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued

(4)      Investments, cont.

              Period to the Split-Off, one of the subsidiaries acquired by one
                 of the Holding Companies received from SCI certain preferred
                 stock issued by TCI Southeast, Inc. (TCI Southeast), an
                 indirect wholly-owned subsidiary of TCI.  Such preferred stock
                 (the Southeast Preferred stock) together with accrued and
                 unpaid dividends, aggregated $394,368,000 at December 31,
                 1993.  Because TCI-TKR LP and TCI Southeast are under the
                 common control of TCI, the investment in the Southeast
                 Preferred Stock and accrued dividends is reflected as a
                 deduction from the aforementioned holding company's equity.

              TKRCP's share of losses for the year ended December 31, 1993 and
                 the one month ended December 31, 1992 is summarized as
                 follows:


<TABLE>
<CAPTION>
                                                                        1993                    1992
                                                                  --------------             --------
                 <S>                                              <C>                        <C>
                 30% of TCI-TKR LP's net loss                     $  (11,171,000)            (402,000)
                 30% of dividends on Southeast Preferred   
                    Stock, net of income tax effect                    8,040,000              532,000
                 Amortization of difference between cost   
                    of investment and net assets at        
                    December 2, 1992 ($81,652,000)                    (2,722,000)            (227,000)
                                                                  --------------             --------
                                                                  $   (5,853,000)             (97,000)
                                                                  --------------             --------
                                                                  --------------             --------
</TABLE>                                                   

                 

              As a result of the aforementioned transaction, TKRCP's investment
                 in TCI-TKR amounted to $225,670,000 and $231,523,000 as of
                 December 31, 1993 and 1992, respectively.

                                                                     (Continued)

                                    F-178
<PAGE>   198
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued

(4)      Investments, cont.

              Summarized consolidated balance sheet data of TCI-TKR LP as of
                December 31, 1993 and 1992 is as follows:

                                                    1993              1992
                                               --------------     -------------

              Cash                             $    3,420,000           698,000
              Receivable and prepaids              22,461,000        19,676,000
              Property and equipment, net         448,252,000       439,032,000
              Franchise cost, net               1,213,209,000     1,254,877,000
              Other assets                         22,534,000        24,124,000
                                               --------------     -------------
                                               $1,709,876,000     1,738,407,000
                                               --------------     -------------
                                               --------------     -------------



              Payables and accruals            $   57,787,000        42,070,000
              Debt, including intercompany      1,114,634,000     1,103,621,000
              Deferred income taxes               407,110,000       399,756,000
              Other liabilities                    35,454,000        31,471,000
              Partners' capital                   489,259,000       498,556,000
              Investment in Southeast Preferred
                Stock                            (394,368,000)     (337,067,000)
                                               --------------     -------------
                                               $1,709,876,000     1,738,407,000
                                               --------------     -------------
                                               --------------     -------------


              Summarized consolidated results of operations data of TCI-TKR LP
                 for the year ended December 31, 1993 and the one month ended
                 December 31, 1992 is as follows:

                                                     1993              1992
                                                 -------------      -----------

                 Revenue                         $ 341,643,000       26,684,000
                 Operating, selling, general
                    and administrative expenses   (190,535,000)     (14,999,000)
                 Depreciation and amortization    (109,377,000)      (8,420,000)
                                                 -------------      -----------
                         Operating income           41,731,000        3,265,000

                 Interest expense                  (79,090,000)      (7,078,000)
                 Other, net                            122,000        2,474,000
                                                 -------------      -----------
                         Net loss                $ (37,237,000)      (1,339,000)
                                                 -------------      -----------
                                                 -------------      -----------
                 

                                                                     (Continued)

                                    F-179
<PAGE>   199
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued

(4)      Investments, cont.

         Investments in securities:
              TKR has the following investments in Turner Broadcasting Systems,
                 Inc. ("TBS") as of December 31, 1993 and 1992, which are
                 accounted for under the cost method:


<TABLE>
<CAPTION>
                                                               1993                                   1992
                                                   ------------------------------         ------------------------------
                                                     Shares             Amount              Shares            Amount
                                                   ----------        ------------         ----------        ------------
                 <S>                               <C>               <C>                  <C>               <C>
                 TBS Class C convertible                                                                                
                    preferred stock                147,529           $  2,650,000         147,529           $  2,650,000
                 TBS Class B common stock          453,838              5,240,000         453,838              5,240,000
                                                                     ------------                           ------------
                                                                     $  7,890,000                           $  7,890,000
                                                                     ------------                           ------------
                                                                     ------------                           ------------
</TABLE>                                     

              The TBS Class C convertible preferred stock is convertible into
                 six shares of TBS Class B common stock.

              The TBS Class B common stock is publicly traded, while the TBS
                 Class C convertible preferred stock is not.  As of December
                 31, 1993, based on the trading price of the TBS Class B common
                 stock and the convertible feature of the TBS Class C
                 convertible preferred stock, TKR's investments in the TBS
                 Class B common stock and TBS Class C convertible preferred
                 stock had market values of approximately $12,241,000 and
                 $23,900,000, respectively.

              Dividend income recognized on the TBS stock amounted to $94,000
                 in 1993, $67,000 in 1992 and $601,000 in 1991.

(5)      Property and Equipment

         Property and equipment as of December 31, 1993 and 1992 are summarized
                 as follows:


<TABLE>
<CAPTION>
                                                             1993                 1992
                                                        ---------------        -----------
              <S>                                       <C>                    <C>
              Land                                      $     1,313,000          1,313,000
              Distribution systems                          224,571,000        211,527,000
              Support equipment and buildings                22,183,000         18,735,000
                                                        ---------------        -----------
                                                        $   248,067,000        231,575,000
                                                        ---------------        -----------
                                                        ---------------        -----------
                                                

</TABLE>

                                                                     (Continued)

                                    F-180
<PAGE>   200
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued

(6)      Transactions with Related Parties

         In accordance with the formation of TKRCP in November 1988, TKRCP
              assumed TKR's $25,882,000 subordinated note payable to
              Knight-Ridder Investment Company (KRIC), a wholly-owned
              subsidiary of KRI.  This note payable was subsequently reassumed
              by TKR in July 1993 and is scheduled to mature in April 2002.
              Interest on this note payable to KRIC is payable quarterly at the
              lower of the KRIC commercial paper rate (3.3%, 3.4% and 6.1% at
              December 31, 1993, 1992 and 1991, respectively) or the current
              prime rate (6.0%, 6.0% and 6.5% at December 31, 1993, 1992 and
              1991, respectively).

         To assist in the funding of the TCI-TKR LP investment (note 4), TKRCP
              borrowed an additional $45,376,000 from KRIC in 1988 in the form
              of a subordinated note.  This note was also assumed by TKR in
              July 1993 and is scheduled to mature in April 2002.  This note
              requires quarterly interest payments at the KRIC commercial paper
              rate and prohibits repayment of the principal balance before
              maturity.

         Interest expense incurred by the Partnerships as a result of the
              aforementioned transactions with KRIC aggregated $2,349,000,
              $2,877,000 and $4,609,000 in 1993, 1992 and 1991, respectively.

         TKR has entered into an agreement with TCI whereby TKR purchases
              certain subscriber-related services from TCI at TCI's actual cost
              of such services.  Such services, consisting primarily of certain
              pay and basic television services, aggregated $23,124,000,
              $21,592,000 and $19,690,000 in 1993, 1992 and 1991, respectively.

         In 1989, TKRCP began managing certain cable television systems of
              Storer.  These cable television systems were subsequently
              distributed on December 2, 1992 to two holding companies formed
              by TCI-TKR LP.  In July, 1993, management of these cable
              television systems was transferred to TKR.  In accordance with
              the management agreement with those systems, the Partnerships
              received a management fee equal to 3.5% of the systems's
              revenues.  In 1993, 1992 and 1991, management fees resulting from
              this agreement aggregated $3,514,000, $3,294,000 and $3,048,000,
              respectively.

                                                                     (Continued)

                                    F-181
<PAGE>   201
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued

(7)      Debt to Banks

         Debt to banks aggregated $298,000,000 at December 31, 1993.  This debt
              consists of a $350,000,000 unsecured revolving credit facility
              executed by TKR on July 15, 1993 with Chemical Banking
              Corporation as agent and Chase Manhattan Bank and Toronto
              Dominion Bank as co-agents and funded by a consortium of banks.
              The proceeds of this credit facility were used to repay amounts
              previously outstanding under TKRCP's revolving credit facility.
              The revolving credit facility's maximum commitment will be
              gradually reduced in increasing quarterly increments commencing
              March 31, 1995 in amounts ranging from 1.875% to 8.5% of the
              $350,000,000 maximum commitment level through its March 31, 2001
              termination date.  TKR may make partial prepayments in multiplies
              of either $500,000 or $1,000,000, depending on the interest rate
              option selected by TKR.  TKR has the option to permanently reduce
              the commitment level, but only in the initial amount of
              $5,000,000 and in multiples of $1,000,000 thereafter.

         The interest rate on borrowings under this facility are subject to
              selection by TKR and are based on either the alternate base rate
              (the higher of the agent bank's prime rate, certificate of
              deposit-based rate plus 1% or the Federal funds rate plus 1/2%),
              the Eurodollar rate or the certificate deposit-based rate, all
              plus an applicable margins. The applicable margin is determined,
              based upon the maintenance of a certain debt to cash flow ratios.
              Interest rates, including applicable margins, incurred during 
              1993 under this credit facility ranged from 6.44% to 4.13%.  In 
              addition, if the three month LIBOR rate plus the applicable 
              margin exceeds 8% for thirty consecutive days and the TKR's debt 
              to cash flow ratio is greater than 4.0 to 1.0, then the credit 
              facility requires that TKR enter into an interest rate protection
              agreement for 50% of the then outstanding borrowings.

         The revolving credit facility requires an annual commitment fee,
              payable quarterly in arrears, at the rate .375% of the average
              daily amount of the available commitment.  In addition, TKR paid
              a one-time facility fee of $2,880,000 upon closing of the
              revolving credit facility and is obligated to pay the agent of
              the credit facility an annual fee of $125,000 through 2001.

         The most significant debt covenants of this credit facility limit
              additional borrowings, sales of assets and additional
              investments.  In addition, TKR has agreed to maintain certain
              defined debt to cash flow, cash flow to debt service and cash
              flow to interest expense ratios.

                                                                     (Continued)

                                    F-182
<PAGE>   202
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued

(7)      Debt to Banks, cont.

         The minimum mandatory principal repayments required as of December 31,
              1993 based upon the current level of indebtedness under this
              credit facility are as follows:


                          1996             $   12,750,000
                          1997                 45,500,000
                          1998                 56,000,000
                          1999                 70,000,000
                          2000                 84,000,000
                          2001                 29,750,000
                                           --------------
                                           $  298,000,000
                                           --------------
                                           --------------


         Debt to banks aggregated $328,000,000 as of December 31, 1992.  This
              debt, which was repaid in July 1993 with the proceeds of the
              aforementioned $350,000,000 revolving credit facility executed by
              TKR, consisted of a revolving line of credit facility executed on
              November 2, 1988 and provided for borrowings by TKRCP in an
              amount not to exceed $360,000,000, funded by a consortium of
              banks, with Chemical Banking Corporation (CBC) as agent.

         Interest rates, including applicable margins, incurred during 1993,
              1992 and 1991 on this credit facility ranged from 6.90% to 4.13%,
              6.21% to 4.35% and 9.42% to 6.46%, respectively.

         The revolving line of credit agreement required an annual commitment
              fee, payable quarterly, at the rate of .375% of the average daily
              amount of the available commitment.

         TKRCP entered into an interest rate exchange agreement in June 1989
              with two banks pursuant to which it paid, quarterly, a fixed rate
              of 8.54% on the notional principal amount of $100,000,000 in
              exchange for which it would receive 90 day LIBOR payments on a
              like amount.  The effect of the exchange was to fix interest
              rates on $100,000,000 of borrowings through June 1994.  In July
              1993, this agreement was transferred to TKR.

                                                                     (Continued)

                                    F-183
<PAGE>   203
                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.

               Notes to Combined Financial Statements, Continued

(7)      Debt to Banks, cont.

         In September 1989, TKRCP, in exchange for $220,000, granted CBC an
              option to require the Partnership to pay a fixed rate of 8.35% on
              a notional principal amount of $100,000,000 in exchange for
              receiving LIBOR payments from CBC for a three year period on a
              like amount.  In December 1989, CBC exercised the option and the
              Partnership entered into the interest rate exchange agreement.
              On January 24, 1990, CBC terminated the agreement in exchange for
              a cash payment to the TKRCP of $710,000.   Such amount was
              deferred and amortized over the original three-year term of the
              swap agreement as a reduction of interest expenses, which amount
              aggregated $237,000 per year for 1992 and 1991.

(8)      Employee Benefit Plan

         TKR has a profit sharing plan (the Plan) which covers substantially
              all qualified employees.  TKR makes discretionary contributions
              to the Plan each year, as determined by TKR's Management
              Committee, from any available TKR profits, as defined.  TKR's
              contributions to the Plan aggregated $1,289,000, $1,153,000 and
              $1,028,000 in 1993, 1992 and 1991, respectively.

         TKR also has a 401(k) savings plan (the 401(k) Plan) which is
              available to all qualified employees.  Employees may elect to
              contribute a portion of their wages to the 401(k) Plan, subject
              to certain limitations.  TKR is not required to contribute a
              matching percentage contribution; however, TKR did contribute a
              portion of the employees' contribution up to a maximum of 3%,
              which matching contributions aggregated approximately $415,000,
              $332,000 and $271,000 in 1993, 1992 and 1991, respectively.

(9)      Income Taxes

         No provision for income taxes has been recorded in the accompanying
              combined financial statements for the Partnerships, except as
              explained below with respect to operations of TKR's wholly-owned
              corporate subsidiaries.  The results of operations of the
              Partnerships are reported in the respective Federal and state
              income tax return of Country Cable and KRC.

                                                                     (Continued)

                                    F-184
<PAGE>   204

                          THE CABLE PARTNERSHIPS OF
                            COUNTRY CABLE CO. AND
                       KNIGHT-RIDDER CABLEVISION, INC.

              Notes to Combined Financial Statements, Continued

(9)      Income Taxes, cont

         As discussed in note 1, the Partnerships adopted FAS 109 in 1993 for
              TKR's corporate subsidiaries and have applied the provisions of
              FAS 109 retroactively to September 1, 1987, the date on which the
              first corporate subsidiary was acquired.  Beginning partners'
              capital as of January 1, 1991 has been retroactively adjusted to
              account for the cumulative effect of the change in the method of
              accounting for income taxes since September 1, 1987.

         The combined financial statements for the years ended December 31,
              1992 and 1991 have been restated to comply with the provisions of
              FAS 109.  The following summarizes the impact of applying FAS 109
              on operating income and net income for the years ended December
              31, 1992 and 1991:



<TABLE>
<CAPTION>
                                                    1992                             1991
                                       ----------------------------       --------------------------
                                         Operating           Net          Operating           Net
                                          income           income           income          income
                                       ------------      ----------       ----------       ---------
         <S>                           <C>               <C>              <C>              <C>
         As previously reported        $ 48,189,000      19,150,000       42,146,000       7,130,000

              Effect of FAS 109            (802,000)        205,000         (802,000)        152,000
                                       ------------      ----------       ----------       ---------

         As restated                   $ 47,387,000      19,715,000       41,344,000       7,282,000
                                       ------------      ----------       ----------       ---------
                                       ------------      ----------       ----------       ---------
</TABLE>

         Components of the provision for income taxes (benefit) for Ramapo,
              Wildwood and Warwick are as follows:


<TABLE>
<CAPTION>
                                          1993            1992          1991  
                                       ----------       -------       --------
                      <S>              <C>              <C>           <C>     
                      Current:
                        Federal        $1,233,000       348,000         86,000
                        State             501,000            --             --
                                       ----------       -------       --------

                                        1,734,000       348,000         86,000
                                       ----------       -------       --------

                      Deferred:                                                
                        Federal           698,000       218,000        (92,000)
                        State            (159,000)       23,000        (10,000)
                                       ----------       -------       --------

                                          539,000       241,000       (102,000)
                                       ----------       -------       --------

                                       $2,273,000       589,000        (16,000)
                                       ----------       -------       --------
                                       ----------       -------       --------
</TABLE>
                                                                     (Continued)

                                    F-185

<PAGE>   205

                           THE CABLE PARTNERSHIPS OF
                             COUNTRY CABLE CO. AND
                        KNIGHT-RIDDER CABLEVISION, INC.
                                       
               Notes to Combined Financial Statements, Continued

(9)      Income Taxes, cont

         The actual provision (benefit) for income taxes for 1993, 1992 and
              1991 differs from the expected income tax provision (computed by
              applying the U.S. corporate income tax rate of 34% to income
              before provision for income taxes) as follow:



<TABLE>
<CAPTION>
                                                               1993                 1992               1991
                                                            -----------          ----------         ----------
              <S>                                           <C>                  <C>                <C>     

              Computed "expected" income tax
                 provision                                  $ 7,345,000           6,903,000          2,470,000
              Income from partnerships included
                 in combined income included in
                 Partners' income tax returns                (6,133,000)         (6,437,000)        (2,707,000)
              State income taxes (benefit), net
                 of Federal income tax effect                   226,000              15,000             (7,000)
              Amortization of franchise costs
                 not deductible                                 189,000             189,000            189,000
              Other, net                                        646,000             (81,000)            39,000
                                                            -----------          ----------         ----------
                                                            
                                                            $ 2,273,000             589,000            (16,000)
                                                            -----------          ----------         ----------
                                                            -----------          ----------         ----------

</TABLE>

         The effect of temporary differences that give rise to significant
              portions of the deferred tax assets and liabilities at December
              31, 1993 and 1992 are presented below:

<TABLE>
<CAPTION>
                                                                    1993                1992
                                                                ------------         -----------
         <S>                                                    <C>                  <C>
         Deferred tax assets:
              Net operating loss carryforwards                  $    266,000             965,000
              Investment tax credit carryforwards                    766,000           1,155,000
              Alternative minimum tax credit carryforwards           836,000             443,000
                                                                ------------         -----------
                  Total gross deferred tax assets                  1,868,000           2,563,000
                                                                ------------         -----------

              Less valuation allowance                                    --                  --
                                                                ------------         -----------

                  Net deferred tax assets                          1,868,000           2,563,000
                                                                ------------         -----------

         Deferred tax liabilities:
              Property and equipment, principally
                due to differences in depreciation                (7,098,000)         (7,188,000)
              Franchise costs, principally due to
                differences in amortization                      (15,094,000)        (15,580,000)
              Other                                                 (420,000)                 --
                                                                ------------         -----------

                  Total gross deferred tax liabilities           (22,612,000)        (22,768,000)
                                                                ------------         -----------

                  Net deferred tax liablitiy                    $(20,744,000)        (20,205,000)
                                                                ------------         -----------
                                                                ------------         -----------
</TABLE>

                                                                     (Continued)

                                     F-186
<PAGE>   206
                          THE CABLE PARTNERSHIPS OF
                            COUNTRY CABLE CO. AND
                       KNIGHT-RIDDER CABLEVISION, INC.

              Notes to Combined Financial Statements, Continued



 (9) Income Taxes, cont.

     At December 31, 1993, Ramapo, Wildwood and Warwick have approximately
       $664,000 available in net operating loss carryforwards and approximately
       $766,000 in investment tax credit carryforwards for income tax reporting
       purposes. Such carryforwards expire through the year 2008.

(10) Acquisitions

     In march 1991, TKR acquired The Hills, a New Jersey satellite master
       antenna television business (SMATV), for approximately $4,320,000. The
       acquisition of The Hills was accounted for under the purchase method of
       accounting whereby the results of operations of the acquired business 
       have been included in the combined statement of earnings of the 
       Partnerships since the acquisition date. The total purchase price was 
       allocated to purchased franchise costs ($1,195,000) and property and 
       equipment ($3,125,000). Such amounts were allocated based on their 
       estimated fair value.

     In January 1992, TKR acquired the Clearview System, a New Jersey satellite 
       master antenna television business (SMATV), for approximately
       $3,100,000. The acquisition of the Clearview System was accounted for 
       under the purchase method of accounting whereby the results of 
       operations of the acquired business have been included in the combined 
       statement of earnings of the Partnerships since the acquisition date. 
       The total purchase price was allocated to purchased franchise costs 
       ($900,000), property and equipment ($2,170,000) and other assets 
       ($30,000). Such amounts were allocated based on their estimated fair 
       value.

(11) Commitments

     TKR has entered into certain pole rental agreements with various utility
       companies which can be terminated on minimum notice. Rental payments
       under such lease agreements aggregated $1,065,000, $1,161,000 and
       $882,000 in 1993, 1992 and 1991, respectively.

     TKR leases certain facilities and real property under noncancellable
       leases with original terms varying from one to ten years. Rental expense
       under such leases aggregated $1,762,000, $1,562,000 and $1,334,000 in
       1993, 1992 and 1991, respectively. Certain rental payments will be
       adjusted in the future in accordance with changes in the consumer price
       index.

                                                                     (Continued)

                                     F-187
<PAGE>   207
                          THE CABLE PARTNERSHIPS OF
                            COUNTRY CABLE CO. AND
                       KNIGHT RIDDER CABLEVISION, INC.


              Notes to Combined Financial Statements, Continued

(11)  Commitments, cont.

      Minimum annual rental commitments for the next five years for all
        noncancellable leases as of December 31, 1993 are as follows:

<TABLE>

                     <S>            <C>
                     1994           $1,519,000
                     1995            1,225,000
                     1996            1,160,000
                     1997              931,000
                     1998              910,000
                                    ----------
                                    ----------

</TABLE>

(12)  Disclosure About Fair Value of Financial Instruments

      Statement of Financial Accounting Standards No. 107, "Disclosure About
        Fair Value of Financial Instruments" (FAS 107), requires that the
        Partnerships disclose estimated fair values of their financial
        instruments. Fair value estimates, methods and assumptions are set
        forth below for the Partnerships' financial instruments:

        Cash, accounts receivable, accounts payable and accrued expenses and
          subscriber advance payments:
          The carrying amounts approximates fair value because of the short
            maturity of the instruments.

        Investments in securities:
          The fair value of TKR's investment in TBS is based on quoted market
            prices for the securities (note 4). 

        Due to Tele-Communications, Inc. and notes payable -- Knight-Rider
          Investment Company:
          It is not practical to estimate the fair value of these liabilities
            due to their related party nature.

        Debt to banks:
          The carrying account of this debt approximates fair value due to the
            variable rate nature of this instrument.

                                                                (Continued)

                                    F-188
          
<PAGE>   208
                          THE CABLE PARTNERSHIPS OF
                            COUNTRY CABLE CO. AND
                       KNIGHT-RIDDER CABLEVISION, INC.

              Notes to Combined Financial Statements, Continued





(12) Disclosure About Fair Value of Financial Instruments, cont.

       Interest rate swap agreement:
         The fair value of the interest rate swap agreement was obtained from a
           dealer quote. This value represents the estimated amount TKR would
           pay to terminate the agreement.

       The estimated fair value of the Partnerships' financial instruments
         related to debt to banks and interest rate swap agreement as of 
         December 31, 1993 are summarized as follows:

                                                  Carrying       Estimated
                                                   amount       fair value
                                                ------------    -----------
       Debt to banks                            $298,000,000    298,000,000
       Interest rate swap agreement (in a
          payment position)                               --     (1,632,000)
                                                ------------    -----------
                                                ------------    -----------

                                    F-189
<PAGE>   209
                         INDEPENDENT AUDITORS' REPORT




The Partners
The Cable Partnerships of Country Cable Co.
   and Knight-Ridder Cablevision, Inc.:

Under date of January 28, 1994, we reported on the combined balance sheets of
The Cable Partnerships of Country Cable Co. and Knight-Ridder Cablevision, Inc.
as of December 31, 1993 and 1992, and the related combined statements of
earnings, changes in partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 1993, as included in the annual report 
on Form 10-K of Liberty Media Corporation for the year 1993. In connection with
our audits of the aforementioned combined financial statements, we also audited
the related financial statement schedules IV, VIII and X. These financial
statement schedules are the responsibility of the Partnerships' management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.

In our opinion, the related financial statement schedules, when considered in
relation to the basic combined financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.

As discussed in notes 1 and 9 to the combined financial statements, the
Partnerships changed their method of accounting for income taxes for their
corporate subsidiaries.


                                       /s/ KPMG Peat Marwick
                                           KPMG Peat Marwick
  

Princeton, New Jersey
January 28, 1994

                                    F-190

<PAGE>   210

                                                                     SCHEDULE IV


                          THE CABLE PARTNERSHIPS OF
                            COUNTRY CABLE CO. AND
                       KNIGHT-RIDDER CABLEVISION, INC.

                       Indebtedness to Related Parties

                 Years ended December 31, 1993, 1992 and 1991



                                Balance at      Indebtedness of        Balance
                                beginning    ----------------------    at end
       Related Party             of year     Additions   Deductions    of year
       -------------            ----------   ---------   ----------  ----------
Year ended December 31, 1993:                                        
  Due to Tele-Communications,                                        
    Inc.                       $ 3,582,000   23,124,000  23,250,000   3,456,000
  Notes payable -                                                      
    Knight-Ridder                                                    
    Investment Company          71,258,000           --          --  71,258,000
                               -----------   ----------  ----------  ----------
                               $74,840,000   23,124,000  23,250,000  74,714,000
                               -----------   ----------  ----------  ----------
                               -----------   ----------  ----------  ----------
Year ended December 31, 1992:
  Due to Tele-Communications,                                        
    Inc.                       $ 5,111,000   21,592,000  23,121,000   3,582,000 
  Notes payable -                                                      
    Knight-Ridder                                                    
    Investment Company          71,258,000           --          --  71,258,000
                               -----------   ----------  ----------  ----------
                               $76,369,000   21,592,000  23,121,000  74,840,000
                               -----------   ----------  ----------  ----------
                               -----------   ----------  ----------  ----------
Year ended December 31, 1991:                                        
  Due to Tele-Communications,                                        
    Inc.                       $ 4,045,000   19,690,000  18,624,000   5,111,000
  Notes payable -                                                      
    Knight-Ridder                                                    
    Investment Company          71,258,000           --          --  71,258,000
                               -----------   ----------  ----------  ----------
                               $75,303,000   19,690,000  18,624,000  76,369,000
                               -----------   ----------  ----------  ----------
                               -----------   ----------  ----------  ----------

                                     F-191

<PAGE>   211

                                                                   SCHEDULE VIII


                          THE CABLE PARTNERSHIPS OF
                            COUNTRY CABLE CO. AND
                       KNIGHT-RIDDER CABLEVISION, INC.

