<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 5, 1996
Date of Earliest Event Reported: July 31, 1996
TELE-COMMUNICATIONS, INC.
------------------------------------------------------------
(Exact name of Registrant as specified in its charters)
State of Delaware
---------------------------------
(State or other jurisdiction of incorporation)
0-20421 84-1260157
- -------------------------- ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
5619 DTC Parkway
Englewood, Colorado 80111
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On July 31, 1996, pursuant to certain agreements entered into among TCI
Communications, Inc. ("TCIC"), Tele-Communications, Inc. ("TCI"),
Viacom International Inc. and Viacom, Inc. ("Viacom"), TCIC acquired
all of the common stock of a subsidiary of Viacom ("VII Cable") which,
at the time of such acquisition, owned Viacom's cable systems and
related assets (the "VII Cable Acquisition").
The transaction was structured as a tax-free reorganization in which
VII Cable transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to a new subsidiary of
Viacom ("New Viacom Sub"). VII Cable also transferred to New Viacom
Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility
(the "Loan Facility") arranged by TCIC, TCI and VII Cable. Following
these transfers, VII Cable retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay the
Loan Proceeds borrowed under the Loan Facility. Neither Viacom nor New
Viacom Sub has any obligation with respect to repayment of the Loan
Proceeds.
Prior to the consummation of the VII Cable Acquisition, Viacom offered
to the holders of shares of Viacom Class A Common Stock and Viacom
Class B Common Stock (collectively, "Viacom Common Stock") the
opportunity to exchange (the "Exchange Offer") a portion of their
shares of Viacom Common Stock for shares of Class A Common Stock, par
value $100 per share, of VII Cable ("VII Cable Class A Stock").
Immediately following the completion of the Exchange Offer, TCIC
acquired from VII Cable shares of VII Cable Class B Common Stock (the
"Share Issuance") in exchange for $350 million (which was used to
reduce VII Cable's obligations under the Loan Facility). At the time
of the Share Issuance, the VII Cable Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted
into 5% Class A Senior Cumulative Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock") of VII Cable with a stated value of
$100 per share (the "Stated Value"). The terms of the Exchangeable
Preferred Stock, including its dividend, redemption and exchange
features, were designed to cause the Exchangeable Preferred Stock, in
the opinion of two investment banks, to initially trade at the Stated
Value. The Exchangeable Preferred Stock is exchangeable, at the option
of the holder commencing after the fifth anniversary of the date of
issuance, for shares of Series A TCI Group common stock ("Parent Common
Stock") at an initial exchange rate of 4.81 shares of Parent Common
Stock for each Share of Exchangeable Preferred Stock exchanged. The
Exchangeable Preferred Stock is subject to redemption redeemable, at
the option of VII Cable, after the fifth anniversary of the date of
issuance, initially at a redemption price of $102.50 per share and
thereafter at prices declining ratably annually to $100 per share on
and after the eighth anniversary of the date of issuance, plus accrued
and unpaid dividends to the date of redemption. The Exchangeable
Preferred Stock is also subject to mandatory redemption on the tenth
anniversary of the date of issuance at a price equal to the Stated
Value per share plus accrued and unpaid dividends. Amounts payable by
VII Cable in satisfaction of its optional or mandatory redemption
obligations with respect to the Exchangeable Preferred Stock may be
made in cash or, at the election of VII Cable, in shares of Parent
Common Stock, or in any combination of the foregoing.
Historical financial statements of VII Cable for the three months ended
March 31, 1996 and the year ended December 31, 1995 were previously
filed under Item 7 of the Company's Current Report on Form 8-K dated
June 19, 1996.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements
None.
(b) Pro Forma Financial Information
Tele-Communications, Inc. and Subsidiaries:
Condensed Pro Forma Combined Balance Sheet,
March 31, 1996 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Three months ended March 31, 1996 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Year ended December 31, 1995 (unaudited)
Notes to Condensed Pro Forma Combined Financial Statements,
March 31, 1996 (unaudited)
"TCI Group"
Condensed Pro Forma Combined Balance Sheet,
March 31, 1996 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Three months ended March 31, 1996 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Year ended December 31, 1995 (unaudited)
Notes to Condensed Pro Forma Combined Financial Statements,
March 31, 1996 (unaudited)
(c) Exhibits
(2) Parents Agreement, dated as of July 24, 1995, among Viacom, Inc.,
Tele-Communications, Inc. and TCI Communications, Inc.
Subscription Agreement, dated as of July 24, 1995, among Viacom
International, Inc., Tele-Communications, Inc. and TCI
Communications, Inc.
Implementation Agreement, dated as of July 24, 1995, between Viacom
International, Inc. and Viacom International Services, Inc.
