TELE COMMUNICATIONS INC /CO/
10-Q, 1999-05-17
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)
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<PAGE>   1
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D. C. 20549

                                  F O R M 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999

                                       OR 

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the transition period from _____ to _____


Commission File Number 0-20421


                           TELE-COMMUNICATIONS, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


       State of Delaware                                  84-1260157
- -------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)


             9197 S. Peoria
           Englewood, Colorado                              80112
- ----------------------------------------                  ----------
(Address of principal executive offices)                  (Zip Code)


      Registrant's telephone number, including area code:  (720) 875-4000


         Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes  X  No
                                              ---     ---
<PAGE>   2


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                              (see notes 1 and 2)

                          Consolidated Balance Sheets
                                  (unaudited)

<TABLE>
<CAPTION>
                                                       New TCI      Old TCI
                                                      --------    ------------
                                                      March 31,   December 31,
                                                        1999         1998
                                                      ---------   ------------
<S>                                                   <C>           <C>
Assets                                                  amounts in millions

Cash and cash equivalents                             $   401   |     419
                                                                |
Restricted cash (note 4)                                   54   |     185
                                                                |
Trade and other receivables, net                          449   |     593
                                                                |
Prepaid and committed program rights                       --   |     263
                                                                |
Investment in Liberty Media Group and related                   |
    receivables (note 5)                               34,532   |      --
                                                                |
Investments in affiliates other than Liberty Media              |
    Group (the "Other Affiliates"), accounted for               |
    under the equity method, and related                        |
    receivables (notes 6 and 12)                        8,120   |   4,765
                                                                |
Investment in Time Warner, Inc. ("Time Warner")            40   |   7,118
                                                                |
Investment in AT&T Corp. ("AT&T") (notes 2 and 11)         --   |   3,556
                                                                |
Investment in Sprint Corporation ("Sprint")                --   |   2,446
                                                                |
Property and equipment, at cost:                                |
    Land                                                  127   |      63
    Distribution systems                                5,218   |  10,107
    Support equipment and buildings                     1,008   |   1,769
                                                      -------   |  ------
                                                        6,353   |  11,939
    Less accumulated depreciation                          74   |   4,786
                                                      -------   |  ------
                                                        6,279   |   7,153
                                                      -------   |  ------
                                                                |
Intangible assets                                      25,329   |  15,782
    Less accumulated amortization                          77   |   2,723
                                                      -------   |  ------
                                                       25,252   |  13,059
                                                      -------   |  ------
                                                                |
Other assets, net of accumulated amortization           1,952   |   2,294
                                                      -------   |  ------
                                                                |
                                                      $77,079   |  41,851
                                                      =======   |  ======
</TABLE>

                                                                    (continued)

                                      I-1
<PAGE>   3
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                              (see notes 1 and 2)

                     Consolidated Balance Sheets, continued
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                            New TCI       Old TCI
                                                                           ---------    ------------
                                                                           March 31,    December 31,
                                                                             1999          1998
                                                                           ---------    ------------
<S>                                                                        <C>          <C>
Liabilities and Stockholders' Equity                                         amounts in millions

Accounts payable                                                            $    305  |      229
                                                                                      |
Accrued interest                                                                 141  |      253
                                                                                      |
Accrued programming expense                                                      272  |      471
                                                                                      |
Other accrued expenses                                                           813  |    1,128
                                                                                      |
Debt (notes 2 and 8):                                                                 |
    Due to unaffiliated parties                                               10,560  |   14,052
    Notes payable to AT&T (including $19 million of accrued                           |
       interest in 1999)                                                       6,386  |       --
                                                                                      |
Deferred income taxes                                                          4,670  |    9,749
                                                                                      |
Other liabilities                                                              1,226  |    1,819
                                                                            --------  |  -------
                                                                                      |
    Total liabilities                                                         24,373  |   27,701
                                                                            --------  |  -------
                                                                                      |
Minority interests in equity of consolidated subsidiaries                      2,647  |    1,460
                                                                                      |
Redeemable securities (note 2):                                                       |
    Preferred stock                                                               --  |      300
    Common stock                                                                  --  |       22
                                                                                      |
Company-obligated mandatorily redeemable preferred securities of                      |
    subsidiary trusts ("Trust Preferred Securities") holding                          |
    solely subordinated debt securities (note 9)                               1,660  |    1,500
                                                                                      |
Stockholders' equity (notes 2 and 10):                                                |
    Series Preferred Stock, $.01 par value                                        --  |       --
    Class B 6% Cumulative Redeemable Exchangeable Junior Preferred                    |
       Stock, $.01 par value                                                      --  |       --
    Common stock, $.01 par value.  Authorized 3,550,000,000 shares;                   |
       issued 1,327,985,000 shares in 1999                                        13  |       --
    Common stock, $1 par value:                                                       |
       Series A TCI Group. Authorized 1,750,000,000 shares; issued                    |
          610,748,188 shares in 1998                                              --  |      611
       Series B TCI Group. Authorized 150,000,000 shares; issued                      |
          73,929,229 shares in 1998                                               --  |       74
       Series A Liberty Media Group.  Authorized 750,000,000 shares;                  |
          issued 367,890,546 shares in 1998                                       --  |      368
       Series B Liberty Media Group.  Authorized 75,000,000 shares;                   |
          issued 35,198,156 shares in 1998                                        --  |       35
       Series A TCI Ventures Group. Authorized 750,000,000 shares;                    |
          issued 377,253,230 shares in 1998                                       --  |      377
       Series B TCI Ventures Group. Authorized 75,000,000 shares; issued              |
          45,750,534 shares in 1998                                               --  |       46
    Additional paid-in capital                                                52,220  |     5,987
    Accumulated other comprehensive earnings, net of taxes                       924  |    3,749
    Retained earnings (accumulated deficit)                                     (740) |    1,124
                                                                            --------  |  -------
                                                                              52,417  |   12,371
                                                                                      |
    Investment in AT&T (notes 2 and 11)                                       (4,018) |       --
    Treasury stock and common stock held by subsidiaries, at cost                 --  |   (1,503)
                                                                            --------  |  -------
                                                                                      |
          Total stockholders' equity                                          48,399  |   10,868
                                                                            --------  |  -------
Commitments and contingencies (notes 14 and 15)                                       |
                                                                            $ 77,079  |    41,851
                                                                            ========  |  =======
</TABLE>

See accompanying notes to consolidated financial statements.


                                      I-2
<PAGE>   4

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                              (see notes 1 and 2)


                     Consolidated Statements of Operations
                                  (unaudited)


<TABLE>
<CAPTION>
                                                               New TCI                 Old TCI
                                                           --------------  ----------------------------------
                                                              One month       Two months        Three months
                                                                ended           ended              ended
                                                           March 31, 1999  February 28, 1999   March 31, 1998
                                                           --------------  -----------------   --------------
                                                                          amounts in millions,
                                                                       except per share amounts
<S>                                                        <C>             <C>                  <C>  
Revenue                                                         $   483    |     1,145              1,890
                                                                           |
Operating costs and expenses:                                              |
   Operating (note 11)                                              188    |       467                748
   Selling, general and administrative                              117    |       311                437
   Year 2000 costs                                                    6    |        11                 --
   AT&T merger costs                                                 --    |        65                 --
   Stock compensation                                               (45)   |       366                229
   Write-off of in-process research and development                        |
      costs (note 2)                                                594    |        --                 --
   Depreciation and amortization                                    167    |       277                434
                                                                -------    |    ------             ------
                                                                  1,027    |     1,497              1,848
                                                                -------    |    ------             ------
                                                                           |
         Operating income (loss)                                   (544)   |      (352)                42
                                                                           |
Other income (expense):                                                    |
   Interest expense:                                                       |
      Unaffiliated parties                                          (50)   |      (161)              (284)
      AT&T (notes 2 and 8)                                          (19)   |        --                 --
   Interest and dividend income                                       3    |        13                 21
   Share of losses of Liberty Media Group (note 5)                  (58)   |        --                 --
   Share of losses of the Other Affiliates, net (note 6)            (77)   |      (161)              (238)
   Minority interests in earnings of consolidated                          |
      subsidiaries, net (note 9)                                    (15)   |       (26)               (30)
   Gains on issuance of equity interests by                                |
      subsidiaries (note 7)                                          --    |       389                 38
   Gains on disposition of assets, net (note 7)                      10    |       144              1,063
   Other, net                                                        (5)   |        (3)               (10)
                                                                -------    |    ------             ------
                                                                   (211)   |       195                560
                                                                -------    |    ------             ------
                                                                           |
      Earnings (loss) before income taxes and                              |
         extraordinary loss                                        (755)   |      (157)               602
                                                                           |
Income tax benefit (expense)                                         15    |      (119)              (246)
                                                                -------    |    ------             ------
                                                                           |
      Earnings (loss) before extraordinary loss                    (740)   |      (276)               356
                                                                           |
Extraordinary loss (net of income tax benefit of $3                        |
   million and $6 million, respectively) (note 8)                    --    |        (5)               (10)
                                                                -------    |    ------             ------
                                                                           |
      Net earnings (loss)                                       $  (740)   |      (281)               346
                                                                =======    |
                                                                           |
Dividend requirements on preferred stocks                                  |        (4)               (11)
                                                                           |    ------             ------
                                                                           |
      Net earnings (loss) attributable to common                           |
         stockholders                                                      |      (285)               335
                                                                           |    ======             ======
</TABLE>

                                                                    (continued)


                                      I-3
<PAGE>   5
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                              (see notes 1 and 2)

                Consolidated Statements of Operations, continued
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                         New TCI                           Old TCI
                                                                    ---------------        --------------------------------------
                                                                       One month             Two months             Three months
                                                                         ended                  ended                 ended
                                                                     March 31, 1999        February 28, 1999       March 31, 1998
                                                                    ---------------        -----------------      ---------------
                                                                                        amounts in millions,
                                                                                      except per share amounts
<S>                                                                 <C>                    <C>                    <C>
Net earnings (loss) attributable to common stockholders:                               |
   TCI Group Series A and Series B common stock                     $            --    |              (226)                   227
   Liberty Media Group Series A and Series B common stock                        --    |               (49)                   303
   TCI Ventures Group Series A and Series B common stock                         --    |               (10)                  (195)
                                                                    ---------------    |   ---------------        ---------------
                                                                    $            --    |              (285)                   335
                                                                    ===============    |   ===============        ===============
Basic earnings (loss) attributable to common                                           |
   stockholders per common share (note 3):                                             |
                                                                                       |
     TCI Group Series A and Series B common stock                   $            --    |              (.42)                   .44
                                                                    ===============    |   ===============        ===============
     Liberty Media Group Series A and Series B common stock         $            --    |              (.13)                   .85
                                                                    ===============    |   ===============        ===============
     TCI Ventures Group Series A and Series B common stock          $            --    |              (.02)                  (.46)
                                                                    ===============    |   ===============        ===============
                                                                                       |
Diluted earnings (loss) attributable to common                                         |
   stockholders per common and                                                         |
   potential common share (note 3):                                                    |
     TCI Group Series A and Series B common stock                   $            --    |              (.43)                   .38
                                                                    ===============    |   ===============        ===============
     Liberty Media Group Series A and Series B common stock         $            --    |              (.13)                   .78
                                                                    ===============    |   ===============        ===============
     TCI Ventures Group Series A and Series B common stock          $            --    |              (.09)                  (.46)
                                                                    ===============    |   ===============        ===============
                                                                                       |
Comprehensive earnings                                              $           184    |               691                    696
                                                                    ===============    |   ===============        ===============
</TABLE>


See accompanying notes to consolidated financial statements.


                                      I-4
<PAGE>   6

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                              (see notes 1 and 2)


                 Consolidated Statement of Stockholders' Equity
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                                                                   
                                                                                                                                   
                                                                                          Common Stock                             
                                                                    ---------------------------------------------------------------
                                                           Class B        TCI Group       Liberty Media Group    TCI Ventures Group
                                                          Preferred -------------------   -------------------   -------------------
                                                            Stock   Series A   Series B   Series A   Series B   Series A   Series B
                                                         ---------- --------   --------   --------   --------   --------   --------
                                                                                    amounts in millions
Old TCI
<S>                                                      <C>         <C>       <C>         <C>        <C>        <C>         <C>  
Balance at January 1, 1999                               $    --        611        74        368        35        377         46  

    Net loss                                                  --         --        --         --        --         --         --  
    Reclassification of redeemable common stock
      to equity upon expiration of put
      obligations                                             --         --        --         --        --         --         --  
    Proceeds received upon termination of equity
      swap facilities (note 10)                               --         --        --         --        --         --         --  
    Settlement of equity swap transaction in
      connection with preferred stock exchange
      (note 10)                                               --         --        --         --        --         --         --  
    Gain from contribution of cable television
      systems to joint ventures, net of taxes
      (note 7)                                                --         --        --         --        --         --         --  
    Issuance of common stock upon exercise of
      stock options                                           --         --        --         --        --         --         --  
    Recognition of stock compensation related to
      restricted stock awards                                 --         --        --         --        --         --         --  
    Issuance of restricted stock granted
      pursuant to stock incentive plan                        --          3        --         --        --         --         --  
    Conversion of Series B common stock to
      Series A common stock                                   --         --        --         --        --          1         (1) 
    Accreted dividends on all classes of
      preferred stock                                         --         --        --         --        --         --         --  
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                                 --         --        --         --        --         --         --  
    Foreign currency translation adjustment                   --         --        --         --        --         --         --  
    Change in unrealized holding gains for
      available-for-sale securities, net of taxes             --         --        --         --        --         --         --  
                                                         -------   --------   -------   --------   -------   --------    -------  
Balance at February 28, 1999                             $    --        614        74        368        35        378         45  
                                                         =======   ========   =======   ========   =======   ========    =======

<CAPTION>
                                                                                                       Treasury
                                                                                                       stock and
                                                                        Accumulated                     common
                                                                           other                         stock
                                                          Additional   comprehensive                     held by         Total
                                                           paid-in        earnings,      Retained     subsidiaries,   stockholders'
                                                           capital      net of taxes     earnings        at cost        equity
                                                          ---------    -------------     --------     -------------   -------------
                                                                                    amounts in millions
Old TCI
<S>                                                        <C>          <C>               <C>           <C>            <C>   
Balance at January 1, 1999                                  5,987          3,749          1,124         (1,503)         10,868

    Net loss                                                   --             --           (281)            --            (281)
    Reclassification of redeemable common stock
      to equity upon expiration of put
      obligations                                              10             --             --             --              10
    Proceeds received upon termination of equity
      swap facilities (note 10)                               677             --             --             --             677
    Settlement of equity swap transaction in
      connection with preferred stock exchange
      (note 10)                                               (29)            --             --             --             (29)
    Gain from contribution of cable television
      systems to joint ventures, net of taxes
      (note 7)                                                  9             --             --             --               9
    Issuance of common stock upon exercise of
      stock options                                             3             --             --             --               3
    Recognition of stock compensation related to
      restricted stock awards                                  12             --             --             --              12
    Issuance of restricted stock granted
      pursuant to stock incentive plan                         (3)            --             --             --              --
    Conversion of Series B common stock to
      Series A common stock                                    --             --             --             --              --
    Accreted dividends on all classes of
      preferred stock                                          --             --             (4)            --              (4)
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                                   2             --             --             --               2
    Foreign currency translation adjustment                    --            (15)            --             --             (15)
    Change in unrealized holding gains for
      available-for-sale securities, net of taxes              --            987             --             --             987
                                                           ------         ------         ------         ------         -------
Balance at February 28, 1999                                6,668          4,721            839         (1,503)         12,239
                                                           ======         ======         ======         ======         =======
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                                                    (continued)


                                      I-5
<PAGE>   7

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                              (see notes 1 and 2)


           Consolidated Statement of Stockholders' Equity, continued
                                  (unaudited)



<TABLE>
<CAPTION>
                                                                                                     Accumulated                 
                                                                                                        other                    
                                                            Class B                     Additional   comprehensive               
                                                           Preferred        Common       paid-in        earnings,    Accumulated 
                                                             Stock          Stock        capital      net of taxes     deficit   
                                                          -----------       ------      ----------   -------------  ------------ 
                                                                                  amounts in millions
<S>                                                       <C>                <C>         <C>            <C>          <C>         
New TCI

Balance at March 1, 1999 (note 2)                         $        --         13          52,142           --           --       
    Net loss                                                       --         --              --           --         (740)      
    Payment of preferred stock dividends                           --         --             (10)          --           --       
    Issuance of AT&T Common Stock upon
      conversion of notes (note 8)                                 --         --              40           --           --       
    Issuance of AT&T Liberty Tracking Stock upon
      conversion of Liberty Media Group debt
      (note 5)                                                     --         --              48           --           --       
    Change in unrealized holding gains for
      available-for-sale securities, net of taxes                  --         --              --          912           --       
    Foreign currency translation adjustments,
      net of taxes                                                 --         --              --           12           --       
                                                          -----------       ----         -------        -----         ----       
Balance at March 31, 1999                                 $        --         13          52,220          924         (740)      
                                                          ===========       ====         =======        =====         ====       

<CAPTION>

                                                                               Total
                                                          Investment in    stockholders'
                                                            in AT&T           equity
                                                          -------------    -------------
                                                                amounts in millions
<S>                                                        <C>              <C>   
New TCI

Balance at March 1, 1999 (note 2)                           (4,018)          48,137
    Net loss                                                    --             (740)
    Payment of preferred stock dividends                        --              (10)
    Issuance of AT&T Common Stock upon
      conversion of notes (note 8)                              --               40
    Issuance of AT&T Liberty Tracking Stock upon
      conversion of Liberty Media Group debt
      (note 5)                                                  --               48
    Change in unrealized holding gains for
      available-for-sale securities, net of taxes               --              912
    Foreign currency translation adjustments,
      net of taxes                                              --               12
                                                           -------          -------
Balance at March 31, 1999                                   (4,018)          48,399
                                                           =======          =======
</TABLE>



See accompanying notes to consolidated financial statements.