                       Valuation and Qualifying Accounts

                 Years ended December 31, 1993, 1992 and 1991


                                             Additions   Deductions  
                                             ---------   ----------  
                                Balance at   Charge to   Write-offs,  Balance
                                beginning      profit      net of     at end
       Description               of year      and loss   recoveries   of year
       -----------              ----------   ---------   ----------  ----------
                                             
Year ended December 31, 1993:
   Allowance for doubtful
    accounts                     $ 425,000   1,169,000  (1,147,000)    447,000
                                 ---------   ---------  ----------  ----------
                                 ---------   ---------  ----------  ----------
Year ended December 31, 1992:
   Allowance for doubtful
    accounts                     $ 446,000   1,063,000  (1,084,000)    425,000
                                 ---------   ---------  ----------  ----------
                                 ---------   ---------  ----------  ----------
Year ended December 31, 1991:
   Allowance for doubtful
    accounts                     $ 437,000   1,748,000  (1,739,000)    446,000
                                 ---------   ---------  ----------  ----------
                                 ---------   ---------  ----------  ----------

                                     F-192

<PAGE>   212

                                                                      SCHEDULE X



                          THE CABLE PARTNERSHIPS OF
                            COUNTRY CABLE CO. AND
                       KNIGHT-RIDDER CABLEVISION, INC.

                  Supplementary Income Statement Information

                 Years ended December 31, 1993, 1992 and 1991






                                                         Charged to
                                                     costs and expenses
                                             ----------------------------------
            Item                                1993        1992        1991
            ----                             ----------   ---------   ---------
Maintenance and repairs                      $1,166,000     996,000   1,127,000
Depreciation and amortization of intangible
  assets, preoperating costs and similar   
  deferrals:                               
    Amortization of franchise costs and       3,925,000   4,185,000   3,819,000
      other assets                         
Taxes, other than payroll and income taxes:
  Property                                      713,000     697,000     624,000
Royalties/copyright fees                        963,000     922,000     858,000
Advertising costs                             3,902,000   3,710,000   3,909,000
                                             ----------   ---------   ---------
                                             ----------   ---------   ---------
                                           
                                     F-193

<PAGE>   213
                             ARTHUR ANDERSON & CO.





                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To Columbia Associates, L.P.:

We have audited the accompanying consolidated balance sheets of Columbia
Associates, L.P. (a Delaware Limited Partnership) and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated statements of
operations, partners' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1993. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Columbia Associates, L.P. as of
December 31, 1993 and 1992, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1993, in
coformity with generally accepted accounting principles.

As explained in Note 3 to the consolidated financial statements, effective
January 1, 1993, the Partnership changed its method of accounting for income
taxes.

                                        /s/ ARTHUR ANDERSON 


Stamford, Connecticut,
  February 25, 1994

                                    F-194

<PAGE>   214
                           COLUMBIA ASSOCIATES, L.P.

           CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1993 AND 1992

                                    (000'S)

                                                              1993       1992
                                                            --------   --------
                 ASSETS
                 ------
CASH                                                        $  2,785   $  4,213
                                                            --------   --------
SUBSCRIBER RECEIVABLES, net of allowance
  for doubtful accounts of $661 and $438
  in 1993 ans 1992, respectively                               1,741      1,247
                                                            --------   --------
INVESTMENT IN CABLE TELEVISION SYSTEMS
  (Note 3 and 4):
    Property, plant and equipment, at cost                   223,856    208,074
    Less- Accumulated depreciation                           (91,288)   (75,859)
                                                            --------   --------
                                                             123,568    132,215
    Franchising costs, net of accumulated
      amortization of $53,882 and $46,095
      in 1993 and 1992, respectively                          29,977     37,983
    Goodwill and other intangible assets, net
      of accumulated amortization of $41,462
      and $36,574 in 1993 and 1992, respectively              18,273     23,853
                                                            --------   --------
        Total investment in cable television systems         180,818    194,051
                                                            --------   --------
DEFERRED INCOME TAXES (Notes 3 and 6)                            531         --

OTHER ASSETS, net                                              6,400      6,083
                                                            --------   --------
                                                            $192,275   $206,099
                                                            --------   --------
                                                            --------   --------
             LIABILITIES AND PARTNERS' DEFICIT
             ---------------------------------
LIABILITIES:
  Debt (Note 5)                                             $227,000   $227,500
  Accounts payable and accrued expenses                       10,196     10,008
  Subscriber advance payments and deposits                     1,413      1,356
  Deferred income taxes (Note 3 and 6)                            --      6,486
  Due to Managing General Partner (Note 9)                       555        531
                                                            --------   --------
        Total liabilities                                    239,164    245,881
                                                            --------   --------
MINORITY INTEREST (Note 1)                                       311        330
                                                            --------   --------
COMMITMENTS AND CONTINGENCIES (Notes 2 and 8)

PARTNERS' DEFICIT                                            (47,200)   (40,110)
                                                            --------   --------
                                                            $192,275   $206,090
                                                            --------   --------
                                                            --------   --------

          The accompanying notes to consolidated financial statements
                   are an integral part of these statements.
                                       
                                     F-195

<PAGE>   215
                           COLUMBIA ASSOCIATES, L.P.               
                                                                   
                                                                   
                     CONSOLIDATED STATEMENTS OF OPERATIONS         
                                                                   
             FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
                                                                   
                                    (000'S)                        


                                                   1993      1992       1991   
                                                 --------  ---------  ---------

REVENUES                                         $ 95,725  $  86,832  $  79,174
                                                 --------  ---------  ---------
EXPENSES:
  Service costs                                    32,561     30,280     28,192
  Selling, general and administrative              17,997     16,320     15,143
  Depreciation and amortization (Note 3 and 4)     35,591     35,227     32,782
  Loss on disposal of equipment, net                2,081      1,525      4,057
  Management fees and expenses (Note 9)             4,990      4,415      3,971
                                                 --------  ---------  ---------
        Total expenses                             93,220     87,767     84,145
                                                 --------  ---------  ---------
        Operating income (loss)                     2,505       (935)    (4,971)
                                                 --------  ---------  ---------
INTEREST EXPENSE, NET (Note 3 and 5)               16,529     18,588     20,832

MINORITY INTEREST (Note 1)                             29         17     (4,115)
                                                 --------  ---------  ---------
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT) AND
  CUMULATIVE EFFECT OF ACCOUNTING CHANGE          (14,053)   (19,540)   (21,688)

INCOME TAX EXPENSE (BENEFIT) (Note 3 and 6)        (1,124)     3,678     (1,337)
                                                 --------  ---------  ---------
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING
  CHANGE                                          (12,880)   (23,218)   (20,351)

CUMULATIVE EFFECT OF ACCOUNTING CHANGE (Note 3)    (5,843)        --         --
                                                 --------  ---------  ---------
NET LOSS                                         $ (7,086) $ (23,218) $ (20,351)
                                                 --------  ---------  ---------
                                                 --------  ---------  ---------

          The accompanying notes to consolidated financial statements
                   are an integral part of these statements.

                                     F-196

<PAGE>   216

                           COLUMBIA ASSOCIATES, L.P.



            CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)

             FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

                                    (000'S)

                                                 Limited    General
                                                 Partners  Partners     Total
                                                 --------  ---------  ---------
PARTNERS' EQUITY, at December 31, 1990           $  3,421    $  34    $  3,455

   Net loss                                       (20,147)    (204)    (20,351)
                                                 --------    -----    --------
PARTNERS' DEFICIT, at December 31, 1991           (16,726)    (170)    (16,896)

   Net loss                                       (22,986)    (232)    (23,218)
                                                 --------    -----    --------
PARTNERS' DEFICIT, at December 31, 1992           (39,712)    (402)    (40,114)

   Net loss                                        (7,016)     (70)     (7,086)
                                                 --------    -----    --------
PARTNERS' DEFICIT, at December 31, 1993          $(46,728)   $(472)   $(47,200)
                                                 --------    -----    --------
                                                 --------    -----    --------


         The accompanying notes to consolidated financial statements
                  are an integral part of these statements.

                                    F-197

<PAGE>   217


                           COLUMBIA ASSOCIATES, L.P.               
                                                                   
                                                                   
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                   
             FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
                                                                   
                                    (000'S)                        


                                                  1993      1992       1991   
                                               ---------  ---------  ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                     $  (7,086) $ (23,218) $ (25,351)
                                               ---------  ---------  ---------
  Adjustments to reconcile net loss to net
    cash provided by operating activities:
      Cumulative effect of accounting change      (5,843)        --         --
      Depreciation and amortization               35,591     35,227     32,282
      Loss on disposal of equipment, net           2,081      1,525      4,157
      Deferred income tax expense (benefit)       (1,174)     3,678     (1,337)
      Change in assets and liabilities-
        Net change in subscriber receivables, 
          due from/to managing general partner,
          other assets, accounts payable and
          accrued expenses, subscriber advance
          payments and deposits and minority
          interest                                  (948)    (2,070)    (3,462)
                                               ---------  ---------  ---------
            Total adjustments                     29,707     38,360     32,340
                                               ---------  ---------  ---------
            Net cash provided by operating
              activities                          22,621     15,142     11,689
                                               ---------  ---------  ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of additional interest in cable
    television system                                 --     (5,000)        --
  Increase in investment in existing cable
    television systems                           (24,736)   (32,861)   (25,920)
  Proceeds from sale of equipment                    682      1,448        371
                                               ---------  ---------  ---------
            Net cash used in investing 
              activities                         (24,054)   (36,413)   (25,549)
                                               ---------  ---------  ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  New borrowings                                 258,000    260,100    210,800
  Repayment of debt                             (258,500)  (237,100)  (196,371)
                                               ---------  ---------  ---------
            Net cash provided by financing
              activities                            (500)    23,000     14,429
                                               ---------  ---------  ---------
            Net increase (decrease) in cash       (1,933)     1,729        569

CASH, beginning of year                            4,718      2,989      2,420
                                               ---------  ---------  ---------
CASH, end of year                              $   2,785  $   4,718  $   2,989
                                               ---------  ---------  ---------
                                               ---------  ---------  ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:
  Interest paid (net of amount capitalized)    $  12,438  $  18,419  $  22,564
                                               ---------  ---------  ---------
                                               ---------  ---------  ---------

         The accompanying notes to consolidated financial statements
                   are an integral part of these statements

                                    F-198



<PAGE>   218

                           COLUMBIA ASSOCIATES, L.P.             
                                                                 
                                                                 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                 
                       DECEMBER 31, 1993, 1992 AND 1991

                      (All Dollar Amounts in Thousands)


(1)  Partnership Organization:

     Columbia Associates, L.P. (the "Partnership") is a limited partnership
     which was formed on March 7, 1985, under the laws of the State of Delaware
     and which operates under the terms of the Amended and Restated Agreement
     of Limited Partnership (the "Partnership Agreement"), dated as of June 2,
     1992. The Partnership will continue until March 1, 1995 unless previously
     dissolved in accordance with the terms of the Partnership Agreement. The
     accompanying consolidated financial statements include the accounts of the
     Partnership and its subsidiaries and consolidated partnerships. All
     significant intercompany accounts and transactions have been eliminated
     in the consolidated financial statements.

     In 1988, the Partnership entered into a partnership, Columbia Cable of
     Oregon (the "Oregon Partnership"), with three of its partners (one of 
     whom is a general partner) to acquire all of the stock of Tidel
     Communications, Inc. ("Tidel"). At that time, Tidel operated a cable
     television system, Willamette Cable TV, Inc. ("Willamette"), in 
     Washington County, Oregon. Effective December 31, 1990, Tidel was merged
     into Willamette (the separate existence of Tidel ceased), and Willamette
     continued as the surviving corporation. Through May 1992, the
     Partnership owned approximately 51% of the Oregon Partnership. In June
     1992, the Partnership paid $5,000,000, which it recorded as goodwill, to
     acquire approximately 29% of the Oregon Partnership from one of its
     limited partners, bringing the Partnership's ownership to 80%. The
     goodwill from this transaction is being amortized over 10 years. The
     accompanying consolidated financial statements include the accounts of
     the Oregon Partnership. Since 1991, the Partnership has been recording
     100% of the loss of the Oregon Partnership.

(2)  Cable Regulation:

     On October 5, 1992, Congress enacted the Cable Television Consumer
     Protection and Competition Act of 1992 (the "Act") which, among other
     things, will expand governmental regulation of rates for basic and other
     cable services. Regulations and interpretations are still being
     promulgated by the FCC. The Partnership is currently unable to predict
     the ultimate outcome of the proposed cable regulations or the effect on
     its future operating cash flows and debt agreements. The Partnership
     believes it is in compliance in all material respects with the provision
     of the Act and current regulations.

                                    F-199


<PAGE>   219

(3) Significant Accounting Policies:

     Net income (loss) allocation -

     The Partnership's net income or loss is allocated to the general act
     limited partners in accordance with the terms of the Partnership
     Agreement. This monthly allocation is based on the ratio in which the
     number of units owned (as defined) by each of the partners, on the
     first day of each calendar month, relates to the total number of units
     owned by all partners as of that date. The net loss from operations
     in 1993, 1992 and 1991 has been allocated 1% to the managing general
     partner and 99% to the other general partner and the limited partners.
     Net income from operations will be allocated 1% to the managing
     general partner and 99% to the other general partner and the limited
     partners to the extent of previous allocations for net loss from
     operations and certain other allocations (as defined). Thereafter,
     net income from operations is allocated 40% to the managing general
     partner and 60% to the other general partner and the limited partners.

     Property, plant and equipment -

     Property, plant and equipment is recorded at purchased cost, together
     with labor and indirect labor costs amounting to approximately $2,013,
     $2,020 and $1,733 in 1993, 1992 and 1991, respectively. During 1993,
     1992 and 1991, the Partnership capitalized $255, $308 and $265,
     respectively, for interest related to system rebuilds.

     Intangible Assets -

     Franchise costs are amortized over the remaining franchise life, while
     goodwill is amortized over 9 to 10 years and other intangible assets
     (primarily subscriber lists) are amortized over the average period that a
     subscriber is expected to remain connected to the cable system.
     Amortization of franchise costs, goodwill and other intangible assets was
     as follows:

                                        1993     1992     1991
                                       ------   ------   ------
          Franchise cost               $8,032   $8,014   $8,050
          Goodwill                      3,970    3,757    3,470
          Other intangible assets       1,708    3,411    3,108

     Income taxes -

     The partners are required to report their share of Partnership income
     or loss in their respective income tax returns. The amounts reported as
     taxable income or loss to the partners differ in certain respects from
     financial statement amounts due to different reporting methods
     principally relating to depreciation and amortization.

                                    F-200

<PAGE>   220

     Effective January 1, 1993, the Partnership adopted Statement of
     Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
     Taxes," for Willamette. SFAS No. 109 replaces SFAS No. 96, the accounting
     standard for income taxes that the Partnership had followed for the years
     ended December 31, 1992 and 1991. On January 1, 1993, in accordance with
     SFAS No. 109, Willamette recorded a cumulative effect of a change in
     accounting principle to reduce Willamette's deferred tax liability by
     $5,843. The income tax provision (benefits recorded in the accompanying
     consolidated financial statements pertains to Willamette.

     Deferred income taxes are provided based upon enacted tax rates which
     would apply during the period taxes become payable and deferred tax assets
     or liabilities are subsequently adjusted for changes in future tax rates
     when they are enacted. Deferred taxes arise because certain transactions
     affect the determination of net income for financial reporting purposes in
     one period and determination of taxable income for tax return purpose in a
     different period.

     In accordance with SFAS No. 96, a deferred income tax liability was
     established to recognize the future tax consequences of the temporary
     differences between the values assigned to the then Tidel assets and the
     tax bases of those assets at their acquisition date. Such liability
     increased goodwill by $15,097 at the acquisition date.

(4) Property, Plant and Equipment:

    As of December 31, 1993 and 1992, property, plant and equipment
    consisted of:

                                              1993      1992     
                                            --------  --------   
          Cable systems and equipment       $208,040  $193,161
          Land, buildings and imporvements     8,513     7,827
          Vehicles                             3,710     3,583
          Furniture and fixtures               3,593     3,503
                                            --------  --------   
                                            $223,856  $208,074
                                            --------  --------   
                                            --------  --------   

    Depreciation is calculated on a straight-line basis over the following
    useful lives:

          Cable systems and equipment       5 to 12 years
          Buildings and improvements        15 to 20 years
          Vehicles                          5 years
          Furniture and fixtures            5 to 10 years

    In 1993, 1992 and 1991, the Partnership invested approximately $4,923,
    $12,051 and $8,308, respectively, to replace existing cable systems and
    equipment. As a result, the Partnership recorded a loss in 1993, 1992 and
    1991 on the disposal of the existing cable systems and equipment of
    approximately $2,138, $2,973 and $3,752, respectively, which was include
    in loss on disposal of equipment, net.

                                    F-201

<PAGE>   221
(5) Debt:

     Under the terms of the Second Amended and Restated Credit Agreement,
     dated as of June 2, 1992 and amended as of November 19, 1992, (the "Credit
     Agreement") with thirteen banks, the Partnership may borrow up to $235,000
     until December 30, 1994. The total amount of the available borrowings
     decreases by a specified percentage each year until September 29, 2000,
     when it must be repaid in full. The interest on such borrowings is
     determined at the Partnership's option based on the price rate, LIBOR, or
     the certificate of deposit rate (as defined) and is affected by certain
     defined financial ratios of the Partnership. At December 31, 1993,
     interest rates on borrowings were as follows:

          Principal Borrowed             Interest Rate
          ------------------        -----------------------
              $ 12,000              LIBOR (3.50) plus 1.75% 
                14,200              LIBOR (3.56) plus 1.75% 
                55,000              LIBOR (3.56) plus 1.75% 
                64,800              LIBOR (3.56) plus 1.75% 
                55,500              LIBOR (3.81) plus 1.75% 
                25,500              LIBOR (3.81) plus 1.75% 
              --------
              $227,000
              --------
              --------

     At December 31, 1992, the outstanding borrowings under the Credit
     Agreement were $227,500, and the effective interest rates ranged from
     5.63% to 6.13%.

     The provisions of the Credit Agreement stipulate, among other things,
     limitations on borrowings, investments and distributions to partners as
     well as require the maintenance of certain financial ratios. All of the
     Partnership's assets are pledged under the Credit Agreement, and the
     payment of management fees and expenses is subordinated to the borrowings
     and interest under the Credit Agreement.

     The maturities of the debt outstanding under the Partnership's Credit
     Agreement as of December 31, 1993, for the next five years and thereafter
     are as follows:

          1994                               $     --
          1995                                 17,850
          1996                                 25,850
          1997                                 36,425
          1998                                 45,825
          Thereafter                          101,050
                                             --------
                                             $227,000
                                             --------
                                             --------
                                     
                                    F-202

<PAGE>   222

     The Partnership has entered into interest rate exchange agreements with
     two of the banks participating in the Credit Agreement to fix the cost of
     borrowing on portions of the above debt as follows:

           Amount             Maturity             Interest Rate
          -------         ------------------       -------------
          $45,000         September 27, 1995           7.21%
          $80,000         January 24, 1995             5.98%

     The Partnership's liability if the other parties fail to perform under
     these agreements would be limited to the impact of variable interest rate
     fluctuations. If the Partnership terminated these interest rate exchange
     agreements on December 31, 1993, the cost would be approximately $4,362.

     The Company has entered into two option agreements, which are only
     exercisable in January 1995, to fix the cost of $80,000 of debt from the
     period January 1995 to January 1997 at 8.00%.

(6)  Income taxes:

     Deferred income taxes reflect the impact of "temporary differences"
     between the amount of assets and liabilities for financial reporting
     purposes and such amounts as measured for income tax purposes for
     Willamette. Deferred income taxes have been reduced by the tax effect of
     the available net operating loss carryforwards to the extent that deferred
     tax liabilities are expected to reverse during the statutory carryforward
     periods.


     The components of the income tax expense (benefit) are as follows:

                                       1993      1992     1991
                                      -------   ------   -------
          Federal deferred            $  (972)  $3,053   $(1,107)
          State deferred                 (202)     625      (230)
                                      -------   ------   -------
          Total deferred              $(1,174)  $3,678   $(1,337)
                                      -------   ------   -------
                                      -------   ------   -------


     The total income tax expense (benefit) varies from the federal
     statutory tax expense (benefit) due to certain partnership losses which
     flow directly to the individual partners' tax returns, state taxes,
     goodwill amortization and, in 1992, due to the provision to increase the
     deferred income tax liability, as discussed below.

     The Partnership's 1992 acquisition of approximately 29% of the Oregon
     Partnership and 1992 ownership changes in the Partnership resulted in
     Willamette becoming subject to limitations under IRC Section 382 on the
     amount of the net operating loss carryforward that can be utilized for
     income tax purposes in future years. The effect of this annual limitation,
     in the amount of $2,027, required a 1992 provision to increase the
     deferred tax liability.

                                    F-203

<PAGE>   223

     At December 31, 1993, Willamette has net operating loss carryforwards
     for federal income tax purposes, subject to Internal Revenue Service review
     of $29,855 which expire in the years 2002 through 2007. For financial
     reporting purposes, the net operating loss carryforwards have been reduced
     by $29,333, which is the amount allowable in accordance with SFAS No. 109
     and after applying the IRC Section 382 limitations. At December 31, 1993,
     Willamette has recorded a deferred tax asset related to these loss
     carryforwards as the Company believes it is "more likely than not" that
     they will be utilized during the carryforward period. The deferred tax
     asset consists primarily of the utilization of net operating loss
     carryforwards offset by "temporary differences" related to depreciation
     and amortization. The remaining financial reporting loss carryforward of
     $522 can only be utilized to offset income generated from recognized
     "built-in gains" resulting from the future sale of any of Willamette's
     assets held as of the date of the change of ownership.

(7)  Salary Deferral Plan:

     The Partnership established a salary deferral plan ("the Plan") in
     accordance with Internal Revenue Code Section 401(K), as amended, in 1989.
     The Plan provides for dicretionary and matching contributions by the
     Partnership on behalf of participating employees. Discretionary and
     matching contributions totaled approximately $571, $629 and $555 in 1993,
     1992 and 1991, respectively.

(8)  Commitments:

     Under various lease and rental agreements, the Partnership had rental
     expense of approximately $193, $192 and $190 in 1993, 1992 and 1991,
     respectively. Future minimum annual payments under these agreements are as
     follows:

          1994                               $134
          1995                                 84
          1996                                 66
          1997                                 43
          1998                                 25
          Thereafter                          125
          
     In addition, the Partnership rents access to utility poles in its
     operations generally under short-term, but recurring, agreements. Total
     rental expense for utility poles was $400, $406 and $372 in 1993, 1992 and
     1991, respectively.

     The Partnership also has outstanding letters of credit of $20 and $378
     at December 31, 1993 and 1992, respectively.

(9)  Related Party Transactions:

     The Partnership is required to pay an annual management fee to its
     managing general partner under the terms of the Partnership Agreement.
     This management fee is equal to the greater of 1% of total capital
     contributions (as difined) of 5% of net revenues (as defined) of the
     Partnership, except for the Oregon Partnership which pays 3% of gross
     revenues (as defined). Management fees amounted to $3,900, $3,500 and 
     $3,162 in 1993, 1992 and 1991, respectively.

                                    F-204

<PAGE>   224

     Management expenses of $1,090, $915 and $809 in 1993, 1992 and 1991,
     respectively, are expenses incurred by the managing general partner that
     are attributable to the operations of the Partnership.

     The Partnership incurred legal fees of $55, $302 and $49 in 1993, 1992
     and 1991, respectively, from the law firms of certain limited partners.

     The Partnership paid $14,997, $14,163 and $12,919 for programing
     services in 1993, 1992 and 1991, respectively, to a related party.

                                    F-205
<PAGE>   225
                            ARTHUR ANDERSEN & CO.








                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS




To Columbia Associates, L.P.:


We have audited in accordance with generally accepted auditing standards, the 
consolidated financial statements of Columbia Associates, L.P. included in this
Form 10-K and have issued our report thereon dated February 25, 1994. Our audit 
was made for the purpose of forming an opinion on the basic financial 
statements taken as a whole. The accompanying schedules are the responsibility
of the Partnership's management and are presented for purposes of complying 
with the Securities and Exchange Commission's rules and are not part of the 
basic financial statements. These schedules have been subjected to the auditing 
procedures applied in the audit of the basic financial statements and, in our 
opinion, fairly state in all material respects the financial data required to 
be set forth therein in relation to the basic financial statements taken as 
a whole.


                                          /s/ ARTHUR ANDERSEN



Stamford, Connecticut,
  February 25, 1994

                                    F-206

<PAGE>   226
                                                                     SCHEDULE V


                          COLUMBIA ASSOCIATES, L.P.


                        PROPERTY, PLANT AND EQUIPMENT

                                   (000'S)



<TABLE>        
<CAPTION>      
                                                                                 Other                     
                                                                                Charges                    
                             Balance at       Additions                           Add            Balance    
Classification               Beginning         At Cost         Retirements      (Deduct)          At End     
- --------------               ---------        ---------        -----------      --------        ---------  
<S>                          <C>              <C>               <C>             <C>             <C>        
For the year ended                                                                                      
  December 31, 1991                                                                                     
                                                                                                        
Cable systems and                                                                                       
  equipment                  $ 155,520        $  24,049         $ (9,315)       $   (702)       $ 169,552  
Land, buildings and                                                        
  improvements                   6,726              276               --             619            7,621
Vehicles                         2,947              527             (158)                           3,316
Furniture and fixtures           2,220            1,004               --              83            3,307
                             ---------        ---------         --------        --------        ---------
     Total                     167,413           25,856           (9,473)             --          183,796
                             ---------        ---------         --------        --------        ---------
                             ---------        ---------         --------        --------        ---------
                          
For the year ended        
  December 31, 1992       
                          
Cable systems and         
  equipment                    169,552           31,617           (8,000)             (8)         193,161
Land, buildings and       
  improvements                   7,621              421             (221)              6            7,827
Vehicles                         3,316              368             (101)             --            3,583
Furniture and fixtures           3,307              219              (25)              2            3,503
                             ---------        ---------         --------        --------        ---------
     Total                     183,796           32,625           (8,347)             --          208,074
                             ---------        ---------         --------        --------        ---------
                             ---------        ---------         --------        --------        ---------
                          
For the year ended        
  December 31, 1993       
                          
Cable systems and         
  equipment                    193,161           23,771           (8,386)           (506)         208,040
Land, buildings and       
  improvements                   7,827              694               (6)             (2)           8,513
Vehicles                         3,583              448             (321)             --            3,710
Furniture and fixtures           3,503              271             (181)             --            3,593
                             ---------        ---------         --------        --------        ---------
     Total                   $ 208,074        $  25,184         $ (8,894)       $   (508)       $ 223,856
                             ---------        ---------         --------        --------        ---------
                             ---------        ---------         --------        --------        ---------
</TABLE>

                                    F-207

<PAGE>   227


                                                                    SCHEDULE VI


                                      
                          COLUMBIA ASSOCIATES, L.P.