Incorporated herein by reference to the Registrant's Current
Report on Form 8-K dated July 26, 1995.
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 5, 1996
TELE-COMMUNICATIONS, INC.
(Registrant)
By: /s/ Stephen M. Brett
----------------------------
Stephen M. Brett
Executive Vice President
<PAGE> 5
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Financial Statements
March 31, 1996
(unaudited)
The following unaudited condensed pro forma combined balance sheet of
TCI, dated as of March 31, 1996, assumes that the VII Cable Acquisition (see
note 1) and the proposed distribution (the "Distribution") by TCI to the holders
of shares of the TCI Group common stock of all of the issued and outstanding
common stock of TCI Satellite Entertainment, Inc. ("Satellite") (see note 2) had
occurred as of such date.
The following unaudited condensed pro forma combined statement of
operations of TCI for the three months ended March 31, 1996 assumes that the
VII Cable Acquisition and the Distribution had occurred as of January 1, 1995.
The following unaudited condensed pro forma combined statement of
operations of TCI for the year ended December 31, 1995 assumes that the VII
Cable Acquisition, the Distribution and the acquisition of a 51% ownership
interest in Cablevision S.A. and certain affiliated companies (collectively
"Cablevision") (the "Cablevision Acquisition") (see note 3) had occurred as of
January 1, 1995.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the VII Cable
Acquisition, the Distribution and the Cablevision Acquisition had occurred as
of January 1, 1995. These condensed pro forma combined financial statements of
TCI should be read in conjunction with the historical financial statements and
the related notes thereto of TCI.
1
<PAGE> 6
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
March 31, 1996
----------------------------------------------------------------------------------
TCI VII Cable Pro forma Satellite TCI
Historical Historical (1) adjustments (1) Distribution (2) Pro forma
---------- -------------- --------------- ---------------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C>
Assets
- ------
Cash, receivables and other
current assets $ 1,063 18 1,700 (4) (20) 1,061
(1,700) (5)
Note receivable from Satellite -- -- -- 642 642
Investment in affiliates and Turner
Broadcasting System, Inc., and
related receivables 3,357 -- -- (21) 3,336
Property and equipment, net of
accumulated depreciation 7,812 422 (3) (5) (982) 7,249
Franchise costs, intangibles and
other assets, net of amortization 14,776 625 (45) (5) -- 16,780
1,424 (6)
-------- ----- ----- ----- ------
$ 27,008 1,065 1,376 (381) 29,068
======== ===== ===== ===== ======
Liabilities and Stockholders' Equity
- ------------------------------------
Payables and accruals $ 2,078 80 (26) (5) (463) 1,669
Debt 13,170 57 (57) (5) -- 14,870
1,700 (4)
Deferred income taxes 4,787 62 -- (10) 4,839
Other liabilities 195 11 (12) (5) -- 194
-------- ----- ----- ----- ------
Total liabilities 20,230 210 1,605 (473) 21,572
-------- ----- ----- ----- ------
Minority interests 919 -- 626 (7) -- 1,545
Redeemable preferred stock 655 -- -- -- 655
Company-obligated mandatorily redeem-
able preferred securities of subsidiary
trust holding solely subordinated debt
securities of TCIC 508 -- -- -- 508
Stockholders' equity:
Preferred Stock -- -- -- -- --
Viacom equity investment -- 855 (855) (8) -- --
TCI Group Series A common stock 684 -- -- -- 684
TCI Group Series B common stock 85 -- -- -- 85
Liberty Media Group Series A
common stock 146 -- -- -- 146
Liberty Media Group Series B
common stock 21 -- -- -- 21
Additional paid-in capital 4,316 -- -- 92 4,408
Cumulative foreign currency
translation adjustment (16) -- -- -- (16)
Unrealized holding gains for
available-for sale securities 314 -- -- -- 314
Accumulated deficit (540) -- -- -- (540)
Treasury stock (314) -- -- -- (314)
---- ----- ----- ----- ------
4,696 855 (855) 92 4,788
------- ----- ----- ----- ------
$27,008 1,065 1,376 (381) 29,068
======= ===== ===== ===== ======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
2
<PAGE> 7
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1996
-------------------------------------------------------------------------------
TCI VII Cable Pro forma Satellite TCI
Historical Historical (1) adjustments(1) Distribution (2) Pro forma
---------- -------------- -------------- ---------------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C>
Revenue $ 1,959 116 -- (96) 1,979
Operating, cost of sales, selling,
general and administrative
expenses,compensation relating to
stock appreciation rights (1,413) (76) -- 91 (1,398)
Depreciation and amortization (370) (22) (9) (9) 25 (376)
------- ---- ---- ---- ------