                                      I-6
<PAGE>   8

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                              (see notes 1 and 2)


                     Consolidated Statements of Cash Flows
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                               New TCI                   Old TCI
                                                                            --------------  ---------------------------------
                                                                              One month        Two months      Three months
                                                                                ended            ended             ended
                                                                            March 31, 1999  February 28, 1999  March 31, 1998
                                                                            --------------  -----------------  --------------
                                                                                            amounts in millions
                                                                                               (see note 4)
<S>                                                                         <C>              <C>               <C>
Cash flows from operating activities:
   Net earnings (loss)                                                           $(740)     |     (281)            346
   Adjustments to reconcile net earnings (loss) to net cash                                 |
     provided by operating activities:                                                      |
       Depreciation and amortization                                               167      |      277             434
       Stock compensation                                                          (45)     |      366             229
       Payments of obligation relating to stock compensation                        (3)     |     (294)            (91)
       Share of losses of Liberty Media Group                                       58      |       --              --
       Share of losses of the Other Affiliates, net                                 77      |      161             238
       Extraordinary loss                                                           --      |        8              16
       Minority interests in earnings of consolidated                                       |
         subsidiaries, net                                                          15      |       26              30
       Gains on issuance of equity interests by subsidiaries                        --      |     (389)            (38)
       Gains on disposition of assets, net                                         (10)     |     (144)         (1,063)
       Deferred income tax expense (benefit)                                        (6)     |      113             204
       Payments of restructuring charges                                            --      |       --              (4)
       Write-off of in-process research and development costs                      594      |       --              --
       Other noncash charges (credits)                                              (7)     |        1              11
       Changes in operating assets and liabilities, net of the effect of                    |
         acquisitions and dispositions:                                                     |
           Change in receivables                                                    24      |      (72)            (19)
           Change in prepaids                                                       --      |      (18)            (21)
           Change in other accruals and payables                                  (150)     |       (9)           (179)
                                                                                 -----      |   ------          ------
                                                                                            |
               Net cash provided by (used in) operating                                     |
                 activities                                                        (26)     |     (255)             93
                                                                                 -----      |   ------          ------
                                                                                            |
Cash flows from investing activities:                                                       |
   Cash paid for acquisitions                                                       --      |     (353)            (72)
   Capital expended for property and equipment                                    (282)     |     (297)           (246)
   Investments in and loans to affiliates                                          (12)     |      (82)           (252)
   Collections of loans to affiliates                                              109      |      745             448
   Proceeds from disposition of assets                                              --      |      344             334
   Change in restricted cash                                                         1      |      112              40
   Other investing activities                                                      (31)     |       65             (21)
                                                                                 -----      |   ------          ------
                                                                                            |
               Net cash provided by (used in) investing                                     |
                 activities                                                       (215)     |      534             231
                                                                                 -----      |   ------          ------
                                                                                            |
Cash flows from financing activities:                                                       |
   Borrowings of debt                                                               --      |      583           1,043
   Repayments of debt                                                             (792)     |   (1,468)         (1,082)
   Proceeds received upon termination of equity swap facilities                     --      |      677              --
   Prepayment penalties                                                             --      |       (4)            (15)
   Repurchase of common stock to be held in treasury                                --      |       --              (5)
   Repurchase of subsidiary common and preferred stock                              --      |      (45)             (7)
   Payment of preferred stock dividends                                            (10)     |       (4)            (22)
   Payment of dividends on subsidiary preferred stock and Trust                             |
     Preferred Securities                                                          (37)     |      (12)            (47)
   Payments for call agreements                                                     --      |       --            (274)
   Proceeds from issuance of subsidiary common stock                                --      |        7              --
   Advance from AT&T                                                               939      |       --              --
   Repayment of advance from AT&T                                                  (33)     |       --              --
   Other financing activities                                                       --      |        1              13
                                                                                 -----      |   ------          ------
                                                                                            |
               Net cash provided by (used in) financing                                     |
                 activities                                                         67      |     (265)           (396)
                                                                                 -----      |   ------          ------
                                                                                            |
               Net change in cash and cash equivalents                            (174)     |       14             (72)
               Cash and cash equivalents at beginning of                                    |
                 period                                                            575      |      419             244
                                                                                 -----      |   ------          ------
                                                                                            |
               Cash and cash equivalents at end of period                        $ 401      |      433             172
                                                                                 =====      |   ======          ======
</TABLE>

See accompanying notes to consolidated financial statements.


                                      I-7
<PAGE>   9

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                                 March 31, 1999
                                  (unaudited)

(1)      Basis of Presentation

         The accompanying consolidated financial statements include the
         accounts of Tele-Communications, Inc. and those of all majority-owned
         subsidiaries ("TCI" or the "Company"). On March 9, 1999, AT&T acquired
         TCI in a merger transaction (the "AT&T Merger"). For financial
         reporting purposes the AT&T Merger and related restructuring
         transactions described in note 2 are deemed to have occurred on March
         1, 1999. The consolidated financial statements for periods prior to
         March 1, 1999 are referred to herein as "Old TCI", and the
         consolidated financial statements for periods subsequent to February
         28, 1999 are referred to herein as "New TCI." Due to the March 1, 1999
         application of purchase accounting in connection with the AT&T Merger,
         the predecessor consolidated financial statements of Old TCI are not
         comparable to the successor consolidated financial statements of New
         TCI. In the following text, "TCI" and "the Company" refer to both Old
         TCI and New TCI. See note 2.

         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 TCI's Annual Report on Form
         10-K for the year ended December 31, 1998.

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenue and expenses during the reporting period. Actual
         results could differ from those estimates.

         Certain prior period amounts have been reclassified for comparability
         with the 1999 presentation.

         Targeted Stock

         Prior to the AT&T Merger, the Company's assets and operations were
         included in three separate groups, each of which was tracked
         separately by public equity securities. These groups were formerly
         known as the "Liberty Media Group" (referred to herein as the "Old
         Liberty Group"), the "TCI Ventures Group" and the "TCI Group".

         Old Liberty Group was intended to reflect the separate performance of
         TCI's assets which produce and distribute programming services.

                                                                    (continued)


                                      I-8
<PAGE>   10
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The TCI Ventures Group was intended to reflect the separate
         performance of TCI's principal international assets and businesses and
         substantially all of TCI's non-cable and non-programming assets.

         The TCI Group was intended to reflect the separate performance of TCI
         and its subsidiaries and assets not attributed to Old Liberty Group or
         TCI Ventures Group. Such subsidiaries and assets are comprised
         primarily of TCI's domestic cable and communications business.

         TCI Group, Old Liberty Group and TCI Ventures Group individually may
         be referred to herein as a "Group."

         The TCI Group was tracked separately through the Tele-Communications,
         Inc. Series A TCI Group Common Stock (the "TCI Group Series A Stock")
         and Series B TCI Group Common Stock (the "TCI Group Series B Stock,"
         and together with the TCI Group Series A Stock, the "TCI Group
         Stock"). The Old Liberty Group was tracked through the
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock
         ("Liberty Group Series A Stock") and Series B Liberty Media Group
         Common Stock ("Liberty Group Series B Stock" and together with the
         Liberty Group Series A Stock, the "Liberty Group Stock"). The TCI
         Ventures Group was tracked separately through the Tele-Communications,
         Inc. Series A TCI Ventures Group Common Stock ("TCI Ventures Group
         Series A Stock") and Series B TCI Ventures Group Common Stock ("TCI
         Ventures Group Series B Stock" and together with the TCI Ventures
         Group Series A Stock, the "TCI Ventures Group Stock").

         Each of the separate series of Tele-Communications, Inc. common stock
         was converted either into shares of AT&T common stock, par value $1.00
         per share, ("AT&T Common Stock") or shares of one of two classes of a
         new AT&T tracking stock designated to track the combined Old Liberty
         Group and TCI Ventures Group upon consummation of the AT&T Merger. See
         note 2.

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among TCI Group, Old Liberty Group and TCI
         Ventures Group, each such Group in the capital structure of TCI, which
         encompassed the TCI Group Stock, Liberty Group Stock and TCI Ventures
         Group Stock, did not affect the ownership or the respective legal
         title to such assets or responsibility for liabilities of TCI or any
         of its subsidiaries. TCI and its subsidiaries each were responsible
         for their respective liabilities. Holders of TCI Group Stock, Liberty
         Group Stock and TCI Ventures Group Stock were common stockholders of
         TCI and were subject to risks associated with an investment in TCI and
         all of its businesses, assets and liabilities.

                                                                    (continued)


                                      I-9
<PAGE>   11
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Following the AT&T Merger, the authorized capital of TCI consists of
         3,552,375,096 shares, consisting of 3,550,000,000 shares of common
         stock, par value $.01 per share, and 2,375,096 shares of preferred
         stock, par value $.01 per share ("Preferred Stock"). The Preferred
         Stock is divided into two classes: 700,000 shares of Class A Preferred
         Stock, par value $.01 per share, and 1,675,096 shares of Class B 6%
         Cumulative Redeemable Exchangeable Junior Preferred Stock, par value
         $.01 per share ("Class B Preferred Stock").

(2)      Merger with AT&T and Related Accounting

         On March 9, 1999, AT&T acquired TCI in the AT&T Merger, in which Italy
         Merger Corp., a wholly-owned subsidiary of AT&T, merged with and into
         TCI, and TCI thereby became a wholly-owned subsidiary of AT&T. As a
         result of the AT&T Merger, (i) each share of TCI Group Series A Stock
         was converted into 0.7757 of a share of AT&T Common Stock (1.16355
         shares as adjusted for an April 1999 three-for-two AT&T stock split),
         (ii) each share of TCI Group Series B Stock was converted into 0.8533
         of a share of AT&T Common Stock (1.27995 shares as adjusted for an
         April 1999 three-for-two AT&T stock split), (iii) each share of
         Liberty Group Series A Stock was converted into one share of a newly
         created class of AT&T common stock designated as the Class A Liberty
         Media Group Common Stock, par value $1.00 per share (the "AT&T Liberty
         Class A Tracking Stock"), (iv) each share of Liberty Group Series B
         Stock was converted into one share of a newly created class of AT&T
         common stock designated as the Class B Liberty Media Group Common
         Stock, par value $1.00 per share (the "AT&T Liberty Class B Tracking
         Stock" and together with the AT&T Liberty Class A Tracking Stock, the
         "AT&T Liberty Tracking Stock"), (v) each share of TCI Ventures Group
         Series A Stock was converted into 0.52 of a share of AT&T Liberty
         Class A Tracking Stock, (vi) each share of TCI Ventures Group Series B
         Stock was converted into 0.52 of a share of AT&T Liberty Class B
         Tracking Stock, (vii) each share of TCI's Convertible Preferred Stock,
         Series C-TCI Group (the "Series C-TCI Group Preferred Stock") was
         converted into 103.059502 shares of AT&T Common Stock (154.589253
         shares as adjusted for an April 1999 three-for-two AT&T stock split),
         (viii) each share of TCI's Convertible Preferred Stock Series
         C-Liberty Media Group (the "Series C-Liberty Media Group Preferred
         Stock") was converted into 56.25 shares of AT&T Liberty Class A
         Tracking Stock, (ix) each share of TCI's Redeemable Convertible TCI
         Group Preferred Stock, Series G ("Series G Preferred Stock") was
         converted into 0.923083 of a share of AT&T Common Stock (1.3846245
         shares as adjusted for an April 1999 three-for-two AT&T stock split)
         and (x) each share of TCI's Redeemable Convertible Liberty Media Group
         Preferred Stock, Series H ("Series H Preferred Stock") was converted
         into 0.590625 of a share of AT&T Liberty Class A Tracking Stock.
         Following the AT&T Merger, each share of Class B Preferred Stock
         continues to be outstanding as the Class B Preferred Stock of TCI with
         the same rights and preferences such stock had prior to the AT&T
         Merger. In general, the holders of shares of AT&T Liberty Class A
         Tracking Stock and the holders of shares of AT&T Liberty Class B
         Tracking Stock will vote together as a single class with the holders
         of shares of AT&T Common Stock on all matters presented to such
         stockholders, with the holders being entitled to one-tenth (1/10th) of
         a vote for each share of AT&T Liberty Class A Tracking Stock held, 1
         vote per share of AT&T Liberty Class B Tracking Stock held and 1 vote
         per share of AT&T Common Stock held.

                                                                    (continued)


                                     I-10
<PAGE>   12
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger
         are intended to reflect the separate performance of the businesses and
         assets attributed to Old Liberty Group and TCI Ventures Group at the
         time of the AT&T Merger. References herein to "Liberty/Ventures Group"
         refer to the combined assets and businesses of Old Liberty Group and
         TCI Ventures Group for periods prior to the AT&T Merger, and
         subsequent to the AT&T Merger such combined assets and business are
         referred to as "Liberty Media Group." Pursuant to, and subject to the
         terms and conditions set forth in, the Agreement and Plan of
         Restructuring and Merger, dated as of June 23, 1998 (the "Merger
         Agreement"), immediately prior to the AT&T Merger, certain assets
         previously attributed to TCI Ventures Group (including, among others,
         the shares of AT&T Common Stock received in the merger of AT&T and
         Teleport Communications Group, Inc. ("TCG"), the stock of At Home
         Corporation ("@Home") attributed to TCI Ventures Group, the assets and
         business of the National Digital Television Center, Inc. ("NDTC") and
         TCI Ventures Group's equity interest in Western Tele-Communications,
         Inc.) were transferred to TCI Group in exchange for approximately $5.5
         billion in cash. Also, upon consummation of the AT&T Merger, through a
         new tax sharing agreement between Liberty Media Group and AT&T,
         Liberty Media Group became entitled to the benefit of approximately
         $2.0 billion of net operating loss carryforwards attributable to all
         entities included in TCI's consolidated federal income tax return as
         of the date of the AT&T Merger. Such net operating loss carryforwards
         are subject to adjustment by the Internal Revenue Service and are
         subject to limitations on usage which may affect the ultimate amount
         utilized. Additionally, certain warrants to purchase shares of General
         Instruments Corporation ("GI") previously attributed to TCI Group were
         transferred to Liberty/Ventures Group in exchange for approximately
         $176 million in cash. The transfer of certain immaterial assets was
         also effected.

         Immediately prior to the AT&T Merger, AT&T and Liberty Media
         Corporation entered into an agreement relating to the carriage of
         programming of Liberty Media Group to be distributed over the AT&T
         cable systems. Pursuant to this agreement, Liberty Media Group will be
         granted, among other rights, "preferred vendor status" with respect to
         certain types of new programming services. Liberty Media Group will
         also be entitled to the use channel capacity equal to one six
         megahertz channel to be used for category specific interactive video
         channels. In addition, such agreement also provided for the extension
         of existing affiliation agreements between TCI and programming
         affiliates of Liberty Media Group to a date not less than 10 years
         from the closing of the AT&T Merger, upon the terms and conditions set
         forth in such agreement.

         Pursuant to amended corporate governance documents for the entities
         included in Liberty Media Group and certain agreements among AT&T and
         TCI, the business of Liberty Media Group will continue to be managed
         by certain persons who were members of TCI's management prior to the
         AT&T Merger. AT&T will initially designate one third of the directors
         of such entities and its rights as the sole shareholder of the common
         stock of such entities following the AT&T Merger will, in accordance
         with Delaware law, be limited to actions which will require
         shareholder approval. Therefore, management has concluded that TCI
         does not have a controlling financial interest (as that term is used
         in Statement of Financial Accounting Standards No. 94) in the entities
         comprising the Liberty Media Group following the AT&T Merger, and will
         account for its ownership interests in such entities under the equity
         method.