           ACCUMULATED DEPRECIATION OF PROPERTY PLANT AND EQUIPMENT

                                   (000's)



<TABLE>        
<CAPTION>      
                                                                                 Other                     
                                                                                Charges                    
                             Balance at       Additions                           Add            Balance   
Classification               Beginning         At Cost         Retirements      (Deduct)          At End   
- --------------               ---------        ---------        -----------      --------        ---------  
<S>                          <C>              <C>              <C>              <C>             <C>        
For the year ended        
  December 31, 1991       
                          
Cable systems and         
  equipment                  $ (44,862)       $ (16,683)       $   4,770        $     --        $ (56,775)
Buildings and       
  improvements                    (826)            (246)              --              --           (1,072)
Vehicles                        (1,327)            (569)             147              --           (1,749)
Furniture and fixtures          (1,148)            (425)              --              --           (1,573)
                             ---------        ---------        ---------        --------        ---------  
     Total                     (48,163)         (17,923)           4,917              --          (61,169)
                             ---------        ---------        ---------        --------        ---------  
                             ---------        ---------        ---------        --------        ---------  
                          
For the year ended        
  December 31, 1992       
                          
Cable systems and         
  equipment                    (56,775)         (18,674)           5,183              --          (70,266)
Buildings and       
  improvements                  (1,072)            (273)              33              --           (1,312)
Vehicles                        (1,749)            (564)             101              --           (2,212)
Furniture and fixtures          (1,573)            (520)              24              --           (2,069)
                             ---------        ---------        ---------        --------        ---------  
     Total                     (61,169)         (20,031)           5,341            --            (75,859)
                             ---------        ---------        ---------        --------        ---------  
                             ---------        ---------        ---------        --------        ---------  
                                                                          
For the year ended                                                        
  December 31, 1993                                                       
                                                                          
Cable systems and                                                         
  equipment                    (70,266)         (20,142)           5,576              17          (84,815)
Buildings and                                                       
  improvements                  (1,312)            (280)               6              --           (1,586)
Vehicles                        (2,212)            (563)             292              --           (2,483)
Furniture and fixtures          (2,069)            (511)             176              --           (2,404)
                             ---------        ---------        ---------        --------        ---------  
     Total                   $ (75,859)       $ (21,496)       $   6,050        $     17        $ (91,288)   
                             ---------        ---------        ---------        --------        ---------  
                             ---------        ---------        ---------        --------        ---------  
                                                                        
</TABLE>

                                    F-208

<PAGE>   228

                                                                   SCHEDULE X
 

                          COLUMBIA ASSOCIATES, L.P.


            SCHEDULE OF SUPPLEMENTARY INCOME STATEMENT INFORMATION

                                   (000's)



                                            Charged to Cost and Expenses
                                               Year Ended December 31,
                                     -----------------------------------------
Item                                   1993              1992            1991
- ----                                 -------           -------         -------
                                                                              
                                                                               
Depreciation                         $21,496           $20,044         $17,923 
                                                                               
Amortization                          14,095            15,183          14,859
                                                                               
Advertising                            2,526             2,054           1,679
                                                                              
Taxes, other than payroll and                                                 
  income taxes                         1,831             1,714           1,719


                                    F-209


<PAGE>   229

                          INDEPENDENT AUDITORS' REPORT





THE PARTNERS
SPORTSCHANNEL CHICAGO ASSOCIATES:

We have audited the accompanying balance sheets for SportsChannel Chicago
Associates (a general partnership) as of December 31, 1993 and 1992, and the
related statements of income, partners' capital and cash flows for each of the
years in the three-year period ended December 31, 1993.  In connection with our
audits of the financial statements, we also audited the attached Schedule VIII
and Schedule X, Valuation and Qualifying Accounts and Supplementary Income
Statement Information, respectively.  These financial statements and financial
statement schedules are the responsibility of the partnership's managment.  Our
responsiblity is to express an opinion on these financial statements and
financial statement schedules 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 financial statements referred to above present fairly, in
all material respects, the financial position of SportsChannel Chicago
Associates at December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1993 in conformity with generally accepted accounting principles.  Also, in our
opinion, the attached schedules referred to above, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.



                                          /s/ KPMG Peat Marwick
                                              KPMG Peat Marwick

Jericho, New York
March 4, 1994

                                    F-210


<PAGE>   230


                       SPORTSCHANNEL CHICAGO ASSOCIATES
                           (A GENERAL PARTNERSHIP)

                                BALANCE SHEETS

                          December 31, 1993 and 1992





                                                       1993            1992
                                                    -----------     -----------
ASSETS
- ------

Current Assets:
  Cash and cash equivalents                         $ 5,206,000     $ 2,836,000
  Trade accounts receivable (less allowance for
    doubtful accounts of $299,000 and $359,000)       1,740,000       1,191,000
  Trade accounts receivable-affiliates                6,130,000       5,559,000
  Other receivables                                     510,000         529,000
  Prepaid expenses and other current assets             489,000         703,000
                                                    -----------     -----------
    Total current assets                             14,075,000      10,818,000

Property and equipment, net                           3,218,000       3,352,000
                                                    -----------     -----------
                                                    $17,293,000     $14,170,000
                                                    -----------     -----------
                                                    -----------     -----------

LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------

Current liabilities:   
  Accounts payable                                  $   970,000     $  927,000
  Accrued contractual expense                         1,143,000        961,000
  Accrued payroll and related benefits                  577,000        750,000
  Other accrued expenses                                250,000        291,000
  Accounts payable-affiliates, net                      472,000        614,000
                                                    -----------     -----------
                                                     
    Total current liabilities                         3,412,000       3,543,000
                                                     
Commitments
                                                                     
Partners' capital                                    13,881,000      10,627,000
                                                    -----------     -----------

                                                    $17,293,000     $14,170,000
                                                    -----------     -----------
                                                    -----------     -----------







               See accompanying notes to financial statements.

                                    F-211

<PAGE>   231

                       SPORTSCHANNEL CHICAGO ASSOCIATES
                           (A GENERAL PARTNERSHIP)

                             STATEMENTS OF INCOME


                YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991




<TABLE>
<CAPTION>
                                                         1993                 1992                 1991
                                                      -----------          -----------          -----------
<S>                                                   <C>                  <C>                  <C>
Revenues (including affiliate amounts
   of $10,178,000, $9,341,000 and
   $4,691,000)                                        $40,220,000          $37,227,000          $30,818,000
                                                      -----------          -----------          -----------
Operating Expenses:
  Technical (including affiliate amounts
    of $3,728,000, $3,489,000 and
    $3,234,000)                                        22,034,000           21,269,000           18,826,000
  Selling, general and administrative
    (including affiliate amounts of
    $1,928,000, $1,873,000 and
    $1,724,000)                                         4,671,000            4,802,000            4,065,000
  Depreciation and amortization                           776,000              746,000              512,000
                                                      -----------          -----------          -----------
                                                       27,481,000           26,817,000           23,403,000
                                                      -----------          -----------          -----------
        Operating income                               12,739,000           10,410,000            7,415,000
                                                      -----------          -----------          -----------
Other income (expense):
  Interest income                                          66,000               84,000              180,000
  Interest expense                                             --              (52,000)                  --
  Miscellaneous, net                                      (51,000)             (16,000)             (13,000)
                                                      -----------          -----------          -----------
                                                           15,000               16,000              167,000
                                                      -----------          -----------          -----------
        Net income                                    $12,754,000          $10,426,000          $ 7,582,000
                                                      -----------          -----------          -----------
                                                      -----------          -----------          -----------
</TABLE>





              See accompanying notes to the financial statements

                                    F-212
<PAGE>   232
                       SPORTSCHANNEL CHICAGO ASSOCIATES
                           (A GENERAL PARTNERSHIP)

                       STATEMENTS OF PARTNERS' CAPITAL


                 YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991




<TABLE>
<CAPTION>

                                              SCPCHP                 NBC                LIBERTY               TOTAL
                                           -----------           -----------          -----------          -----------   
<S>                                        <C>                   <C>                  <C>                  <C>
Balance, January 1, 1991                   $ 4,867,000           $ 4,867,000          $        --          $ 9,734,000
                                 
  Sale of partnership interest              (1,137,000)           (1,137,000)           2,274,000                   --
                                 
  Net income                                 3,328,000             3,328,000              926,000            7,582,000
  Distributions                             (3,420,000)           (3,420,000)            (775,000)          (7,615,000)
                                           -----------           -----------          -----------          -----------   
                                                                             
Balance, December 31, 1991                   3,638,000             3,638,000            2,425,000            9,701,000
                                                                             
  Sale of partnership interest              (1,201,000)           (1,202,000)           2,403,000                   --
                                                                             
  Net income                                 3,539,000             3,539,000            3,348,000           10,426,000
  Distributions                             (3,314,000)           (3,313,000)          (2,873,000)          (9,500,000)
                                           -----------           -----------          -----------          -----------   

Balance, December 31, 1992                   2,662,000             2,662,000            5,303,000           10,627,000
                                                                                                                 
  Sale of partnership interest                  (6,000)               (6,000)              12,000                   --
                                                                             
  Net income                                 3,189,000             3,189,000            6,376,000           12,754,000
  Distributions                             (2,375,000)           (2,375,000)          (4,750,000)          (9,500,000)
                                           -----------           -----------          -----------          -----------   

Balance, December 31, 1993                 $ 3,470,000           $ 3,470,000          $ 6,941,000          $13,881,000
                                           -----------           -----------          -----------          -----------   
                                           -----------           -----------          -----------          -----------   
</TABLE>






                See accompanying notes to financial statements.

                                    F-213
<PAGE>   233
                       SPORTSCHANNEL CHICAGO ASSOCIATES
                           (A General Partnership)

                           STATEMENTS OF CASH FLOWS

                 YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991

<TABLE>
<CAPTION>
                                                                   1993                 1992                 1991
                                                                -----------          -----------          -----------
<S>                                                             <C>                  <C>                  <C>
Cash flows from operating activities:
  Net income                                                    $12,754,000          $10,426,000          $ 7,582,000
                                                                -----------          -----------          -----------
  Adjustments to reconcile net income to net                    
    cash provided by operating activities:
      Depreciation and amortization                                 776,000              746,000              512,000
      Changes in assets and liabilities:
        Trade accounts receivable                                  (549,000)             351,000              794,000
        Trade accounts receivable -- affiliates                    (571,000)          (1,772,000)          (1,585,000)
        Other receivables                                            19,000               (6,000)            (140,000)
        Other receivables -- affiliates                                  --               68,000               32,000
        Prepaid expenses and other current
          assets                                                    214,000             (229,000)             171,000
        Accounts payable and accrued
          liabilities                                                11,000              664,000              174,000
        Accounts payable -- affiliates                             (142,000)             (65,000)             642,000
                                                                -----------          -----------          -----------
          Total adjustments                                        (242,000)            (243,000)             600,000
                                                                -----------          -----------          -----------
          Net cash provided by operating
            activities                                           12,512,000           10,183,000            8,182,000
                                                                -----------          -----------          -----------
Cash flows used by investing activities:
  Capital expenditures                                             (642,000)            (471,000)          (1,847,000)
                                                                -----------          -----------          -----------
Cash flows used by financing activities:
  Partners' capital distributions                                (9,500,000)          (9,500,000)          (7,615,000)
                                                                -----------          -----------          -----------
Net increase (decrease) in cash and cash
   equivalents                                                    2,370,000              212,000           (1,280,000)
Cash and cash equivalents at beginning of year                    2,836,000            2,624,000            3,904,000
                                                                -----------          -----------          -----------
Cash and cash equivalents at end of year                        $ 5,206,000          $ 2,836,000          $ 2,624,000
                                                                -----------          -----------          -----------
                                                                -----------          -----------          -----------
</TABLE>



                See accompanying notes to financial statements.

                                    F-214
     
<PAGE>   234
                       SPORTSCHANNEL CHICAGO ASSOCIATES
                           (A General Partnership)

                        NOTES TO FINANCIAL STATEMENTS


1.   The Company

     SportsChannel Chicago Associates ("the Company") is a general partnership
organized as of January 1, 1984 under the provisions of the New York State
Partnership Law to produce and distribute certain programming to the pay
television industry. In accordance with the partnership agreement, as amended,
the partnership will terminate on July 1, 2090 unless earlier termination
occurs as provided in the partnership agreement.

     Prior to July 1, 1991, a subsidiary of the National Broadcasting Company,
Inc. ("NBC") and SportsChannel Prism/Chicago Holding Partnership ("SCPCHP")
each held a 50% interest in the Company. SCPCHP, the managing general partner
of the Company, is 66.67% owned by Rainbow Programming Holdings, Inc. ("RPH")
and 33.33% owned by Rainbow Program Enterprises ("RPE"). RPH is wholly-owned
and RPE is indirectly substantially wholly-owned by Cablevision Systems
Corporation ("CSC").

     On July 1, 1991, SCPCHC and NBC each sold a 12.5% interest in the Company
to TCI Sports Investments, Inc. ("TCISI"), a subsidiary of Tele-Communications,
Inc. ("TCI"). TCISI had the option until July 1994, to purchase from each of
NBC and SCPCHP an additional 12.5% general partnership interest in the
Company. TCISI's interest in the Company was transferred to Liberty Media
Corporation ("Liberty"), an affiliate, in 1992.

     On October 2, 1992, SCPCHC and NBC each sold a 12.45% interest in the
Company to Liberty. Subsequent to the sale, the Company was 25.05% owned by
SCPCHC, 25.05% owned by NBC, and 49.9% owned by Liberty.

     On January 22, 1993, Liberty exercised the remainder of its option to
purchase an additional .1% interest in the Company equally from both SCPCHP and
NBC. Accordingly, Liberty now has a 50% ownership interest while SCPCHP and NBC
each have a 25% interest in the Company.

2.   Summary of Significant Accounting Policies

     Revenue Recognition

     The Company recognizes subscriber revenue as programming services are
provided to cable television companies ("Cable Affiliates"). Advertising
revenue is recognized when commercials are telecast.

     The Company's Cable Affiliates are located principally in Illinois. Six
Cable Affiliates individually represent greater than 5% of the Company's 1993
revenues. At December 31, 1993, five Cable Affiliates individually accounted
for greater than 5% of the accounts receivable balance.

     Property and Equipment

     Property and equipment are carried at cost and depreciated on the
straight-line basis over the estimated useful lives of the assets or, with
respect to leasehold improvements, amortized over the lesser of the lease term
or the assets' useful lives.

                                    F-215
<PAGE>   235
                       SPORTSCHANNEL CHICAGO ASSOCIATES
                           (A General Partnership)

                        NOTES TO FINANCIAL STATEMENTS
                                 (Continued)


2.   Summary of Significant Accounting Policies (continued)

     Income Taxes

     The Company operates as a general partnership; accordingly, its taxable
income or loss is included in the tax returns of the individual partners and no
provision for income taxes is made on the books of the Company.

     Cash Flows

     The Company considers temporary cash investments with original maturities
of three months or less at the time of purchase to be cash equivalents. The
Company made cash payments of interest expense of $52,000, $0 and $0 for the
periods ended December 31, 1993, 1992 and 1991, respectively.

3.   Property and Equipment

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                December 31,  
                                        ------------------------------                 Estimated
                                          1993                1992                    Useful Lives
                                        ----------          ----------                ------------
<S>                                     <C>                 <C>                       <C>
Program, service and                                                                               
  test equipment                        $4,392,000          $3,920,000                5 to 8 years 
Microwave equipment                        548,000             391,000                8 years           
Furniture and fixtures                     225,000             212,000                8 years             
Leasehold improvements                     346,000             346,000                Life of lease
                                        ----------          ----------
                                         5,511,000           4,869,000
Less accumulated depreciation
  and amortization                       2,293,000           1,517,000
                                        ----------          ----------
                                        $3,218,000          $3,352,000
                                        ----------          ----------
                                        ----------          ----------
</TABLE>


4.   Leases

     The Company leases certain space under long-term operating lease agreements
which expire at various dates through 2002. Rent expense for the years ended
December 31, 1993, 1992 and 1991 was approximately $145,000, $179,000 and
$327,000, respectively. The following is a schedule of future minimum payments
for operating leases (with initial or remaining terms in excess of one year) as
of December 31, 1993:

<TABLE>
<CAPTION>
     Years Ending December 31,
     -------------------------
            <S>                                    <C>           
            1994                                   $  305,000 
            1995                                      314,000
            1996                                      324,000
            1997                                      334,000
            1998                                      346,000
            Thereafter                                613,000
                                                   ----------
     Total minimum lease payments                  $2,236,000
                                                   ----------
                                                   ----------
</TABLE>

                                    F-216
<PAGE>   236
                       SPORTSCHANNEL CHICAGO ASSOCIATES
                           (A General Partnership)

                        NOTES TO FINANCIAL STATEMENTS
                                 (Continued)


5.   Affiliate Transactions

     The Company distributes certain programming to the cable television
industry under contracts called affiliation agreements. For the years ended
December 31, 1993, 1992 and 1991, approximately $10,178,000, $9,341,000 and
$4,691,000, respectively, of the revenues of the Company were earned under
affiliation agreements with companies owned or managed by CSC or TCI.

     RPH provides the Company with certain administrative services at its cost.
The Company was charged approximately $1,294,000, $1,236,000 and $1,175,000 for
the years ended December 31, 1993, 1992 and 1991, respectively, for such
services.

     SportsChannel Associates, an affiliate of the Company, provides
additional administrative services to the Company. The Company was charged
approximately $137,000, $88,000 and $80,000 during the years ended December 31,
1993, 1992 and 1991, respectively, for these services.

     Rainbow Network Communications, an affiliate of the Company, provides
certain transmission and production services to the Company. The Company was
charged approximately $759,000, $791,000 and $949,000 for the years ended
December 31, 1993, 1992 and 1991, respectively, for these services.

     Prime SportsChannel Networks (SportsChannel America Associates prior to
1993), an affiliate of the Company, provides certain programming to the
Company. The Company was charged approximately $502,000, $783,000 and $580,000
during the years ended December 31, 1993, 1992 and 1991, respectively, for this
programming.

     The Company has an arrangement with an affiliated company to provide
advertising services to the Company in exchange for a fee of 18% (5% for barter
transactions) of the gross revenue, net of agency commissions, from advertising
sold by this affiliate. Fees earned by this affiliate on advertising revenues
amounted to approximately $2,467,000, $1,915,000 and $1,705,000 for the years
ended December 31, 1993, 1992 and 1991, respectively.

     The Company leases certain office facilities and equipment on a month to
month basis from an affiliate. Rent expense incurred for the years ended
December 31, 1993, 1992 and 1991 amounted to $497,000, $549,000 and $469,000,
respectively.

6.   Pension Plan

     CSC, with its affiliates, including the Company, maintained a defined
contribution pension plan covering substantially all of the Company's and its
employees. The Company contributed 3% of eligible employees' annual
compensation (as defined), and employees could voluntarily contribute up to
10% of their annual compensation. Employee contributions were fully vested.
Employer contributions become vested in years three through seven. The cost
associated with this plan was approximately $42,000 and $27,000 for the years
ended December 31, 1992 and 1991, respectively.

                                    F-217
<PAGE>   237
                       SPORTSCHANNEL CHICAGO ASSOCIATES
                           (A General Partnership)

                        NOTES TO FINANCIAL STATEMENTS
                                 (Continued)


6.   Pension Plan (continued)

     Effective January 1, 1993, the Board of Directors of CSC approved the
adoption of an amended and restated plan (the "Plan"), in part to permit
participants to make contributions to the Plan on a pre-tax salary reduction
basis in accordance with the provisions of Section 401(K) of the Internal
Revenue Code, and to introduce new investment options under the Plan. The
Company contributes 1-1/2% of eligible employees' annual compensation, as
defined, to the defined contribution portion of the Plan (the "Pension Plan")
and an equivalent amount to the Section 401(K) portion of the Plan (the
"Savings Plan"). Employees may voluntarily contribute up to 15% of eligible
compensation, subject to certain restrictions, to the Savings Plan, with an
additional matching contribution by the Company of 1/4 of 1% for each 1%
contributed by the employee, up to a maximum contribution by the Company of 1/2
of 1% of eligible base pay. Employee contributions are fully vested as are
employer base contributions to the Savings plan.  Employer contributions to the
Pension Plan and matching contributions to the Savings Plan become vested in
years three through seven. The cost associated with this amended plan for the
year ended December 31, 1993 was $58,000.

     The Company does not provide any postretirement benefits to its employees.

7.   Commitments

     The Company has entered into long-term agreements with SportsVision of
Chicago, a company that represents several professional sports teams and others
which provide the Company with exclusive pay telecast rights to live sporting
events. The approximate aggregate contractual payments as of December 31, 1993
under these agreements are as follows:


<TABLE>
<CAPTION>
     Years Ending December 31,
     -------------------------
            <S>                                      <C>
            1994                                     $ 9,117,000
            1995                                      10,347,000
            1996                                      10,365,000
            1997                                      10,179,000
            1998                                      10,187,000
         Thereafter                                    7,596,000
                                                     -----------
                                                     $57,791,000
                                                     ===========
</TABLE>

                                    F-218
<PAGE>   238
                       SPORTSCHANNEL CHICAGO ASSOCIATES

                                SCHEDULE VIII

                      VALUATION AND QUALIFYING ACCOUNTS

                            (Dollars in thousands)



<TABLE>
<CAPTION>

                                                                              Additions
                                               Balance at       ------------------------------------
                                               Beginning        Charged to Costs        Charged to       Deductions-    Balance at
                                               of Period          and Expenses        Other Accounts     Write-Offs    End of Period
                                               ----------       ----------------      --------------     -----------   -------------
<S>                                               <C>                 <C>                 <C>              <C>             <C>
Year Ended December 31, 1993

    Allowance for doubtful accounts . . . . . .   $359                $ --                $ --             $ (60)          $299
                                                  ----                ----                ----             -----           ----
                                                  ----                ----                ----             -----           ----
                                                  
Year Ended December 31, 1992

    Allowance for doubtful accounts . . . . . .   $435                $124                $ --             $(200)          $359
                                                  ----                ----                ----             -----           ----
                                                  ----                ----                ----             -----           ----
                                                  
Year Ended December 31, 1991

    Allowance for doubtful accounts . . . . . .   $207                $263                $ --             $ (35)          $430
                                                  ----                ----                ----             -----           ----
                                                  ----                ----                ----             -----           ----
</TABLE>

                                    F-219
<PAGE>   239
                       SPORTSCHANNEL CHICAGO ASSOCIATES

                                  SCHEDULE X

                  SUPPLEMENTARY INCOME STATEMENT INFORMATION

                            (Dollars in thousands)



<TABLE>
<CAPTION>
                                                               Charged to Costs and Expenses
                                                    ----------------------------------------------------
                                                       Year                Year                Year        
                                                       Ended               Ended               Ended       
                                                    December 31,        December 31,        December 31,   
                                                       1993                1992                1991       
                                                    ------------        ------------        ------------   
<S>                                                   <C>                 <C>                 <C>          
Maintenance and repairs  . . . . . . . . . . . . .    $    6              $    9              $    7       
                                                      ------              ------              ------
                                                      ------              ------              ------
                                                                                                           
Taxes, other than payroll and income taxes . . . .       N/A                 N/A                 N/A       
                                                                                                           
Advertising  . . . . . . . . . . . . . . . . . . .    $1,131              $  998              $1,381       
                                                      ------              ------              ------
                                                      ------              ------              ------
                                                                                                           
Amortization of intangible assets  . . . . . . . .       N/A                 N/A                 N/A       
                                                                                                           
Royalties  . . . . . . . . . . . . . . . . . . . .    $   96              $   90              $   75       
                                                      ------              ------              ------
                                                      ------              ------              ------
</TABLE>

                                    F-220
<PAGE>   240
                         INDEPENDENT AUDITORS' REPORT



The Partners
American Movie Classics Company:


We have audited the accompanying balance sheets of American Movie Classics
Company (a general partnership) as of December 31, 1993 and 1992, and the
related statements of income, partners' capital (deficiency) and cash flows for
each of the years in the three-year period ended December 31, 1993. In
connection with our audits of the financial statements, we also audited the
attached Schedule VIII and Schedule X, Valuation and Qualifying Accounts and
Supplementary Income Statement Information, respectively. These financial
statements and financial statement schedules are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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 amount and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Movie Classics Company
at December 31, 1993 and 1992, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1993 in
conformity with generally accepted accounting principles. Also, in our opinion,
the attached schedules referred to above, when considered in relation to the
basic financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.