Operating income 176 18 (9) 20 205
Interest expense (261) (12) (19) (13) -- (292)
Interest and dividend income 10 -- -- -- 10
Share of losses of affiliates, net (62) -- -- -- (62)
Other income, net 18 2 (8) (14) -- 12
------- ---- ---- ---- ----
Earnings (loss) before income
taxes (119) 8 (36) 20 (127)
Income tax benefit (expense) 33 (5) 8 (15) (6) 30
------- ---- ---- ---- ----
Net earnings (loss) (86) 3 (28) 14 (97)
Dividend requirement on redeemable
preferred stocks (9) -- -- -- (9)
------- ---- ---- ----- -----
Net earnings (loss) attributable to
common shareholders $ (95) 3 (28) 14 (106)
======= ==== ==== ==== =====
Primary earnings (loss) attributable to
common shareholders per common
and common equivalent share:
TCI Group Series A and Series B
common stock $ (.17) (.18)(16)
======= =====
Liberty Media Group Series A and
Series B common stock $ .09 .09 (16)
======= =====
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
3
<PAGE> 8
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1995
------------------------------------------------------------------------------------------
TCI VII Cable Cablevision Pro forma Satellite TCI
Historical Historical (1) Historical (3) adjustments(1)(3) Distribution (2) Pro Forma
---------- -------------- -------------- ----------------- ---------------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 6,851 442 52 (2) (5) (211) 7,132
Operating, cost of sales, selling,
general and administrative expenses,
compensation relating to stock
appreciation rights and restructuring
charges (4,937) (279) (34) -- 214 (5,036)
Depreciation and amortization (1,372) (82) (2) (45) (9) 57 (1,444)
------- ------- -------- ----- ----- ------
Operating income (loss) 542 81 16 (47) 60 652
Interest expense (1,010) (48) -- (3) (10) -- (1,154)
(4) (11)
(5) (12)
(84) (13)
Interest and dividend income 52 -- -- -- -- 52
Share of earnings (losses) of
affiliates, net (193) -- -- -- 9 (184)
Gains 337 -- -- -- -- 337
Other expense, net (19) 34 -- (27) (5) -- (43)
(31) (14)
-------- ------- -------- ----- ----- --------
Earnings (loss) before income
taxes (291) 67 16 (201) 69 (340)
Income tax benefit (expense) 120 (33) (5) 52 (15)(5) (22) 112
-------- ------- -------- ----- ----- --------
Net earnings (loss) (171) 34 11 (149) 47 (228)
Dividend requirement on redeemable
preferred stocks (34) -- -- -- -- (34)
-------- ------- -------- ----- ----- --------
Net earnings (loss) attributable
to common shareholders $ (205) 34 11 (149) 47 (262)
======== ======= ======== ===== ===== ========
Loss attributable to common
shareholders per common share:
TCI Class A and Class B common
stock $ (.11) (.17)(17)
======== ========
TCI Group Series A and Series B
common stock $ (.16) (.18)(17)
======== ========
Liberty Media Group Series A and
Series B common stock $ (.16) (.16)(17)
======== ========
</TABLE>
4
<PAGE> 9
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Statement of Operations
(unaudited)
(1) On July 31, 1996 pursuant to certain agreement entered into among TCIC,
TCI, Viacom International Inc. and Viacom, TCIC acquired all of the
common stock of VII Cable which, at the time of such acquisition,
owned Viacom's cable systems and related assets.
The transaction was structured as a tax-free reorganization in which
VII Cable initially transferred all of its non-cable assets, as well as
all of its liabilities other than current liabilities, to New Viacom
Sub. VII Cable also transferred to New Viacom Sub the Loan Proceeds of
the Loan Facility arranged by TCIC, TCI and VII Cable. Following these
transfers, VII Cable retained cable assets with a value at closing
of approximately $2.326 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility. Neither Viacom nor New
Viacom Sub has any obligation with respect to repayment of the Loan
Proceeds.
Prior to the consummation of the VII Cable Acquisition, Viacom offered
to the holders of shares of Viacom Common Stock the opportunity to
exchange a portion of their shares of Viacom Common Stock for shares of
VII Cable Class A Stock. Immediately following the completion of the
Exchange Offer, TCIC acquired from VII Cable shares of VII Cable Class
B Common Stock in exchange for $350 million (which was used to reduce
VII Cable's obligations under the Loan Facility). At the time of
the Share Issuance, the VII Cable Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted
into the Exchangeable Preferred Stock of VII Cable with a stated value
of $100 per share. The terms of the Exchangeable Preferred Stock,
including its dividend, redemption and exchange features, were designed
to cause the Exchangeable Preferred Stock, in the opinion of two
investment banks, to initially trade at the Stated Value.