                                                                    (continued)

                                     I-11
<PAGE>   13
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Pursuant to a proposed final judgment (the "Final Judgment") agreed to
         by TCI, AT&T and the United States Department of Justice (the "DOJ")
         on December 30, 1998, Liberty/Ventures Group prior to the AT&T Merger
         transferred all of the equity securities of Sprint beneficially owned
         by the Liberty/Ventures Group (the "Sprint Securities") to a trust
         with an independent trustee (the "Trustee"), pursuant to a trust
         agreement approved by the DOJ (the "Trust Agreement"). The Final
         Judgment, if entered by the United States District Court for the
         District of Columbia, would require the Trustee, on or before May 23,
         2002, to dispose of a portion of the Sprint Securities held by the
         trust and beneficially owned by Liberty Media Group sufficient to
         cause Liberty Media Group to own beneficially no more than 10% of the
         outstanding shares of Sprint's Series 1 Sprint PCS common stock
         ("Series 1 PCS Stock") on a fully diluted basis (assuming the issuance
         of all shares of Series 1 PCS Stock of Sprint ultimately issuable in
         respect of the applicable securities of Sprint upon the exercise,
         conversion or other issuance thereof in accordance with the terms of
         such securities) on such date. On or before May 23, 2004, the Trustee
         must divest the remainder of the Sprint Securities beneficially owned
         by Liberty Media Group.

         The Trust Agreement grants the Trustee the sole right to sell the
         Sprint Securities and provides that all decisions regarding such
         divestiture will be made by the Trustee without discussion or
         consultation with AT&T or the entities in the Liberty Media Group;
         however, the Final Judgment would provide that the Trustee shall
         consult with the board of directors of the Liberty Media Group entity
         that owns the Sprint Securities regarding such divestiture (other than
         certain directors appointed by AT&T following the AT&T Merger and any
         director, officer or shareholder that owns more than 0.10% of the
         outstanding AT&T Common Stock). The Trustee has the power and
         authority to accomplish such divestiture only in a manner reasonably
         calculated to maximize the value of the Sprint Securities beneficially
         owned by Liberty Media Group.

         The Final Judgment would provide that the Trustee vote the Sprint
         Securities beneficially owned by Liberty Media Group in the same
         proportion as other holders of Sprint's PCS common stock so long as
         such securities are held by the trust. The Final Judgment also would
         prohibit the acquisition by Liberty Media Group of additional Sprint
         Securities (other than in connection with the exercise or conversion,
         as applicable, of certain Sprint Securities) without the prior written
         consent of the DOJ.


                                                                    (continued)


                                     I-12
<PAGE>   14
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Immediately prior to the AT&T Merger, TCI restructured its ownership
         of certain of its subsidiaries (the "Restructuring"). The
         Restructuring included merging TCI's cable subsidiary, TCI
         Communications, Inc. ("TCIC"), into TCI. As a result of TCIC's merger
         with TCI, all assets and liabilities of TCIC have been assumed by TCI,
         including TCIC's public debt. In connection with TCIC's merger with
         TCI, each share of TCIC's Cumulative Exchangeable Preferred Stock,
         Series A was converted into 2.119 shares of TCI Group Series A Stock,
         and such shares of TCI Group Series A Stock were subsequently
         converted into AT&T Common Stock in connection with the AT&T Merger.
         All other public securities issued by subsidiaries of TCIC (other than
         TCI Pacific Communications, Inc. ("Pacific")) otherwise remained
         unaffected. Furthermore, as part of the Restructuring, (i) AT&T loaned
         TCI $5.5 billion pursuant to a promissory note, (ii) certain asset
         transfers were made between TCI and its subsidiaries, (iii) 123,896
         shares of the Company's Convertible Redeemable Participating Preferred
         Stock, Series F ("Series F Preferred Stock") which were held by
         subsidiaries of TCI, were converted into 185,428,946 shares of TCI
         Group Series A Stock (which in turn were converted into 143,837,233
         shares of AT&T Common Stock (215,755,850 shares as adjusted for an
         April 1999 three-for-two AT&T stock split) in the AT&T Merger and
         continue to be held by subsidiaries of TCI), (iv) the remaining
         154,411 shares of Series F Preferred Stock which were formerly held by
         subsidiaries of TCI were distributed to TCI through a series of
         liquidations and canceled, and (v) 125,728,816 shares of TCI Group
         Series A Stock, 9,154,134 shares of TCI Group Series B Stock,
         6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of
         Liberty Group Series B Stock, and 67,536 shares of Class B Preferred
         Stock, each formerly held by subsidiaries of TCI, were distributed to
         TCI through a series of liquidations and canceled.

         After the AT&T Merger, under the terms of the 5% Class A Senior
         Cumulative Exchangeable Preferred Stock of Pacific (the "Exchangeable
         Preferred Stock"), each share of that preferred stock is exchangeable,
         from and after August 1, 2001, for approximately 4.225 shares of AT&T
         Common Stock (6.3375 shares as adjusted for an April 1999
         three-for-two AT&T stock split), subject to certain anti-dilution
         adjustments. Additionally, after the AT&T Merger, Pacific may elect to
         make any dividend, redemption or liquidation payment on the
         Exchangeable Preferred Stock in cash, by delivery of shares of AT&T
         Common Stock or by a combination of the foregoing forms of
         consideration.


                                                                    (continued)


                                     I-13
<PAGE>   15
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The AT&T Merger has been accounted for using the purchase method of
         accounting and has been deemed to be effective as of March 1, 1999 for
         financial reporting purposes. Accordingly, the preliminary allocation
         of AT&T's purchase price to acquire Old TCI has been reflected in
         TCI's consolidated financial statements as of March 1, 1999. A final
         allocation of such purchase price will be made upon resolution of
         pre-acquisition contingencies and receipt of final third party
         appraisals. Certain transactions occurring between March 1, 1999 and
         March 9, 1999 that affected Old TCI's equity and stock compensation
         have been reflected in the two-month period ended February 28, 1999.
         The $52.2 billion aggregate value assigned to TCI's net assets as a
         result of the application of purchase accounting was comprised of the
         following (amounts in millions):

<TABLE>
<S>                                                  <C>    
         Issuance of AT&T Common Stock               $26,798
         Issuance of AT&T Liberty Tracking Stock      23,360
         Assumption of convertible notes               1,593
         Assumption of Class B Preferred Stock           154
         Estimated merger costs                          250
                                                     -------
                                                     $52,155
                                                     =======
</TABLE>

         The value assigned to the AT&T Common Stock was based on the average
         closing price of AT&T Common Stock a few days before and after the
         AT&T Merger was agreed to and announced. The value assigned to the
         AT&T Liberty Tracking Stock was based on the average closing price of
         Liberty Group Stock a few days before and after the AT&T Merger was
         agreed to and announced. The Liberty Group Stock was used to value the
         AT&T Liberty Tracking Stock issued in the AT&T Merger because the fair
         value of Liberty Group Stock was more readily determinable than the
         fair value of the AT&T Liberty Tracking Stock.

         The following table reflects the opening summarized balance sheet of
         New TCI which includes the effects of the Restructuring, purchase
         accounting adjustments resulting from the allocation of AT&T's
         purchase price to acquire Old TCI and the deconsolidation of the
         entities comprising Liberty Media Group following the AT&T Merger:

                                                                    (continued)


                                     I-14
<PAGE>   16
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                        New TCI
                                                     March 1, 1999
                                                     -------------
                                                 (amounts in millions)
<S>                                               <C>     
Assets

    Cash and cash equivalents                          $    575
    Restricted cash                                          55
    Receivables and prepaid assets                          519
    Investment in Liberty Media Group                    33,728
    Investment in the Other Affiliates and related
       receivables                                        8,202
    Property and equipment, net                           6,072
    Intangible assets, net                               25,329
    Other assets, net                                     2,412
                                                       --------
                                                       $ 76,892
                                                       ========

Liabilities and Stockholders' Equity

    Accounts payable and accrued expenses              $  1,728
    Debt                                                 16,860
    Deferred income taxes                                 4,668
    Other liabilities                                     1,271
                                                       --------
       Total liabilities                                 24,527
                                                       --------

    Minority interests in equity of consolidated
       subsidiaries                                       2,568
    Trust Preferred Securities                            1,660

    Stockholders' equity                                 52,155
    Investment in AT&T                                   (4,018)
                                                       --------
       Total stockholders' equity                        48,137
                                                       --------
                                                       $ 76,892
                                                       ========
</TABLE>

The following table reflects the change in cash and cash equivalents as a
result of the Restructuring and the deconsolidation of Liberty Media Group
(amounts in millions):

<TABLE>
<S>                                                    <C>
              Cash and cash equivalents of
                Old TCI at February 28, 1999           $   433
                Cash received from AT&T in
                  Restructuring                          5,461
                Decrease in cash due to
                  deconsolidation of Liberty
                  Media Group                           (5,319)
                                                       -------
              Cash and cash equivalents of New TCI
                  at March 1, 1999                     $   575
                                                       =======
</TABLE>

                                                                    (continued)


                                     I-15
<PAGE>   17
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         As a result of the application of purchase accounting, New TCI has
         recorded its assets and liabilities at their preliminary fair values on
         March 9, 1999. Certain of the more significant effects of purchase
         accounting are described below.

         The $25 billion assigned to New TCI's intangible assets, which are
         primarily comprised of goodwill, will be amortized over their useful
         lives, primarily 40 years. New TCI's intangible assets in the March 1,
         1999 opening consolidated balance sheet also included $594 million of
         in-process research and development costs. Such amount reflects the
         value, as of the acquisition date, of the Company's research and
         development projects which have not yet reached technological
         feasibility and which have no alternative future use. During the one
         month ended March 31, 1999 such in-process research and development
         costs were written-off. The projects identified relate to the Company's
         efforts to offer voice over Internet protocol, cost savings efforts for
         cable telephony implementation and product integration efforts for
         advanced set-top devices that will enable the Company to offer
         next-generation digital services. In addition, @Home has research and
         developments efforts underway including projects to allow for
         self-provisioning of devices and the development of next-generation
         client software, network and back-office infrastructure to enable a
         variety of network devices beyond personal computers and improved
         design for the regional data centers' infrastructure. Although there
         are significant technological issues to overcome in order to
         successfully complete the acquired in-process research and development,
         the Company expects successful completion. If, however, the Company is
         unable to establish technological feasibility and produce a
         commercially viable product/service, then anticipated incremental
         future cash flows attributable to expected profits from such new
         product/service may not be realized.

         New TCI has a $9 billion excess of amounts assigned to New TCI's
         investments in the Other Affiliates over New TCI's proportionate share
         of the Other Affiliates' underlying equity. Such excess is being
         amortized over lives ranging from 25 to 35 years. New TCI increased
         its debt and related variable and fixed interest rate exchange
         agreements ("Interest Rate Swaps") by $955 million which represents
         the excess of the fair market value over the recorded value at the
         date of the AT&T Merger. Such excess will be amortized over the
         respective remaining 1 to 30 year lives of the underlying debt
         obligations and Interest Rate Swaps. New TCI increased other
         liabilities $237 million which represents New TCI's estimated
         liability for unvested stock appreciation rights as of March 9, 1999.
         Such unvested stock appreciation rights will vest over remaining
         periods ranging from 1 to 5 years. New TCI increased its minority
         interests in equity of consolidated subsidiaries by $1.5 billion which
         represents an increase to the carrying value of the redeemable
         preferred stock of a subsidiary. New TCI's Trust Preferred Securities
         increased $160 million which represents the excess of the fair market
         value over the recorded value at the date of the AT&T Merger. Such
         excess will be amortized over the remaining 28 to 46 year terms of
         such securities.

                                                                    (continued)


                                     I-16
<PAGE>   18
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
 
                   Notes to Consolidated Financial Statements

         The following unaudited condensed results of operations for the three
         months ended March 31, 1999 and 1998 were prepared assuming the AT&T
         Merger, the Restructuring and the deconsolidation of Liberty Media
         Group occurred on January 1, 1998. These pro forma amounts are not
         necessarily indicative of operating results which would have occurred
         if the AT&T Merger, the Restructuring and the deconsolidation of
         Liberty Media Group had occurred on January 1, 1998.

<TABLE>
<CAPTION>
                                                  Three months ended March 31,
                                                  ----------------------------
                                                     1999           1998
                                                  ---------      ---------
                                                    (amounts in millions)
<S>                                                 <C>          <C>  
                     Revenue                        $ 1,424      1,611
                     Net earnings (loss) before
                       extraordinary item           $(1,190)         9
                     Net earnings (loss)            $(1,195)        (1)
</TABLE>


 (3)     Earnings (Loss) Per Common and Potential Common Share

         Basic earnings per share ("EPS") is measured as the income or loss
         attributable to common stockholders divided by the weighted average
         outstanding common shares for the period. Diluted EPS is similar to
         basic EPS but presents the dilutive effect on a per share basis of
         potential common shares as if they had been converted at the beginning
         of the periods presented. Potential common shares that have an
         anti-dilutive effect are excluded from diluted EPS. Basic and diluted
         EPS are presented only for periods prior to the AT&T Merger.
         Subsequent to the AT&T Merger, all shares of common stock of TCI are
         held by AT&T. See notes 1 and 2.

(a)      TCI Group Stock

                  The basic earnings (loss) attributable to TCI Group common
                  stockholders per common share for the two months ended
                  February 28, 1999 and the three months ended March 31, 1998
                  was computed by dividing net earnings attributable to TCI
                  Group common stockholders by the weighted average number of
                  common shares outstanding of TCI Group Stock during the
                  period.

                  The diluted loss attributable to TCI Group common
                  stockholders per common share for the two months ended
                  February 28, 1999 was computed by dividing net loss
                  attributable to TCI Group common stockholders, which is
                  increased by aggregate fees paid on equity swap facilities of
                  $4 million during 1999, by the weighted average number of
                  common shares outstanding of TCI Group Stock during the
                  period. Potential common shares were not included in the
                  computation of weighted average shares outstanding because
                  their inclusion would be anti-dilutive.

                                                                    (continued)


                                     I-17
<PAGE>   19
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  The diluted earnings attributable to TCI Group common
                  stockholders per common share for the three months ended
                  March 31, 1998 was computed by dividing net earnings
                  attributable to TCI Group common stockholders, which is
                  adjusted by the addition of preferred stock dividends and
                  interest accrued during the three months ended March 31, 1998
                  to net earnings, assuming conversion of TCI Group convertible
                  securities as of the beginning of the period, by the weighted
                  average number of common shares outstanding of TCI Group
                  Stock during the period. Shares issuable upon conversion of
                  the Series C-TCI Group Preferred Stock, the Series G
                  Preferred Stock, preferred stock of subsidiaries, convertible
                  notes payable, and stock options and other performance awards
                  have been included in the computation of weighted average
                  shares, as illustrated below. Shares of TCI Group Stock
                  issuable upon conversion of Convertible Preferred Stock,
                  Series D ("Series D Preferred Stock") and associated dividend
                  payments for the three months ended March 31, 1998 have been
                  excluded as adjustments in computing the diluted earnings
                  attributable to TCI Group common shareholders per common
                  share as Series D Preferred Stock is antidilutive for the
                  three months ended March 31, 1998. All of the outstanding
                  shares of Series D Preferred Stock were redeemed effective
                  April 1, 1998.

                  In connection with the March 9, 1999 AT&T Merger, TCI Group
                  Stock was converted into AT&T Common Stock. See note 2.

                                                                    (continued)


                                     I-18
<PAGE>   20

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

Information concerning the reconciliation of basic EPS to diluted EPS with
respect to TCI Group Stock is presented below:

<TABLE>
<CAPTION>
                                                                 Old TCI
                                                 --------------------------------------
                                                      Two months         Three months
                                                        ended               ended
                                                   February 28, 1999   March 31, 1998
                                                 -------------------   ----------------
                                                 amounts in millions, except per share
                                                                 amounts
<S>                                               <C>                   <C>
Basic EPS:
     Earnings (loss) attributable to common
       stockholders                                       $(226)          227
                                                          =====           ===
     Weighted average common shares                         539           517
                                                          =====           ===
     Basic earnings (loss) per share
        attributable to common stockholders               $(.42)          .44
                                                          =====           ===

Diluted EPS:
     Earnings (loss) attributable to common
        stockholders                                      $(226)          227
     Add preferred dividend requirements                     --             4
     Add interest expense                                    --             1
     Less fees paid on equity swap facilities                (4)           --
                                                          -----           ---
     Adjusted earnings (loss) attributable to
        common stockholders assuming
        conversion of preferred shares                    $(230)          232
                                                          =====           ===
     Weighted average common shares                         539           517
                                                          -----           ---
     Add dilutive potential common shares:
           Employee and director options and
                other performance awards                     --             8
           Convertible notes payable                         --            24
           Series C-TCI Group Preferred Stock                --             7
           Series D Preferred Stock                          --            --
           Series G Preferred Stock                          --             8
           Preferred stock of subsidiaries                   --            45
                                                          -----           ---
                Dilutive potential common shares             --            92
                                                          -----           ---
     Diluted weighted average common shares                 539           609
                                                          =====           ===
     Diluted earnings (loss) per share
        attributable to common stockholders               $(.43)          .38
                                                          =====           ===
</TABLE>

                                                                    (continued)

                                      I-19
<PAGE>   21

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         (b)      Liberty Group Stock

                  The basic earnings (loss) attributable to Old Liberty Group
                  common stockholders per common share for the two months ended
                  February 28, 1999 and the three months ended March 31, 1998
                  and the diluted loss attributable to Old Liberty Group common
                  stockholders per common and potential common share for the
                  two months ended February 28, 1999, were computed by dividing
                  net earnings attributable to Old Liberty Group common
                  stockholders by the weighted average number of common shares
                  outstanding of Liberty Group Stock during the period.
                  Potential common shares were not included in the diluted
                  computation of weighted average shares for the two months
                  ended February 28, 1999 because their inclusion would be
                  anti-dilutive.