                                          /s/ KPMG Peat Marwick
                                              KPMG Peat Marwick


Jericho, New York
March 4, 1994

                                    F-221
<PAGE>   241
                       AMERICAN MOVIE CLASSICS COMPANY
                           (A General Partnership)
                                BALANCE SHEETS
                          December 31, 1993 and 1992
                            (Dollars in thousands)




<TABLE>
<CAPTION>

ASSETS                                                               1993                   1992
- ------                                                             --------               --------
<S>                                                                <C>                    <C>
Current assets:
  Cash and cash equivalents                                        $  9,030               $    333
  Trade accounts receivable (less allowance for                                                     
    doubtful accounts of $2,677 and $1,148)                           9,151                  5,823  
  Trade accounts receivable-affiliates                                3,720                  3,014
  Prepaid expenses and other current assets                             278                    315
  Feature film inventory                                             19,230                 22,197
                                                                   --------               --------
        Total current assets                                         41,409                 31,682

Prperty and equipment, net                                            1,106                    957
Long-term feature film inventory                                     89,021                 52,470
Film and program agreements (less accumulated
  amortization of $7,171 and $6,148)                                     --                  1,023
Affiliation agreements (less accumulated                                   
  amortization of $3,267 and $2,799)                                     --                    468
Deferred  financing costs (less accumulated                             
  amortization of $213 and $71)                                         640                    782
Deferred transmission costs (less accumulated
  amortization of $87 and $4 in 1992)                                   913                    996
                                                                   --------               --------
                                                                   $133,089               $ 88,378
                                                                   --------               --------
                                                                   --------               --------

LIABILITIES AND PARTNERS' DEFICIENCY
- ------------------------------------

Current Liabilities:
  Bank debt-current                                                $  3,025               $  7,975
  Accounts payable                                                      561                    343
  Accrued licensing fees                                              3,969                  3,595
  Accrued payroll and related benefits                                1,901                  1,496
  Accrued management fees                                               807                    943
  Other accrued expenses                                              4,183                  2,624
  Accounts payable-affiliates                                         2,527                  2,347
  Accrued feature film rights payable                                26,157                 22,490
                                                                   --------               --------

        Total current liabilities                                    43,130                 41,813

Bank debt-long term                                                  44,000                 50,025
Long-term feature film rights payable                                73,940                 47,146
                                                                   --------               --------

        Total liablities                                            161,070                138,984

Commitments and contingencies

Partners' deficiency                                                (27,981)               (50,606)
                                                                   --------               --------

                                                                   $133,089               $ 88,378
                                                                   --------               --------
                                                                   --------               --------

</TABLE>

                See accompanying notes to financial statements

                                    F-222

<PAGE>   242

                        AMERICAN MOVIE CLASSICS COMPANY
                            (A General Partnership)


                             STATEMENTS OF INCOME


                 Years Ended December 31, 1993, 1992 and 1991
                            (Dollars in thousands)



<TABLE>
<CAPTION>

                                                               1993             1992             1991
                                                             -------          -------          -------
<S>                                                          <C>              <C>              <C>
Revenues (including affiliate amounts
  of $21,582, $17,577 and $24,664)                           $87,618          $69,715          $62,980
                                                             -------          -------          -------
Operating expenses:
  Technical (including affiliate amounts
    of $4,139, $3,309 and $4,407)                             34,884           29,048           23,671
  Selling, general and administrative
    (including affiliate amounts of
    $5,547, $4,480 and $4,456                                 25,093           21,532           20,093
  Depreciation and amortization                                1,791            1,728            1,727
                                                             -------          -------          -------

                                                              61,768           52,308           45,491
                                                             -------          -------          -------

        Operating income                                      25,850           17,407           17,489
                                                             -------          -------          -------

Other income (expense):
  Interest income                                                190              170              567
  Interest expense                                            (3,294)          (1,884)            (277)
  Miscellaneous, net                                            (121)             (17)             (21)
                                                             -------          -------          -------
                                                              (3,225)          (1,731)             269
                                                             -------          -------          -------

        Net income                                           $22,625          $15,676          $17,758
                                                             -------          -------          -------
                                                             -------          -------          -------

</TABLE>

                See accompanying notes to financial statements

                                    F-223

<PAGE>   243

                        AMERICAN MOVIE CLASSICS COMPANY
                            (A General Partnership)


                 STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)

                 YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991


                            (Dollars in thousands)




<TABLE>
<CAPTION>
                                               RPE             LIBERTY             NBC              TOTAL
                                            --------          --------          --------          --------
<S>                                         <C>               <C>               <C>               <C>
Balance, January 1, 1991                    $  9,521          $ 11,039          $     --          $ 20,560
                                                                                                          
    Sale of partnership interest              (5,345)               --             5,345                --
    Net income                                 5,024             8,879             3,855            17,758
    Distributions                             (6,650)          (13,300)           (6,650)          (26,600)
                                            --------          --------          --------          --------

Balance, December 31, 1991                     2,550             6,618             2,550            11,718

    Net income                                 3,919             7,838             3,919            15,676
    Distributions                            (19,500)          (39,000)          (19,500)          (78,000)
                                            --------          --------          --------          --------

Balance, December 31, 1992                   (13,031)          (24,544)          (13,031)          (50,606)

    Net Income                                 5,656            11,313             5,656            22,625
                                            --------          --------          --------          --------

Balance, December 31, 1993                  $ (7,375)         $(13,231)         $ (7,375)         $(27,981)
                                            --------          --------          --------          --------
                                            --------          --------          --------          --------

</TABLE>

                See accompanying notes to financial statements

                                    F-224

<PAGE>   244

                        AMERICAN MOVIE CLASSICS COMPANY
                            (A General Partnership)


                           STATEMENTS OF CASH FLOWS


                 YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991




<TABLE>
<Captiion>

                                                            1993              1992              1991
                                                          --------          --------          --------
<S>                                                       <C>               <C>               <C>
Cash flows from operating activities:
  Net income                                              $ 22,625          $ 15,676          $ 17,758
                                                          --------          --------          --------

  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation and amortization                          1,791             1,728             1,727
      Amortization of discount on notes payable                 --                --               238
      Amortization of deferred financing costs                 142                71                --
      Amortization of deferred transmission costs               83                 4                --
      Changes in assets and liabilities:                   
        Trade accounts receivable                           (3,328)           (1,814)            1,054
        Trade accounts receivable-affiliates                  (706)            1,722            (1,602)
        Prepaid expenses and other current assets               37                (6)             (226)
        Feature film inventory                             (33,584)          (29,326)            5,245
        Deferred transmission costs                             --              (500)             (500)
        Deposits and other assets                               --                --                93
        Accounts payable and accrued liabilities             2,420              (603)              283               
        Accounts payable-affiliates                            180               932                (2)
        Feature film rights payable                         30,461            30,478            (7,854)
                                                          --------          --------          --------

          Total adjustments                                 (2,504)            2,686            (1,544)
                                                          --------          --------          --------

          Net cas provided by operating activities          20,121            18,362            16,214
                                                          --------          --------          --------

Cash flows used by investing activities:
  Capital expenditures                                        (449)             (506)             (202)
                                                          --------          --------          --------

Cash flows from financing activities:
  Partners's capital distributions                              --           (78,000)          (26,600)
  Repayment of bank debt and notes payable                 (16,975)           (8,000)           (1,628)
  Proceeds from bank debt                                    6,000            66,000                --
  Additions to deferred financing costs                         --              (853)               --
                                                          --------          --------          --------

          Net cash used in financing activities            (10,975)          (20,853)          (28,228)
                                                          --------          --------          --------

Net increase (decrease) in cash and cash
  equivalents                                                8,697            (2,997)          (12,216)

Cash and cash equivalents at beginning of year                 333             3,330            15,546
                                                          --------          --------          --------

Cash and cash equivalents at end of year                  $  9,030          $    333          $  3,330
                                                          --------          --------          --------
                                                          --------          --------          --------
</TABLE>

                See accompanying notes to financial statements.

                                    F-225
<PAGE>   245
                       AMERICAN MOVIE CLASSICS COMPANY
                           (A General Partnership)

                        NOTES TO FINANCIAL STATEMENTS



1.   The Company

     American Movie Classics Company ("the Company") is a general partnership
organized as of January 1, 1987, under the provisions of the New York State
Partnership Law to produce, market and distribute the American Movie Classics
service (the "Service") to the pay television industry. The partnership will
terminate January 1, 2086 unless earlier termination occurs as provided for in
the partnership agreement.

     The general partners of the Company are Rainbow Program Enterprises
("RPE"), a limited partnership, a subsidiary of the National Braodcasting
Company, Inc. ("NBC") and Liberty Media, Inc. ("Liberty"). RPE is indirectly
substantially wholly-owned by Rainbow Programming Holdings, inc. ("RPH"). RPH
is wholly-owned by Cablevision Systems Corporation ("CSC"). The Company is
50% owned by Liberty and 25% owned each by RPE and NBC, with RPE being the
managing general partner.

     The partnership agreement of the Company contains a provision allowing any
partner to commence a buy-sell procedure by establishing a stated value for the
Company's partnership interests. On August 2, 1993, RPE received a notice from
Liberty initiating the buy-sell procedure and setting a stated value of $390
million, subject to certain working capital adjustments, for all of the
partnership interests in the Company, including the debt associated with such
interests. Liberty also valued at $5 million (subject to the same buy-sell
procedure) the transmission services and production facility agreement dated
January 1, 1987 between Rainbow Network Communications and the partnership and
all management and consulting fee obligations of the partnership existing at
the closing. On September 16, 1993, RPE notified its partners that it had
elected to purchase Liberty's 50% interest in the Company. The consummation of
the purchase of Liberty's 50% interest in the Company is subject to a
number of conditions and is expected to occur in 1994. The purchase of
Liberty's interest in the partnership will trigger a clause in Liberty's
affiliation agreement that states that continued affiliation with the Company
will only be required for an additional three year period commencing with the
sale date.

     The Company is in the process of developing a new programming service
named Romance Classics which will operate as a separate division. This service,
which is scheduled to launch in February, 1995, will provide additional cable
television programming featuring films with a romantic theme.

                                    F-226
<PAGE>   246
                       AMERICAN MOVIE CLASSICS COMPANY
                           (A General Partnership)    
                                                      
                        NOTES TO FINANCIAL STATEMENTS 
                                 (Continued)          



2. Summary of Significant Accounting Policies

     Film Telecast Rights

     The Company accounts for telecast rights of feature film inventory in
accordance with Financial Accounting Standards Board Statement No. 63,
"Financial Reporting by Broadcasters" ("FAS 63"). Accordingly, rights acquired
under license agreements along with the related obligations are recorded at the
contract value. Costs are amortized based on either a per subscriber cost for
each airing or on the straight-line method based upon the intended number of
days to be aired. Film telecast rights expected to be amortized within one year
are classified as current assets while contract amounts payable within one year
are classified as current liabilities.

     The balance sheet at December 31, 1992 has been adjusted to reflect the
classification of film telecast rights and the related obligation in accordance
with FAS 63. Previously, the total amount of rights costs and the corresponding
total liability were classified as a current asset or liability, respectively,
when a film or group of films first became available for airing. The effect of
this adjustment was to decrease current assets by $5,096,000 and decrease
current liabilities by $2,443,000 at December 31, 1992.

     Amounts payable during the five years subsequent to December 31, 1993
related to the feature film rights amount to $26,157,000 in 1994, $12,042,000
in 1995, $7,978,000 in 1996, $6,749,000 in 1997, and $6,934,000 in 1998.

     Property and Equipment

     Property and equipment are carried at cost and depreciated on the
straight-line basis over the estimated useful lives of the assets or, with
respect to leasehold improvements, amortized over the lesser of the lease term
or the assets' useful lives.

     Film, Program and Affiliation Agreements

     Costs previously allocated to film, program and affiliation agreements
were amortized on the straight-line basis over a seven-year period.

     Deferred Financing Costs

     Costs incurred in obtaining debt are deferred and amortized, on the
straight-line basis, over the life of the related debt.

                                    F-227
<PAGE>   247
                       AMERICAN MOVIE CLASSICS COMPANY
                           (A General Partnership)    
                                                      
                        NOTES TO FINANCIAL STATEMENTS 
                                 (Continued)          



2.   Summary of Significant Accounting Policies (continued)

       Deferred Transmission Costs

       Deferred transmission costs represent prepayments required to secure
satellite transponder space on a new satellite and are being amortized to
technical expense over the projected life (approximately 12 years) of the
satellite (See Note 5).

       Income Taxes

       The Company operates as a general partnership; accordingly, its taxable
income or loss is included in the tax returns of the individual partners, and
no provision for income taxes is made on the books of the Company.

       Revenue Recognition

       The Company recognizes revenues when programming services are provided to
cable television systems ("Cable Affiliates") or other pay television
operators.

       The Company's Cable Affiliates are located throughout the United States.
One Cable Affiliate individually represents greater than 5% of the Company's
1993 revenues. At December 31, 1993, one Cable Affiliate individually accounted
for greater than 5% of the accounts receivable balance.

       Cash Flows

       The Company considers temporary cash investments with original maturities
of three months or less at the time of purchase to be cash equivalents. During
the years ended December 31, 1993, 1992 and 1991, the Company paid cash
interest expense of $3,290,000, $1,520,000 and $277,000, respectively.


3.   Property and Equipment

     Property and equipment consist of the following:

                                         December 31, 
                                 -------------------------       Estimated
                                    1993           1992         Useful Lives
                                 ----------     ----------      ------------

Origination equipment            $  732,000     $  596,000      7 years
Machinery and equipment             790,000        647,000      5 to 8 years
Furniture and fixtures              535,000        461,000      3 to 8 years
Leasehold improvements              446,000        350,000      Life of lease
                                 ----------     ----------
                                  2,503,000      2,054,000

Less accumulated depreciation
    and amortization              1,397,000      1,097,000
                                 ----------     ----------
                                 $1,106,000     $  957,000
                                 ----------     ----------
                                 ----------     ----------

                                    F-228
<PAGE>   248
                       AMERICAN MOVIE CLASSICS COMPANY
                           (A General Partnership)    
                                                      
                        NOTES TO FINANCIAL STATEMENTS 
                                 (Continued)          



4.   Bank Debt

     On June 26, 1992, the Company entered into a loan agreement (the "Loan
Agreement") with a group of banks (with the Toronto Dominion Bank as Lead
Bank). The Loan Agreement, which permits maximum borrowings of $70,000,000 and
matures on June 30, 1998, is comprised of a $55,000,000 term loan and a
$15,000,000 revolver. At December 31, 1993, there were no borrowings under the
revolver and an outstanding balance of $47,025,000 under the term loan.
Borrowings under the Loan Agreement bear interest at varying rates above the
Lead Bank's base, CD or LIBOR rate depending on the ratio of debt to cash flow,
as defined in the Loan Agreement. The Company has entered into an interest
rate swap agreement on a notional amount of $20,000,000 under which the Company
pays a fixed rate and receives a variable rate. The interest rate swap
agreement expires on October 6, 1997. The Company is exposed to credit loss in
the event of nonperformance by the other parties to the interest rate swap
agreement; however, the Company does not anticipate nonperformance by the
counterparties. At December 31, 1993 and 1992, the weighted average interest
rate on bank indebtedness approximated 5.60% and 5.76%, respectively. The
Company incurred approximately $853,000 of costs in connection with the Loan
Agreement. Substantially all of the assets of the Company have been pledged to
secure the borrowings under the Loan Agreement.

     Amounts payable during the five years subsequent to December 31, 1993
under the Loan Agreement amount to $3,025,000 in 1994, $7,975,000 in 1995,
$16,995,000 in 1996, $12,980,000 in 1997 and $6,050,000 in 1998, plus any
amounts outstanding under the Revolver.

     The Loan Agreement contains various restrictive covenants with which the
Company was in compliance at December 31, 1993. During 1992, substantially all
of the bank loan proceeds were distributed to the partners on the basis of
their respective ownership percentage interests, thereby resulting in a
partners' capital deficiency at December 31, 1993 and 1992.

5.   Affiliate Transactions

     The Company provides programming to the pay television industry under
contracts called affiliation agreements. Revenues earned under affiliation
agreements with companies owned or affiliated with CSC and Liberty for the
years ended December 31, 1993, 1992 and 1991, were approximately $21,582,000,
$17,577,000 and $24,664,000, respectively. Such revenue amounts are calculated
at varying rates per the contract agreements.

                                    F-229
<PAGE>   249
                       AMERICAN MOVIE CLASSICS COMPANY
                           (A General Partnership)    
                                                      
                        NOTES TO FINANCIAL STATEMENTS 
                                 (Continued)          



5.   Affiliate Transactions (continued)

     The Company has agreements, which expire in 1997, with CSC and Liberty for
these companies to provide management services. Each of the agreements provide
for the payment, in addition to expense reimbursement, of a fee equal to 1.75%
of the Company's gross revenues, as defined. Pursuant to the terms of these
agreements, the Company was charged management fees of $2,958,000, $2,456,000
and $2,232,000 in 1993, 1992 and 1991, respectively.

     Rainbow Network Communications ("RNC"), an affiliate of the Company,
provides certain transmission and production services to the Company. The
Company was charged approximately $4,421,000, $3,552,000 and $4,626,000 in
1993, 1992 and 1991, respectively, for these services. In addition, to secure
transponder space on a new satellite that would transmit the Service, the
Company made pre-launch payments of $500,000 each in 1992 and 1991. The
payments were made to RNC who leases the transponder space directly from the
supplier. The satellite was successfully launched in late 1992.

     Liberty, as part of the buy-sell procedure, has offered to terminate the
management service agreement with the Compnay and the transmission services and
production facilities agreement for $5 million.

     RPH provides the Company with certain administrative services. The Company
was charged approximately $2,449,000, $2,093,000 and $2,007,000 in 1993, 1992
and 1991, respectively, for these services.

     The Company provides certain administrative, creative and production
services to various affiliates. For the years ended December 31, 1993, 1992 and
1991, $927,000, $1,061,000 and $793,000, respectively, was charged to such
affiliates for these services.

     Various affiliates provide the Company with certain administrative,
creative and production services and office facilities. The Company was
charged approximately $785,000, $749,000 and $791,000, for the years ended
December 31, 1993, 1992 and 1991, respectively, for these services.


6.   Pension Plan

     CSC with its affiliates, including the Company, maintained a defined
contribution pension plan covering substantially all of the Company's and its'
affiliates' employees. The Compnay contributed 3% of eligible employees' annual
compensation (as defined), and employees could voluntarily contribute up to 10%
of their annual compensation. The cost associated with this plan was
approximately $94,000 and $76,000 for the years ended December 31, 1992 and
1991, respectively.

                                    F-230
<PAGE>   250
 
                        AMERICAN MOVIE CLASSICS COMPANY
                            (A General Partnership)
                         NOTES TO FINANCIAL STATEMENTS
                                  (Continued)
 
6. Pension Plan (continued)
 
     Effective January 1, 1993, the Board of Directors of Cablevision approved
the adoption of an amended and restated Pension and 401(K) Savings plan (the
"Plan"), in part to permit participants to make contributions to the Plan on a
pre-tax salary reduction basis in accordance with the provisions of Section
401(K) of the Internal Revenue Code, and to introduce new investment options
under the Plan. The Company contributes 1-1/2% of eligible employees' annual
compensation, as defined, to the defined contribution portion of the Plan (the
"Pension Plan") and an equivalent amount to the Section 401(K) portion of the
Plan (the "Savings Plan"). Employees may voluntarily contribute up to 15% of
eligible compensation, subject to certain restrictions, to the Savings Plan,
with an additional matching contribution by the Company of 1/4 of 1% for each 1%
contributed by the employee, up to a maximum contribution by the Company of 1/2
of 1% of eligible base pay. Employee contributions are fully vested as are
employer base contributions to the Savings Plan. Employer contributions to the
Pension Plan and matching contributions to the Savings Plan become vested in
years three through seven. The cost associated with this amended plan was
approximately $120,000 for the year ended December 31, 1993.
 
     The Company does not provide any postretirement benefits to its employees.
 
7. Leases
 
     The Company leases certain facilities under operating lease agreements
which expire at various dates through 1995. Total rent expense paid to third
parties amounted to approximately $110,000, $131,000 and $106,000 for the years
ended December 31, 1993, 1992 and 1991, respectively. The following is a
schedule of future minimum payments for operating leases as of December 31,
1993:
 
<TABLE>
<CAPTION>
  Years Ended December 31,
- -----------------------------
<S>                              <C>
          1994                   $ 74,000
          1995                     38,000
                                 --------
Total minimum lease payments     $112,000
                                 --------
                                 --------
</TABLE>
 
                                     F-231
<PAGE>   251
 
                        AMERICAN MOVIE CLASSICS COMPANY
                            (A General Partnership)
 
                         NOTES TO FINANCIAL STATEMENTS
                                  (Continued)
 
8. Legal Matters
 
     Broadcast Music, Inc. ("BMI"), an organization which licenses the
performance of the musical compositions of its affiliated composers, authors and
publishers, has alleged that the Company and certain of its affiliates need a
license to exhibit programs containing musical compositions in BMI's catalog and
that continued use requires a license. The Company had a license from BMI
through 1989. On June 24, 1992, the Company and BMI entered into a written
license agreement covering the period January 1, 1990 through June 30, 1993
which agreement was extended thru June 30, 1994 by amendment to the license
agreement.
 
     The American Society of Composers, Authors and Publishers (ASCAP), another
organization which licenses the performance of the musical compositions of its
members, has also alleged that the Company and certain of its affiliates need a
license to exhibit programs containing musical compositions in its catalog and
that continued use requires a license. The subject of the fees to be paid to
ASCAP and the manner in which they will be paid has been submitted to a Federal
Rate Court in New York and is still pending. By submitting the matter to the
Federal Rate Court, the Company and certain of its affiliates have been licensed
by ASCAP for periods subsequent to July 25, 1989. An interim fee was set by the
Federal Rate Court at $0.15 per viewing subscriber per year for periods
subsequent to March 6, 1989. The Company believes this rate was set by the Court
in error and should have been set at 0.3% of gross revenues. ASCAP has agreed to
payment based on 0.3%. The interim fee is subject to adjustment when a final
decision is reached by the Federal Rate Court. In addition, ASCAP has sought
payments for license fees for part or all of the period from January 1, 1986 to
March 6, 1989.
 
     SESAC, another organization which licenses the performance of the musical
compositions of its members, has alleged that the Company has exhibited programs
containing musical compositions in its catalog. The Company and SESAC have
reached agreement on programming containing SESAC music pursuant to which the
Company will pay $60,000, of which $30,000 will be allocated to other
affiliates, in consideration of a release for musical composition in SESAC's
catalog used by the Company and its' affiliates.
 
     Management does not believe the outcome of these matters will have a
material adverse effect on the financial position of the Company.
 
                                     F-232
<PAGE>   252
 
                        AMERICAN MOVIE CLASSICS COMPANY
 
                                 SCHEDULE VIII
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
                             (Dollars in thousands)
 
<TABLE>
<CAPTION>
                                                                 Additions
                                        Balance at   ---------------------------------
                                        Beginning    Charged to Costs     Charged to     Deductions-    Balance at
                                        of Period      and Expenses     Other Accounts   Write-Offs    End of Period
                                        ----------   ----------------   --------------   -----------   -------------
<S>                                     <C>              <C>             <C>              <C>           <C>
Year Ended December 31, 1993
  Allowance for doubtful accounts ...       $1,148          $1,672            $   --          $(143)        $ 2,677
                                        ----------         -------           -------       -----------   -------------
                                        ----------         -------           -------       -----------   -------------
Year Ended December 31, 1992
  Allowance for doubtful accounts ...       $1,115          $  411            $   --          $(378)        $ 1,148
                                        ----------         -------           -------       -----------   -------------
                                        ----------         -------           -------       -----------   -------------
Year Ended December 31, 1991
  Allowance for doubtful accounts ...       $  494          $  644            $   --          $ (23)        $ 1,115
                                        ----------         -------           -------       -----------   -------------
                                        ----------         -------           -------       -----------   -------------
</TABLE>
 
                                     F-233
<PAGE>   253
 
                        AMERICAN MOVIE CLASSICS COMPANY
 
                                   SCHEDULE X
 
                   SUPPLEMENTARY INCOME STATEMENT INFORMATION
 
                             (Dollars in thousands)
 
<TABLE>
<CAPTION>
                                                                  Charged to Costs and Expenses
                                                            ------------------------------------------
                                                             Year Ended     Year Ended     Year Ended
                                                            December 31,   December 31,   December 31,
                                                                1993           1992           1991
                                                            ------------   ------------   ------------
<S>                                                           <C>            <C>            <C>
Advertising...............................................    $ 10,113       $ 10,303       $  9,539
                                                              --------       --------       --------
                                                              --------       --------       --------
Amortization of Intangible Assets:
  Film and program agreements.............................    $ 10,023       $  1,025       $  1,025
  Affiliation agreements..................................         468            466            466
                                                              --------       --------       --------
                                                              $  1,491       $  1,491       $  1,491
                                                              --------       --------       --------
                                                              --------       --------       --------
Royalties.................................................    $    884       $    702       $    638
                                                              --------       --------       --------
                                                              --------       --------       --------
</TABLE>
 
                                     F-234
<PAGE>   254
 
(ERNST & YOUNG LOGO)  787 Seventh Avenue                      Phone 212 773 3000
                      New York, New York 10019
 
                         Report of Independent Auditors
 
The Partners
Kansas City Cable Partners
Kansas City, Missouri
 
We have audited the accompanying balance sheets of Kansas City Cable Partners (a
Partnership) as of December 31, 1993 and 1992, and the related statements of
operations and accumulated earnings, partners' (deficit) capital, and cash flows
for each of the three years in the period ended December 31, 1993. Our audits
also included the financial statement schedules listed in the index at Item
14(a). These financial statements and schedules are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 financial statements referred to above present fairly, in
all material respects, the financial position of Kansas City Cable Partners at
December 31, 1993 and 1992, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

                                                       /s/ ERNST & YOUNG
                                                           ERNST & YOUNG

March 11, 1994
 
                                     F-235
<PAGE>   255
 
                   Kansas City Cable Partners (A Partnership)
 
                                 Balance Sheets
 
<TABLE>
<CAPTION>
                                                                          December 31,
                                                                 ------------------------------
                                                                     1993              1992
                                                                 -------------     ------------
<S>                                                              <C>               <C>
Assets
Cash and short-term investments (Note 2)                         $     677,345     $  1,489,081
Restricted cash (Note 5)                                             2,800,000               --
Accounts receivable, less allowance for doubtful
  accounts of $893,273 in 1993 and $806,854 in 1992                  2,193,186        1,574,851
Note receivable from Liberty Cable of Missouri, Inc. (Note 4)               --       61,391,079
Prepaid expenses and other                                             183,699          173,909
Investments (Note 6)                                                   493,940               --
Property, plant and equipment, less accumulated
  depreciation of $59,735,214 in 1993 and
  $53,605,149 in 1992 (Note 2)                                      49,219,336       51,874,426
Franchise costs, less accumulated amortization of
  $22,890,707 in 1993 and $20,383,395 in 1992                       42,693,175       44,939,085
Debt issuance costs                                                  1,325,763        1,503,058
                                                                 -------------     ------------
Total assets                                                     $  99,586,444     $162,945,489
                                                                 -------------     ------------
                                                                 -------------     ------------
Liabilities and partners' (deficit) capital
Accounts payable                                                 $   1,321,583     $    867,638
Accrued liabilities(a)                                               7,042,330        7,039,802
Subscribers' advance payments and deposits                           1,089,709        1,278,998
Debt (Note 7)                                                      149,500,000       73,000,000
Advances from partners                                                  62,898          235,499
Partners' (deficit) capital (Note 1):
  Partners' contributions                                           52,000,000       52,000,000
  Distributions in excess of earnings                             (111,430,076               --
  Accumulated earnings                                                      --       28,523,552
                                                                 -------------     ------------
Total partners' (deficit) capital                                  (59,430,076)      80,523,552
                                                                 -------------     ------------
Total liabilities and partners' (deficit) capital                $  99,586,444     $162,945,489
                                                                 -------------     ------------
                                                                 -------------     ------------
</TABLE>
 
(a) Includes accrued liabilities with related parties of $962,096 in 1993 and
    $1,462,224 in 1992 (Note 3).
 
See Accompanying notes.
 