The cost to acquire VII Cable was approximately $2.326 billion,
consisting of the Loan Proceeds and the $626 million aggregate par
value of the VII Cable Exchangeable Preferred Stock. The accompanying
unaudited pro forma condensed combined statements of operations do not
reflect potential cost savings attributable to (i) economics of scale
which may be realized in connection with purchases of programming and
equipment or (ii) consolidation of certain operating and
administrative functions including the elimination of duplicative
facilities and personnel.
(2) On June 19, 1996, TCI announced the Distribution by TCI to the
holders of shares of the TCI Group common stock of all of the issued
and outstanding common stock of Satellite. At the time of the
Distribution, Satellite will be a Delaware corporation and a direct
wholly owned subsidiary of TCI. The Distribution will be effected as a
tax-free dividend to, and will not involve the payment of any
consideration by, the holders of TCI Group common stock. Prior to the
Distribution, TCI will cause to be transferred to Satellite, or one or
more of Satellite's subsidiaries, certain assets and businesses (and
the related liabilities) of the TCI Group constituting all of TCI's
interests in the business of distributing multichannel programming
services in the United States direct to the home via medium power or
high power broadcast satellite, including the rental and sale of
customer premises equipment relating thereto.
(continued)
5
<PAGE> 10
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
In connection with the Distribution, it is anticipated that the
intercompany balance owed by Satellite to TCIC will be converted into
a note payable to TCIC the terms of which have not yet been
determined. The accompanying pro forma financial statements reflect
the assumed conversion of such intercompany balance as well as the
elimination of the estimated assets, liabilities, revenue and expenses
of Satellite. The intercompany balance is based upon historical
amounts. However, it is expected that TCIC will continue to make
capital expenditures on behalf of Satellite and, as such, the
intercompany balance can be expected to increase through the date of
the Distribution. The Satellite financial information is subject to
adjustment upon the finalization of the historical financial
statements of Satellite.
(3) On April 25, 1995, TCI consummated the Cablevision Acquisition for an
aggregate purchase price of $286 million. The purchase price was paid
with cash consideration of approximately $199 million (including a
previously paid deposit of $20 million) and the Company's issuance of
approximately $87 million in secured negotiable promissory notes
payable (the "Cablevision Notes"). The Company has an option during
the two year period ended April 25, 1997 to increase its ownership
interest in Cablevision to 80% at a cost per subscriber similar to the
initial purchase price. The exercise of such option has not been
reflected in the accompanying condensed pro forma combined financial
statements.
All amounts presented with respect to Cablevision are stated in U.S.
dollars. During the periods covered by the accompanying condensed pro
forma financial statements, an exchange rate of one U.S. dollar to one
Argentine peso was maintained by the Argentine government.
(4) Reflects the borrowing of the Loan Proceeds ($1.7 billion) under the
Loan Facility. Scheduled maturities of the Loan through December 31,
2000 are assumed to be $300 million (1996), none (1997), $30 million
(1998), $110 million (1999) and $135 million (2000).
(5) Reflects the conveyance to New Viacom Sub of the Loan Proceeds,
existing bank debt of $57 million and certain other nonmaterial
assets, liabilities and related results of operations of VII Cable,
including for the year ended December 31, 1995, a pre-tax gain of $27
million from the sale of marketable securities and a provision for
income taxes of $11 million.
(continued)
6
<PAGE> 11
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
(6) The cost to acquire VII Cable will be allocated to the assets and
liabilities acquired according to their respective fair values, with
any excess being treated as franchise costs. The valuations and other
studies which will provide the basis for the allocation of the cost to
acquire VII Cable have not yet been performed and, consequently, the
purchase accounting adjustments made in connection with the
development of the unaudited condensed pro forma combined financial
statements are preliminary. The entire purchase price in excess of
the book value of VII Cable's assets and liabilities has been
attributed to franchise costs. The approximately $1.4 billion pro
forma excess of unallocated acquisition costs as of March 31, 1996 is
being amortized over 40 years at a rate of $36 million per year. To
the extent that the excess purchase price over book value is allocated
to property and equipment or other assets, including identifiable
intangibles with lives of less than 40 years, depreciation and
amortization will increase and, on an after-tax basis, net loss will
increase. Although the Company cannot estimate the potential increase
in depreciation nor amortization, it may be significant. The Company
estimates the average useful life of property and equipment to be
approximately 12.5 years. In addition, the Company does not believe
that there are substantial intangible assets which will require
amortization over periods less that 12.5 years. As a result, the
Company does not believe that any allocation of purchase price to
other assets should be expected to result in an amortization period
less than 12.5 years. VII Cable has estimated, that for every $100
million allocated to property and equipment or to other assets
including identifiable intangibles, and assuming an average life of
12.5 years, depreciation and amortization would increase by $5.5
million per year over such 12.5 year period.