                  The diluted earnings attributable to Old Liberty Group common
                  stockholders per common and potential common share for the
                  three months ended March 31, 1998 were computed by dividing
                  earnings attributable to Old Liberty Group common
                  stockholders by the weighted average number of common and
                  potential common shares outstanding of Liberty Group Stock
                  during the period. Shares issuable upon conversion of the
                  Series C-Liberty Media Group Preferred Stock, the Series D
                  Preferred Stock, the Series H Preferred Stock, convertible
                  notes payable and stock options and other performance awards
                  have been included in the diluted calculation of weighted
                  average shares, as illustrated below. All of the outstanding
                  shares of Series D Preferred Stock were redeemed effective
                  April 1, 1998. Numerator adjustments for dividends and
                  interest associated with the convertible preferred shares and
                  convertible notes payable, respectively, were not made to the
                  computation of diluted earnings per share as such dividends
                  and interest were paid by TCI Group.

                  In connection with the AT&T Merger, Liberty Group Stock was
                  converted into AT&T Liberty Tracking Stock. See note 2.

                                                                    (continued)


                                     I-20
<PAGE>   22

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  Information concerning the reconciliation of basic EPS to
                  diluted EPS with respect to Liberty Group Stock is presented
                  below:

<TABLE>
<CAPTION>
                                                                                           Old TCI
                                                                             ----------------------------------
                                                                                Two months         Three months
                                                                                  ended               ended
                                                                             February 28, 1999    March 31, 1998
                                                                             -----------------    --------------
                                                                             amounts in millions, except per share
                                                                                            amounts
<S>                                                                            <C>                  <C>
                Basic EPS:
                    Earnings (loss) attributable to common
                      stockholders                                             $          (49)          303
                                                                               ==============           ===
                    Weighted average common shares                                        367           355
                                                                               ==============           ===
                    Basic earnings (loss) per share attributable to
                       common stockholders                                     $         (.13)          .85
                                                                               ==============           ===
                Diluted EPS:
                    Earnings (loss) attributable to common
                       stockholders                                            $          (49)          303
                                                                               ==============           ===
                    Weighted average common shares                                        367           355
                                                                               --------------           ---
                    Add dilutive potential common shares:
                       Employee and director options and other
                         performance awards                                                --             8
                       Convertible notes payable                                           --            19
                       Series C-Liberty Media Group Preferred Stock                        --             4
                       Series D Preferred Stock                                            --            --
                       Series H Preferred Stock                                            --             4
                                                                               --------------           ---
                             Dilutive potential common shares                              --            35
                                                                               --------------           ---
                    Diluted weighted average common shares                                367           390
                                                                               ==============           ===
                    Diluted earnings (loss) per share attributable to
                      common stockholders                                      $         (.13)          .78
                                                                               ==============           ===
</TABLE>

         (c)      TCI Ventures Group Stock

                  The basic loss attributable to TCI Ventures Group common
                  stockholders per common share for the two months ended
                  February 28, 1999 and the three months ended March 31, 1998
                  was computed by dividing net loss attributable to TCI
                  Ventures Group common stockholders by the weighted average
                  number of common shares outstanding of TCI Ventures Group
                  Stock during the period (423 million and 421 million,
                  respectively). Potential common shares were not included in
                  the diluted calculation of weighted average shares
                  outstanding because their inclusion would be anti-dilutive.

                                                                    (continued)


                                     I-21
<PAGE>   23

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  The diluted loss attributable to TCI Ventures Group common
                  stockholders per common share for the two months ended
                  February 28, 1999 and the three months ended March 31, 1998
                  was computed by dividing net loss attributable to TCI
                  Ventures Group common stockholders by the weighted average
                  number of common shares outstanding of TCI Ventures Group
                  Stock during the period. In 1999 the net loss attributable to
                  TCI Ventures Group common stock holders is increased by $29
                  million for charges recorded directly to equity upon
                  settlement of an equity swap transaction. See note 10. For
                  purposes of computing diluted EPS such amount is assumed to
                  be charged to earnings. Potential common shares were not
                  included in the computation of weighted average shares
                  outstanding because their inclusion would be anti-dilutive.

                  In connection with the March 9, 1999 AT&T Merger, TCI
                  Ventures Group Stock was converted into AT&T Liberty Tracking
                  Stock. See note 2.

(4)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $30 million, $287 million and $370 million
         for the one month ended March 31, 1999, the two months ended February
         28, 1999 and the three months ended March 31, 1998, respectively.
         Cash paid for income taxes was not material during such periods.

         Significant non-cash investing and financing activities and certain
         supplemental disclosures with respect to the statement of cash flows
         are reflected below:

<TABLE>
<CAPTION>
                                                                       New TCI                    Old TCI
                                                                   ----------------    ----------------------------------
                                                                      One month          Two months        Three months
                                                                        ended               ended              ended
                                                                    March 31, 1999     February 28, 1999   March 31, 1998
                                                                   ----------------    -----------------   --------------
                                                                                     amounts in millions
<S>                                                                <C>                  <C>                <C>  
       Cash paid for acquisitions:
          Recorded value of assets acquired                        $             --     |     (353)          (708)
          Net liabilities assumed                                                --     |       --              3
          Deferred tax liability recorded in acquisitions                        --     |       --             89
          Change in minority interests in equity of                                     |
             consolidated subsidiaries                                           --     |       --           (179)
          Elimination of notes receivable from affiliates                        --     |       --            351
          Common stock and preferred stock issued in                                    |
             acquisitions                                                        --     |       --            372
                                                                   ----------------     |    -----           ----
                                                                                        |
               Cash paid for acquisitions                          $             --     |     (353)           (72)
                                                                   ================     |    =====           ====
                                                                                        |
       Capitalized costs of distribution                                                |
             agreements                                            $             79     |       --             83
                                                                   ================     |    =====           ====
</TABLE>

         The Company ceased to include TV Guide, Inc. ("TV Guide") in its
         consolidated financial results and began to account for TV Guide using
         the equity method of accounting effective February 28, 1999 (see note
         7). The effects of changing the method of accounting for the Company's
         ownership interests in TV Guide as of February 28, 1999 from the
         consolidation method to the equity method are summarized below (amounts
         in millions):

<TABLE>
<S>                                                             <C>
         Assets (other than cash and cash equivalents)
           reclassified to investments in affiliates            $  (200)
         Liabilities reclassified to investments in 
           affiliates                                               190
         Minority interests in equity of subsidiaries
           reclassified to investments in affiliates                 63
                                                                -------
         Decrease in cash and cash equivalents                  $    53
                                                                =======
</TABLE>
         

         For a description of certain additional non-cash transactions, see
         notes 2 and 7.

                                                                    (continued)


                                     I-22
<PAGE>   24

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         @Home's cash and cash equivalent balances of $401 million and $419
         million are included in the Company's cash and cash equivalent
         balances at March 31, 1999 and December 31, 1998, respectively. Such
         @Home balances are available to be applied towards the liquidity
         requirements of @Home. Accordingly, it is not anticipated that any
         portion of such @Home balances will be distributed or otherwise made
         available to the Company.

         The Company's restricted cash of $54 million and $185 million at March
         31, 1999 and December 31, 1998, respectively, is primarily comprised
         of proceeds received in connection with certain asset dispositions.
         Such proceeds, which aggregated $46 million and $162 million at March
         31, 1999 and December 31, 1998, respectively, are designated to be
         reinvested in certain identified assets for income tax purposes. At
         December 31, 1998, the Company's restricted cash also included $17
         million held as collateral for interest payment obligations pursuant
         to certain bank credit facilities.

(5)      Investment in Liberty Media Group

         As described in note 2, immediately following the AT&T Merger, the
         entities comprising the Liberty Media Group were deconsolidated. The
         Company's investment in Liberty Media Group includes non-interest
         bearing receivables from Liberty Media Group. Summarized unaudited
         results of operations for the newly formed Liberty Media Group for the
         period in which the Company used the equity method to account for
         Liberty Media Group are as follows:

<TABLE>
<CAPTION>
                                            One month ended
                                            March 31, 1999
                                            ---------------
                                           amounts in millions

<S>                                          <C> 
        Revenue                                $ 71
        Operating costs and expenses            (56)
        Stock compensation                       41
        Depreciation and amortization           (53)
                                               ----

            Operating income                      3

        Interest expense                        (13)
        Other, net                              (48)
                                               ----
            Net loss                           $(58)
                                               ====
</TABLE>


         During March 1999, certain convertible debentures of a subsidiary
         attributed to the Liberty Media Group were converted into shares of
         AT&T Liberty Tracking Stock. The $48 million principal amount of such
         converted debentures has been reflected as an increase to New TCI's
         additional paid-in capital.

                                                                    (continued)


                                      I-23
<PAGE>   25
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(6)      Investments in the Other Affiliates 

         The Company has various investments in the Other Affiliates accounted
         for under the equity method. The following table includes the
         Company's carrying value of the Company's more significant investments
         in the Other Affiliates as of the indicated dates:

<TABLE>
<CAPTION>
                                                        New TCI       Old TCI
                                                       ---------    ------------
                                                       March 31,    December 31,
                                                          1999          1998
                                                       ---------    ------------
                                                          amounts in millions
<S>                                                     <C>          <C>
              Cablevision Systems
                  Corporation ("CSC") (a)               $3,329    |      945
              Lenfest Communications,                             |
                  Inc. ("Lenfest")                       1,703    |     (138)
              Texas Cable Partners, L.P.                   731    |      111
              InterMedia Capital Partners IV,                     |
                  L.P. ("InterMedia IV") and                      |
                  InterMedia Capital                              |
                  Management IV, L.P. ("ICM IV")           591    |      207
              InterMedia Capital Partners VI,                     |
                  L.P. and InterMedia Capital                     |
                  Management VI, L.P.                      310    |       55 
              USA Networks, Inc. and related                      |
                  investments (b)                           --    |    1,042
              Various foreign equity                              |
                  investments (b)                           --    |    1,496
              QVC, Inc. (b)                                 --    |      197
              Other                                      1,456    |      850
                                                        ------    |   ------
                                                                  |
                                                        $8,120    |    4,765
                                                        ======    |   ======
</TABLE>

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

(a)      CSC

         On March 4, 1998, the Company contributed to CSC certain of its cable
         television systems serving approximately 830,000 customers in exchange
         for approximately 48.9 million newly issued CSC Class A common shares
         (the "CSC Transaction"). CSC also assumed and repaid approximately $574
         million of debt owed by the Company to external parties and $95 million
         of debt owed to the Company. As a result of the CSC Transaction, the
         Company recognized a $506 million gain in the accompanying consolidated
         statement of operations for the three months ended March 31, 1998. Such
         gain represents the excess of the $1,161 million fair value of the CSC
         Class A common shares received over the historical cost of the net
         assets transferred by the Company to CSC.

         The Company has also entered into letters of intent with CSC which
         provide for the Company to acquire a cable system in Michigan and an
         additional 4% of CSC's Class A common shares and for CSC to (i) acquire
         cable systems serving approximately 250,000 customers in Connecticut
         and (ii) assume $110 million of the Company's debt.

                                                                    (continued)


                                     I-24
<PAGE>   26
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  At March 31, 1999, the Company owned 48,942,172 shares of CSC
                  Class A common stock, which had a closing market price of
                  $74.13 per share on such date. Such shares represented an
                  approximate 32% equity interest in CSC's total outstanding
                  shares and an approximate 9% voting interest in CSC in all
                  matters except for (i) the election of directors, in which
                  case the Company effectively has the right to designate two
                  of CSC's directors, and (ii) any increase in authorized
                  shares, in which case the Company has agreed to vote its
                  interest in proportion with the public holders of CSC Class A
                  common shares. The ability of the Company to sell or increase
                  its investment in CSC is subject to certain restrictions and
                  limitations set forth in a stockholders agreement with CSC.
                  As a result of the deconsolidation of Liberty Media Group,
                  1,040,400 shares of CSC Class A common stock held by Liberty
                  Media Group are no longer included in the Company's
                  investment in CSC. See note 2.

         (b)      Liberty Media Group Investments

                  As a result of the deconsolidation of Liberty Media Group,
                  the indicated investments are no longer included in the
                  Company's consolidated investments. See note 2.

         Summarized unaudited combined results of operations for the Other
         Affiliates for the periods in which the Company used the equity method
         to account for the Other Affiliates are as follows:


<TABLE>
<CAPTION>
                                                       Three months ended March 31,
                                                       ----------------------------
                 Combined Operations                       1999            1998
                                                       ------------     -----------
                                                           amounts in millions
<S>                                                       <C>               <C>  
                     Revenue                              $ 3,352           3,526
                     Operating expenses                    (2,521)         (3,177)
                     Depreciation and amortization           (672)           (674)
                                                          -------         -------

                       Operating income (loss)                159            (325)

                     Interest expense                        (491)           (481)
                     Other, net                              (133)             45
                                                          -------         -------

                       Net loss                           $  (465)        $  (761)
                                                          =======         =======
</TABLE>

                                                                    (continued)


                                     I-25
<PAGE>   27

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(7)      Acquisitions and Dispositions

         During the two months ended February 28, 1999, the Company completed a
         transaction whereby the Company contributed cable television systems
         to an entity in which the Company had an approximate 80% ownership
         interest. Through a series of transactions, including the contribution
         of cash by a third party in exchange for an ownership interest in the
         entity, the Company's ownership interest in such majority-owned
         subsidiary was reduced to a non-controlling 50% ownership interest
         (the "1999 Contribution Transaction"). In connection with the
         associated dilution of the Company's ownership interest, the Company
         deconsolidated assets and liabilities related to cable television
         systems serving approximately 416,000 customers. The deconsolidated
         liabilities included $210 million of debt owed to external parties and
         $709 million of intercompany debt owed to the Company. In connection
         with the 1999 Contribution Transaction, the Company has agreed to take
         certain steps to support compliance by such entity with its payment
         obligations under certain debt instruments. See note 14. The Company
         also recorded a $9 million increase (net of deferred income taxes of
         $5 million) to additional paid-in capital in connection with the 1999
         Contribution Transaction. No gain was recognized due to the Company's
         aforementioned commitment to support the entity's payment obligations
         under certain debt instruments.

         Including the 1999 Contribution Transaction, the Company, as of March
         31, 1999, had contributed in 1999 or has signed agreements or letters
         of intent to contribute within the next twelve months, certain cable
         television systems (the "Contributed Cable Systems") serving
         approximately 1.2 million basic customers to joint ventures in which
         the Company will retain non-controlling ownership interests (the
         "Contribution Transactions"). Following the completion of the
         Contribution Transactions, the Company will no longer consolidate the
         Contributed Cable Systems. Accordingly it is anticipated that the
         completion of the Contribution Transactions, as currently
         contemplated, will result in aggregate estimated reductions (based on
         1998 amounts) to the Company's debt, annual revenue and annual
         "Operating Cash Flow" (defined by the Company as operating income
         before depreciation, amortization, other non-cash items, year 2000
         costs, AT&T merger costs and stock compensation) of $1.5 billion, $500
         million and $200 million, respectively. No assurance can be given that
         any of the pending Contribution Transactions will be consummated.

         During February 1999, the Company sold cable television assets serving
         approximately 145,000 customers to an unaffiliated third party for
         approximately $300 million. The Company recorded a $123 million gain
         on such disposition.

                                                                    (continued)


                                     I-26
<PAGE>   28

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         During the first quarter of 1998, the Company also completed two
         transactions whereby the Company contributed cable television systems
         serving in the aggregate approximately 235,000 customers to two
         separate joint ventures (collectively, the "1998 Joint Ventures") in
         exchange for non-controlling ownership interests in each of the 1998
         Joint Ventures, and the assumption and repayment by the 1998 Joint
         Ventures of intercompany debt owed to the Company aggregating $343
         million. In connection with such transactions, the Company has agreed
         to take certain steps to support compliance by the 1998 Joint Ventures
         with their payment obligations under certain debt instruments. See
         note 14.

         Effective February 28, 1999, TV Guide (formerly United Video Satellite
         Group, Inc. ("UVSG")) and The News Corporation Limited ("News Corp.")
         completed a transaction whereby News Corp.'s TV Guide properties were
         combined with UVSG to create a platform for offering television guide
         services to consumers and advertising and the resulting company was
         named TV Guide. As part of this combination, a unit of News Corp.
         received consideration consisting of $800 million in cash and 60
         million shares of UVSG's stock, including 22.5 million shares of its
         Class A common stock and 37.5 million shares of its Class B common
         stock. In addition, News Corp. elected to purchase approximately 6.5
         million additional shares of UVSG Class A common stock for $129 million
         in order to equalize its ownership with that of Liberty/Ventures Group.
         Prior to such transactions, UVSG was a subsidiary of TCI. As a result
         of these transactions, and another transaction completed on the same
         date, News Corp., Liberty/Ventures Group and TV Guide's public
         stockholders own on an economic basis approximately 44%, 44% and 12%,
         respectively, of TV Guide. Following such transactions, News Corp. and
         Liberty/Ventures Group each have approximately 49% of the voting power
         of TV Guide's outstanding stock. Due to the resulting increase in TV
         Guide's equity, net of the dilution of TCI's ownership interest in TV
         Guide, TCI recognized a $372 million gain (before deducting deferred
         income tax expense of $147 million).

         Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
         contributed the assets, obligations and operations of its retail
         C-band satellite business to Superstar/Netlink Group LLC
         ("Superstar/Netlink") in exchange for an approximate 20% interest in
         Superstar/Netlink. As a result of this transaction, the Company's
         ownership interest in Superstar/Netlink decreased from 100% to
         approximately 80% and the Company recognized a gain of $38 million
         (before deducting deferred income tax expense of $15 million). Turner
         Vision's contribution to Superstar/Netlink was accounted for as a
         purchase, and the $61 million excess of the purchase price over the
         fair value of the assets acquired was recorded as goodwill.

                                                                    (continued)


                                     I-27
<PAGE>   29

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(8)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                               New TCI        Old TCI
                                                               --------     ------------
                                                               March 31,    December 31,
                                                                 1999           1998
                                                               --------     ------------
                                                                 amounts in millions
<S>                                                             <C>          <C>
             AT&T Notes (a)                                     $ 6,386   |       --
             Other notes payable (b)                              9,929   |    9,412
             Bank credit facilities (c)                              --   |    3,773
             Commercial paper                                        --   |      109
             Convertible notes (d)                                   --   |       40
             Capital lease obligations and other debt               631   |      718
                                                                -------   |   ------
                                                                $16,946   |   14,052
                                                                =======   |   ======
</TABLE>

         (a)      Amounts outstanding under the notes payable to AT&T ("AT&T
                  Notes") bear interest at the London Interbank Offered Rate
                  ("LIBOR") plus 15 basis points (5.18% at March 31, 1999) and
                  are due and payable on or before March 9, 2004. Interest on
                  the AT&T Notes is compounded quarterly.

         (b)      During the two months ended February 28, 1999, the Company
                  redeemed certain notes payable which had an aggregate
                  principal balance of $21 million and fixed interest rates
                  ranging from 8.75% to 9.25%. In connection with such
                  redemptions, the Company recognized a pre-tax loss on early
                  extinguishment of debt of $4 million in 1999. Such loss
                  related to prepayment penalties and the retirement of
                  deferred loan costs.

                  During the three months ended March 31, 1998, the Company
                  redeemed certain notes payable which had an aggregate
                  principal balance of $95 million and fixed interest rates
                  ranging from 8.75% to 10.125%. In connection with such
                  redemptions, the Company recognized a pre-tax loss on early
                  extinguishment of debt of $16 million in 1998. Such loss
                  related to prepayment penalties amounting to $15 million and
                  the retirement of deferred loan costs.

         (c)      During the two months ended February 28, 1999, the Company
                  repaid a bank credit facility. In connection with such
                  repayment, the Company recognized a pre-tax loss on early
                  extinguishment of debt of $4 million. Such loss related to
                  the retirement of deferred loan costs.

                  As security for borrowings under one of Old TCI's credit
                  facilities, Old TCI had pledged a portion of its Time Warner
                  common stock. As a result of the deconsolidation of
                  Liberty/Ventures Group, such borrowings and the associated
                  Time Warner common stock are no longer reflected in the
                  Company's consolidated debt and asset balances.

                                                                    (continued)

                                     I-28
<PAGE>   30

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         (d)      The convertible notes, which were stated net of unamortized
                  discount of $166 million at December 31, 1998, were scheduled
                  to mature on December 12, 2021. On March 26, 1999, all of the
                  notes were converted into shares of AT&T Common Stock, AT&T
                  Liberty Class A Tracking Stock and TCI Satellite
                  Entertainment, Inc. Series A common stock, $1.00 par value
                  per share, ("Satellite Series A Common Stock") in accordance
                  with the terms of the notes. Following such conversion, none
                  of such notes remain outstanding. Such notes were held by a
                  director of the Company, as well as several members of his
                  family. In connection with the AT&T Merger, such director
                  resigned. The notes required an annual interest payment equal
                  to 1.85% of the face amount of the notes. Immediately prior
                  to the AT&T Merger, the notes were convertible, at the option
                  of the holders, into an aggregate of 24,163,259 shares of TCI
                  Group Series A Stock, 19,416,889 shares of Liberty Group
                  Series A Stock, 20,711,364 shares of TCI Ventures Group
                  Series A Stock and 3,451,897 shares of Satellite Series A
                  Common Stock. Pursuant to the terms of the Merger Agreement
                  and a certain stock purchase agreement, dated as of July 9,
                  1986, among the Company and the holders of such convertible
                  notes, the conversion feature of the convertible notes was
                  adjusted such that as of the March 9, 1999 consummation date
                  of the AT&T Merger, such notes were convertible into an
                  aggregate of 19,088,081 shares of AT&T Common Stock
                  (28,632,122 shares as adjusted for a 1999 three-for-two AT&T
                  stock split), 30,186,816 shares of AT&T Liberty Class A
                  Tracking Stock and 3,451,897 shares of Satellite Series A
                  Common Stock.

         Certain debt instruments of a subsidiary of the Company 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.

         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. At
         March 31, 1999, the fair value of the Company's debt approximated its
         carrying amount.

         In order to achieve the desired balance between variable and fixed
         rate indebtedness, the Company may enter into Interest Rate Swaps
         pursuant to which it (i) pays fixed interest rates (the "Fixed Rate
         Agreements") and receives variable interest rates and (ii) pays
         variable interest rates (the "Variable Rate Agreements") and receives
         fixed interest rates. During the three months ended March 31, 1998,
         the Company's payments pursuant to the Fixed Rate Agreements were less
         than $1 million. No such payments were made in 1999. During the one
         month ended March 31, 1999, the two months ended February 28, 1999 and
         the three months ended March 31, 1998, the Company's net receipts
         pursuant to the Variable Rate Agreements were $4 million, $1 million
         and $3 million, respectively. At December 31, 1998, all of the
         Company's Fixed Rate Agreements had expired.

                                                                    (continued)


                                     I-29
<PAGE>   31

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Information concerning the Company's Variable Rate Agreements at March
         31, 1999 is as follows (dollar amounts in millions):

<TABLE>
<CAPTION>
                                                         Amount to be
          Expiration         Interest rate    Notional   received upon
             date            to be received   amount     termination (a)
         ------------        --------------   --------   ---------------
<S>                          <C>              <C>         <C>
         April 1999                7.4%       $    50       $  1
         September 1999            6.4%           350          1
         February 2000          5.8%-6.6%         300          3
         March 2000             5.8%-6.0%         675          4
         September 2000            5.1%            75         --
         March 2027                9.7%           300         24
         December 2036             9.7%           200          7
                                              -------       ----

                                              $ 1,950       $ 40
                                              =======       ====
</TABLE>

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

         (a)      The estimated amount that the Company would receive to
                  terminate the agreements at March 31, 1999, taking into
                  consideration current interest rates and the current
                  creditworthiness of the counterparties, represents the fair
                  value of the Interest Rate Swaps.


         In addition to the Variable Rate Agreements, the Company entered into
         Interest Rate Swaps pursuant to which it pays a variable rate based on
         LIBOR (5.3% at March 31, 1999) and receives a variable rate based on
         the Constant Maturity Treasury Index ("CMT") (5.4% at March 31, 1999)
         on a notional amount of $400 million through September 2000; and pays
         a variable rate based on LIBOR (5.3% at March 31, 1999) and receives a
         variable rate based on CMT (5.5% at March 31, 1999) on notional
         amounts of $95 million through February 2000. During the one month
         ended March 31, 1999, the two months ended February 28, 1999 and the
         three months ended March 31, 1998, the Company's net payments pursuant
         to such agreements were $1 million, less than $1 million and less than
         $1 million, respectively. At March 31, 1999, the Company would be
         required to pay an estimated $1 million to terminate such Interest
         Rate Swaps.

         The Company is exposed to credit losses for the periodic settlements
         of amounts due under the Interest Rate Swaps in the event of
         nonperformance by the other parties to the agreements. However, the
         Company does not anticipate that it will incur any material credit
         losses because it does not anticipate nonperformance by the
         counterparties. Further, the Company does not anticipate material
         near-term losses in future earnings, fair values or cash flows
         resulting from derivative financial instruments as of March 31, 1999.

                                                                    (continued)


                                     I-30
<PAGE>   32
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(9)      Company-Obligated Mandatorily Redeemable Preferred Securities of
         Subsidiary Trusts Holding Solely Subordinated Debt Securities

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying consolidated balance sheets captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities."
         Dividends accrued on the Trust Preferred Securities aggregated $12
         million, $23 million and $35 million during the one month ended March
         31, 1999, the two months ended February 28, 1999 and the three months
         ended March 31, 1998, respectively, and are included in minority
         interests in earnings of consolidated subsidiaries in the accompanying
         consolidated financial statements.

(10)     Stockholders' Equity

         Treasury Stock and Common Stock Held by Subsidiaries, at Cost

         In conjunction with the AT&T Merger, Old TCI shares held in treasury
         and Old TCI shares held by subsidiaries, at December 31, 1998, were
         canceled. See note 2.

         General

         During 1997, Old TCI entered into certain equity swap facilities. Due
         to Old TCI's ability to issue shares to settle periodic price
         fluctuations and fees under the equity swap facilities, Old TCI
         recorded all amounts received or paid under these arrangements as
         increases or decreases, respectively, to equity. From February 1, 1999
         to March 5, 1999, Old TCI terminated all transactions under the equity
         swap facilities and the related swap agreements. In connection with
         the termination of such transactions, the Company received aggregate
         cash payments of $677 million. Such cash payments are reflected in Old
         TCI's consolidated financial statements for the two months ended
         February 28, 1999.

         In July 1998, the Company entered into an equity swap transaction with
         a commercial bank, which provided the Company with the right but not
         the obligation to acquire 1,084,056 shares of TCI Group Series A Stock
         for approximately $45 million on or before April 19, 1999. During the
         two months ended February 28, 1999, the Company acquired the 1,084,056
         shares of TCI Group Series A Stock under the agreement. Such shares
         were used to satisfy the exchange requirements of a subsidiary's
         preferred stock. The $29 million excess of the amount paid for the TCI
         Group Series A Stock over the Company's minority interest in such
         subsidiary has been reflected as a decrease to stockholders' equity in
         the accompanying consolidated financial statements for the two months
         ended February 28, 1999.

(11)     Transactions with Related Parties

         During the first quarter of 1999 @Home entered into a twenty-year
         agreement with AT&T to create a nationwide Internet Protocol network.
         In connection with this agreement, @Home will pay AT&T approximately
         $50 million over each of the next two years for additional backbone
         capacity and related equipment. Amounts paid under the agreement will
         be capitalized and charged to operations over the term of the
         agreement. Through March 31, 1999, @Home had made payments of $9
         million to AT&T under this agreement.

                                                                    (continued)


                                     I-31
<PAGE>   33
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T,
         was consummated. As a result of such merger, TCI received in exchange
         for all of its interest in TCG, 46,952,832 shares of AT&T Common Stock
         (70,429,248 shares as adjusted for an April 1999 three-for-two AT&T
         stock split). TCI recognized a $2.3 billion gain (before deducting
         deferred income tax expense of $883 million) on such transaction
         during the third quarter of 1998 based on the difference between the
         carrying amount of TCI's interest in TCG and the fair value of the
         AT&T Common Stock received. Prior to the AT&T Merger, TCI had
         accounted for its ownership interest in AT&T Common Stock as an
         available-for-sale security. Such AT&T Common Stock was transferred
         from Liberty/Ventures Group to TCI Group in connection with the AT&T
         Merger. See note 2. In addition, immediately prior to the AT&T Merger,
         certain shares of Series F Preferred Stock were converted into shares
         of TCI Group Stock which, in turn, were converted into 143,837,233
         shares of AT&T Common Stock (215,755,850 shares as adjusted for an
         April 1999 three-for-two AT&T stock split). Such converted shares are
         recorded at Old TCI's historical cost basis. New TCI treats its
         investment in AT&T Common Stock as an investment in its parent.
         Accordingly, New TCI's investment in AT&T Common Stock is reflected as
         a reduction of TCI's equity, and any dividends received on such AT&T
         Common Stock will be recorded as an increase to TCI's additional
         paid-in capital.

         Certain entities attributed to Liberty Media Group produce and/or
         distribute programming to the Company. Charges to the Company, which
         are based upon customary rates charged to others, aggregated $17
         million for the one month period ended March 31, 1999. Such amount is
         included in operating costs and expenses in the accompanying
         consolidated statements of operations.

(12)     Transactions with Officers and Directors

         After the Company's stockholders voted to approve the terms of the
         AT&T Merger, on February 17, 1999, TCI's Board of Directors approved
         the payment by Liberty/Ventures Group of $1 million to each of two
         directors of the Company for their services on the Special Committee
         of TCI's Board of Directors in evaluating the AT&T Merger and the
         consideration to be received by the stockholders of the Company.

                                                                    (continued)

                                     I-32
<PAGE>   34
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Prior to the AT&T Merger, a limited liability company owned by Dr.
         Malone, TCI's Chairman and Chief Executive Officer, acquired, from
         certain subsidiaries of Old TCI, working cattle ranches located in
         Wyoming in exchange for a $17 million promissory note from such
         limited liability company. No gain or loss was recognized on such
         acquisition. Upon payment of such note, the excess of the proceeds
         received over the carrying value of the cattle ranches will be
         reflected as an increase to additional paid-in-capital. The purchase
         price paid by such limited liability company was in the form of a
         12-month note in the amount of $17 million having an interest rate of
         7%. Such note is payable at any time without penalty and is personally
         guaranteed by Dr. Malone.

         On January 27, 1999, the Company announced the planned acquisition by
         Charter Communications ("Charter") and TCI of certain cable television
         systems owned by InterMedia IV and InterMedia Partners. Charter will
         pay consideration consisting of cash and cable television systems for
         the systems its acquires from InterMedia IV. TCI will acquire certain
         other cable systems in a non-cash transaction. Upon the consummation
         of the transactions described above, TCI will own all of the
         partnership interests in InterMedia IV and InterMedia Partners. The
         transactions are subject to the negotiation and signing of definitive
         documents and various closing conditions.

         An individual who is a director and executive officer of TCI,
         currently has a .001% special limited partnership interest in ICM IV,
         which in turn has a 1.19% limited partnership interest in InterMedia
         IV. Such individual's special limited partnership interest in ICM IV
         was created in August 1997 in connection with TCI's acquisition of all
         of the partnership interests (other than a .002% general partnership
         interest and a .001% special limited partnership interest) in ICM IV.
         Such individual also indirectly owns a minimal interest in InterMedia
         Partners. In connection with the proposed transaction described above,
         it is anticipated that such individual, by virtue of his .001% special
         limited partnership interest in ICM IV, will participate in a profit
         sharing mechanism of InterMedia IV and receive cash consideration
         based on the valuation of InterMedia IV in the transaction described
         above. Although the amount of such consideration is uncertain at this
         time, its is expected that such consideration will be approximately
         $10 million. In the transaction described above, it is expected that
         such individual will receive less than $50,000 for his indirect
         interest in InterMedia Partners.

                                                                    (continued)

                                     I-33
<PAGE>   35
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(13)     At Home Corporation

         On January 19, 1999, @Home entered into a merger agreement with
         Excite, Inc. ("Excite"), a global internet media company that offers
         consumers and advertisers comprehensive internet navigation services
         with extensive personalization capabilities. Under the terms of the
         merger agreement, @Home will issue approximately 55 million shares of
         its common stock for all of the outstanding common stock of Excite
         based on an exchange ratio of 1.041902 shares of @Home's common stock
         for each share of Excite's common stock. @Home may issue up to
         approximately 15 million additional shares of common stock in
         connection with the assumption of obligations under Excite's stock
         option and employer stock purchase plans and outstanding warrants.
         @Home will account for the transaction as a purchase. @Home's
         preliminary estimate of the total purchase consideration is
         approximately $7 billion, based on the fair value at the time of
         announcement of the merger, of common stock to be issued and stock
         option, stock purchase plan and warrant obligations assumed, plus
         estimated transaction costs. As a result of the proposed merger, TCI's
         economic interest in @Home would decrease from 38.8% to 26.5%. The
         merger is subject to several conditions, including approval by both
         companies' stockholders and the expiration of applicable waiting
         periods under certain antitrust laws. The pending merger of @Home and
         Excite and certain related potential changes in @Home's corporate
         governance documents may impact management's ability to exercise
         control over @Home's Board of Directors.