                                     F-236
<PAGE>   256
 
                   Kansas City Cable Partners (A Partnership)
 
               Statements of Operations and Accumulated Earnings
 
<TABLE>
<CAPTION>
                                                                 Year ended December 31
                                                        -----------------------------------------
                                                           1993           1992           1991
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
Revenue:
  Service(a)                                            $63,922,119    $58,948,719    $55,290,136
  Connection and other                                    6,787,375      5,700,995      4,629,061
                                                        -----------    -----------    -----------
Total Revenue                                            70,709,494     64,649,714     59,919,197
                                                        -----------    -----------    -----------
Expenses:
  Operating and origination(a) (Note 3)                  23,851,245     23,204,518     23,727,608
  Selling, general and administrative(a) (Note 3)        13,414,601     11,895,662     10,559,624
  Depreciation and amortization                          11,626,299     11,497,646     10,919,795
                                                        -----------    -----------    -----------
Total expenses                                           48,892,145     46,597,826     45,207,027
                                                        -----------    -----------    -----------
Operating income                                         21,817,349     18,051,888     14,712,170
Interest expense                                          4,461,349      2,991,544      2,602,317
Other income (expense) (a) (Note 6)                       2,844,246      1,324,886        (13,849)
                                                        -----------    -----------    -----------
Net income                                               20,200,246     16,385,230     12,096,004
Accumulated earnings at beginning of year                28,523,552     12,138,322         42,318
Partners' distributions                                 (48,723,798)            --             --
                                                        -----------    -----------    -----------
Accumulated earnings at end of year                     $        --    $28,523,552    $12,138,322
                                                        -----------    -----------    -----------
                                                        -----------    -----------    -----------
</TABLE>
 
(a) Includes the following income (expenses) resulting from transactions with
     related parties for the year ended December 31:
 
<TABLE>
<CAPTION>
                                                           1993           1992           1991
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
Service revenue                                         $   499,652    $        --    $        --
Operating and origination                                (6,783,752)    (6,743,203)    (6,521,529)
Selling, general, and administrative                     (2,467,910)    (2,249,959)    (2,088,157)
Interest income                                           1,783,202      1,391,079             --
</TABLE>
 
See accompanying notes.
 
                                    F-237
<PAGE>   257
 
                   Kansas City Cable Partners (A Partnership)
 
                   Statements of Partners' (Deficit) Capital
 
                 Years ended December 31, 1993, 1992, and 1991
 
<TABLE>
<CAPTION>
                                                       Time        Liberty Cable
                                                    Warner Inc.    of Missouri,
                                                    Affiliates         Inc.            Total
                                                    -----------    -------------    ------------
<S>                                                 <C>            <C>              <C>
Balance at January 1, 1991                          $ 26,021,159     $ 26,021,159    $ 52,042,318
Net income                                             6,048,002        6,048,002      12,096,004
                                                    ------------    -------------    ------------
Balance at December 31, 1991                          32,069,161       32,069,161      64,138,322
Net income                                             8,192,615        8,192,615      16,385,230
                                                    ------------    -------------    ------------
Balance at December 31, 1992                          40,261,776       40,261,776      80,523,552
Net income                                            10,100,123       10,100,123      20,200,246
Distributions to partners                            (80,076,937)     (80,076,937)   (160,153,874)
                                                    ------------    -------------    ------------
Balance at December 31, 1993                        $(29,715,038)   $ (29,715,038)   $(59,430,076)
                                                    ------------    -------------    ------------
                                                    ------------    -------------    ------------
</TABLE>
 
See accompanying notes.
 
                                     F-238
<PAGE>   258
 
                   Kansas City Cable Partners (A Partnership)
 
                            Statements of Cash Flows
 
<TABLE>
<CAPTION>
                                                              Year ended December 31
                                                    ------------------------------------------
                                                        1993           1992           1991
                                                    ------------    -----------    -----------
<S>                                                 <C>             <C>            <C>
Operating activities
Net income                                          $ 20,200,246    $16,385,230    $12,096,004
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization                       11,626,299     11,497,646     10,919,795
  (Gain)/loss on disposal of property, plant and
     equipment                                        (1,101,344)       112,342         64,245
  Amortization of debt issuance costs included in
     interest expense                                    177,294        120,680          9,152
  Interest income included as an addition to note
     receivable from Liberty Cable of Missouri,
     Inc.                                                     --     (1,391,079)            --
  Changes in operating assets and liabilities:
     Accounts receivable and prepaid expenses and
       other                                            (628,125)       148,389       (338,760)
     Accounts payable, accrued liabilities and
       subscribers' advance payments and deposits        267,184       (103,591)     1,204,686
                                                    ------------    -----------    -----------
Net cash provided by operating activities             30,541,554     26,769,617     23,955,122
Investing activities
Note receivable from Liberty Cable of Missouri,
  Inc.                                                60,000,000    (60,000,000)            --
Purchases of property, plant and equipment            (6,119,287)    (7,568,175)   (11,241,139)
Proceeds from disposal of property, plant and
  equipment                                            1,500,000        295,026         45,970
Increase in restricted cash                           (2,800,000)            --             --
Additions to franchise costs                            (261,402)       (59,274)        (6,867)
                                                    ------------    -----------    -----------
Net cash provided by (used in) investing
  activities                                          52,319,311    (67,332,423)   (11,202,036)

Financing activities
Increase in debt issuance costs                               --     (1,591,705)            --
Proceeds from issuance of debt                        95,000,000     83,000,000             --
Payments on debt                                     (18,500,000)   (42,250,000)   (10,950,000)
Distributions to partners                           (160,000,000)            --             --
Change in advances from partners                        (172,601)        36,155        226,634
                                                    ------------    -----------    -----------
Net cash provided by (used in) financing
  activities                                         (83,672,601)    39,194,450    (10,723,366)
                                                    ------------    -----------    -----------
</TABLE>
 
                                     F-239
<PAGE>   259
 
                   Kansas City Cable Partners (A Partnership)
 
                      Statements of Cash Flows (continued)
 
<TABLE>
<CAPTION>
                                                              Year ended December 31
                                                    ------------------------------------------
                                                        1993           1992           1991
                                                    ------------    -----------    -----------
<S>                                                 <C>             <C>            <C>
Net increase (decrease) in cash and short-term
  investments                                       $   (811,736)   $(1,368,356)   $ 2,029,720
Cash and short-term investments at beginning of
  year                                                 1,489,081      2,857,437        827,717
                                                    ------------    -----------    -----------
Cash and short-term investments at end of year      $    677,345    $ 1,489,081    $ 2,857,437
                                                    ------------    -----------    -----------
                                                    ------------    -----------    -----------
Supplemental disclosure of cash flow information
Cash paid during the year for interest              $  4,010,679    $ 2,501,512    $ 2,688,488
                                                    ------------    -----------    -----------
                                                    ------------    -----------    -----------
</TABLE>
 
See accompanying notes.
 
                                     F-240
<PAGE>   260
 
                      Kansas City Partners (A Partnership)
 
                         Notes to Financial Statements
 
                               December 31, 1993
 
1. Description of Business
 
Kansas City Cable Partners ("the Partnership"), a general partnership, is
principally engaged in the cable television business. Such operations consist
primarily of selling video programming which is distributed to subscribers for a
monthly fee through a network of coaxial and fiber-optic cables. The Partnership
operates in the metropolitan areas of Kansas City, Kansas and Kansas City,
Missouri and the surrounding areas under non-exclusive franchise agreements.
 
The Partnership is owned 49% by American Cablevision of Kansas City, Inc.
("ACKC"), a subsidiary of American Television and Communications Corporation
("ATC"), 50% by Liberty Cable of Missouri, Inc. ("LCM"), a wholly-owned
subsidiary of Liberty Media Corporation ("Liberty Media"), and 1% by Time Warner
Entertainment Company, L.P. ("TWE").
 
In October 1991, Time Warner Inc. ("Time Warner") entered into an agreement to
form a limited partnership, TWE, with subsidiaries of Toshiba Corporation
("Toshiba") and ITOCHU Corporation ("ITOCHU"). On June 30, 1992, Time Warner
subsidiaries contributed substantially all assets of the filmed entertainment,
HBO programming, and cable businesses and certain other assets to TWE, subject
to certain liabilities. In lieu of contributing certain assets to TWE, including
ATC's interest in KCCP, certain Time Warner subsidiaries agreed to pay TWE an
amount equal to the net cash flow generated by such assets. On September 15,
1993, a wholly-owned subsidiary of US West, Inc. ("USW") was admitted as an
additional limited partner. As a result of the USW transaction, the subsidiaries
of USW, Toshiba, and ITOCHU hold pro-rata priority capital and residual equity
partnership interests of 25.51%, 5.61%, and 5.61%, respectively, in TWE. The
subsidiaries of Time Warner in the aggregate hold pro-rata priority capital and
residual equity partnership interests of 63.27% in TWE.
 
In conjunction with the formation of TWE, Time Warner combined its two formerly
separate cable operations, formerly administered by ATC and Warner Cable
Communications Inc., as a single unit, Time Warner Cable ("TWC").
 
                                     F-241
<PAGE>   261
 
                   Kansas City Cable Partners (A Partnership)
 
                   Notes to Financial Statements (continued)
 
2. Significant Accounting Policies
 
Cash and Short-term Investments
 
Cash and short-term investments consist of short term, highly liquid investments
which are readily convertible into cash and have original maturities of three
months or less:
 
Property, Plant and Equipment
 
Property, plant and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                                  1993             1992
                                                              ------------     ------------
    <S>                                                       <C>              <C>
    Land and buildings                                        $  8,876,717     $  8,824,156
    Distribution system                                         89,959,196       88,167,844
    Vehicles and other equipment                                 7,831,597        7,307,981
    Construction in progress                                     2,287,040        1,179,594
                                                              ------------     ------------
                                                               108,954,550      105,479,575
    Less accumulated depreciation                              (59,735,214)     (53,605,149)
                                                              ------------     ------------
                                                              $ 49,219,336     $ 51,874,426
                                                              ------------     ------------
                                                              ------------     ------------
</TABLE>
 
Property, plant and equipment have been recorded at cost.
 
Depreciation is provided on the straight-line basis over the estimated useful
lives of the assets as follows:
 
<TABLE>
        <S>                                                                <C>
        Buildings and improvements                                         5-20 years
        Distribution system                                                4-15 years
        Vehicles and other equipment                                       3-10 years
</TABLE>
 
Franchise Costs
 
Franchises have been recorded at cost.
 
Amortization of franchise costs is provided on the straight-line basis over a
combination of the remaining lives of the franchise or 40 years.
 
                                     F-242
<PAGE>   262
 
                   Kansas City Cable Partners (A Partnership)
 
                   Notes to Financial Statements (continued)
 
2. Significant Accounting Policies (continued)
 
Debt Issuance Costs
 
Debt issuance costs relate to costs incurred in obtaining debt financing.
Amortization of such debt issuance costs is being provided over the term of the
related debt agreement.
 
Income Taxes
 
The Partnership is not subject to federal income tax. Any income or loss for tax
purposes is included in the tax return of the partners.
 
Reclassifications
 
Certain reclassifications have been made to the 1992 and 1991 financial
statements to conform with the 1993 financial statement presentation.
 
3. Related Party Transactions
 
The statements of operations and accumulated earnings include charges for
programming and promotional services provided by affiliates of TWE and Liberty
Media/Telecommunications, Inc. ("TCT"). These charges are based on customary
rates. In addition, the Partnership has an agreement with TWC under which TWC
manages the activities of the Partnership. In return for these services, the
Partnership has agreed to pay TWC 3.5% of monthly gross revenues.
 
In addition, for the years ended December 31, 1993 and 1992, the Partnership
recognized $1,783,202 and $1,391,079, respectively of interest income from the
Liberty Media note receivable (see Note 4). Interest was charged at rates
equivalent to those incurred by the Partnership under the terms of its credit
agreement (see Note 7).
 
Advances from partners bear interest at 2% over the prime rate.
 
                                     F-243
<PAGE>   263
 
                   Kansas City Cable Partners (A Partnership)
 
                   Notes to Financial Statements (continues)
 
4. Distributions to Partners
 
During 1992, the Partnership executed a $60,000,000 promissory note agreement
with LCM. Interest accrued on the unpaid principal balance at rates equivalent
to those incurred by the Partnership under the terms of its credit agreement.
The note was secured by a portion of LCM's interest in the Partnership.
 
On September 14, 1993, the Partnership distributed to its partners the right,
title, and interest in assets with a net book value of $153,874.
 
On October 1, 1993, the Partnership distributed $78,174,281 to ACKC, $1,825,719
to TWE and $80,000,000 to LCM. The outstanding note receivable from LCM,
together with $3,174,281 of accrued interest, was repaid from the portion of the
distribution made to LCM.
 
5. Restricted Cash
 
In 1993, the franchise authority representing the city of Kansas City, Kansas
alleged that the Partnership was deficient in its payment of franchise fees.
Although the Partnership contends that the franchise fees paid are in accordance
with the franchise agreement, it deposited in escrow $2,800,000 with the United
States District Court for the District of Kansas representing the estimated
maximum amount that might be claimed by the Kansas City, Kansas franchise
authority. Resolution of this issue is pending court mediation (see Note 10).
 
6. Investment in Kansas City Fiber Network L.P.
 
In 1993, the Partnership and a wholly-owned subsidiary formed Kansas City Fiber
Network, L.P. ("KCFN"), a partnership for the purpose of transporting voice,
data and video signals on behalf of commercial and institutional customers,
principally through a high capacity fiber optic network in the Kansas City
Metropolitan Area. The Partnership subsequently sold a fifty percent interest in
KCFN to TeleCable KFN Holdings Corp. for $1,500,000 and recognized a gain of
approximately $980,000 from this sale.
 
                                     F-244
<PAGE>   264
 
                   Kansas City Cable Partners (A Partnership)
 
                   Notes to Financial Statements (continued)
 
7. Debt
 
Debt consists of the following:
 
<TABLE>
<CAPTION>
                                                                      1993            1992
                                                                   -----------     ----------
<S>                                                                <C>             <C>
Prime loan, weighted average interest rate of 6% at December 31,
  1993                                                             $    500,000    $        --
Revolving credit, weighted average interest rates of 4.7% and
  4.8% at December 31, 1993 and 1992, respectively                    4,000,000     13,000,000
Term loans, weighted average interest rate of 4.6% and 4.8% at
  December 31, 1993 and 1992, respectively                          145,000,000     60,000,000
                                                                   ------------    -----------
                                                                   $149,500,000    $73,000,000
                                                                   ------------    -----------
                                                                   ------------    -----------
</TABLE>
 
On June 26, 1992, the Partnership executed a credit agreement with a group of
banks providing for revolving and term loans through December 31, 2000. The
maximum available loan amounts under the revolving and term loans are
$45,000,000 and $145,000,000, respectively. The maximum available loan amount of
the revolving loan is reduced to $40,000,000 on December 31, 1998 and
$30,000,000 on December 31, 1999. The unpaid principal balance under the term
loans is payable in quarterly installments commencing March 31, 1994. Such
quarterly installments are based upon the outstanding principal balance and
aggregate prepayments made as of that date, as defined in the credit agreement.
Based on the balance outstanding at December 31, 1993, aggregate future
maturities for the term loan are as follows: 1994 -- $6,000,000; 1995 --
$9,500,000; 1996 -- $15,000,000; 1997 -- $28,000,000; 1998 -- $34,000,000 and
thereafter -- $52,500,000. Funds available under the credit agreement may be
used for permitted distributions and advances to the partners, as defined in the
credit agreement, to repay existing indebtedness and for other general purposes.
Permitted distributions to the partners, as defined in the credit agreement, may
not exceed an aggregate amount of $160,000,000 and are subject to certain
limitations.
 
The credit agreement substantially restricts the Partnership's ability to pledge
its property, plant and equipment or create additional liens and prohibits the
Partnership from incurring additional senior indebtedness in excess of
$5,000,000 except for subordinated debt to affiliates. The credit agreement also
limits the type of investments the Partnership may make, sets limits on debt to
cash flow ratios, requires certain minimum debt service ratios and restricts
payments to partners based on cash flow measurements.
 
                                     F-245
<PAGE>   265
 
                   Kansas City Cable Partners (A Partnership)
 
                   Notes to Financial Statements (continued)
 
8. Commitments and Contingencies
 
Future minimum rental payments required under noncancelable operating leases are
summarized as follows:
 
                                                                 Total Rental
                     Year ended December 31                       Commitment
                ---------------------------------                ------------

                1994                                               $120,083
                1995                                                 70,794
                1996                                                 50,914
                1997                                                 12,286
                1998                                                  3,105
                Thereafter                                            3,128
                                                                   --------
                                                                   $260,310
                                                                   --------
                                                                   --------
 
Rental expense for all operating leases, principally pole attachment fees and
office space, aggregated $809,656, $801,515 and $994,453 for the years ended
December 31, 1993, 1992 and 1991, respectively.
 
In addition, on October 15, 1993 the Partnership entered into a retransmission
agreement with a certain network affiliate whereby the Partnership agreed to
purchase a nominal amount of commercial advertising in 1994, 1995 and 1996.
 
9. Pension Plans
 
The Partnership participates in a noncontributory defined benefit pension plan,
the Time Warner Cable Pension Plan (the "Plan"), which is maintained by a
committee appointed by the Board of Directors of Time Warner, and covers
substantially all employees. Benefits under the Plan are determined based on
formulas which reflect employees' years of service and compensation levels
during their employment period. Total pension cost was $300,323, $184,716 and
$132,038 for the years ended December 31, 1993, 1992 and 1991, respectively.
 
                                     F-246
<PAGE>   266
 
                   Kansas City Cable Partners (A Partnership)
 
                   Notes to Financial Statements (continued)
 
9. Pension Plans (continued)
 
The Partnership also participates in a defined contribution plan, the TWC
Employees Stock Savings Plan (the "Savings Plan"), which is administered by a
committee appointed by the Board of Directors of Time Warner, and covers
substantially all employees. The Partnership's contributions to the Savings Plan
can amount to up to 6.67 percent of an employee's eligible compensation during
the plan year. The Board of Representatives of TWE has the right in any year to
set the maximum amount of the Partnership's contribution. Defined contribution
plan expense totaled $231,277, $212,724 and $171,201 for the years ended
December 31, 1993, 1992 and 1991, respectively.
 
10. Subsequent Events
 
The Partnership's franchise agreements with the cities of Kansas City, Kansas
and Kansas City, Missouri expired in November 1993, and February 1994,
respectively. The Partnership is currently operating under extension agreements
and renewal negotiations are ongoing. The Partnership anticipates that the
Kansas City, Kansas franchise will be renewed pending mediation of the alleged
deficiency in franchise fees described in Note 5 while the renewal for the
Kansas City, Missouri franchise is forthcoming.
 
On January 4, 1994, ACKC transferred its remaining 49% interest in the
Partnership to ATC, and on that same day, ATC transferred the same interest to
TWE.
 
On January 31, 1994, Liberty Media and TCI entered into a definitive agreement
providing for a combination of the two companies. The transaction is subject to
the approval of both sets of shareholders as well as various regulatory
approvals and other customary conditions. It is anticipated that the closing
will take place during the second quarter of 1994.
 
On February 22, 1994, the Federal Communications Commission issued a statement
indicating its adoption of revised rate regulation rules relating to the
implementation of the Cable Television Consumer Protection and Competition Act
of 1992. Since the actual regulations have not been issued, a reasonable
estimate of their effect cannot be determined at this time.
 
                                      
                                    F-247
<PAGE>   267
 
                  Schedule V -- Property, Plant and Equipment
 
                           Kansas City Cable Partners
 
<TABLE>
<CAPTION>
                                              Balance at                                 Balance at
                                              Beginning      Additions    Retirements      End of
                                               of Year        at Cost      or Sales         Year
                                             ------------   -----------   -----------   ------------
<S>                                          <C>            <C>           <C>           <C>
Year ended December 31, 1993:
  Land and buildings                         $  8,824,156   $    52,561                 $  8,876,717
  Distribution system                          88,167,844     4,224,879   $ 2,433,527     89,959,196
  Vehicles and other equipment                  7,307,981       734,401       210,785      7,831,597
  Construction in progress                      1,179,594     1,107,446                    2,287,040
                                             ------------   -----------   -----------   ------------
                                             $105,479,575   $ 6,119,287   $ 2,644,312   $108,954,550
                                             ------------   -----------   -----------   ------------
                                             ------------   -----------   -----------   ------------
Year ended December 31, 1992:
  Land and buildings                         $  8,833,323                 $     9,167   $  8,824,156
  Distribution system                          80,973,505   $ 7,645,235       450,896     88,167,844
  Vehicles and other equipment                  7,014,953       402,276       109,248      7,307,981
  Construction in progress                      1,658,930      (479,336)                   1,179,594
                                             ------------   -----------   -----------   ------------
                                             $ 98,480,711   $ 7,568,175   $   569,311   $105,479,575
                                             ------------   -----------   -----------   ------------
                                             ------------   -----------   -----------   ------------
Year ended December 31, 1991:
  Land and buildings                         $  2,611,709   $ 6,221,614                 $  8,833,323
  Distribution system                          76,107,784     5,297,577   $   431,856     80,973,505
  Vehicles and other equipment                  5,851,743     1,348,490       185,280      7,014,953
  Construction in progress                      3,285,472    (1,626,542)                   1,658,930
                                             ------------   -----------   -----------   ------------
                                             $ 87,856,708   $11,241,139   $   617,136   $ 98,480,711
                                             ------------   -----------   -----------   ------------
                                             ------------   -----------   -----------   ------------
</TABLE>
 
                                    F-248
<PAGE>   268
 
              Schedule VI -- Accumulated Depreciation of Property
                              Plant and Equipment
 
                           Kansas City Cable Partners
 
<TABLE>
<CAPTION>
                                                            Additions
                                            Balance at      Charged to                  Balance at
                                             Beginning      Costs and      Retirements    End of
                                              of year        Expenses       or Sales       Year
                                            -----------     ----------     ----------   -----------
<S>                                         <C>             <C>            <C>          <C>
Year ended December 31, 1993:
  Buildings                                 $ 1,222,656     $  340,768                  $ 1,563,424
  Distribution system                        47,669,316      7,981,350     $2,848,305    52,802,361
  Vehicles and other equipment                4,713,177        865,502        209,250     5,369,429
                                            -----------     ----------     ----------   -----------
                                            $53,605,149     $9,187,620     $3,057,555   $59,735,214
                                            -----------     ----------     ----------   -----------
                                            -----------     ----------     ----------   -----------
Year ended December 31, 1992:
  Buildings                                 $   879,773     $  343,153     $      270   $ 1,222,656
  Distribution system                        40,036,648      7,713,197         80,529    47,669,316
  Vehicles and other equipment                3,926,411        867,910         81,144     4,713,177
                                            -----------     ----------     ----------   -----------
                                            $44,842,832     $8,924,260     $  161,943   $53,605,149
                                            -----------     ----------     ----------   -----------
                                            -----------     ----------     ----------   -----------
Year ended December 31, 1991:
  Buildings                                 $   681,252     $  198,521                  $   879,773
  Distribution system                        33,208,470      7,156,319     $  328,141    40,036,648
  Vehicles and other equipment                3,306,850        798,341        178,780     3,926,411
                                            -----------     ----------     ----------   -----------
                                            $37,196,572     $8,153,181     $  506,921   $44,842,832
                                            -----------     ----------     ----------   -----------
                                            -----------     ----------     ----------   -----------
</TABLE>
 
                                    F-249
<PAGE>   269
 
               Schedule VIII -- Valuation and Qualifying Accounts
 
                           Kansas City Cable Partners
 
<TABLE>
<CAPTION>
                                                   Balance
                                                     at       Charged to                   Balance at
                                                  Beginning   Costs and                      End of
                                                   of Year     Expenses    Deductions         Year
                                                  ---------   ----------   ----------      ----------
<S>                                               <C>         <C>          <C>             <C>
Year ended December 31, 1993:
  Deducted from asset accounts:
     Allowance for doubtful accounts              $ 806,854   $  970,953   $  884,534(A)    $ 893,273
                                                  ---------   ----------   ----------      ----------
                                                  ---------   ----------   ----------      ----------
Year ended December 31, 1992:
  Deducted from asset accounts:
     Allowance for doubtful accounts              $ 452,878   $1,219,939   $  865,963(A)    $ 806,854
                                                  ---------   ----------   ----------      ----------
                                                  ---------   ----------   ----------      ----------
Year ended December 31, 1991:
  Deducted from asset accounts:
     Allowance for doubtful accounts              $ 731,651   $  731,803   $1,010,576(A)    $ 452,878
                                                  ---------   ----------   ----------      ----------
                                                  ---------   ----------   ----------      ----------
</TABLE>
 
(A) Amounts written off against assets.
 
                                    F-250
<PAGE>   270
 
            Schedule X -- Supplementary Income Statement Information
 
                           Kansas City Cable Partners
 
<TABLE>
<CAPTION>
                                                              Charged to Costs and Expenses
                                                         ----------------------------------------
                                                                  Year ended December 31
                                                         ----------------------------------------
                         Item                               1993           1992           1991
- -------------------------------------------------------  ----------     ----------     ----------
<S>                                                      <C>            <C>            <C>
Maintenance and repairs                                  $1,376,966     $1,090,979     $1,087,051
                                                         ----------     ----------     ----------
                                                         ----------     ----------     ----------
Amortization of franchise and deferred debt issuance
  costs                                                  $2,507,312     $2,573,386     $2,766,614
                                                         ----------     ----------     ----------
                                                         ----------     ----------     ----------
Taxes, other than payroll and income taxes               $  727,692     $  694,178     $  557,004
                                                         ----------     ----------     ----------
                                                         ----------     ----------     ----------
Advertising costs                                        $  896,379     $  944,616     $  845,601
                                                         ----------     ----------     ----------
                                                         ----------     ----------     ----------
</TABLE>
 
Note: Amounts for royalties are not shown since such amounts were less than one
      percent of revenues.
 