(7) Reflects the estimated aggregate par value of the VII Cable
Exchangeable Preferred Stock.
(8) Represents the elimination of VII Cable's historical equity.
(9) Represents depreciation and amortization of VII Cable's and
Cablevision's allocated excess purchase prices based upon weighted
average lives of 12-1/2 years for property and equipment for
Cablevision and 40 years for franchise costs for VII Cable and 20
years for franchise costs for Cablevision.
(10) Represents assumed interest expense on the $87 million principal
amount of the Cablevision Notes, calculated at an assumed interest
rate of 10.0% per annum.
(11) Represents additional interest expense on assumed indebtedness of
Cablevision. Such additional interest expense was not reflected in
the historical financial statements of Cablevision as the related
borrowings were not utilized to support the assets acquired by the
Company. The pro forma adjustment assumes that Cablevision's April
25, 1995 borrowings ($77 million including capital lease obligations)
were outstanding since January 1, 1995 and that such borrowings bore
interest at 14.5% per annum.
(12) Represents assumed interest expense incurred by the Company on the
borrowings of $179 million to pay the remaining cash portion of the
Cablevision purchase price. Such interest expense was calculated at
the Company's weighted average interest rate of 8.l% for the year
ended December 31, 1995.
(continued)
7
<PAGE> 12
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
(13) Represents assumed additional interest expense (after taking into
consideration interest expense reflected in the historical VII Cable
operations) incurred by the Company on the borrowings of the Loan
Proceeds. Solely for the purposes of this presentation, the Company
has assumed an interest rate of 7.41% and 7.78% for the three months
ended March 31, 1996 and for the year ended December 31, 1995,
respectively, based upon historical interest rates adjusted for
anticipated terms of the Loan Facility.
(14) Reflects an assumed 5.0% cumulative annual dividend on the $626
million of VII Cable Exchangeable Preferred Stock included in minority
share of losses of consolidated subsidiaries.
(15) Reflects the estimated income tax effect of the pro forma adjustments.
The effective income tax rate on a pro forma basis is adversely
affected by the amortization of excess acquisition costs, which are
assumed not to be deductible for tax purposes.
(16) Reflects loss per common share based upon 659.3 million weighted
average shares and 164.8 million weighted average shares of TCI Group
and Liberty Media Group, respectively, at March 31, 1996. Such
amounts represent the weighted average shares disclosed in TCI's
historical financial statements.
(17) Reflects loss per common share based upon 648.2 million weighted
average shares, 656.4 million weighted average shares and 164.1
million weighted average shares of Tele-Communications, Inc. from
January 1, 1995 through August 10, 1995, TCI Group from August 11,
1995 through December 31, 1995 and Liberty Media Group from August 11,
1995 through December 31, 1995, respectively. Such amounts represent
TCI's weighted average shares, as disclosed in its historical
financial statements.
8
<PAGE> 13
"TCI Group"
Condensed Pro Forma Combined Financial Statements
March 31, 1996
(unaudited)
The following unaudited condensed pro forma combined balance sheet of
TCI Group, dated as of March 31, 1996, assumes that the VII Cable Acquisition
(see note 1) and the Distribution (see note 2) had occurred as of such date.
The following unaudited condensed pro forma combined statement of
operations of TCI Group for the three months ended March 31, 1996 assumes that
the VII Cable Acquisition and the Distribution had occurred as of January 1,
1995.
The following unaudited condensed pro forma combined statement of
operations of TCI Group for the year ended December 31, 1995 assumes that the
VII Cable Acquisition, the Distribution and the Cablevision Acquisition (see
note 3) had occurred as of January 1, 1995.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the VII Cable
Acquisition, the Distribution and the Cablevision Acquisition had occurred as
of January 1, 1995. These condensed pro forma combined financial statements of
TCI Group should be read in conjunction with the historical financial
statements and the related notes thereto of TCI Group.