         @Home has issued performance-based warrants to certain cable operators
         to purchase up to 11.6 million shares of @Home Series A common stock at
         an exercise price of $10.50 per share. Warrants to purchase
         approximately 920,000 and 330,000 shares of @Home's Series A common
         stock became exercisable during the year ended December 31, 1998 and
         the three months ended March 31, 1999. In the event the performance
         milestones are met with respect to the remaining unexercisable
         performance based warrants, @Home will record non-cash increases to its
         intangible assets in future periods based on the difference between the
         then fair market value of @Home's Series A common stock and the
         exercise price of $10.50 per share.

         During the two months ended February 28, 1999, @Home issued 1.1
         million common shares. Due to the resulting increase in @Home's
         equity, net of the dilution of TCI's ownership interest in @Home, TCI
         recognized a gain of $17 million.

                                                                    (continued)


                                     I-34
<PAGE>   36

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(14)     Commitments and Contingencies

         The Cable Television Consumer Protection and Competition Act of 1992
         (the "1992 Cable Act") imposed certain rate regulations on the cable
         television industry. Under the 1992 Cable Act, all cable systems are
         subject to rate regulation, unless they face "effective competition,"
         as defined by the 1992 Cable Act and expanded in the Telecommunications
         act of 1996 (the "1996 Act"), in their local franchise area.

         Although the Federal Communications Commission (the "FCC") has
         established regulations required by the 1992 Cable Act, local
         government units (commonly referred to as local franchising
         authorities) are primarily responsible for administering the
         regulation of a cable system's basic service tier ("BST"). The FCC
         itself directly administered rate regulation of any cable programming
         service tier ("CPST"). The FCC's authority to regulate CPST rates
         expired on March 31, 1999. The FCC has taken the position that it will
         still adjudicate CPST complaints filed after this sunset date (but no
         later than 180 days after the last CPST rate increase imposed prior to
         March 31, 1999), and will strictly limit its review (and possible
         refund orders) to the time period predating the sunset date.

         Under the FCC's rate regulations, most cable systems were required to
         reduce their BST and CPST rates in 1993 and 1994, and have since had
         their rate increases governed by a complicated price structure that
         allows for the recovery of inflation and certain increased costs, as
         well as providing some incentive for expanding channel carriage.
         Operators also have the opportunity to bypass this "benchmark"
         regulatory structure in favor of the traditional "cost-of-service"
         regulation in cases where the latter methodology appears favorable.
         Premium cable services offered on a per-channel or per-program basis
         remain unregulated, as do affirmatively marketed packages consisting
         entirely of new programming product.

         The Company believes that it has complied in all material respects
         with the provisions of the 1992 Cable Act and the 1996 Act, including
         its rate setting provisions. If, as a result of the review 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. Any refunds of the excess
         portion of CPST rates would be retroactive to the date of complaint.
         Any refunds of the excess portion of BST or equipment rates would be
         retroactive to one year prior to the implementation of the rate
         reductions.

         The Company is obligated and/or has guaranteed Liberty Media Group's
         obligation to pay fees for the rights to exhibit certain films that
         are released by various producers through 2017 (the "Film Licensing
         Obligations"). Based on customer levels at March 31, 1999, these
         agreements require minimum payments aggregating approximately $319
         million. The aggregate amount of the Film Licensing Obligations under
         these license agreements is not currently estimable because such
         amount is dependent upon the number of qualifying films released
         theatrically by certain motion picture studios as well as the domestic
         theatrical exhibition receipts upon the release of such qualifying
         films. Nevertheless, required aggregate payments under the Film
         Licensing Obligations could prove to be significant.

                                                                    (continued)


                                     I-35
<PAGE>   37

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company is a party to affiliation agreements with programming
         suppliers. Pursuant to certain of such agreements, the Company is
         committed to carry such suppliers' programming on its cable systems.
         Additionally, certain of such agreements provide for penalties and
         charges in the event the programming is not carried or not delivered
         to a contractually specified number of customers.

         The Company is committed to purchase billing services from a third
         party pursuant to three successive five-year agreements. Pursuant to
         such arrangement, the Company is obligated at March 31, 1999 to make
         minimum payments aggregating approximately $1.5 billion through 2012.
         Such minimum payments are subject to inflation and other adjustments
         pursuant to the terms of the underlying agreements.

         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $75 million at March 31, 1999. The Company also has
         agreed to take certain steps to support debt compliance with respect
         to obligations aggregating $1,690 million of certain cable television
         partnerships in which the Company has non-controlling ownership
         interests. See note 7. The Company also has guaranteed the performance
         of certain affiliates and other parties with respect to such parties'
         contractual and other obligations. Although there can be no assurance,
         management of the Company believes that it will not be required to
         meet its obligations under such guarantees, or if it is required to
         meet any of such obligations, that they will not be material to the
         Company.

         During 1999, a subsidiary of the Company entered into a contribution
         agreement ("Contribution Agreement") with certain shareholders of
         Phoenixstar, Inc. (formerly Primestar, Inc.) ("Phoenixstar") pursuant
         to which the Company would, to the extent it is relieved of $166
         million of contingent liabilities currently owed to certain creditors
         of Phoenixstar and its subsidiaries, contribute up to $166 million to
         Phoenixstar to the extent necessary to satisfy liabilities of
         Phoenixstar. On April 28, 1999, the Company contributed approximately
         $77 million to Phoenixstar in partial satisfaction of this obligation.
         The Company's remaining obligation under the Contribution Agreement
         will expire in 2001. During the fourth quarter of 1998, the Company
         recorded a $90 million charge to provide for the estimated losses that
         were expected to result from the Contribution Agreement. An increase
         in the Company's estimate of its losses with respect to the
         Contribution Agreement may necessitate an additional charge during the
         second quarter of 1999.

         TCI has agreed to make fixed monthly payments to an affiliate pursuant
         to an affiliation agreement. The fixed annual commitments increase
         annually from $190 million in 1999 to $267 million in 2003, and will
         increase with inflation through 2022. In addition, TCI is obligated to
         make minimum revenue payments through 2017 and minimum license fee
         payments through 2007 aggregating $399 million to an affiliate. Such
         minimum payments are subject to inflation and other adjustments
         pursuant to the terms of the underlying agreements.

                                                                    (continued)


                                     I-36
<PAGE>   38

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Effective as of December 16, 1997, NDTC on behalf of the Company and
         other cable operators that may be designated from time to time by NDTC
         ("Approved Purchasers"), entered into an agreement (the "Digital
         Terminal Purchase Agreement") with GI to purchase advanced digital
         set-top devices. The hardware and software incorporated into these
         devices are designed and manufactured to be compatible and
         interoperable with the OpenCable(TM) architecture specifications
         adopted by CableLabs, the cable television industry's research and
         development consortium, in November 1997. NDTC has agreed that
         Approved Purchasers will purchase, in the aggregate, a minimum of 6.5
         million set-top devices during calendar years 1998, 1999 and 2000 at
         an average price of $318 per set-top device. The 1998 purchase
         commitment of 1.5 million set-top devices was met. During the three
         months ended March 31, 1999, approximately 570,000 set-top devices had
         been purchased related to the 1999 commitment of 1,750,000 devices. GI
         agreed to provide NDTC and its Approved Purchasers the most favorable
         prices, terms and conditions made available by GI to any customer
         purchasing advanced digital set-top devices. In connection with NDTC's
         purchase commitment, GI agreed to grant warrants to purchase its
         common stock proportional to the number of devices ordered by each
         organization. In connection with the AT&T Merger, such warrants were
         transferred to Liberty/Ventures Group in exchange for approximately
         $176 million in cash. To the extent such warrants do not vest because
         TCI fails to meet its purchase commitments, TCI is required to repay a
         proportional amount of such cash to Liberty Media Group. NDTC has the
         right to terminate the Digital Terminal Purchase Agreement if, among
         other reasons, GI fails to meet a material milestone designated in the
         Digital Terminal Purchase Agreement with respect to the development,
         testing and delivery of advanced digital set-top devices.

         On July 17, 1998, the Company acquired 21.4 million shares of common
         stock of GI in exchange for (i) certain of the assets of NDTC's
         set-top authorization business, (ii) the license of certain related
         software to GI, (iii) a $50 million promissory note from the Company
         to GI, and (iv) a nine-year revenue guarantee from the Company in
         favor of GI. In connection therewith, NDTC also entered into a
         services agreement pursuant to which it will provide certain
         postcontract services to GI's set-top authorization business. The 21.4
         million shares of GI common stock are, in addition to other transfer
         restrictions, restricted as to their sale by NDTC for a three-year
         period. The Company recorded its investment in such shares at fair
         value which included a discount attributable to the above-described
         liquidity restriction. As a result of the deconsolidation of Liberty
         Media Group, the 21.4 million shares of GI common stock are no longer
         included in the Company's consolidated assets. The $346 million excess
         of the fair value of GI common stock received in 1998 over (i) the
         book value of certain assets transferred from NDTC to GI, and (ii) the
         $42 million present value of the promissory note due from the Company
         to GI, has been deferred by the Company in the accompanying
         consolidated financial statements. A portion of such excess equal to
         the $160 million present value of the annual amounts specified by the
         revenue guarantee will be amortized to revenue over nine years in
         proportion to such annual guaranteed amounts. The remaining $186
         million excess will be amortized to revenue on a straight-line basis
         over the nine-year period that NDTC is required to perform
         postcontract services.

                                                                    (continued)


                                     I-37
<PAGE>   39

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company has contingent liabilities related to legal proceedings
         and other matters arising in the ordinary course of business. Although
         it is reasonably possible the Company may incur losses upon conclusion
         of such matters, an estimate of any loss or range of loss cannot be
         made. 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.

(15)     Year 2000

         During the three months ended March 31, 1999, the Company continued
         its enterprise-wide, comprehensive efforts to assess and remediate its
         computer systems and related software and equipment to ensure such
         systems, software and equipment recognize, process and store
         information in the year 2000 and thereafter. The Company's year 2000
         remediation efforts include an assessment of its most critical
         systems, such as customer service and billing systems, headends and
         other cable plant systems that support the Company's programming
         services, business support operations, and other equipment and
         facilities. The Company also continued its efforts to verify the year
         2000 readiness of its significant suppliers and vendors and continued
         to communicate with significant business partners and affiliates to
         assess such partners and affiliates' year 2000 status.

         The Company has a year 2000 Program Management Office (the "PMO") to
         organize and manage its year 2000 remediation efforts. The PMO is
         responsible for overseeing, coordinating and reporting on the
         Company's year 2000 remediation efforts. At March 31, 1999, it was
         comprised of a 230-member, full-time staff, accountable to executive
         management of the Company.

         During the three months ended March 31, 1999, the Company continued
         its survey of significant third-party vendors and suppliers whose
         systems, services or products are important to the Company's
         operations (e.g., suppliers of addressable controllers and set-top
         devices, and the provider of the Company's billing services). The year
         2000 readiness of such providers is critical to continued provision of
         the Company's cable service.

         In addition to the survey process described above, management of the
         Company has identified its most critical supplier/vendor relationships
         and has instituted a verification process to determine the vendor's
         year 2000 readiness. Such verification includes, as deemed necessary,
         reviewing vendors' test and other data and engaging in regular
         conferences with vendors' year 2000 teams. The Company is also
         requiring testing to validate the year 2000 compliance of certain
         critical products and services.

         Significant market value is associated with the Company's investments
         in certain public and private corporations, partnerships and other
         businesses. Accordingly, the Company is monitoring the public
         disclosure of CSC and other publicly-held business entities to
         determine their year 2000 readiness. In addition, the Company has
         surveyed and monitored the year 2000 status of certain privately-held
         business entities in which the Company has significant investments.

                                                                    (continued)


                                     I-38
<PAGE>   40

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Year 2000 expenses and capital expenditures incurred in the two months
         ended February 28, 1999 were $11 million and $2 million, respectively.
         Year 2000 expenses and capital expenditures incurred in the one month
         ended March 31, 1999 were $6 million and $1 million, respectively.
         Such expenses and capital expenditures for the one month ended March
         31, 1999 are exclusive of costs attributable to Liberty Media Group,
         which was deconsolidated as of March 1, 1999. See note 2. Management
         of the Company currently estimates the remaining costs, exclusive of
         future costs attributable to the assessment and remediation of year
         2000 issues associated with Liberty Media Group, to be not less than
         $103 million, bringing the total estimated cost associated with the
         Company's year 2000 remediation efforts to be not less than $136
         million (including $32 million for replacement of noncompliant
         information technology systems). Also included in this estimate is $10
         million in future payments to be made pursuant to unfulfilled
         executory contracts or commitments with vendors for year 2000
         remediation services.

         The failure to correct a material year 2000 problem could result in an
         interruption or failure of certain important business operations.
         There can be no assurance that the Company's systems or the systems of
         other companies on which the Company relies will be converted in time
         or that any such failure to convert by the Company or other companies
         will not have a material adverse effect on its financial position,
         results of operations or cash flows.

(16)     Information about the Company's Operating Segments

         Prior to the AT&T Merger, Old TCI had two reportable segments:
         domestic cable and communications services and domestic programming
         services. Domestic cable and communications services receive video,
         audio and data signals from various sources, and amplify and
         distribute the signals by coaxial cable and optical fiber to the
         premises of customers who pay a fee for the service. Domestic
         programming services are produced, acquired, and distributed, through
         all available formats and media, branded entertainment and
         informational programming and software, including multimedia products,
         delivered in both analog and digital form. Old TCI's domestic cable
         and communications services business and assets were included in TCI
         Group, and Old TCI's domestic programming business and assets were
         included in Old Liberty Group. Old TCI's principal international
         businesses and assets and Old TCI's remaining non-cable and
         non-programming domestic businesses and assets were included in TCI
         Ventures Group.

         As described in note 2, immediately prior to the AT&T Merger, Old TCI
         purchased certain assets from Liberty/Ventures Group and the net
         assets attributed to Liberty Media Group were deconsolidated. As a
         result of these transactions, domestic cable and communications
         services is the only reportable segment of New TCI.

                                                                    (continued)


                                     I-39
<PAGE>   41

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The accounting policies of the segments are the same as those
         described in the summary of significant accounting policies. The
         Company evaluates performance based on a measure of Operating Cash
         Flow. Operating Cash Flow is a measure of value and borrowing capacity
         within the cable television industry and is not intended to be a
         substitute for cash flow provided by operating activities, or a
         measure of performance prepared in accordance with generally accepted
         accounting principles, and should not be relied upon as such.

         In addition, New TCI's performance is evaluated by AT&T based on
         several factors, of which the primary financial measure is earnings,
         including other income, before interest expense and taxes ("EBIT").
         Segment EBIT data and segment depreciation and amortization are
         provided supplementally herein along with the Company's standard
         measure of Operating Cash Flow. The Company's calculation of EBIT may
         or may not be consistent with the calculation of EBIT by other public
         companies, and EBIT should not be viewed as an alternative to
         generally accepted accounting principles measures of income, as a
         measure of performance, or to cash flows from operating, investing and
         financing activities as a measure of liquidity.

         The Company generally accounts for intersegment sales and transfers as
         if the sales or transfers were to third parties, that is, at current
         market prices.

         Old TCI's reportable segments were strategic business units that
         offered different products and services. They were managed separately
         because each segment required different technology and marketing
         strategies.

                                                                    (continued)


                                     I-40
<PAGE>   42

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company utilizes the following interim financial information for
         purposes of making decisions about allocating resources to a segment
         and assessing a segment's performance:

<TABLE>
<CAPTION>
                                               Domestic cable
                                              & communications        All
                                                 services            other          Total
                                              ----------------       -----          -----
                                                           amounts in millions
<S>                                            <C>                   <C>            <C>
         New TCI

         One month ended March 31, 1999:
         Revenue from external customers
             including intersegment revenue          $ 454             31            485
         Intersegment revenue                        $   1              1              2
         Segment Operating Cash Flow                 $ 178             --            178
         Segment depreciation and
             amortization                            $ 111             56            167
         Segment EBIT                                $(494)          (192)          (686)
</TABLE>

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

<TABLE>
<CAPTION>
                                                  Domestic cable    Domestic
                                                 & communications  programming    All
                                                     services       services     other     Total
                                                 ----------------  -----------   -----     -----
<S>                                                <C>              <C>         <C>       <C>  
         Old TCI

         Two months ended
         February 28, 1999:
         Revenue from external customers
             including intersegment revenue         $   902          128         165       1,195
         Intersegment revenue                       $    --           39          11          50
         Segment Operating Cash Flow                $   312           30          25         367

         Three months ended
         March 31, 1998:
         Revenue from external customers
             including intersegment revenue         $ 1,595          157         211       1,963
         Intersegment revenue                       $    (5)          72           6          73
         Segment Operating Cash Flow                $   655           28          22         705
</TABLE>


                                                                    (continued)


                                     I-41
<PAGE>   43

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         A reconciliation of reportable segment Operating Cash Flow to the
         Company's consolidated EBIT and consolidated earnings (loss) before
         income tax and extraordinary loss is as follows:


<TABLE>
<CAPTION>
                                                             New TCI                  Old TCI
                                                         --------------  ---------------------------------
                                                           One month        Two months       Three months
                                                             ended            ended             ended
                                                         March 31, 1999  February 28, 1999  March 31, 1998
                                                         --------------  -----------------  --------------
                                                                         amounts in millions
<S>                                                          <C>              <C>              <C>
Total Operating Cash Flow for reportable segments            $ 178    |       342              683
    Other Operating Cash Flow                                   --    |        25               22
Other items excluded from Operating Cash Flow:                        |
      Year 2000 costs                                           (6)   |       (11)              --
      AT&T merger costs                                         --    |       (65)              --
      Stock compensation                                        45    |      (366)            (229)
      Write-off of in-process research and                            |
         development costs                                    (594)   |        --               --
      Depreciation and amortization                           (167)   |      (277)            (434)
      Interest and dividend income                               3    |        13               21
      Share of losses of Liberty Media Group                   (58)   |        --               --
      Share of losses of the Other Affiliates, net             (77)   |      (161)            (238)
      Minority interest in earnings of consolidated                   |
         subsidiaries, net                                     (15)   |       (26)             (30)
      Gains on issuance of equity interests by                        |
         subsidiaries                                           --    |       389               38
      Gains on disposition of assets, net                       10    |       144            1,063
      Other, net                                                (5)   |        (3)             (10)
                                                             -----    |      ----           ------
         EBIT                                                 (686)   |         4              886
      Interest expense                                         (69)   |      (161)            (284)
                                                             -----    |      ----           ------
         Earnings (loss) before income taxes and                      |
            extraordinary loss                               $(755)   |      (157)             602
                                                             =====    |      ====           ======
</TABLE>

                                                                    (continued)


                                     I-42
<PAGE>   44

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(17)     Subsequent Events

         On May 4, 1999, AT&T and Comcast Corporation ("Comcast") announced
         that they had reached an agreement to exchange various cable systems,
         including certain cable systems of TCI. In addition, Comcast will
         receive an option from AT&T to purchase, over the next three years,
         additional cable systems with a total of approximately 1.25 million
         subscribers, which may include cable subscribers of TCI. The foregoing
         agreements are subject to completion of certain other transactions,
         and regulatory and legal approvals.