                                    F-251
<PAGE>   271
 
                          Independent Auditors' Report
 
The Board of Directors and Shareholders
QVC, Inc.:
 
We have audited the consolidated financial statements of QVC, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we have also audited the financial
statement schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of QVC, Inc. and
subsidiaries as of January 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended January 31, 1994, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
 
As discussed in notes 1 and 13 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
 
                                            /s/ KPMG Peat Marwick
                                                KPMG Peat Marwick

Philadelphia, Pennsylvania
March 4, 1994
 
                                    F-252
<PAGE>   272
 
                           QVC, INC. AND SUBSIDIARIES
 
                          Consolidated Balance Sheets
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                                                              January 31,
                                                                          --------------------
                                                                            1994        1993
                                                                          --------    --------
<S>                                                                       <C>         <C>
                                            ASSETS
Current assets:
  Cash and cash equivalents............................................   $ 15,873    $  4,279
  Accounts receivable, less allowance for doubtful accounts of $52,759
     in 1994 and $21,316 in 1993 (Note 2)..............................    183,162      97,008
  Inventories..........................................................    148,208     118,712
  Deferred taxes (Note 13).............................................     59,749      10,680
  Prepaid expenses.....................................................      5,536       3,716
                                                                          --------    --------
     Total current assets..............................................    412,528     234,395
Property, plant and equipment (Note 3).................................     80,579      72,863
Cable television distribution rights (Note 4)..........................     99,579     115,248
Other assets (Note 5)..................................................     33,664       9,028
Excess of cost over acquired net assets, less accumulated amortization
  of $43,551 in 1994 and $33,710 in 1993...............................    251,810     268,161
                                                                          --------    --------
       Total assets....................................................   $878,160    $699,695
                                                                          --------    --------
                                                                          --------    --------
                             LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt (Note 7)........................   $  3,114    $ 24,073
  Account payable-trade................................................     81,594      51,622
  Accrued liabilities (Note 6).........................................    225,989     151,358
                                                                          --------    --------
       Total current liabilities.......................................    310,697     227,053
Long-term debt, less current maturities (Note 7).......................      7,044       7,586
                                                                          --------    --------
       Total liabilities...............................................    317,741     234,639
                                                                          --------    --------
Commitments and contingencies (Notes 8 and 14)
Shareholders' equity (Notes 9 and 10):
  Convertible Preferred Stock, par value $.10..........................         56          93
  Common Stock, par value $.01.........................................        399         357
  Additional paid-in capital...........................................    446,027     409,970
  Retained earnings....................................................    113,937      54,636
                                                                          --------    --------
       Total shareholders' equity......................................    560,419     465,056
                                                                          --------    --------
       Total liabilities and shareholders' equity......................   $878,160    $699,695
                                                                          --------    --------
                                                                          --------    --------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                    F-253
 
<PAGE>   273
                                                 QVC, INC. AND SUBSIDIARIES
                                           Consolidated Statements of Operations
                                           (in thousands, except per share data)
 
<TABLE>
<CAPTION>
                                                                       Fiscal Year
                                                            ----------------------------------
                                                              1993         1992         1991
                                                            ---------    ---------    --------
<S>                                                         <C>          <C>          <C>
Net revenue...............................................  $1,222,104   $1,070,587   $921,804
Cost of goods sold........................................    723,175      621,840     534,650
                                                            ---------    ---------    --------
Gross profit..............................................    498,929      448,747     387,154
                                                            ---------    ---------    --------
Operating expenses:
  Variable costs..........................................    171,242      160,420     145,348
  General and administrative..............................    132,743      123,604     110,747
  Depreciation............................................     16,682       17,105      16,679
  Amortization of intangible assets.......................     26,019       29,402      29,983
                                                            ---------    ---------    --------
                                                              346,686      330,549     302,757
                                                            ---------    ---------    --------
Operating income..........................................    152,243      118,198      84,397
                                                            ---------    ---------    --------
Other income (expense):
  Costs of Paramount tender offer (Note 16)...............    (34,800)          --          --
  Losses from joint ventures (Note 5).....................    (11,432)          --          --
  Interest expense........................................     (1,590)     (18,364)    (38,979)
  Interest income.........................................     10,865        8,834       7,480
                                                            ---------    ---------    --------
                                                              (36,957)      (9,530)    (31,499)
                                                            ---------    ---------    --------
Income before income taxes, extraordinary item and
  cumulative effect of a change in accounting principle...    115,286      108,668      52,898
Income tax provision (Note 13)............................    (59,975)     (52,080)    (31,165)
                                                            ---------    ---------    --------
Income before extraordinary item and cumulative effect of
  a change in accounting principle........................     55,311       56,588      21,733
Extraordinary item -- loss on extinguishment of debt, net
  of tax benefit (Note 5).................................         --       (1,496)     (2,108)
Cumulative effect of a change in accounting for income
  taxes (Note 13).........................................      3,990           --          --
                                                            ---------    ---------    --------
Net income................................................  $  59,301    $  55,092    $ 19,625
                                                            ---------    ---------    --------
                                                            ---------    ---------    --------
Income per share (Note 11):
  Primary:
     Income before extraordinary item and cumulative
       effect of a change in accounting principle.........  $    1.10    $    1.32    $    .68
     Extraordinary item, net of tax benefit...............         --         (.03)       (.07)
     Cumulative effect of a change in accounting for
       income taxes.......................................        .08           --          --
                                                            ---------    ---------    --------
     Net income...........................................  $    1.18    $    1.29    $    .61
                                                            ---------    ---------    --------
                                                            ---------    ---------    --------
  Fully diluted:
     Income before extraordinary item and cumulative
       effect of a change in accounting principle.........  $    1.10    $    1.27    $    .67
     Extraordinary item, net of tax benefit...............         --         (.03)       (.06)
     Cumulative effect of a change in accounting for
       income taxes.......................................        .08           --          --
                                                            ---------    ---------    --------
     Net income...........................................  $    1.18    $    1.24    $    .61
                                                            ---------    ---------    --------
                                                            ---------    ---------    --------
Weighted average number of common and common equivalent
  shares used in computing income per share:
  Primary.................................................     50,062       43,890      31,959
                                                            ---------    ---------    --------
                                                            ---------    ---------    --------
  Fully diluted...........................................     50,205       45,386      38,313
                                                            ---------    ---------    --------
                                                            ---------    ---------    --------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                    F-254
<PAGE>   274
 
                           QVC, INC. AND SUBSIDIARIES
 
                     Consolidated Statements of Cash Flows
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                                       Fiscal Year
                                                           ------------------------------------
                                                             1993         1992          1991
                                                           --------     ---------     ---------
<S>                                                        <C>          <C>           <C>
Cash flows from operating activities:
  Net income.............................................  $ 59,301     $  55,092     $  19,625
  Adjustments for non-cash items included in net income:
     Cumulative effect of a change in accounting for
       income taxes......................................    (3,990)           --            --
     Loss on extinguishment of debt......................        --         2,720         3,838
     Losses from joint ventures..........................    11,432            --            --
     Depreciation........................................    16,682        17,105        16,679
     Amortization of intangible assets...................    26,019        29,420        29,983
     Grant of executive stock award......................        --         4,869            --
     Provision for income taxes not requiring a cash
       outlay............................................     3,366        20,275        15,800
     Interest incurred but not paid......................        --            96         9,199
     Issuance of Common Stock under Standby Equity
       Agreement.........................................        --            --           614
     Losses on termination of capitalized lease and sales
       of fixed assets...................................       190            90           464
  Changes in other non-current assets....................    (3,458)        5,303           642
  Effects of changes in working capital items (Note
     15).................................................   (36,239)      (33,557)       40,107
                                                           --------     ---------     ---------
  Net cash provided by operating activities..............    73,303       101,413       136,951
                                                           --------     ---------     ---------
Cash flows from investing activities:
  Capital expenditures...................................   (24,588)      (21,137)      (11,870)
  Investments in and advances to joint ventures..........   (22,626)           --            --
  Proceeds from sales of property, plant and equipment...        --            28         9,010
  Adjustments to purchase price of CVN Companies,
     Inc. ...............................................        --             5          (230)
  Changes in other non-current assets....................      (347)         (494)          330
                                                           --------     ---------     ---------
  Net cash used in investing activities..................   (47,561)      (21,598)       (2,760)
                                                           --------     ---------     ---------
Cash flows from financing activities:
  Payments under Senior term loan........................   (21,000)     (135,297)     (128,101)
  Principal payments under capitalized leases, mortgages
     and other debt......................................      (502)       (5,300)      (12,905)
  Borrowings under revolving credit facilities...........    20,000            --        40,414
  Payments against revolving credit facilities...........   (20,000)           --       (40,414)
  Proceeds from exercise of stock options and other......     1,169        16,687           891
  Net proceeds from sale of Common Stock.................        --            --        51,082
  Proceeds from exercise of warrants.....................     6,185        11,570            --
  Payment of unsecured note payable......................        --            --       (31,444)
                                                           --------     ---------     ---------
  Net cash used in financing activities..................   (14,148)     (112,340)     (120,477)
                                                           --------     ---------     ---------
Net increase (decrease) in cash and cash equivalents.....    11,594       (32,525)       13,714
Cash and cash equivalents at beginning of year...........     4,279        36,804        23,090
                                                           --------     ---------     ---------
Cash and cash equivalents at end of year.................  $ 15,873     $   4,279     $  36,804
                                                           --------     ---------     ---------
                                                           --------     ---------     ---------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                    F-255
<PAGE>   275
 
                           QVC, INC. AND SUBSIDIARIES
 
                Consolidated Statements of Shareholders' Equity
                                 (In thousands)
 
<TABLE>
<CAPTION>
                                                        Convertible            Additional   Retained
                                                         Preferred    Common    Paid-in     Earnings   Treasury
                                                           Stock      Stock     Capital     (Deflock)   Stock      Total
                                                        -----------   ------   ----------   --------   --------   --------
<S>                                                     <C>           <C>      <C>          <C>        <C>        <C>
Balance January 31, 1991..............................     $ 125       $176     $228,628    $(20,081)  $    (68)  $208,780
  Net income for year.................................        --         --           --      19,625         --     19,625
  Income tax benefit resulting from certain capital
    stock transactions................................        --         --       11,500          --         --     11,500
  Proceeds from the exercise of employee stock                                                      
    options...........................................        --         --          893          --         --        893
  Issuance of Common Stock under Standby Equity                                                     
    Agreement.........................................        --          1          613          --         --        614
  Excess of value assigned over amount received for                                                 
    Series B Convertible Preferred Stock..............        --         --         (239)         --         --       (239)
  Issuance of shares of Common Stock and warrants in                                                
    lieu of cash interest payments....................        --          2        2,998          --         --      3,000
  Purchases of Treasury Stock.........................        --         --           --          --         (2)        (2)
  Net proceeds from public offering of Common Stock...        --         37       51,045          --         --     51,082
  Common Stock exchanged to retire unsecured note                                                   
    payable...........................................        --         23       31,422          --         --     31,445
  Conversion of shares................................       (11)        11           --          --         --         --
  Adjustments to warrants exchanged and Common Stock                                                
    issued in connection with the CVN acquisition.....        --         --         (912)         --         --       (912)
                                                           -----      -----     --------    --------   --------   --------
Balance January 31, 1992..............................       114        250      325,948        (456)       (70)   325,786
                                                           -----      -----     --------    --------   --------   --------
  Net income for year.................................        --         --           --      55,092         --     55,092
  Income tax benefit resulting from capital stock                                                   
    transactions, exercise of stock options and net                                                 
    operating loss carryforward.......................        --         --       22,312          --         --     22,312
  Proceeds from the exercise of employee stock                                                      
    options...........................................        --         13       16,708          --        (31)    16,680
  Proceeds from exercise of warrants..................        --         11       11,559          --         --     11,570
  Grant of executive stock award......................        --          2        4,367          --         --      4,869
  Convertible subordinated note exchanged for Common                                                
    Stock, net of unamortized debt placement fees of                                                
    $1,260............................................        --         17       28,723          --         --     28,740
  Common Stock issued in warrant exchange offer (Note                                               
    10)...............................................        --         68       91,394          --    (91,462)        --
  Conversion of shares................................       (20)        20           --          --         --         --
  Purchases of Treasury Stock.........................        --         --           --          --         (3)        (3)
  Retirement of Treasury Stock........................        (1)       (24)     (91,541)         --     91,566         --
                                                           -----      -----     --------    --------   --------   --------
Balance January 31, 1993..............................        93        357      409,970      54,636         --    465,056
                                                           -----      -----     --------    --------   --------   --------
  Net income for year.................................        --         --           --      59,301         --     59,301
  Income tax benefit resulting from cumulative effect                                               
    of a change in accounting for income taxes........        --         --       27,053          --         --     27,053
  Income tax benefits resulting from exercise of stock                                              
    options...........................................        --         --        1,655          --         --      1,655
  Proceeds from the exercise of employee stock                                                      
    options...........................................        --          1        1,168          --         --      1,169
  Proceeds from exercise of warrants..................        --          4        6,181          --         --      6,185
  Conversion of shares................................       (37)        37           --          --         --         --
                                                           -----      -----     --------    --------   --------   --------
Balance January 31, 1994..............................     $  56       $399     $446,027    $113,937   $     --   $560,419
                                                           -----      -----     --------    --------   --------   --------
                                                           -----      -----     --------    --------   --------   --------
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                    F-256
<PAGE>   276
 
                           QVC, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Note 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Principles of consolidation.
 
     The consolidated financial statements include the accounts of the Company
and all subsidiaries. Investments in the Company's joint ventures (50% or less
owned) are accounted for under the equity method. All significant intercompany
accounts and transactions are eliminated in consolidation.
 
Fiscal year.
 
     The Company's fiscal year ends on January 31. Fiscal years are designated
in the financial statements and notes by the calendar year in which the fiscal
year commences.
 
Cash and cash equivalents.
 
     All highly-liquid debt instruments purchased with a maturity of three
months or less are classified as cash equivalents. The carrying amounts reported
in the balance sheet for cash and cash equivalents approximate the fair value of
those assets.
 
Inventories.
 
     Inventories, consisting primarily of products held for sale, are stated at
the lower of cost or market. Cost is determined by the average cost method which
approximates the first-in, first-out method.
 
Property, plant and equipment.
 
     The cost of property, plant and equipment is capitalized and depreciated
over their estimated useful lives using the straight-line method. When assets
are sold or retired, the cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in income. The cost of maintenance and
repairs is charged to expense as incurred.
 
Excess of cost over acquired net assets.
 
     The excess of cost over acquired net assets is amortized over thirty years
using the straight-line method.
 
Translation of foreign currencies.
 
     All balance sheet items for foreign operations are translated at the
current exchange rate as of the balance sheet date, and income and expense items
are translated at average currency exchange rates for the year. Exchange gains
and losses resulting from foreign currency transactions are included in losses
from joint ventures.
 
Net sales and returns.
 
     Revenue is recognized at time of shipment to customers. The Company's
policy is to allow customers to return merchandise for full credit up to thirty
days after date of shipment. An allowance for returned merchandise is provided
as a percentage of sales based on historical experience. The return provision
was approximately 21, 19, and 18 percent of sales in fiscal 1993, 1992 and 1991,
respectively.
 
                                    F-257
<PAGE>   277
 
                           QVC, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
 
Capitalization of start-up costs.
 
     The Company capitalizes all direct incremental costs incurred prior to
operations for new broadcast ventures. These costs are amortized over a period
of eighteen months starting at the commencement of broadcast operations.
 
Income taxes.
 
     Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). The
cumulative effect of the change in the method of accounting for income taxes was
included in the first quarter of 1993 Consolidated Statements of Operations and
Shareholders' Equity. Prior years' financial statements were not restated. Under
the assets and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period that includes the
enactment date.
 
     The Company previously used the asset and liability method under SFAS 96.
Under the asset and liability method of SFAS 96, deferred tax assets and
liabilities were recognized for all events that had been recognized in the
financial statements. Under SFAS 96, the future tax consequences of recovering
assets or settling liabilities at their financial statement carrying amounts
were considered in calculating deferred taxes. Generally, SFAS 96 prohibited
consideration of any other future events in calculating deferred taxes.
 
Note 2 -- ACCOUNTS RECEIVABLES
 
     The Company has an agreement with an unrelated third party which provides
for the sale and servicing of accounts receivable originating from the Company's
revolving credit card. The Company sold accounts receivable at face value of
$418.2 million, $392.7 million and $290.4 million under this agreement in fiscal
1993, 1992 and 1991, respectively. The Company remains obligated to repurchase
uncollectible accounts pursuant to the recourse provisions of the agreement and
is required to maintain a specified percentage of all outstanding receivables
transferred under the program as a deposit with the third party to secure its
obligations under the agreement. The Company is required to pay certain finance
and servicing fees which are offset by finance charges on customer account
balances. The net amount of this finance charge income is included as interest
income and is comprised of the following (in millions):
 
<TABLE>
<CAPTION>
                                                                         FISCAL YEAR
                                                                  -------------------------
                                                                  1993      1992      1991
                                                                  -----     -----     -----
    <S>                                                           <C>       <C>       <C>
    Finance charges on customer account balances................  $26.2     $23.2     $20.0
                                                                  -----     -----     -----
    Funding fees................................................    8.7       8.1       7.7
    Service fees................................................   10.5       9.5       9.4
                                                                  -----     -----     -----
                                                                   19.2      17.6      17.1
                                                                  -----     -----     -----
    Net finance income..........................................  $ 7.0     $ 5.6     $ 2.9
                                                                  -----     -----     -----
                                                                  -----     -----     -----
</TABLE>
 
                                    F-258
<PAGE>   278
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 2 -- ACCOUNTS RECEIVABLE -- (Continued)
 
     The uncollected balances of accounts receivable sold under this program are
$201.2 million and $180.3 million at January 31, 1994 and 1993, respectively, of
which $170.1 million and $71.5 million represent deposits under the agreement
and are included in accounts receivable. The total reserve balances maintained
for the repurchase of uncollectible accounts are $55.7 million and $42.6 million
at January 31, 1994 and 1993, respectively. Approximately $8.6 million and $25.7
million of the reserve balances are included in accrued liabilities at January
31, 1994 and 1993, respectively; the remaining balances are included with
allowance for doubtful accounts.
 
     Receivables sold under this agreement are considered financial instruments
with off-balance sheet risk as defined in Statement of Financial Accounting
Standards No. 105.
 
Note 3 -- PROPERTY, PLANT AND EQUIPMENT
 
     Property, plant and equipment consist of the following:
 
<TABLE>
<CAPTION>
                                                             January 31,
                                                         --------------------     Estimated
                                                           1994        1993      Useful Life
                                                         --------    --------    ------------
                                                            (in thousands)
    <S>                                                  <C>         <C>         <C>
    Land...............................................  $  3,977    $  3,228              --
    Buildings and improvements.........................    50,627      45,385     20-30 years
    Furniture and other equipment......................    33,866      30,246       3-8 years
    Broadcast equipment................................     8,942      12,478       5-7 years
    Computer equipment and software....................    20,005      18,047       3-5 years
    Construction in progress...........................     1,684         482              --
                                                         --------    --------
                                                          119,101     109,866
    Less -- accumulated depreciation...................   (38,522)    (37,003)
                                                         --------    --------
    Net property, plant and equipment..................  $ 80,579    $ 72,863
                                                         --------    --------
                                                         --------    --------
</TABLE>
 
     In July 1993, the Company completed construction of a 50,000 square foot
telecommunications center in Chesapeake, Virginia for a total cost of
approximately $6.9 million. This new telecommunications center replaced a
facility that was leased.
 
Note 4 -- CABLE TELEVISION DISTRIBUTION RIGHTS
 
     Cable television distribution rights consist of the following:
 
<TABLE>
<CAPTION>
                                                                          January 31,
                                                                     ---------------------
                                                                       1994         1993
                                                                     --------     --------
                                                                        (in thousands)
    <S>                                                              <C>          <C>
    Cable television distribution rights...........................  $162,142     $166,082
    Less -- accumulated amortization...............................   (62,563)     (50,834)
                                                                     --------     --------
    Net cable television distribution rights.......................  $ 99,579     $115,248
                                                                     --------     --------
                                                                     --------     --------
</TABLE>
 
     The amounts assigned to cable television distribution rights arose
principally from excess fair values assigned, as determined by independent
appraisals, to Convertible Preferred Stock issued to cable system operators in
exchange for distribution agreements.
 
                                    F-259
<PAGE>   279
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 4 -- CABLE TELEVISION DISTRIBUTION RIGHTS -- (Continued)
 
     Cable television distribution rights are amortized by the straight-line
method over the lives of the individual agreements. The remaining weighted
average life for all cable television distribution rights is approximately 10
years at January 31, 1994.
 
Note 5 -- OTHER ASSETS
 
     Other assets consist of the following:
 
<TABLE>
<CAPTION>
                                                                          January 31,
                                                                      --------------------
                                                                       1994         1993
                                                                      -------     --------
                                                                         (in thousands)
    <S>                                                               <C>         <C>
    Deferred taxes (Note 13)........................................  $17,265     $  7,120
    Investments in and advances to joint ventures, net of
      accumulated losses                                               11,194           --
    Start-up costs                                                      3,459           --
    Satellite transponder rights....................................    1,000        1,000
    Debt placement fees.............................................      162       15,292
    Other...........................................................    1,072        1,475
                                                                      -------     --------
                                                                       34,152       24,887
    Less -- accumulated amortization................................     (488)     (15,859)
                                                                      -------     --------
    Net other assets................................................  $33,664     $  9,028
                                                                      -------     --------
                                                                      -------     --------
</TABLE>
 
     During fiscal 1993, the Company established electronic retailing program
service in England ("QVC -- The Shopping Channel") and Mexico ("CVC"), through
joint venture agreements with British Sky Broadcasting Limited and Grupo
Televisa, S.A. de C.V., respectively. The joint venture in England began
broadcasting on October 1, 1993 and the joint venture in Mexico began
broadcasting on November 15, 1993. The joint venture agreement in England
requires, among other things, that the Company provide all funding to the joint
venture until it is profitable. The Company will then recover all prior funding,
before any profits are shared. Accordingly, for 1993, the Company has included
100% of the loss on operations of this venture in the Consolidated Statements of
Operations. The operating results of the joint venture in Mexico are shared
equally by the partners.
 
     Summarized financial information for "QVC -- The Shopping Channel" and
"CVC" on a 100% basis as of and for the period ended January 31, 1994 follows
(unaudited -- in thousands):
 
<TABLE>
<CAPTION>
                                                                 QVC -- The
                                                              Shopping Channel       CVC
                                                              ----------------     -------
    <S>                                                       <C>                  <C>
    Current assets..........................................      $  5,608         $ 9,687
    Property, plant and equipment, net......................         1,645           1,665
    Unamortized start-up costs..............................         2,205           1,650
    Current liabilities.....................................         4,181           9,507
    Net revenue.............................................         2,994           2,316
    Gross profit............................................           514             248
    Loss....................................................        (8,943)         (3,606)
</TABLE>
 
     In fiscal 1993, the Company also entered a joint venture with Tribune
Entertainment Company and Regal Communications to form QRT Enterprises ("QRT").
QRT produces and syndicates "Can We Shop" with Joan Rivers, which commenced
broadcasting January 17, 1994. "Can We Shop" is a
 
                                    F-260
<PAGE>   280
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 5 -- OTHER ASSETS -- (Continued)
 
one-hour, Monday through Friday television show through which merchandise is
sold. The Company's one-third share of QRT's operating loss amounted to $386,000
in 1993.
 
     In fiscal 1993, the Company made a $3.8 million investment in Friday
Holdings, L.P., a limited partnership. The limited partnership's purpose is to
establish or acquire businesses in the communications field and to develop
information products. The Company's one-third share of Friday Holdings'
operating loss amounted to $300,000 in 1993.
 
     During the year, the Company also capitalized $3.5 million in costs
relating to Q2, a new televised shopping/programming service, scheduled to be
launched in the spring of 1994 in the United States. The capitalized start-up
costs will be amortized over eighteen months starting at the commencement of
broadcast operations.
 
     Debt placement fees on the Senior term loan arising out of the CVN
acquisition have been amortized over the expected life of the debt using the
effective interest rate method. On March 5, 1993, the Company retired the Senior
term loan. Debt placement fees of $15.1 million associated with the Senior term
loan were fully amortized and the cost and accumulated amortization were removed
from the accounts. During fiscal 1992, the Company prepaid $86.3 million of the
Senior term loan. As a result, the amortization of debt placement fees of $2.7
million was accelerated and reported as an extraordinary loss of $1.5 million,
net of $1.2 million income tax benefit. During fiscal 1991, the Company prepaid
$98.1 million of the Senior term loan, and the amortization of debt placement
fees of $3.8 million was accelerated and reported as an extraordinary loss of
$2.1 million, net of $1.7 million income tax benefit.
 
Note 6 -- ACCRUED LIABILITIES
 
     Accrued liabilities consist of the following:
 
<TABLE>
<CAPTION>
                                                                           January 31,
                                                                       -------------------
                                                                         1994       1993
                                                                       --------   --------
                                                                       (in thousands)
    <S>                                                                <C>        <C>
    Income taxes (Note 13)...........................................  $ 80,879   $ 25,889
    Reserve for uncollectible accounts under revolving credit program
      (Note 2).......................................................     8,636     25,699
    Non-inventory accounts payable...................................    35,452     26,418
    Accrued compensation and benefits................................    13,996     13,035
    Sales and other taxes............................................    11,324     12,079
    Allowance for sales returns......................................    17,787     11,344
    Other............................................................    57,915     36,894
                                                                       --------   --------
                                                                       $225,989   $151,358
                                                                       --------   --------
                                                                       --------   --------
</TABLE>
 
                                    F-261
<PAGE>   281
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 7 -- LONG-TERM DEBT
 
     Aggregate amounts of outstanding long-term debt consist of the following:
 
<TABLE>
<CAPTION>
                                                                          January 31,
                                                                      --------------------
                                                                       1994         1993
                                                                      -------     --------
                                                                         (in thousands)
    <S>                                                               <C>         <C>
    10.4% Mortgage notes payable in monthly installments until
      1998..........................................................  $10,158     $ 10,659
    Senior term loan................................................       --       21,000
                                                                      -------     --------
                                                                       10,158       31,659
    Less -- current portion.........................................   (3,114)     (24,073)
                                                                      -------     --------
                                                                      $ 7,044     $  7,586
                                                                      -------     --------
                                                                      -------     --------
</TABLE>
 
     The Company has a $60.0 million bank revolving credit facility to finance
operations as well as to fund letters of credit for merchandise purchases.
Interest on outstanding amounts under this agreement is payable at the bank's
prime rate or other interest rate options. A commitment fee of .25% is payable
on the unused portion of the revolving credit facility. The credit agreement
requires the Company to maintain certain ratios for total liabilities to
shareholders' equity and for coverage of fixed charges. The Company borrowed
$20.0 million under the facility in March 1993 and retired the remaining balance
on the Senior term loan. All amounts borrowed under the facility were repaid
from net cash provided by operating activities during the first quarter of 1993.
Outstanding letters of credit totaled approximately $7.8 million at January 31,
1994.
 
     The interest rate on the outstanding balance of the Senior term loan was
4.4% at January 31, 1993.
 
     Maturities of the 10.4% mortgage notes payable for the five years
subsequent to January 31, 1994 are $3,114,000 in 1994; $601,000 in 1995;
$666,000 in 1966; $739,000 in 1997 and $5,038,000 in 1998.
 
Note 8 -- LEASES AND TRANSPONDER SERVICE AGREEMENTS
 
     Future minimum payments under all non-cancellable operating leases and
transponder service agreements with initial terms of one year or more at January
31, 1994 consist of the following (in thousands):
 
<TABLE>
<CAPTION>
        Fiscal Year
        -----------
        <S>                                                                  <C>
        1994...............................................................  $ 8,029
        1995...............................................................    6,405
        1996...............................................................    5,450
        1997...............................................................    5,173
        1998...............................................................    5,287
        Thereafter.........................................................   34,001
                                                                             -------
                  Total....................................................  $64,345
                                                                             -------
                                                                             -------
</TABLE>
 
     Expense for operating leases, principally for data processing equipment and
facilities, and for transponder service agreements amounted to $11,280,000,
$12,895,000 and $13,047,000 in fiscal years 1993, 1992 and 1991, respectively.
 
     In November 1992, the Company started to transmit the QVC program on a
protected, non-preemptible transponder on the C-4 Satellite at a monthly cost
that averages $224,000 over the term of the twelve-year agreement.
 
                                    F-262
<PAGE>   282
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 8 -- LEASES AND TRANSPONDER SERVICE AGREEMENTS -- (Continued)
 
     In December 1992, the Company started to transmit The QVC Fashion Channel
on a protected non-preemptible transponder on the C-3 Satellite at a cost of
$205,000 per month over the term of the twelve-year agreement.
 