9
<PAGE> 14
"TCI GROUP"
Condensed Pro Forma Combined Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------------------------------------------------
TCI Group VII Cable Pro forma Satellite TCI
Historical Historical (1) adjustments(1) Distribution (2) Pro forma
---------- -------------- -------------- ------------ ---------
amounts in millions
<S> <C> <C> <C> <C> <C>
Assets
- ------
Cash, receivables and other
current assets $ 721 18 1,700 (4) (20) 719
(1,700) (5)
Note receivable from Satellite -- -- -- 642 642
Investment in affiliates and
related receivables 2,061 -- -- (21) 2,040
Property and equipment, net of
accumulated depreciation 7,610 422 (3) (5) (982) 7,047
Franchise costs, intangibles and
other assets, net of amortization 14,060 625 (45) (5) -- 16,064
1,424 (6)
------- ----- ----- ------ -------
$24,452 1,065 1,376 (381) 26,512
======= ===== ===== ====== =======
Liabilities and Stockholders' Equity
- ------------------------------------
Payables and accruals $ 1,727 80 (26) (5) (463) 1,318
Debt 12,940 57 (57) (5) -- 14,640
1,700 (4)
Deferred income taxes 4,568 62 -- (10) 4,620
Other liabilities 179 11 (12) (5) -- 178
------- ----- ----- ------ -------
Total liabilities 19,414 210 1,605 (473) 20,756
------- ----- ----- ------ ------
Minority interests 827 -- 626 (7) -- 1,453
Redeemable preferred stock 655 -- -- -- 655
Company-obligated mandatorily
redeemable preferred securities of
subsidiary trust holding solely sub-
ordinated debt securities of TCIC 508 -- -- -- 508
Stockholders' equity:
Viacom equity investment -- 855 (855) (8) -- --
Combined equity 3,046 -- -- 92 3,138
Cumulative foreign currency
translation adjustment (16) -- -- -- (16)
Unrealized holding gains for
available-for sale securities 28 -- -- -- 28
Due from Liberty Media Group (10) -- -- -- (10)
------- ----- ------ ------ -------
3,048 855 (855) 92 3,140
------- ----- ----- ------ -------
$24,452 1,065 1,376 (381) 26,512
======= ===== ===== ====== =======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
11
<PAGE> 15
"TCI GROUP"
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1996
-----------------------------------------------------------------------------------------
TCI Group VII Cable Pro forma Satellite TCI
Historical Historical (1) adjustments(1) Distribution(2) Pro forma
---------- -------------- -------------- --------------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C>
Revenue $ 1,538 116 -- (96) 1,558
Operating, cost of sales, selling,
general and administrative
expenses and compensation
relating to stock appreciation
rights (1,032) (76) -- 91 (1,017)
Depreciation and amortization (352) (22) (9) (9) 25 (358)
------- ---- ----- ----- ------
Operating income 154 18 (9) 20 183
Interest expense (255) (12) (19) (13) -- (286)
Interest and dividend income 8 -- -- -- 8
Share of losses of affiliates, net (70) -- -- -- (70)
Gains 8 -- -- -- 8
Other income, net 9 2 (8) (14) -- 3
------- ---- ----- ----- ------
Earnings (loss) before income
taxes (146) 8 (36) 20 (154)
Income tax benefit (expense) 45 (5) 8 (15) (6) 42
------- ---- ----- ----- ------
Net earnings (loss) (101) 3 (28) 14 (112)
Dividend requirement on
redeemable preferred stocks (9) -- -- -- (9)
------- ---- ----- ----- ------
Net earnings (loss) attributable
to common shareholders $ (110) 3 (28) 14 (121)
======= ==== ===== ===== ======
Loss attributable to common
stockholders per common share $ (.17) (.18)(16)
======= ======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
11
<PAGE> 16
"TCI GROUP"
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1995
-----------------------------------------------------------------------------------------
TCI Group VII Cable Cablevision Pro forma Satellite TCI
Historical Historical (1) Historical (3) adjustments(1)(3) Distribution (2) Pro Forma
---------- -------------- -------------- ---------------- ---------------- ---------
amount in millions
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 5,384 442 52 (2) (5) (211) 5,665
Operating, selling, general and
administrative expenses and
compensation relating to stock
appreciation rights (3,457) (279) (34) -- 214 (3,556)
Depreciation and amortization (1,274) (82) (2) (45) (9) 57 (1,346)
------- ------ ----- ------ ----- -------
Operating income 653 81 16 (47) 60 763
Interest expense (993) (48) -- (3) (10) -- (1,137)
(4) (11)
(5) (12)
(84) (13)
Interest and dividend income 43 -- -- -- -- 43
Share of losses of affiliates, net (178) -- -- -- 9 (169)
Gains 339 -- -- -- -- 339
Other income (expense), net (45) 34 -- (27) (5) -- (69)
(31) (14)
------- ------ ----- ------- ----- -----
Earnings (loss) before income
taxes (181) 67 16 (201) 69 (230)
Income tax benefit (expense) 66 (33) (5) 52 (15)(5) (22) 58
------- ------ ----- ------- ----- -----
Earnings (loss) before losses of
Liberty Media Group (115) 34 11 (149) 47 (172)
Losses of Liberty Media Group (29) -- -- -- -- (29)
------- ------ ----- ------- ----- -----
Net earnings (loss) (144) 34 11 (149) 47 (201)
Dividend requirement on redeemable
preferred stocks (34) -- -- -- -- (34)
------- ------ ----- ------- ----- ------
Net earnings (loss) attributable
to common shareholders $ (178) 34 11 (149) 47 (235)
======= ====== ===== ======= ===== =====
Loss attributable to common
stockholders per common share (.16) (.18)(17)
======= =====
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
12
<PAGE> 17
"TCI GROUP"
Notes to Condensed Pro Forma Combined Financial Statements
March 31, 1996
(unaudited)
(1) On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI Viacom International Inc. and Viacom, TCIC acquired all of
the common stock of VII Cable which, at the time of such acquisition,
owned Viacom's cable systems and related assets.