         On May 4, 1999, AT&T and Lenfest announced that they have signed an
         agreement for AT&T to acquire the remaining 50% interest in Lenfest
         not already owned by TCI. Lenfest has approximately 1.5 million
         customers in the greater Philadelphia area. AT&T has agreed to a stock
         purchase of the remaining ownership interest, and expects to issue
         approximately 43 million shares of AT&T common stock to Lenfest once
         the transaction receives the necessary legal and regulatory approvals.



                                     I-43
<PAGE>   45

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

         The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company. Such
discussion should be read in conjunction with the accompanying consolidated
financial statements and notes thereto. Additionally, the following discussion
and analysis should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations and financial
statements included in Part II of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. The following discussion focuses on material
trends, risks and uncertainties affecting the results of operations and
financial condition of the Company.

         Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under this caption are forward-looking. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company (or
entities in which the Company has interests), or industry results, to differ
materially from future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and other
factors include, among others: general economic and business conditions and
industry trends; the regulatory and competitive environment of the industries
in which the Company, and the entities in which the Company has interests,
operate; uncertainties inherent in new business strategies; uncertainties
inherent in the changeover to the year 2000, including the Company's projected
state of readiness, the projected costs of remediation, the expected date of
completion of each program or phase, the projected worst case scenarios, and
the expected contingency plans associated with such worst case scenarios; new
product launches and development plans; rapid technological changes; the
acquisition, development and/or financing of telecommunications networks and
services; the development and provision of programming for new television and
telecommunications technologies; future financial performance, including
availability, terms and deployment of capital; the ability of vendors to
deliver required equipment, software and services; availability of qualified
personnel; changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the FCC, and adverse
outcomes from regulatory proceedings; changes in the nature of key strategic
relationships with partners and joint venturers; competitor responses to the
Company's products and services, and the products and services of the entities
in which the Company has interests, and the overall market acceptance of such
products and services; and other factors. These forward-looking statements (and
such risks, uncertainties and other factors) speak only as of the date of this
Report, and the Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in the Company's expectations with regard
thereto, or any other change in events, conditions or circumstances on which
any such statement is based. Any statement contained within Management's
Discussion and Analysis of Financial Condition and Results of Operations on
this Form 10-Q related to year 2000 are hereby denominated as "Year 2000
Statements" within the meaning of the Year 2000 Information and Readiness
Disclosure Act.


                                     I-44
<PAGE>   46



         Targeted Stock

         The Company, through its subsidiaries and affiliates, is principally
engaged in the construction, acquisition, ownership, and operation of cable
television systems and, through its ownership interests in Liberty Media Group,
the provision of satellite-delivered video entertainment, information and home
shopping programming services to various video distribution media, principally
cable television systems. Liberty Media Group also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies.

         Prior to the AT&T Merger, the Company's assets and operations were
included in three separate groups, each of which was tracked separately by
public equity securities. These groups were formerly known as the Liberty Media
Group (referred to herein as the Old Liberty Group), the TCI Ventures Group and
the TCI Group.

         The Old Liberty Group was intended to reflect the separate performance
of TCI's assets which produce and distribute programming services.

         The TCI Ventures Group was intended to reflect the separate
performance of TCI's principal international assets and businesses and
substantially all of TCI's non-cable and non-programming assets.

         The TCI Group was intended to reflect the separate performance of TCI
and its subsidiaries and assets not attributed to the Old Liberty Group or TCI
Ventures Group. Such subsidiaries and assets are comprised primarily of TCI's
domestic cable and communications business. For additional information, see
note 1 to the accompanying consolidated financial statements.

         The TCI Group was tracked separately through the TCI Group Series A
Stock and the TCI Group Series B Stock. The Old Liberty Group was tracked
separately through the Liberty Group Series A Stock and Liberty Group Series B
Stock. The TCI Ventures Group was tracked separately through the TCI Ventures
Group Series A Stock and TCI Ventures Group Series B Stock.

         Following the AT&T Merger, the authorized capital of TCI consists of
3,552,375,096 shares, consisting of 3,550,000,000 shares of common stock, par
value $.01 per share, and 2,375,096 shares of Preferred Stock. The Preferred
Stock is divided into two classes: 700,000 shares of Class A Preferred Stock,
par value $.01 per share, and 1,675,096 shares of Class B Preferred Stock, par
value $.01 per share.


                                     I-45
<PAGE>   47



         Merger and Restructuring

         On March 9, 1999, AT&T acquired TCI in the AT&T Merger in which Italy
Merger Corp., a wholly-owned subsidiary of AT&T, merged with and into TCI, and
TCI thereby became a wholly-owned subsidiary of AT&T. As a result of the AT&T
Merger, (i) each share of TCI Group Series A Stock was converted into 0.7757 of
a share of AT&T Common Stock (1.16355 shares as adjusted for an April 1999
three-for-two AT&T stock split), (ii) each share of TCI Group Series B Stock
was converted into 0.8533 of a share of AT&T Common Stock (1.27995 shares as
adjusted for an April 1999 three-for-two AT&T stock split), (iii) each share of
Liberty Group Series A Stock was converted into one share of a newly created
class of AT&T common stock designated as the AT&T Liberty Class A Tracking
Stock, (iv) each share of Liberty Group Series B Stock was converted into one
share of a newly created class of AT&T common stock designated as the AT&T
Liberty Class B Tracking Stock, (v) each share of TCI Ventures Group Series A
Stock was converted into 0.52 of a share of AT&T Liberty Class A Tracking
Stock, (vi) each share of TCI Ventures Group Series B Stock was converted into
0.52 of a share of AT&T Liberty Class B Tracking Stock, (vii) each share of
Series C-TCI Group Preferred Stock was converted into 103.059502 shares of AT&T
Common Stock (154.589253 shares as adjusted for an April 1999 three-for-two
AT&T stock split), (viii) each share of Series C-Liberty Media Group Preferred
Stock was converted into 56.25 shares of AT&T Liberty Class A Tracking Stock,
(ix) each share of Series G Preferred Stock was converted into 0.923083 of a
share of AT&T Common Stock (1.3846245 shares as adjusted for an April 1999
three-for-two AT&T stock split) and (x) each share of Series H Preferred Stock
was converted into 0.590625 of a share of AT&T Liberty Class A Tracking Stock.
Following the AT&T Merger, each share of Class B Preferred Stock continues to
be outstanding as the Class B Preferred Stock with the same rights and
preferences such stock had prior to the AT&T Merger. In general, the holders of
shares of AT&T Liberty Class A Tracking Stock and the holders of shares of AT&T
Liberty Class B Tracking Stock will vote together as a single class with the
holders of shares of AT&T Common Stock on all matters presented to such
stockholders, with the holders being entitled to one-tenth (1/10th) of a vote
for each share of AT&T Liberty Class A Tracking Stock held, 1 vote per share of
AT&T Liberty Class B Tracking Stock held and 1 vote per share of AT&T Common
Stock held.


                                     I-46
<PAGE>   48



         The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger
are intended to reflect the separate performance of the businesses and assets
attributed to Old Liberty Group and TCI Ventures Group at the time of the AT&T
Merger. References herein to Liberty/Ventures Group refer to the combined
assets and businesses of Old Liberty Group and TCI Ventures Group for periods
prior to the AT&T Merger, and subsequent to the AT&T Merger such combined
assets and businesses are referred to as Liberty Media Group. Pursuant to, and
subject to the terms and conditions set forth in, the Merger Agreement,
immediately prior to the AT&T Merger, certain assets previously attributed to
TCI Ventures Group (including, among others, the shares of AT&T Common Stock
received in the merger of AT&T and TCG, the stock of @Home attributed to TCI
Ventures Group, the assets and business of NDTC and TCI Ventures Group's equity
interest in WTCI were transferred to TCI Group in exchange for approximately
$5.5 billion in cash. Also, upon consummation of the AT&T Merger, through a new
tax sharing agreement between Liberty Media Group and AT&T, Liberty Media Group
became entitled to the benefit of approximately $2.0 billion of net operating
loss carryforwards attributable to all entities included in TCI's consolidated
federal income tax return as of the date of the AT&T Merger. Such net operating
loss carryforwards are subject to adjustment by the Internal Revenue Service
and are subject to limitations on usage which may affect the ultimate amount
utilized. Additionally, certain warrants to purchase shares of GI previously
attributed to TCI Group were transferred to Liberty/Ventures Group in exchange
for approximately $176 million in cash. The transfer of certain immaterial
assets was also effected.

         Immediately prior to the AT&T Merger, AT&T and Liberty Media
Corporation entered into an agreement relating to the carriage of programming
of Liberty Media Corporation and its affiliates to be distributed over the AT&T
cable systems. Pursuant to this agreement, Liberty Media Corporation will be
granted, among other rights, "preferred vendor status" with respect to certain
types of new programming services. Liberty Media Corporation will also be
entitled to the use channel capacity equal to one six megahertz channel to be
used for category specific interactive video channels. In addition, such
agreement also provided for the extension of existing affiliation agreements
between TCI and programming affiliates of Liberty Media Corporation to a date
not less than 10 years from the closing of the AT&T Merger, upon the terms and
conditions set forth in such agreement.

         Pursuant to amended corporate governance documents for the entities
included in Liberty Media Group and certain agreements among AT&T and TCI, the
business of Liberty Media Group will continue to be managed by certain persons
who were members of TCI's management prior to the AT&T Merger. AT&T will
initially designate one third of the directors of such entities and its rights
as the sole shareholder of the common stock of such entities following the AT&T
Merger will, in accordance with Delaware law, be limited to actions which will
require shareholder approval. Therefore, management has concluded that TCI does
not have a controlling financial interest (as that term is used in Statement of
Financial Accounting Standards No. 94) in the entities comprising the Liberty
Media Group following the AT&T Merger, and will account for its ownership
interests in such entities under the equity method.


                                     I-47
<PAGE>   49



         Accordingly, effective with the AT&T Merger, the results of operations
of the entities attributed to Liberty/Ventures Group (exclusive of @Home, NDTC
and WTCI which were transferred to TCI Group immediately prior to the AT&T
Merger) will no longer be consolidated in the TCI consolidated financial
statements. The results of operations for such deconsolidated entities prior to
the date of the deconsolidation is discussed further below under the caption
Material Changes in Results of Operations - Adjusted Liberty/Ventures Group.

         Pursuant to the Final Judgment agreed to by TCI, AT&T and the DOJ on
December 30, 1998, Liberty/Ventures Group prior to the AT&T Merger transferred
all of the equity securities of Sprint beneficially owned by the
Liberty/Ventures Group to a trust with an independent trustee, pursuant to a
trust agreement approved by the DOJ. The Final Judgment, if entered by the
United States District Court for the District of Columbia, would require the
Trustee, on or before May 23, 2002, to dispose of a portion of the Sprint
Securities held by the trust and beneficially owned by Liberty Media Group
sufficient to cause Liberty Media Group to own beneficially no more than 10% of
the outstanding Series 1 PCS Stock of Sprint on a fully diluted basis (assuming
the issuance of all shares of Series 1 PCS Stock of Sprint ultimately issuable
in respect of the applicable securities of Sprint upon the exercise, conversion
or other issuance thereof in accordance with the terms of such securities) on
such date. On or before May 23, 2004, the Trustee must divest the remainder of
the Sprint Securities beneficially owned by Liberty Media Group.

         The Trust Agreement grants the Trustee the sole right to sell the
Sprint Securities and provides that all decisions regarding such divestiture
will be made by the Trustee without discussion or consultation with AT&T or the
entities in the Liberty Media Group; however, the Final Judgment would provide
that the Trustee shall consult with the board of directors of the Liberty Media
Group entity that owns Sprint Securities regarding such divestiture (other than
certain directors appointed by AT&T following the AT&T Merger and any director,
officer or shareholder that owns more than 0.10% of the outstanding AT&T Common
Stock). The Trustee has the power and authority to accomplish such divestiture
only in a manner reasonably calculated to maximize the value of the Sprint
Securities beneficially owned by Liberty Media Group.

         The Final Judgment would provide that the Trustee vote the Sprint
Securities beneficially owned by Liberty Media Group in the same proportion as
other holders of Sprint's PCS common stock so long as such securities are held
by the trust. The Final Judgment also would prohibit the acquisition by Liberty
Media Group of additional Sprint Securities (other than in connection with the
exercise or conversion, as applicable, of certain Sprint Securities) without
the prior written consent of the DOJ.


                                     I-48
<PAGE>   50



         Immediately prior to the AT&T Merger, TCI consummated the
Restructuring. The Restructuring included merging TCI's cable subsidiary, TCIC,
into TCI. As a result of TCIC's merger with TCI, all assets and liabilities of
TCIC have been assumed by TCI, including TCIC's public debt. In connection with
TCIC's merger with TCI, each share of TCIC's Cumulative Exchangeable Preferred
Stock, Series A was converted into 2.119 shares of TCI Group Series A Stock,
and such shares of TCI Group Series A Stock were subsequently converted into
AT&T Common Stock in connection with the AT&T Merger. All other public
securities issued by subsidiaries of TCIC (other than TCI Pacific
Communications, Inc. ("Pacific")) otherwise remained unaffected. Furthermore,
as part of the Restructuring, (i) AT&T loaned TCI $5.5 billion pursuant to a
promissory note, (ii) certain asset transfers were made between TCI and its
subsidiaries, (iii) 123,896 shares of the Series F Preferred Stock, which were
held by subsidiaries of TCI, were converted into 185,428,946 shares of TCI
Group Series A Stock (which in turn were converted into 143,837,233 shares of
AT&T Common Stock (215,755,850 shares as adjusted for an April 1999
three-for-two AT&T stock split) in the AT&T Merger and continue to be held by
subsidiaries of TCI), (iv) the remaining 154,411 shares of Series F Preferred
Stock which were formerly held by subsidiaries of TCI were distributed to TCI
through a series of liquidations and canceled, and (v) 125,728,816 shares of
TCI Group Series A Stock, 9,154,134 shares of TCI Group Series B Stock,
6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of Liberty
Group Series B Stock, and 67,536 shares of Class B Preferred Stock, each
formerly held by subsidiaries of TCI, were distributed to TCI through a series
of liquidations and canceled.

         After the AT&T Merger, under the terms of the Exchangeable Preferred
Stock, each share of that preferred stock is exchangeable, from and after
August 1, 2001, for approximately 4.225 shares of AT&T Common Stock (6.3375
shares as adjusted for an April 1999 three-for-two AT&T stock split), subject
to certain anti-dilution adjustments. Additionally, after the AT&T Merger,
Pacific may elect to make any dividend, redemption or liquidation payment on
the Exchangeable Preferred Stock in cash, by delivery of shares of AT&T Common
Stock or by a combination of the foregoing forms of consideration.

         For information concerning the accounting treatment of the AT&T
Merger, see note 2 to the accompanying consolidated financial statements.