Note 9 -- CAPITAL STOCK
 
     The Company has 175,000,000 shares of Common Stock authorized. There were
39,895,447 shares outstanding at January 31, 1994 and 35,734,062 shares
outstanding at January 31, 1993. The reasons for the increase in the number of
shares of Common Stock outstanding were the conversion of Convertible Preferred
Stock (3,659,040), the exercise of warrants (408,908) and the exercise of
employee stock options (93,437).
 
     The following table summarizes the convertible preferred shares at January
31, 1994 and 1993 (in thousands):
 
<TABLE>
<CAPTION>
                                                                       Shares
                                               Shares Authorized     Outstanding      Par Value
                                               -----------------     -----------     -----------
                                                 1994 and 1993       1994    1993    1994    1993
                                               -----------------     ---     ---     ---     ---
    <S>                                        <C>                   <C>     <C>     <C>     <C>
    Series A.................................           10            --      --     $--     $--
    Series B.................................        1,000            28      55       3       6
    Series C.................................        1,000           531     788      53      79
    Series D.................................          300             1      83      --       8
                                                                                     ---     ---
                                                                                     $56     $93
                                                                                     ---     ---
                                                                                     ---     ---
</TABLE>
 
     The shares of Convertible Preferred Stock were issued to cable system
operators in connection with their signing or extending cable television
distribution agreements in prior years.
 
Convertibility.
 
     Each share of Series B, Series C and Series D Convertible Preferred Stock
is convertible into ten shares of Common Stock.
 
Voting Rights.
 
     The holders of the Common Stock are empowered to elect two directors of the
Company as a class. The holders of each class of stock are entitled to cast one
vote per share for the election of the remaining directors of the Company.
 
Liquidation.
 
     Upon the dissolution and liquidation of the Company, the assets remaining
after the payment of all debts and liabilities of the Company shall be
distributed first to the holders of the Series B Convertible Preferred Stock at
$10.00 per share. To the extent available, the holders of Series C Convertible
Preferred Stock will then receive $10.00 per share followed by Series D
Convertible Preferred Stock holders at $15.00 per share. The balance, if any,
will be paid to the holders of the Common Stock share-for-share.
 
                                    F-263
<PAGE>   283
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 10 -- STOCK OPTIONS, WARRANTS AND AWARDS
 
     The following table summarizes shares of Common Stock reserved for issuance
for outstanding stock options and warrants:
 
<TABLE>
<CAPTION>
                                                                      Average
                                                                  Exercise Price
                                              January 31,         at January 31,
                                        -----------------------   ---------------
                                           1994         1993       1994     1993    Expiration Date
                                        ----------   ----------   ------   ------   ---------------
<S>                                     <C>          <C>          <C>      <C>      <C>
Qualified stock options...............   1,751,800    1,717,462   $30.56   $28.94   11/1996-01/2004
Non-qualified stock options...........   6,275,500    6,279,600    32.83    32.33   04/2000-07/2003
Warrants issued in connection with
  1987 debt financing.................     310,000      310,000    10.00    10.00       04/1994
Warrants issued in connection with
  Convertible subordinated debt.......   1,600,000    1,600,000    17.49    17.49       10/1995
Warrants exchanged for CVN Series 2
  Warrants............................          --      408,908       --    15.13         --
Warrants issued with Common Stock in
  lieu of cash interest expense.......     100,000      100,000    13.35    13.35   04/1996-10/1996
                                        ----------   ----------
          Total reserved shares.......  10,037,300   10,415,970
                                        ----------   ----------
                                        ----------   ----------
</TABLE>
 
     The Company has Incentive Stock Option Plans ("ISO Plans") under which
options may be granted to key managerial employees to purchase up to 10,300,000
shares of Common Stock. The ISO Plans are administered by the Executive
Compensation Committee appointed by the Company's Board of Directors. The
Committee has the authority to determine optionees, the number of shares to be
covered by each option and certain other terms and conditions of the grant. The
ISO Plans require that the exercise price of options be equal to or greater than
the fair market value of the stock at the time of grant, and the term of any
option cannot exceed ten years. Options issued under the 1990 Non-Qualified
Stock Option Plan and the 1993 Qualified Stock Option Plan vest ratably over
four years, commencing one year from the date of the grant of the option, and
qualified and non-qualified options under all other ISO Plans, except where
noted below, vest ratably over three years, commencing on the date of grant.
 
     In connection with obtaining a portion of the proposed financing for the
cash tender offer for Paramount Communications Inc. (Note 16), the Company
granted BellSouth Corporation, Advance Publications, Inc. and Cox Enterprises,
Inc. options to purchase an aggregate of 14.3 million shares of Common Stock at
$60.00 per share. The options were granted at the termination of the
QVC/Paramount tender offer on February 15, 1994 and are exercisable until the
later of August 15, 1994 or ten business days after stockholders of the Company
vote with respect to such grant of options.
 
     On December 9, 1992, the Company and two of its principal shareholders
(Comcast Corporation and Liberty Media Corporation) announced an agreement
pursuant to which Mr. Barry Diller would become Chairman of the Board and Chief
Executive Officer. In connection with this agreement, the Company granted Mr.
Diller 160,000 shares of Common Stock. The value of the shares on the date of
grant ($4.9 million) was charged to general and administrative expense in fiscal
1992. Also in connection with this agreement, the Company granted to Mr. Diller
stock options covering 6,000,000 shares of Common Stock. All of the options have
a five-year term. One-half of these options ("base options") has an exercise
price of $30.43; the other one-half ("scaled options") has an exercise price
equal to $30.43 per share increased by 13 percent per annum until December 9,
1994 and thereafter by 15 percent per annum compounded annually. The exercise
price on any unexercised scaled options increases annually. One-half of the base
options and one-half of the scaled options became exercisable
 
                                    F-264
<PAGE>   284
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 10 -- STOCK OPTIONS, WARRANTS AND AWARDS -- (Continued)
 
December 9, 1993 and the balance become exercisable December 9, 1994. The
exercise date can be accelerated upon certain events.
 
     In August 1991, the Company granted to Mr. Joseph M. Segel, then Chairman
and Chief Executive Officer, non-qualified stock options covering 600,000 shares
of Common Stock at an exercise price of $15.90. One-half of these options vested
on the first anniversary of the date of grant and the balance was to vest on the
second anniversary of the date of grant. On December 9, 1992, the Board of
Directors and the Executive Compensation Committee approved the acceleration of
the vesting of the second half of these options to December 1992, in order to
allow Mr. Segel to realize their value in 1992. The Board and the Executive
Compensation Committee also accelerated an additional 50,000 options under ISO
Plans for Mr. Segel that were scheduled to vest in 1993 and 1994.
 
     On December 9, 1992, the Board agreed to enter into a consulting and
severance arrangement with Mr. Segel whereby he would serve as a consultant to
the Company for a period of ten years after his retirement in January 1993 at an
annual salary of $240,000 and, as incentive to Mr. Segel to accept employment as
a consultant, granted to Mr. Segel, pursuant to the 1992 Qualified Incentive
Stock Option Plan, 100,000 options to purchase shares of Common Stock,
exercisable at $30.43 per share. These options vest ratably over a period of
five years. The present value of the ten-year consulting and severance
arrangement with Mr. Segel of $2.2 million was expensed in fiscal 1992.
 
     The Board also approved entering three-year (five-year in the case of
Michael C. Boyd, former President of the Company) employment agreements for nine
senior Company executives, pursuant to which, among other things, the executives
would be entitled to compensation at their current salaries and eligible for
bonus and incentive compensation programs as may be maintained from time to time
during the term of the agreement. As incentive to enter into the employment
agreements, the Board granted to these executives, pursuant to the 1992 Stock
Option Plan, an aggregate 1,450,000 options to purchase Common Stock exercisable
at $30.43 per share. Options granted under the 1992 Stock Option Plan vest
ratably over three years (five years in the case of Mr. Boyd). In February 1994,
Mr. Boyd retired from the Company and entered into a consulting agreement.
Accordingly, the present value of his employment agreement of $1.3 million was
expensed in fiscal 1993.
 
                                    F-265
<PAGE>   285
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 10 -- STOCK OPTIONS, WARRANTS AND AWARDS -- (Continued)
 
     A summary of changes in outstanding options under the ISO Plans is as
follows:
 
<TABLE>
<CAPTION>
                                                                     Non-qualified Option
                                        Qualified Option Shares             Shares
                                       -------------------------   -------------------------
                                       Outstanding   Exercisable   Outstanding   Exercisable    Price Range
                                       -----------   -----------   -----------   -----------   -------------
<S>                                    <C>           <C>           <C>           <C>           <C>
Balance at January 31, 1991..........     590,112       504,737       630,000         85,000   $ 5.00-$17.25
Granted..............................       5,000         1,250       607,500             --    12.13- 15.90
Cancelled............................     (26,500)      (19,000)      (11,000)        (1,375)    5.00- 16.00
Became exercisable...................          --        49,625            --        144,875     5.00- 16.00
Exercised............................     (65,825)      (65,825)      (26,000)       (26,000)    5.00- 13.00
                                       ----------   -----------   -----------    -----------   -------------
Balance at January 31, 1992..........     502,787       470,787     1,200,500        202,500     5.00- 17.25
Granted..............................   1,582,000       351,167     6,010,000             --    19.00- 38.86
Cancelled............................      (1,750)       (1,750)      (11,000)        (3,500)    5.00- 16.00
Became exercisable...................          --        29,500            --        796,375     5.00- 16.00
Exercised............................    (365,575)     (365,575)     (919,900)      (919,900)    5.00- 17.25
                                       ----------   -----------   -----------    -----------   -------------
Balance at January 31, 1993..........   1,717,462       484,129     6,279,600         75,475     5.00- 38.86
Granted..............................     106,000         1,250        50,000             --    39.88- 70.75
Cancelled............................      (5,575)       (5,575)      (26,750)        (3,000)    5.00- 23.25
Became exercisable...................          --       370,416            --      3,095,250     5.00- 34.39
Exercised............................     (66,087)      (66,087)      (27,350)       (27,350)    5.00- 23.25
                                       ----------    ----------    ----------    -----------   -------------
Balance at January 31, 1994..........   1,751,800       784,133     6,275,500      3,140,375   $ 5.00-$70.75
                                       ----------    ----------    ----------    -----------   -------------
                                       ----------    ----------    ----------    -----------   -------------
</TABLE>
 
     In December, 1992, the Company offered to exchange warrants into shares of
Common Stock equivalent in value to the difference between the warrant exercise
price and the market price ($37.75) at the time of the offer. Warrants that
would have been exercisable for 7,061,005 shares were extinguished in this offer
and the Company issued 4,367,690 net shares of Common Stock. The warrant holders
were able to effect the exchange several ways. The net effect on the number of
shares of Common Stock outstanding after the exchange was the same. A total of
3,893,962 warrants was exercised by delivering to the Company 1,424,404
previously issued shares of Common Stock valued at the market price ($37.75). A
total of 2,492,017 warrants was exercised for $37,692,000, the proceeds of which
were used to purchase from the warrant holders 998,457 shares of Common Stock at
market. A total of 675,026 warrants was exchanged for 404,572 shares of Common
Stock with an aggregate value equal to the difference between the market price
and the exercise price. Warrant holders of an aggregate 2,418,908 shares
declined the offer. Since this warrant exchange was treated as a non-cash
financing transaction, it is not reflected on the Consolidated Statements of
Cash Flows.
 
                                    F-266
<PAGE>   286
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 11 -- INCOME PER SHARE
 
     The Company computes income per share using the modified treasury stock
method. The following table presents the information needed to compute net
income per share for fiscal years 1993, 1992 and 1991 (in thousands, except per
share data):
 
<TABLE>
<CAPTION>
                                                 1993                1992                1991
                                           -----------------   -----------------   -----------------
                                                      Fully               Fully               Fully
                                           Primary   Diluted   Primary   Diluted   Primary   Diluted
                                           -------   -------   -------   -------   -------   -------
<S>                                        <C>       <C>       <C>       <C>       <C>       <C>
Income:
Income before extraordinary item and
  cumulative effect of a change in
  accounting principle...................  $55,311   $55,311   $56,588   $56,588   $21,733   $21,733
Add -- Imputed income from interest
  savings, net of tax, on assumed
  retirement of debt with remaining
  proceeds from assumed exercise of
  warrants and options...................       --        --     1,452     1,239        --     3,896
                                           -------   -------   -------   -------   -------   -------
Adjusted income before extraordinary item
  and cumulative effect of a change in
  accounting principle...................   55,311    55,311    58,040    57,827    21,733    25,629
Extraordinary item -- loss on
  extinguishment of debt, net of tax
  benefit................................       --        --    (1,496)   (1,496)   (2,108)   (2,108)
Cumulative effect of a change in
  accounting for income taxes............    3,990     3,990        --        --        --        --
                                           -------   -------   -------   -------   -------   -------
Adjusted net income......................  $59,301   $59,301   $56,544   $56,331   $19,625   $23,521
                                           -------   -------   -------   -------   -------   -------
                                           -------   -------   -------   -------   -------   -------
Shares:                                   
Weighted average number of common shares
  outstanding............................   37,845    37,845    27,885    27,885    19,750    19,750
Add -- Common equivalent shares assuming
  conversion of Series B, C and D
  Convertible Preferred Stock............    7,387     7,387    10,340    10,340    12,209    12,209
Add -- Common equivalent shares assuming
  conversion of subordinated note at
  beginning of fiscal year...............       --        --        --     1,280        --     1,704
Add -- Common shares assumed to be
  outstanding from exercise of warrants
  and options............................   10,184    10,180    12,812    10,517        --    11,925
Less -- Assumed purchase of Common Stock
  from proceeds of exercise of warrants
  and options............................   (5,354)   (5,207)   (7,147)   (4,636)       --    (7,275)
                                           -------   -------   -------   -------   -------   -------
                                            50,062    50,205    43,890    45,386    31,959    38,313
                                           -------   -------   -------   -------   -------   -------
Income per share:                          -------   -------   -------   -------   -------   -------
Income before extraordinary item and
  cumulative effect of a change in
  accounting principle...................  $  1.10   $  1.10   $  1.32   $  1.27   $   .68   $   .67
Extraordinary item, net of tax benefit...       --        --      (.03)     (.03)     (.07)     (.06)
Cumulative effect of a change in
  accounting for income taxes............      .08       .08        --        --        --        --
                                           -------   -------   -------   -------   -------   -------
Net income...............................  $  1.18   $  1.18   $  1.29   $  1.24   $   .61   $   .61
                                           -------   -------   -------   -------   -------   -------
                                           -------   -------   -------   -------   -------   -------
 
</TABLE>

                                    F-267
<PAGE>   287
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 11 -- INCOME PER SHARE -- (Continued)
 
Pro forma net income per share
 
     On a pro forma basis, net income for fiscal 1991 would have been $22.9
million, or $.64 per share, assuming the Company's October 1991 public offering
of Common Stock and the related retirement of long-term debt as well as the
exchange of Common Stock with Liberty Media Corporation in satisfaction of one-
half of the unsecured note payable occurred as of the beginning of the year. The
pro forma computation assumes adjustments have been made to interest expense
attributable to the reduction of the long-term debt, net of income tax effect.
It also assumes that the shares issued in connection with the public offering
and the exchange were outstanding from the beginning of the period.
 
Note 12 -- RETIREMENT AND SAVINGS PLANS
 
     The Company has a defined contribution Employee Retirement Plan which
covers substantially all of the Company's employees after completion of one year
of service. The Company's contribution under the Plan is equal to 3.0% of
eligible employees' salaries. The costs of this Plan charged to expenses were
$2,202,000, $2,177,000, and $1,664,000 in fiscal years 1993, 1992 and 1991,
respectively.
 
     In addition, the Company sponsors a 401(k) Savings Plan which permits
employees to make contributions to the Savings Plan on a pre-tax salary
reduction basis in accordance with the Internal Revenue Code. Substantially all
full-time employees are eligible to participate after completion of one year of
service. The Company matches a portion of the voluntary employee contributions.
The costs of this Savings Plan charged to expenses were $2,053,000, $1,501,000,
and $812,000 in fiscal years 1993, 1992 and 1991, respectively.
 
Note 13 -- INCOME TAXES
 
     Effective February 1, 1993, the Company changed its method of accounting
for income taxes as required by SFAS 109. The cumulative effect of this change
in accounting was to increase the net income of the first quarter of fiscal 1993
by approximately $4.0 million, which is reported separately in the Consolidated
Statements of Operations. Prior year's financial statements have not been
restated to reflect the provisions of SFAS 109.
 
     The provision for income taxes consists of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                                     Fiscal Year
                                                          ---------------------------------
                                                            1993         1992        1991
                                                          --------     --------     -------
    <S>                                                   <C>          <C>          <C>
    Current
      Federal...........................................  $ 66,366     $ 49,770     $19,394
      State.............................................    21,710       19,810      11,771
                                                          --------     --------     -------
      Total.............................................    88,076       69,580      31,165
                                                          --------     --------     -------
    Deferred
      Federal...........................................   (23,159)     (17,500)         --
      State.............................................    (4,942)          --          --
                                                          --------     --------     -------
      Total.............................................   (28,101)     (17,500)         --
                                                          --------     --------     -------
    Total provision.....................................  $ 59,975     $ 52,080     $31,165
                                                          --------     --------     -------
                                                          --------     --------     -------
</TABLE>
 
                                    F-268
<PAGE>   288
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 13 -- INCOME TAXES -- (Continued)
 
     Total income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 35.0% for fiscal 1993 and 34.0% for fiscal 1992
and 1991 to income before income taxes and extraordinary item as follows:
 
<TABLE>
<CAPTION>
                                                                          Fiscal Year
                                                                     ----------------------
                                                                     1993     1992     1991
                                                                     ----     ----     ----
    <S>                                                              <C>      <C>      <C>
    Provision at statutory rate....................................  35.0%    34.0%    34.0%
    State income taxes, net of federal tax benefit.................  14.5     12.0     14.7
    Amortization of intangibles not deductible for tax purposes....   3.0      3.2      6.7
    Net operating loss carryforward................................    --       --     (1.2)
    Other..........................................................   (.5)    (1.3)     4.7
                                                                     ----     ----     ----
    Total income tax expense.......................................  52.0%    47.9%    58.9%
                                                                     ----     ----     ----
                                                                     ----     ----     ----
</TABLE>
 
     Deferred income taxes reflect the net effects of temporary differences
between the value of assets and liabilities and their tax bases and the benefit
of existing net operating loss carryforwards. Significant components of the net
deferred tax assets of January 31, 1994 and 1993 follow (in thousands):
 
<TABLE>
<CAPTION>
                                                                          JANUARY 31,
                                                                     ---------------------
                                                                       1994         1993
                                                                     --------     --------
    <S>                                                              <C>          <C>
    Deferred tax assets:
      Accounts receivable, principally due to the allowance for
         doubtful accounts and related reserves for uncollectible
         accounts under the Company's revolving credit program.....  $ 25,715     $ 15,985
      Inventories, principally due to obsolescence reserves and
         additional costs of inventories for tax purposes pursuant
         to the Tax Reform Act of 1986.............................     7,497        6,801
      Allowance for sales returns..................................     7,625        3,857
      Executive stock award........................................        --        1,655
      Costs associated with the terminated Paramount tender
         offer.....................................................    14,964           --
      Costs associated with cable television distribution rights...    26,619        2,813
      Other........................................................     7,061         (363)
                                                                     --------     --------
      Total gross deferred tax assets..............................    89,481       30,748
      Less: Valuation allowance....................................   (12,467)          --
      Less -- amounts not recognized due to SFAS 96 limitations on
         carrybacks of future net deductible amounts and
         carryforwards of alternative minimum tax credits..........        --      (12,948)
                                                                     --------     --------
      Net deferred tax assets......................................  $ 77,014     $ 17,800
                                                                     --------     --------
                                                                     --------     --------
</TABLE>
 
     Of the total net additional deferred tax asset recorded at the time of the
adoption of SFAS 109, approximately $27.0 million was credited to additional
paid-in capital and approximately $6.5 million was credited to the excess of
cost over acquired net assets. The net increase in the deferred tax asset during
fiscal 1993 differs from the deferred benefit component of the current year's
tax provision primarily due to the recognition of a portion of the net operating
loss carryforwards.
 
                                    F-269
<PAGE>   289
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 13 -- INCOME TAXES -- (Continued)
 
     Deferred tax assets were not recorded as of January 31, 1993 for state
income tax purposes since the Company's income is principally allocable to
states that do not permit carrybacks that would give rise to refundable taxes.
In addition, no deferred tax assets were recorded for federal or state tax
purposes in fiscal 1991 since refundable taxes could not be generated from
carrying back future net deductible amounts under the requirements of SFAS 96.
 
     The increase in the deferred tax asset for fiscal 1992 differs from the
deferred benefit component of the current year tax provision because portions of
the deferred tax provision recorded were allocated to additional paid-in capital
or the excess of cost over acquired net assets.
 
     The valuation allowance for deferred tax assets as of February 1, 1993 was
$12.2 million. The net change in the valuation allowance for fiscal 1993 was an
increase of $255,000. Approximately $6.0 million of the valuation allowance will
result in a credit to additional paid-in capital when it becomes more likely
than not that certain deductions associated with cable television distribution
rights will be realizable.
 
     The following table summarizes the nature of certain tax benefits realized
that reduced taxes payable but were not credited to the tax provision (in
thousands):
 
<TABLE>
<CAPTION>
                                                                                 Excess of cost
                                                                                      over
                                                         Additional paid-in       acquired net
                                                              capital                assets
                                                         ------------------     -----------------
                 Source of Tax Benefit                    1993       1992        1993       1992
- -------------------------------------------------------  ------     -------     ------     ------
<S>                                                      <C>        <C>         <C>        <C>
Exercise of employee stock options.....................  $1,655     $12,366     $   --     $   --
Net operating loss carryforward and other deductions
  arising from equity transactions.....................      --       6,967         --         --
Realization of tax benefits associated with temporary
  differences in CVN acquisition.......................      --          --      6,510      5,086
Alternative minimum tax credit carryforward generated
  from equity related deductions.......................      --       2,979         --         --
                                                         ------     -------     ------     ------
                                                         $1,655     $22,312     $6,510     $5,086
                                                         ------     -------     ------     ------
                                                         ------     -------     ------     ------
</TABLE>
 
In 1993, the tax benefits realized from net operating loss carryforwards of $6.6
million reduced taxes payable and were credited to deferred tax assets.
 
     As of January 31, 1994, the Company has a net operating loss carryforward
of $634,000 available to reduce future federal taxable income. There are no
other credits or loss carryforwards available as of the end of fiscal 1993.
 
Note 14 -- LITIGATION
 
     In July 1993, Shop Televison Network, Inc. ("STN"), J.C. Penney Company,
Inc. ("JCP"), JCPenney Televison Shopping Channel, Inc. ("JCPTV"), Michael Rosen
and the Company settled the litigation that STN had brought in the Superior
Court of the State of California for the County of Los Angeles in 1991, in
connection with the negotiation and execution of an agreement dated May 16,
1991, between the Company and JCPTV. The settlement required dismissal of all
pending litigation between the parties, payment of approximately $8.8 million to
STN, and repurchase by STN of all its shares held by JCP for an agreed price.
JCPTV and the Company agreed to divide the settlement payment to STN between
them, with the Company being responsible for the payment of approximately $3.8
million of such settlement payment. This amount was included as a charge in
general and administrative expenses in the second quarter of fiscal 1993.
 
                                    F-270
<PAGE>   290
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 14 -- LITIGATION -- (Continued)
 
     In July 1993, the Company was joined as a defendant in actions filed in
state and federal court in Delaware by certain shareholders of Home Shopping
Network, Inc. ("HSN") against HSN, Liberty Media Corporation ("Liberty"),
Liberty Program Investments, Inc., RMS Limited Partnership ("RMS"), and certain
individual directors and officers of HSN. The actions challenge Liberty's
purchase of HSN Class A and Class B Common Stock from RMS, Liberty's tender
offer for 15.0 million shares of HSN Common Stock as well as the Company's July
12, 1993 letter proposal to HSN to combine HSN and the Company in a stock-
for-stock transaction (the "Proposed HSN Merger"). The actions allege that the
Company aided and abetted breaches of fiduciary duties in connection with the
Proposed HSN Merger, as well as violations of certain regulations of the
Securities Exchange Act. Plaintiffs seek class certification, declaratory and
injunctive relief, compensatory damages, counsel fees, interest and costs.
Management believes that the allegations against the Company in these
shareholder lawsuits are unfounded and intends to defend against such actions
vigorously. On November 5, 1993, the Company and HSN announced their mutual
agreement to terminate negotiations on the Proposed HSN Merger. The Company's
time to respond to the complaint in the state action was extended indefinitely.
In March, 1994, the Company filed a motion to dismiss the complaint in the
federal action. The parties are currently engaged in settlement discussions.
 
     In September 1993, Viacom International Inc. ("Viacom International"), a
subsidiary of Viacom Inc. ("Viacom"), brought an action against the Company,
Tele-Communications, Inc., Liberty, Satellite Services, Inc., Encore Media
Corp., and Netlink USA, challenging the Company's September 20, 1993 proposal to
Paramount Communications Inc. ("Paramount") to combine Paramount and the Company
in a cash and stock-for-stock exchange. Viacom International amended its
complaint in November, 1993, adding Comcast Corporation ("Comcast") as an
additional defendant. The Company filed an answer to the amended complaint on
November 19, 1993. Comcast was subsequently dismissed as a defendant. Management
believes that the allegations against the Company in Viacom International's
action are unfounded and intends to defend against such action vigorously. On
February 15, 1994, the Company terminated its tender offer for 50.1% of
Paramount Common Stock.
 
     In October 1993, the Company commenced legal action in the Delaware
Chancery Court against Viacom, Paramount and certain Paramount directors for
breach of fiduciary duties in failing to give fair treatment to the Company's
merger proposal while granting undue advantages to Viacom's merger proposal. The
Company sought to compel Paramount's board to give the two merger proposals
equal consideration and also sought to invalidate certain "lockup" agreements
and share purchase options given by Paramount to Viacom. Following a hearing,
the Court, on November 24, 1993, granted the Company's motion for a preliminary
injunction against Paramount's poison pill rights plan and certain other
anti-takeover mechanisms being used to preclude the Paramount shareholders from
accepting the Company's cash tender offer for approximately 50.1% of Paramount's
shares. On appeal by Paramount and Viacom, the Delaware Supreme court affirmed
the injunction granted by the Delaware Chancery Court on December 9, 1993, and
issued a formal opinion in support of its ruling on February 4, 1994. On
December 21, 1993, Viacom filed a motion to dismiss the Company's complaint
against it. On February 15, 1994, the Company terminated its tender offer for
Paramount's Common Stock.
 
     The Company has also been named as a defendant in various legal proceedings
arising in the ordinary course of business. Although the outcome of these
matters cannot be determined, in the opinion of management, disposition of these
proceedings will not have a material effect on the Company's financial position.
 