The transaction was structured as a tax-free reorganization in which
VII Cable initially transferred all of its non-cable assets, as well
as all of its liabilities other than current liabilities, to New
Viacom Sub. VII Cable also transferred to New Viacom Sub the Loan
Proceeds of the Loan Facility arranged by TCIC, TCI and VII Cable.
Following these transfers, VII Cable retained cable assets with a
value at closing of approximately $2.326 billion and the obligation to
repay the Loan Proceeds borrowed under the Loan Facility. Neither
Viacom nor New Viacom Sub has any obligation with respect to repayment
of the Loan Proceeds.
Prior to the consummation of the VII Cable Acquisition, Viacom offered
to the holders of shares of Viacom Common Stock the opportunity to
exchange a portion of their shares of Viacom Common Stock for shares of
VII Cable Class A Stock. Immediately following the completion of the
Exchange Offer, TCIC acquired from VII Cable shares of VII Cable Class
B Common Stock in exchange for $350 million (which was used to reduce
VII Cable's obligations under the Loan Facility). At the time of the
Share Issuance, the VII Cable Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted
into the Exchangeable Preferred Stock of VII Cable with a stated value
of $100 per share. The terms of the Exchangeable Preferred Stock,
including its dividend, redemption and exchange features, were designed
to cause the Exchangeable Preferred Stock, in the opinion of two
investment banks, to initially trade at the Stated Value.
The cost to acquire VII Cable was approximately $2.326 billion,
consisting of the Loan Proceeds and the $626 million aggregate par
value of the VII Cable Exchangeable Preferred Stock. The accompanying
unaudited pro forma condensed combined statements of operations do not
reflect potential cost savings attributable to (i) economics of scale
which may be realized in connection with purchases of programming and
equipment or (ii) consolidation of certain operating and
administrative functions including the elimination of duplicative
facilities and personnel.
(2) On June 19, 1996, TCI announced the Distribution by TCI to the holders
of shares of the TCI Group common stock of all of the issued and
outstanding common stock of Satellite. At the time of the
Distribution, Satellite will be a Delaware corporation and a direct
wholly owned subsidiary of TCI. The Distribution will be effected as
a tax-free dividend to, and will not involve the payment of any
consideration by, the holders of TCI Group common stock. Prior to the
Distribution, TCI will cause to be transferred to Satellite, or one or
more of Satellite's subsidiaries, certain assets and businesses (and
the related liabilities) of the TCI Group constituting all of TCI's
interests in the business of distributing multichannel programming
services in the United States direct to the home via medium power or
high power broadcast satellite, including the rental and sale of
customer premises equipment relating thereto.
(continued)
14
<PAGE> 18
"TCI GROUP"
Notes to Condensed Pro Forma Combined Financial Statements
In connection with the Distribution, it is anticipated that the
intercompany balance owed by Satellite to TCIC will be converted into
a note payable to TCIC the terms of which have not yet been
determined. The accompanying pro forma financial statements reflect
the assumed conversion of such intercompany balance as well as the
elimination of the estimated assets, liabilities, revenue and expenses
of Satellite. The intercompany balance is based upon historical
amounts. However, it is expected that TCIC will continue to make
capital expenditures on behalf of Satellite and, as such, the
intercompany balance can be expected to increase through the date of
the Distribution. The Satellite financial information is subject to
adjustment upon the finalization of the historical financial
statements of Satellite.
(3) On April 25, 1995, TCI Group consummated the Cablevision Acquisition
for an aggregate purchase price of $286 million. The purchase price
was paid with cash consideration of approximately $199 million
(including a previously paid deposit of $20 million) and TCI Group's
issuance of the Cablevision Notes. TCI Group has an option during the
two year period ended April 25, 1997 to increase its ownership
interest in Cablevision to 80% at a cost per subscriber similar to the
initial purchase price. The exercise of such option has not been
reflected in the accompanying condensed pro forma combined financial
statements.
All amounts presented with respect to Cablevision are stated in U.S.
dollars. During the periods covered by the accompanying condensed pro
forma financial statements, an exchange rate of one U.S. dollar to one
Argentine peso was maintained by the Argentine government.