                                    F-271
<PAGE>   291
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 15 -- SUPPLEMENTAL INFORMATION ON CONSOLIDATED STATEMENTS OF CASH FLOWS
 
     An analysis of changes in working capital items follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                     Fiscal Year
                                                          ---------------------------------
                                                            1993         1992        1991
                                                          --------     --------     -------
    <S>                                                   <C>          <C>          <C>
    Increase in accounts receivable.....................  $(86,154)    $(29,029)    $(6,006)
    Increase in inventories.............................   (29,496)      (9,784)     (8,428)
    Increase in deferred taxes..........................   (24,389)     (10,680)         --
    Increase in prepaid expenses........................    (1,820)        (450)       (732)
    Increase in accounts payable--trade.................    29,972       11,312       7,245
    Increase in accrued liabilities                         75,648        5,074      48,028
                                                          --------     --------     -------
                                                          $(36,239)    $(33,557)    $40,107
                                                          --------     --------     -------
                                                          --------     --------     -------
    Supplemental cash flow information:
      Interest paid                                       $  1,369     $ 20,512     $30,397
      Income taxes paid                                     31,841       37,944       1,351
</TABLE>
 
     In fiscal year 1993, the Company did not enter into any non-cash financing
transactions. In fiscal years 1992 and 1991, the following non-cash financing
transactions were entered into by the Company (dollars in thousands).
 
<TABLE>
    <S>                                                                          <C>
    1992
    Issuance of 1,704,546 shares of Common Stock in prepayment of Convertible
      subordinated note, net of $1,260 debt placement fees.....................  $28,740
    Exercise of 3,893,962 warrants through deliverance of 1,424,404 shares of
      Common Stock at market value.............................................   53,771
    Exercise of 2,492,017 warrants for $37,692 with simultaneous repurchase of
      998,457 shares of Common Stock at market value...........................   37,692
    Issuance of 404,572 shares of Common Stock in exchange for 675,026
      warrants, representing the aggregate difference between the market price
      and the exercise price...................................................   15,273
    Exercise of stock options through deliverance of 800 shares of Common Stock
      at market value..........................................................       31
    1991
    Issuance of an aggregate of 243,522 shares of Common Stock and 100,000
      warrants to Comcast Financial Corporation in lieu of cash interest
      expense..................................................................  $ 3,000
    Issuance of 75,075 shares of Common Stock to the Standby Investors in
      consideration for signing the Standby Equity Agreement...................      614
    Issuance of 2,269,552 shares of Common Stock to Liberty Media Corporation
      in exchange for one-half of the outstanding balance of an unsecured note
      payable..................................................................   31,445
    Adjustment to the number of shares of Common Stock assumed issued to
      holders of certain CVN Series 2 Warrants from 3,377,949 to 3,410,843 (at
      market value)............................................................      526
    Adjustment to the number of new QVC Warrants assumed exchanged for certain
      CVN Series 2 Warrants from 6,822,767 to 6,469,913 (value based on an
      independent appraisal)...................................................   (1,438)
</TABLE>
 
                                    F-272
<PAGE>   292
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
NOTE 16 -- PARAMOUNT TENDER OFFER
 
     On October 27, 1993, the Company made an $80.00 cash tender offer for 50.1
percent of the outstanding common shares of Paramount. This tender offer was
amended several times during the bidding process against Viacom for Paramount.
On February 1, 1994, the Company amended its cash tender offer to $104 per
share. The Company offered approximately $6.4 billion in cash for 61.7 million
Paramount common shares. The proposed cash tender offer would have been funded
through a $3.25 billion bank loan commitment and proposed capital contributions
to the Company of $1.5 billion from BellSouth Corporation and $0.5 billion each
from Advance Publications, Cox Enterprises and Comcast Corporation. On February
15, 1994, Paramount notified the Company that Viacom received the minimum
condition in its tender offer and had delivered to Paramount a completion
certificate pursuant to the bidding procedures. Accordingly, the Company
terminated its tender offer for 50.1 percent of the Common Stock of Paramount.
The costs incurred on the tender offer, comprised principally of bank fees and
legal and advisory fees, totaled $34.8 million which were expensed in the fourth
quarter of 1993. The $3.25 billion bank loan commitment expired on February 15,
1994 upon the termination of the tender offer.
 
Note 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
           (in thousands, except as to per share data)
 
<TABLE>
<CAPTION>
                    Fiscal 1993                       First       Second      Third       Fourth
- ---------------------------------------------------  --------    --------    --------    --------
<S>                                                  <C>         <C>         <C>         <C>
Net revenue........................................  $273,232    $262,438    $313,945    $372,489
Gross profit.......................................   113,773     107,938     128,902     148,316
Income before income taxes and cumulative effect of
  a change in accounting principle(1)..............    34,546      26,137      42,732      11,871
Income tax provision...............................   (16,925)    (12,810)    (21,215)     (9,025)
Income before cumulative effect of a change in
  accounting principle.............................    17,621      13,327      21,517       2,846
Cumulative effect of a change in accounting
  principle(2).....................................     3,990          --          --          --
Net income.........................................    21,611      13,327      21,517       2,846
Income per share(3):
  Primary
     Income before cumulative effect of a change in
       accounting principle........................       .36         .26         .42         .06
     Net income....................................       .44         .26         .42         .06
</TABLE>
 
<TABLE>
<CAPTION>
                    Fiscal 1992                       First       Second      Third       Fourth
- ---------------------------------------------------  --------    --------    --------    --------
<S>                                                  <C>         <C>         <C>         <C>
Net revenue........................................  $233,168    $221,253    $274,332    $341,834
Gross profit.......................................   100,354      94,259     115,501     138,633
Income before income taxes and extraordinary
  item.............................................    22,917      15,905      31,468      38,378
Income tax provision...............................   (11,425)     (7,190)    (15,105)    (18,360)
Income before extraordinary item...................    11,492       8,715      16,363      20,018
Extraordinary item, net of tax benefit(4)..........      (348)         --          --      (1,148)
Net income.........................................    11,144       8,715      16,363      18,870
Income per share(5)(6):
  Primary
     Income before extraordinary item..............       .29         .22         .40         .44
     Net income....................................       .28         .22         .40         .42
  Fully-diluted
     Income before extraordinary item..............       .29         .22         .40         .42
     Net income....................................       .28         .22         .40         .40
</TABLE>
 
- ---------------
 
(1) Fourth quarter amount includes a charge of $34.8 million related to the
     Paramount tender offer (Note 16).
 
(2) Amount represents the cumulative effect of adopting SFAS 109.
 
                                    F-273
<PAGE>   293
 
                           QVC, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
 
Note 17 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED) -- (Continued)
           (in thousands, except as to per share data)
 
(3) Fully diluted earnings per share for all periods are not presented since
     they are the same as the primary earnings per share.
 
(4) Amounts represent accelerated amortization of debt placement fees, net of
     income tax benefits, due to prepayments of the Senior term loan (Note 5).
 
(5) The sum of the quarterly per share amounts does not equal the annual amount
     due to the substantial changes in the number of shares throughout the year.
 
(6) In the fourth quarter of fiscal 1992, the modified treasury stock method of
     computing earnings per share resulted in a fully-diluted computation with a
     lower amount than the primary computation. This is due primarily to using
     the year-end closing share price for the fully-diluted computation versus
     the average share price for the fourth quarter. The year-end closing price
     was $40.50 versus a fourth quarter average of $32.92.
 
                                    F-274
<PAGE>   294
 
                                                                     Schedule II

QVC, INC. AND SUBSIDIARIES 
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
(in thousands)
 
<TABLE>
<CAPTION>
                                                                                                 Balance at
                                        Balance                         Deductions             End of Period
                                          at                     ------------------------    ------------------
                                       Beginning                  Amounts       Amounts                   Net
Name of Debtor                         of Period    Additions    Collected    Written-off    Current    Current
- -------------------------------------  ---------    ---------    ---------    -----------    -------    -------
<S>                                    <C>          <C>          <C>          <C>            <C>        <C>
Year Ended January 31, 1992
  Peter Barton, unsecured 8% note
     receivable due on demand........    $  98        $   6        $  --         $  --        $ 104      $  --
                                         -----        -----        -----         -----        -----      -----
Year Ended January 31, 1993                                                      
  Peter Barton, unsecured 8% note                                                
     receivable due on demand........    $ 104        $  --        $ 104         $  --        $  --      $  --
                                         -----        -----        -----         -----        -----      -----
Year Ended January 31, 1994                                                      
  Candice Carpenter, unsecured, prime                                            
     plus one percent note receivable                                            
     due in installments until May                                               
     31, 1998........................    $  --        $ 257        $  --         $  --        $ 257      $  --
                                         -----        -----        -----         -----        -----      -----
</TABLE>
 
                                    F-275
<PAGE>   295
 
                                                                   Schedule VIII
 
QVC, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
 
<TABLE>
<CAPTION>
                                 Balance   Additions   Additions
                                   at      Charged to  Charged to                                  Balance
                                Beginning  Costs and     Other                                    at End of
          Description           of Period   Expenses    Accounts      Deductions     Other         Period
- ------------------------------- ---------  ----------  ----------     --------      --------      ---------
<S>                             <C>        <C>         <C>            <C>           <C>           <C>
Allowance for doubtful
  accounts:
  Year ended January 31,
     1992......................  $ 8,214    $ 14,501     $   --       $ (7,260)(A)  $     --       $15,455
  Year ended January 31,
     1993......................  $15,455    $ 17,506     $1,250(C)    $(12,895)(A)  $     --       $21,316
  Year ended January 31,
     1994......................  $21,316    $ 24,765     $   --       $ (7,971)(A)  $ 14,649       $52,759
Inventory obsolescence reserve:
  Year ended January 31,
     1992......................  $ 8,387    $ 16,465     $   --       $(12,141)(B)  $     --       $12,711
  Year ended January 31,
     1993......................  $12,711    $ 17,809     $   --       $(14,312)(B)  $     --       $16,208
  Year ended January 31,
     1994......................  $16,208    $ 20,000     $   --       $(21,186)(B)  $     --       $15,022
Reserve for uncollectible
  accounts under revolving
  credit program:
  Year ended January 31,
     1992......................  $11,769    $ 14,175     $   --       $ (5,970)(A)  $     --       $19,974
  Year ended January 31,
     1993......................  $19,974    $ 10,159     $   --       $ (4,434)(A)  $     --       $25,699
  Year ended January 31,
     1994......................  $25,699    $     --     $   --       $ (2,414)(A)  $(14,649)(D)   $ 8,636
</TABLE>
 
- ---------------
 
(A) Accounts written-off as uncollectible, net of recoveries.
 
(B) Written-off as obsolete.
 
(C) Reserve for interest on note receivable transferred from accrued
    liabilities.
 
(D) Transfer to allowance for doubtful accounts.
 
                                    F-276
<PAGE>   296
 
                                                                      Schedule X

QVC, INC. AND SUBSIDIARIES 
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
 
<TABLE>
<CAPTION>
                                                                              Charged to
    Item                                                                  Costs and Expenses
    ----                                                                  ------------------
    <S>                                                                   <C>
    Advertising costs:
      Year ended January 31, 1992.......................................       $ 35,407
      Year ended January 31, 1993.......................................       $ 33,419
      Year ended January 31, 1994.......................................       $ 28,172
</TABLE>
 
                                    F-277
<PAGE>   297

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Assets                                                                  March 31,        December 31,       
                                                                          1994              1993           
                                                                      ------------       ------------ 
                                                                             amounts in thousands                           
<S>                                                                   <C>                  <C>              
Cash and cash equivalents                                             $     98,377            91,305        
                                                                                                                                 
Trade and other receivables                                                 64,679            57,458        
  Less allowance for doubtful receivables                                    3,012             3,032        
                                                                      ------------         --------- 
                                                                            61,667            54,426        
                                                                      ------------         --------- 
                                                                                                            
Inventories, net                                                           104,661           112,005        
                                                                                                            
Prepaid expenses                                                            31,311            25,210        
                                                                                                            
Investments in affiliates, accounted for under the equity                                                   
  method, and related receivables (note 4)                                 161,565           151,540        
                                                                                                            
Other investments, at cost, and related receivables (note 5)               286,750           220,218        
                                                                                                            
Investment in Tele-Communications, Inc. ("TCI")                                                             
  common stock (note 6)                                                    104,011           104,011        
                                                                                                            
Property and equipment, at cost:                                                                            
  Land                                                                      21,662            21,662        
  Cable distribution systems                                                88,203            87,437        
  Support equipment and buildings                                          122,372           124,727        
  Computer and broadcast equipment                                          62,019            61,820        
                                                                      ------------         --------- 
                                                                           294,256           295,646        
  Less accumulated depreciation                                             43,015            39,968        
                                                                      ------------         --------- 
                                                                           251,241           255,678        
                                                                      ------------         --------- 
                                                                                                            
Franchise costs                                                            142,796           142,789        
  Less accumulated amortization                                              6,329             5,351
                                                                      ------------         --------- 
                                                                           136,467           137,438        
                                                                      ------------         --------- 
                                                                                                            
Excess cost over acquired net assets                                       255,842           255,842        
  Less accumulated amortization                                             11,607             9,818        
                                                                      ------------         --------- 
                                                                           244,235           246,024        
                                                                      ------------         --------- 
                                                                                                            
Other intangibles                                                           97,105            96,873        
  Less accumulated amortization                                             68,447            65,895        
                                                                      ------------         --------- 
                                                                            28,658            30,978        
                                                                      ------------         --------- 
                                                                                                            
Other assets, at cost, net of amortization                                   7,667             7,715        
                                                                      ------------         --------- 
                                                                                                            
                                                                      $  1,516,610         1,436,548        
                                                                      ============         =========
</TABLE>               
                       
                                                                     (continued)



                                    F-278



<PAGE>   298

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity                                    March 31,         December 31,       
                                                                          1994                1993           
                                                                      ------------        ------------
                                                                            amounts in thousands                             
<S>                                                                   <C>                  <C>              
Accounts payable                                                      $     87,557            99,680        
Accrued liabilities                                                         80,706            82,716        
Accrued litigation settlements                                              27,450            29,000        
Film licenses payable                                                       19,058            13,850        
Due to TCI, including accrued interest payable (notes 7 and 10)             24,086            17,874        
Accrued compensation relating to stock                                                                      
   appreciation rights (note 9)                                             26,694            36,996        
Income taxes payable                                                        31,056            24,624        
Debt (notes 7 and 11)                                                      260,283           260,180        
Debt to TCI (notes 7 and 11)                                               185,918           185,918        
Deferred income taxes                                                       33,248             1,653        
Other liabilities                                                            2,693             1,585        
                                                                      ------------         ---------
      Total liabilities                                                    778,749           754,076        
                                                                      ------------         ---------
                                                                                                            
Minority interests in equity of consolidated                                                                
   subsidiaries (note 8)                                                   182,408           174,738        
                                                                                                            
Preferred stock subject to mandatory redemption                                                             
   requirements (including accreted dividends) (note 11)                                                    
     Class B Redeemable Exchangeable Preferred Stock,                                                       
          $.01 par value.                                                  135,394           132,652        
     Class D Redeemable Voting Preferred Stock,                                                             
          $.01 par value.                                                   23,133            22,585        
                                                                      ------------         ---------
                                                                           158,527           155,237        
                                                                      ------------         ---------
Stockholders' equity (notes 5, 9 and 12):                                                                   
     Class E, 6% Cumulative Redeemable Exchangeable Junior                                                  
          Preferred Stock, $.01 par value.                                      17                17        
     Class A common stock, $1 par value.                                    87,515            87,515        
     Class B common stock, $1 par value.                                    43,339            43,339        
     Additional paid-in capital                                            228,593           236,126        
     Retained earnings                                                       7,839                --        
     Unrealized holding gains for available-for-sale securities             44,392                --        
     Note receivable from related party                                    (14,769)          (14,500)       
                                                                      ------------         ---------
                                                                           396,926           352,497        
                                                                      ------------         ---------
Commitments and contingencies (notes 4, 7 and 12)                                                           
                                                                      $  1,516,610         1,436,548        
                                                                      ============         =========
</TABLE>               
                       
See accompanying notes to consolidated financial statements.





                                    F-279




<PAGE>   299

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                       Three months 
                                                                          ended        
                                                                         March 31,    
                                                                  ----------------------
                                                                    1994          1993   
                                                                  --------       -------
                                                                   amounts in thousands                    
<S>                                                               <C>            <C>             
Revenue:                                                                                   
  Net sales from home shopping services                           $274,215       135,781   
  From TCI (note 10)                                                11,720        11,234   
  From cable and programming services                               49,145        32,057   
                                                                  --------       -------
                                                                   335,080       179,072   
                                                                  --------       -------
Cost of sales, operating costs and expenses:                                               
  Cost of sales                                                    175,270        85,369   
  Operating                                                         51,403        34,811   
  Selling, general and administrative                               75,381        39,480   
  Charges by TCI (note 10)                                           3,399         1,365   
  Compensation relating to stock appreciation                                              
    rights (note 9)                                                     --         8,078   
  Adjustment to compensation relating to stock                                             
    appreciation rights (note 9)                                   (10,302)           --   
  Depreciation                                                       7,262         4,050   
  Amortization                                                       5,513         3,830   
                                                                  --------       -------
                                                                   307,926       176,983   
                                                                  --------       -------
          Operating income                                          27,154         2,089   
Other income (expense):                                                                    
  Interest expense to TCI                                           (5,270)         (669)  
  Other interest expense                                            (3,820)       (4,175)  
  Interest income from TCI                                             926           439   
  Dividend and interest income, primarily from affiliates            5,287         4,973   
  Gain on sale of investment                                            --        10,613   
  Provision for impairment of investment                            (2,233)           --   
  Share of earnings of affiliates, net                               9,137         7,153   
  Minority interests in earnings of consolidated subsidiaries       (4,033)          (35)  
  Other, net                                                            61        (2,412)  
                                                                  --------       -------
          Earnings before income taxes and                                                 
             extraordinary item                                     27,209        17,976   
Income tax expense                                                 (13,567)       (5,730)  
                                                                  --------       -------
          Earnings before extraordinary item                        13,642        12,246   
Extraordinary item-loss on early extinguishment of                                         
   debt, net of taxes                                                   --        (1,792)  
                                                                  --------       -------
          Net earnings                                              13,642        10,454   
                                                                                           
Dividend requirement on preferred stocks                            (5,803)      (10,895)  
                                                                  --------       -------
Net earnings (loss) attributable to common                                                 
   shareholders                                                   $  7,839          (441)  
                                                                  ========       =======

Earnings (loss) per share:                                                                 
          Net earnings attributable to common shareholders                                 
            before extraordinary item                             $   0.06          0.01   
          Extraordinary item, net                                       --         (0.01)  
                                                                  --------       -------
          Net earnings (loss) attributable to common                                       
             shareholders                                         $   0.06          0.00   
                                                                  ========       =======
</TABLE>                  
                                                                           
See accompanying notes to consolidated financial statements.




                                    F-280




<PAGE>   300
LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                   Preferred                        
                                                     Stock         Common stock     Additional           
                                                   ---------    -----------------    paid-in     Retained
                                                    Class E     Class A   Class B    capital     earnings  
                                                   ---------    -------   -------   ----------   --------
                                                                    amounts in thousands
<S>                                              <C>            <C>       <C>        <C>          <C>     
BALANCE AT JANUARY 1, 1994                        $      17     87,515    43,339     236,126           -  
                                                                                                          
Dividends, including accretion, on all classes of                                                         
  preferred stock                                         -          -         -           -      (5,803) 
Dividends on preferred stock subject to                                                                   
  mandatory redemption requirement                        -          -         -       2,513           -  
Cash dividend on preferred stock                          -          -         -     (10,046)          -  
Unrealized holding gains for available-for-sale                                                           
  securities                                              -          -         -           -           -  
Accrued interest on note receivable from                                                                  
  related party (note 9)                                  -          -         -        -              -  
Net earnings                                              -          -         -        -         13,642  
                                                  ---------     ------    ------     -------      ------
BALANCE AT MARCH 31, 1994                         $      17     87,515    43,339     228,593       7,839  
                                                  =========     ======    ======     =======      ======
</TABLE>

<TABLE>
<CAPTION>
                                                      Unrealized             Note
                                                       holding             receivable    Total
                                                      gains for              from        stock-
                                                  available-for sale        related     holders'
                                                      securities             party       equity
                                                  ------------------       ----------   --------
                                                               amounts in thousands                             
<S>                                                    <C>                   <C>          <C>     
BALANCE AT JANUARY 1, 1994                                  -                (14,500)     352,497 
                                                                                                  
Dividends, including accretion, on all classes of                                                 
  preferred stock                                           -                      -       (5,803)
Dividends on preferred stock subject to                                                           
  mandatory redemption requirement                          -                      -        2,513 
Cash dividend on preferred stock                            -                      -      (10,046)
Unrealized holding gains for available-for-sale                                                   
  securities                                           44,392                      -       44,392 
Accrued interest on note receivable from                                                          
  related party (note 9)                                    -                   (269)        (269)
Net earnings                                                -                      -       13,642 
                                                       ------                -------      -------
BALANCE AT MARCH 31, 1994                              44,392                (14,769)     396,926 
                                                       ======                =======      =======
</TABLE>

See accompanying notes to consolidated financial statements.





                                    F-281
<PAGE>   301

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>                                                    
                                                                          Three months
                                                                             ended
                                                                            March 31,
                                                                    ------------------------
                                                                    1994                1993
                                                                    ----                ----
                                                                      amounts in thousands
                                                                          (see note 3)
<S>                                                              <C>                 <C>       
Cash flows from operating activities:                                                            
  Net earnings                                                   $  13,642              10,454   
  Adjustments to reconcile net earnings to net                                                   
     cash provided by operating activities:                                                      
       Depreciation and amortization                                12,775               7,880   
       Compensation relating to stock                                                            
         appreciation rights                                            --               8,078   
       Adjustment to compensation relating to                                                    
         stock appreciation rights                                 (10,302)                 --   
       Share of earnings of affiliates, net                         (9,137)             (7,153)  
       Deferred income tax expense                                   5,524               3,311   
       Minority interests in earnings                                4,033                  35   
       Noncash interest income                                      (1,249)                 --   
       Provision for impairment of investment                        2,233                  --   
       Payment of litigation settlements                            (1,550)                 --   
       Payment of premium received upon                                                          
         redemption of preferred stock investment                       --               8,248   
       Loss on early extinguishment of debt,                                                     
         net of tax                                                     --               1,792   
       Gain on sale of investment                                       --             (10,613)  
       Other noncash charges                                         1,070                 335   
       Changes in operating assets and                                                           
         liabilities, net of effect of                                                           
         acquisitions:                                                                           
           Change in receivables                                    (7,241)             (1,358)  
           Change in inventories                                     7,344               7,625   
           Change in due to/from TCI                                 6,212               4,096   
           Change in prepaid expenses                               (6,101)             (3,434)  
           Change in payables and                                                                
             accruals                                               (2,325)             (5,088)  
                                                                 ---------           ---------   
                      Net cash provided by                                                       
                        operating activities                        14,928              24,208   
                                                                 ---------           ---------
</TABLE>                                                   

                                                                     (continued)





                                    F-282




<PAGE>   302

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), CONTINUED
- --------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                                         Three months
                                                                            ended
                                                                           March 31,
                                                                   ------------------------
                                                                      1994           1993            
                                                                   ---------       --------
                                                                     amounts in thousands                               
                                                                         (see note 3)                                       
<S>                                                                <C>             <C>                  
Cash flows from investing activities:                                                                
  Cash paid for acquisitions                                       $      --       (150,255)         
  Capital expended for property and                                                                  
    equipment                                                         (4,995)        (7,808)         
  Additional investments in and loans                                                                
    to affiliates and others                                          (7,044)        (5,403)         
  Return of capital from affiliates                                    2,040          1,000          
  Collections on loans to affiliates and others                        5,814          1,797          
  Cash received on redemption of preferred                                                           
     stock investment                                                     --        104,336          
  Proceeds from disposition of assets                                     --         12,600          
  Other investing activities, net                                      2,893          2,796          
                                                                   ---------       --------
          Net cash used by                                                                           
            investing activities                                      (1,292)       (40,937)         
                                                                   ---------       --------
                                                                                                     
Cash flows from financing activities:                                                                
  Borrowings of debt                                                      --        236,362          
  Repayments of debt                                                     (65)      (135,393)         
  Dividends on preferred stock                                       (10,046)        (9,743)         
  Contributions by minority shareholders                                                             
    of subsidiary                                                      3,947          4,041          
  Distribution to minority partner of subsidiary                        (400)            --          
                                                                   ---------       --------
          Net cash (used) provided by                                                                
            financing activities                                      (6,564)        95,267          
                                                                   ---------       --------
                                                                                                     
          Net increase  in cash and                                                                  
            cash equivalents                                           7,072         78,538          
                                                                                                     
Cash and cash equivalents                                                                            
  at beginning of period                                              91,305         96,253          
                                                                   ---------       --------
                                                                                                     
Cash and cash equivalents                                                                            
  at end of period                                                 $  98,377        174,791          
                                                                   =========       ========
</TABLE>             
                                                                             
See accompanying notes to consolidated financial statements.





                                      F-283
<PAGE>   303

LIBERTY MEDIA CORPORATION
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 1994
(UNAUDITED)

________________________________________________________________________________

(1)      GENERAL

         The accompanying consolidated financial statements include the
         accounts of Liberty Media Corporation, those of all majority-owned
         subsidiaries and entities for which there is a controlling voting
         interest ("Liberty" or the "Company").  All significant intercompany
         accounts and transactions have been eliminated in consolidation.

         On January 27, 1994, Liberty and TCI entered into a definitive merger
         agreement (the "Merger Agreement").  Under the Merger Agreement, the
         transaction will be structured as a tax-free exchange of shares of
         Class A and Class B common stock of both companies and preferred stock
         of Liberty for like shares of a newly formed holding company,
         TCI/Liberty Holding Company ("TCI/Liberty").  TCI stockholders will
         receive one share of TCI/Liberty common stock for each of their
         shares.  Liberty common stockholders will receive 0.975 of a share of
         TCI/Liberty common stock for each of their shares.  Holders of Liberty
         Class E, 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
         (the "Class E Preferred Stock") will receive one share of a
         substantially identical class of voting preferred stock of TCI/Liberty
         for each of their shares.  The transaction is subject to the approval
         of both sets of shareholders as well as various regulatory approvals
         and other customary conditions.  Subject to timely receipt of such
         approvals, which cannot be assured, it is anticipated the closing of
         such transaction will take place during 1994.

         The accompanying interim consolidated financial statements are
         unaudited but, in the opinion of management, reflect all adjustments
         (consisting of normal recurring accruals) necessary for a fair
         presentation of the results for such periods.  The results of
         operations for any interim period are not necessarily indicative of
         results for the full year.  These consolidated financial statements
         should be read in conjuncti