(4) Reflects the borrowing of the Loan Proceeds ($1.7 billion) under the
Loan Facility. Scheduled maturities of the Loan through December 31,
2000 are assumed to be $300 million (1996), none (1997), $30 million
(1998), $110 million (1999) and $135 million (2000).
(5) Reflects the conveyance to New Viacom Sub of the Loan Proceeds,
existing bank debt of $57 million and certain other nonmaterial
assets, liabilities and related results of operations of VII Cable,
including for the year ended December 31, 1995, a pre-tax gain of $27
million from the sale of marketable securities and a provision for
income taxes of $11 million.
(continued)
14
<PAGE> 19
"TCI GROUP"
Notes to Condensed Pro Forma Combined Financial Statements
(6) The cost to acquire VII Cable will be allocated to the assets and
liabilities acquired according to their respective fair values, with
any excess being treated as franchise costs. The valuations and other
studies which will provide the basis for the allocation of the cost to
acquire VII Cable have not yet been performed and, consequently, the
purchase accounting adjustments made in connection with the
development of the unaudited condensed pro forma combined financial
statements are preliminary. The entire purchase price in excess of
the book value of VII Cable's assets and liabilities has been
attributed to franchise costs. The approximately $1.4 billion pro
forma excess of unallocated acquisition costs as of March 31, 1996 is
being amortized over 40 years at a rate of $36 million per year. To
the extent that the excess purchase price over book value is allocated
to property and equipment or other assets, including identifiable
intangibles with lives of less than 40 years, depreciation and
amortization will increase and, on an after-tax basis, net loss will
increase. Although TCI Group cannot estimate the potential increase
in depreciation nor amortization, it may be significant. TCI Group
estimates the average useful life of property and equipment to be
approximately 12.5 years. In addition, TCI Group does not believe
that there are substantial intangible assets which will require
amortization over periods less that 12.5 years. As a result, TCI
Group does not believe that any allocation of purchase price to other
assets should be expected to result in an amortization period less
than 12.5 years. VII Cable has estimated, that for every $100 million
allocated to property and equipment or to other assets including
identifiable intangibles, and assuming an average life of 12.5 years,
depreciation and amortization would increase by $5.5 million per year
over such 12.5 year period.
(7) Reflects the estimated aggregate par value of the VII Cable
Exchangeable Preferred Stock.
(8) Represents the elimination of VII Cable's historical equity.
(9) Represents depreciation and amortization of VII Cable's and
Cablevision's allocated excess purchase prices based upon weighted
average lives of 12-1/2 years for property and equipment for
Cablevision and 40 years for franchise costs for VII Cable and 20
years for franchise costs for Cablevision.
(10) Represents assumed interest expense on the $87 million principal
amount of the Cablevision Notes, calculated at an assumed interest
rate of 10.0% per annum.
(11) Represents additional interest expense on assumed indebtedness of
Cablevision. Such additional interest expense was not reflected in
the historical financial statements of Cablevision as the related
borrowings were not utilized to support the assets acquired by TCI
Group. The pro forma adjustment assumes that Cablevision's April 25,
1995 borrowings ($77 million including capital lease obligations) were
outstanding since January 1, 1995 and that such borrowings bore
interest at 14.5% per annum.
(12) Represents assumed interest expense incurred by TCI Group on the
borrowings of $179 million to pay the remaining cash portion of the
Cablevision purchase price. Such interest expense was calculated at
TCI Group's weighted average interest rate of 8.1% for the year ended
December 31, 1995.
(continued)
15
<PAGE> 20
"TCI GROUP"
Notes to Condensed Pro Forma Combined Financial Statements
(13) Represents assumed additional interest expense (after taking into
consideration interest expense reflected in the historical VII Cable
operations) incurred by TCI Group on the borrowings of the Loan
Proceeds. Solely for the purposes of this presentation, TCI Group has
assumed an interest rate of 7.41% and 7.78% for the three months ended
March 31, 1996 and for the year ended December 31, 1995, respectively,
based upon historical interest rates adjusted for anticipated terms of
the Loan Facility.
(14) Reflects an assumed 5.0% cumulative annual dividend on the $626
million of VII Cable Exchangeable Preferred Stock included in minority
share of losses of consolidated subsidiaries.
(15) Reflects the estimated income tax effect of the pro forma adjustments.
The effective income tax rate on a pro forma basis is adversely
affected by the amortization of excess acquisition costs, which are
assumed not to be deductible for tax purposes.
(16) Reflects loss per common share based upon 659.3 million weighted
average shares. Such amount represents TCI Group's weighted average
shares, as disclosed in its March 31, 1996 historical financial
statements.
(17) Reflects loss per common share based upon 656.4 million weighted
average shares from August 11, 1995 through December 31, 1995. Such
amount represents TCI Group's weighted average shares, as disclosed in
its December 31, 1995 historical financial statements.
16