                                     I-49
<PAGE>   51



         Year 2000

         During the three months ended March 31, 1999, the Company continued
its enterprise-wide, comprehensive efforts to assess and remediate its computer
systems and related software and equipment to ensure such systems, software and
equipment recognize, process and store information in the year 2000 and
thereafter. The Company's year 2000 remediation efforts include an assessment
of its most critical systems, such as customer service and billing systems,
headends and other cable plant systems that support the Company's programming
services, business support operations, and other equipment and facilities. The
Company also continued its efforts to verify the year 2000 readiness of its
significant suppliers and vendors and continued to communicate with significant
business partners and affiliates to assess such partners and affiliates' year
2000 status.

         The Company has a year 2000 Program Management Office to organize and
manage its year 2000 remediation efforts. The PMO is responsible for
overseeing, coordinating and reporting on the Company's year 2000 remediation
efforts. At March 31, 1999, it was comprised of a 230-member, full-time staff,
accountable to executive management of the Company.

         The PMO has defined a four-phase approach to determining the year 2000
readiness of the Company's systems, software and equipment. Such approach is
intended to provide a detailed method for tracking the evaluation, repair and
testing of the Company's critical systems, software and equipment. Phase 1,
Assessment, involves the inventory of all critical systems, software and
equipment and the identification of any year 2000 issues. Phase 1 also includes
the preparation of the workplans needed for remediation. Phase 2, Remediation,
involves repairing, upgrading and/or replacing any non-compliant critical
equipment and systems. Phase 3, Testing, involves testing the Company's
critical systems, software, and equipment for year 2000 readiness, or in
certain cases, relying on test results provided to the Company. Phase 4,
Implementation, involves placing compliant systems, software and equipment into
production or service.

         At March 31, 1999, TCI's overall progress by phase was as follows:

<TABLE>
<CAPTION>
                             Percentage of Year 2000       Expected Completion Date --
Phase                      Projects Completed by Phase*    All Year 2000 Projects
- -----                      ----------------------------    ---------------------------
<S>                         <C>                             <C>
Phase 1-Assessment                    85%                           May 1999
Phase 2-Remediation                   48%                          July 1999
Phase 3-Testing                       34%                        September 1999
Phase 4-Implementation                21%                         October 1999
</TABLE>

- ---------------------
*The percentages set forth above were calculated by dividing the number of year
2000 projects that have completed a given phase by the total number of year
2000 projects.

         The completion dates set forth above are based on the Company's
current expectations. However, due to the uncertainties inherent in year 2000
remediation, no assurances can be given as to whether such projects will be
completed on such dates.

         The Company is completing an inventory of critical systems with
embedded technologies that impact its operations and is currently determining
the correct remediation approach. The embedded technologies assessments are
expected to be complete by May of 1999.


                                     I-50
<PAGE>   52




         During the three months ended March 31, 1999, the Company continued
its survey of significant third-party vendors and suppliers whose systems,
services or products are important to the Company's operations (e.g., suppliers
of addressable controllers and set-top devices, and the provider of the
Company's billing services). The year 2000 readiness of such providers is
critical to continued provision of the Company's cable service. The Company has
received information that critical systems, services or products supplied to
the Company by third parties are either year 2000 ready or are expected to be
year 2000 ready by mid-1999.

         In addition to the survey process described above, management of the
Company has identified its most critical supplier/vendor relationships and has
instituted a verification process to determine the vendor's year 2000
readiness. Such verification includes, as deemed necessary, reviewing vendors'
test and other data and engaging in regular conferences with vendors' year 2000
teams. The Company is also requiring testing to validate the year 2000
compliance of certain critical products and services.

         Significant market value is associated with the Company's investments
in certain public and private corporations, partnerships and other businesses.
Accordingly, the Company is monitoring the public disclosure of CSC and other
publicly-held business entities to determine their year 2000 readiness. In
addition, the Company has surveyed and monitored the year 2000 status of
certain privately-held business entities in which the Company has significant
investments. For updated information related to CSC's year 2000 programs,
please refer to the most recent periodic filings with the Securities and
Exchange Commission of CSC.

         Year 2000 expenses and capital expenditures incurred in the two months
ended February 28, 1999 were $11 million and $2 million, respectively. Year
2000 expenses and capital expenditures incurred in the one month ended March
31, 1999 were $6 million and $1 million, respectively. Such expenses and
capital expenditures for the one month ended March 31, 1999 are exclusive of
costs attributable to Liberty Media Group, which was deconsolidated as of March
1, 1999. See Merger and Restructuring, above. Management of the Company
currently estimates the remaining costs, exclusive of future costs attributable
to the assessment and remediation of year 2000 issues associated with Liberty
Media Group, to be not less than $103 million, bringing the total estimated
cost associated with the Company's year 2000 remediation efforts to be not less
than $136 million (including $32 million for replacement of noncompliant
information technology ("IT") systems). Also included in this estimate is $10
million in future payments to be made pursuant to unfulfilled executory
contracts or commitments with vendors for year 2000 remediation services.
Although no assurances can be given, management currently expects that (i) cash
flow from operations or advances from AT&T will fund the costs associated with
year 2000 compliance and (ii) the total projected cost associated with the
Company's year 2000 program will not be material to the Company's financial
position, results of operations or cash flows.

         The Company is a widely distributed enterprise in which allocation of
certain resources, including IT support is decentralized. Accordingly, the
Company does not consolidate an IT budget. Therefore, total estimated year 2000
costs as a percentage of an IT budget are not available. There are currently no
planned IT projects being deferred due to year 2000 costs.


                                     I-51
<PAGE>   53



         The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. Management
believes that its year 2000 program will significantly reduce the Company's
risks associated with the changeover to the year 2000 and has implemented
certain contingency plans to minimize the effect of any potential year 2000
related disruptions. The risks and the uncertainties discussed below and the
associated contingency plans relate to systems, software, equipment, and
services that the Company has deemed critical in regard to customer service,
business operations, financial impact or safety.

         The failure of addressable controllers contained in the cable system
headends could disrupt the delivery of premium services to customers and could
necessitate crediting customers for failure to receive such premium services.
In this unlikely event, management expects that it will identify and transmit
the lowest cost programming tier. Unless other contingency plans are developed
with the programmers, premium and adult content channels would not likely be
transmitted until the addressable controller had been repaired.

         Customer service networks and/or automated voice response systems
failure could prevent access to customer account information, hamper
installation scheduling and disable the processing of pay-per-view requests.
The Company plans to have its customer service representatives answer telephone
calls from customers in the event of outages and expects to retrieve needed
customer information manually from the billing service provider.

         A failure of the services provided by billing systems service
providers could result in a loss of customer records which could disrupt the
ability to bill customers for a protracted period. The Company plans to prepare
electronic backup records of its customer billing information prior to the year
2000 to allow for data recovery. In addition, the Company continues to monitor
the year 2000 readiness of its key customer-billing suppliers.

         Advertising revenue could be adversely affected by the failure of
certain equipment which could impede or prevent the insertion of advertising
spots in the Company's programming. The Company anticipates that it can
minimize such effect by manually resetting the dates each day until the
equipment is repaired.

         The Company owns investments in numerous cable programming operators
and other businesses. The market value of the Company's investment in these
entities could be adversely impacted by material failures of such entities to
address year 2000 remediation issues (including supplier and vendor issues)
related to their programming services and businesses. Further, due to tax and
strategic considerations, the Company has a limited ability to dispose of these
investments if year 2000 issues develop. Therefore, as a contingency plan, the
Company has undertaken an extensive effort to verify and in certain cases
assist in the year 2000 remediation efforts of companies in which it has
significant investments.


                                     I-52
<PAGE>   54



         Security and fire protection systems failure could leave facilities
vulnerable to intrusion and fire. The Company expects to return such systems to
normal functioning by turning the power off and then on again ("power off/on").
The Company also plans to have additional security staff on site and plans to
implement a backup plan for communicating with local fire and police
departments. Also, certain personal computers interface with and control
elevators, escalators, wireless systems, public access systems and certain
telephony systems. In the event such computers cease operating, conducting a
power off/on is expected to resume normal functioning. If a power off/on does
not resume normal functioning, management expects to resolve the problem by
resetting the computer to a pre-designated date which precedes the year 2000.

         In the event that the local public utility cannot supply power, the
Company expects to supply power for a limited time to the Company's cable
headends, the NDTC and office sites through backup generators.

         The financial impact of any or all of the above worst-case scenarios
has not been and cannot be estimated by the Company due to the numerous
uncertainties and variables associated with such scenarios.

         If critical systems related to the Company's cable TV and programming
services are not successfully remediated, the Company could face claims of
breach of contract from customers of the NDTC, from parties to cable system
sale or exchange agreements, from certain programming providers and from other
cable TV businesses that rely on the Company's programming services. The
Company has not determined the possible losses from any such claims of breach
of contract.


                                     I-53
<PAGE>   55



         MATERIAL CHANGES IN RESULTS OF OPERATIONS

         GENERAL

         As described in notes 1 and 2 to the accompanying consolidated
financial statements, for financial reporting purposes the AT&T Merger and the
related Restructuring are deemed to have occurred on March 1, 1999.
Accordingly, the financial statements for periods prior to March 1, 1999 are
referred to herein as Old TCI, and the financial statements for periods
subsequent to February 28, 1999 are referred to herein as New TCI. Due to the
March 1, 1999 application of purchase accounting in connection with the AT&T
Merger, the predecessor consolidated financial statements of Old TCI are not
comparable to the successor consolidated financial statements of New TCI.


                                     I-54
<PAGE>   56



         Summarized operating data with respect to New TCI and Old TCI is
presented below for the indicated periods:

<TABLE>
<CAPTION>
                                                      New TCI                 Old TCI
                                                     ---------      -----------------------------
                                                     One month       Two months      Three months
                                                      ended           ended            ended
                                                     March 31,      February 28,      March 31,
                                                       1999            1999             1998
                                                     ---------      ------------     ------------
                                                                  amounts in millions
<S>                                                   <C>              <C>            <C>  
Revenue                                               $   483     |    1,145          1,890
                                                                  |
Operating expenses                                        188     |      467            748
Selling, general and administrative                               |
  expenses                                                117     |      311            437
Year 2000 costs                                             6     |       11             --
AT&T merger costs                                          --     |       65             --
Stock compensation                                        (45)    |      366            229
Write-off of in-process research and                              |
  development costs                                       594     |       --             --
Depreciation and amortization                             167     |      277            434
                                                      -------     |   ------         ------
                                                        1,027     |    1,497          1,848
                                                      -------     |   ------         ------
     Operating income (loss)                             (544)    |     (352)            42
                                                                  |
Interest expense                                          (69)    |     (161)          (284)
Interest and dividend income                                3     |       13             21
Share of losses of Liberty Media Group                    (58)    |       --             --
Share of losses of the Other Affiliates, net              (77)    |     (161)          (238)
Minority interests in earnings of consolidated                    |
    subsidiaries, net                                     (15)    |      (26)           (30)
Gains on issuance of equity interests by                          |
    subsidiaries                                           --     |      389             38
Gains on disposition of assets, net                        10     |      144          1,063
Other, net                                                 (5)    |       (3)           (10)
                                                      -------     |   ------         ------
                                                         (211)    |      195            560
                                                      -------     |   ------         ------
                                                                  |
    Earnings (loss) before income taxes                           |
       and extraordinary loss                            (755)    |     (157)           602
                                                                  |
Income tax benefit (expense)                               15     |     (119)          (246)
                                                      -------     |   ------         ------
                                                                  |
    Earnings (loss) before extraordinary                          |
        loss                                             (740)    |     (276)           356
                                                                  |
Extraordinary loss, net of income tax                             |
        benefit                                            --     |       (5)           (10)
                                                      -------     |   ------         ------
     Net earnings (loss)                              $  (740)    |     (281)           346
                                                      =======     |   ======         ======
</TABLE>


                                     I-55
<PAGE>   57



         Due to the consummation of the AT&T Merger, the Company's 1999
statement of operations includes information reflecting the one-month period
ended March 31, 1999 and the two-month period ended February 28, 1999. Also,
prior to March 1, 1999 the Company consolidated the operations of
Liberty/Ventures Group, and subsequent to February 28, 1999 the Company
accounted for its ownership interests in Liberty Media Group under the equity
method. The following discussion of the Company's results of operations
includes a section that addresses the combined operating results of the former
TCI Group and @Home, NDTC and WTCI (collectively, the "Adjusted TCI Group") and
a section that addresses the combined operating results of Liberty/Ventures
Group, exclusive of @Home, NDTC and WTCI (the "Adjusted Liberty/Ventures
Group").

         Adjusted TCI Group

         In order to provide a meaningful basis for comparing the quarters
ended March 31, 1999 and 1998 for purposes of the following table and
discussion, the combined operating results of Adjusted TCI Group for the one
month ended March 31, 1999 have been combined with the combined operating
results of Adjusted TCI Group for the two months ended February 28, 1999, and
the resulting three-month operating results are compared to the combined
operating results of Adjusted TCI Group for the three months ended March 31,
1998. Depreciation, amortization and certain other line items included in the
operating results of Adjusted TCI Group are not necessarily comparable between
periods as the one-month successor period ended March 31, 1999 includes the
effects of purchase accounting adjustments related to the AT&T Merger, and
prior predecessor periods do not. The combining of predecessor and successor
accounting periods is not acceptable under generally accepted accounting
principles. See note 2 to the accompanying consolidated financial statements.
The unaudited combined results of operations for Adjusted TCI Group are as
follows:


                                     I-56
<PAGE>   58

<TABLE>
<CAPTION>
                                                            Adjusted TCI Group
                                                        ----------------------------
                                                        Three months ended March 31,
                                                        ----------------------------
                                                           1999           1998
                                                        -------------  -------------
                                                             amounts in millions
<S>                                                     <C>              <C>  
Revenue                                                 $ 1,424          1,627

Operating expenses                                         (575)          (619)
Selling, general and administrative expenses               (352)          (355)
Year 2000 costs                                             (17)            --
AT&T merger costs                                           (65)            --
Stock compensation                                         (138)           (70)
Write-off of in-process research and development
  costs                                                    (594)            --
Depreciation and amortization                              (422)          (403)
                                                        -------         ------

  Operating income (loss)                                  (739)           180

Interest expense                                           (205)          (276)
Share of losses of the Other Affiliates, net               (171)             2
Minority interests in earnings of consolidated
  subsidiaries, net                                         (35)           (33)
Gain on issuance of equity interests by
  subsidiary                                                 17             --
Gains on disposition of assets, net                         139            511
Other, net                                                    1             (4)
                                                        -------         ------
  Earnings (loss) before income taxes and
    extraordinary loss                                     (993)           380
Income tax benefit (expense)                                103           (159)
                                                        -------         ------

  Earnings (loss) before extraordinary loss                (890)           221

Extraordinary loss, net of income tax benefit                (5)           (10)
                                                        -------         ------

  Net earnings (loss)                                   $  (895)           211
                                                        =======         ======
</TABLE>

         Acquisitions and Dispositions

         Since January 1, 1998, Adjusted TCI Group has contributed cable
television systems serving approximately 3,170,000 customers to a number of
joint ventures in which Adjusted TCI Group has retained non-controlling
ownership interests. Contribution transactions during the three months ended
March 31, 1999 and 1998 accounted for approximately 416,000 and 1,065,000,
respectively, of such contributed customers. Adjusted TCI Group also has
completed certain other acquisitions and dispositions since January 1, 1998.
The above-described transactions adversely affect the comparability of
operating results between periods. Accordingly, in the following discussion,
the collective effects of acquisitions and dispositions are sometimes excluded
in order to provide a more meaningful basis of comparison.


                                     I-57
<PAGE>   59


         Revenue and Expenses

         Adjusted TCI Group's revenue decreased $203 million or 12% for the
three months ended March 31, 1999, as compared to the corresponding prior year
period. Exclusive of the effects of acquisitions and dispositions, revenue
increased $109 million or 8%. Revenue from domestic cable customers accounted
for a 6% increase in revenue, primarily due to the net effect of a 3% increase
in basic revenue, an increase in revenue from digital products and a 4%
decrease in premium revenue. The Company experienced a 2% increase in its
average basic rate, an increase of 1% in the number of average basic customers,
a 7% decrease in its average rate for traditional premium services and a 4%
increase in the number of average traditional premium subscriptions.
Additionally, revenue increases from @Home and NDTC accounted for a 2% increase
in Adjusted TCI Group revenue.

         Adjusted TCI Group's operating expenses decreased $44 million or 7%
for the three months ended March 31, 1999, as compared to the corresponding
prior year period. Exclusive of the effects of acquisitions and dispositions,
operating expenses increased $92 million or 20%. Higher programming costs
accounted for more than one half of such increase. It is anticipated that
Adjusted TCI Group's programming costs will continue to increase in future
periods. The remaining increase relates primarily to higher labor costs and
launch and development costs related to the roll-out of Adjusted TCI Group's
digital video products.

         Adjusted TCI Group's selling, general and administrative expenses
increased $3 million or 1% for the three months ended March 31, 1999, as
compared to the corresponding prior year period. Exclusive of the effects of
acquisitions and dispositions, the expenses increased $31 million or 10%. The
increase is due primarily to increases in billing costs and increases in
selling, general and administrative expenses of @Home.

         Adjusted TCI Group's year 2000 costs include fees and other expenses
incurred directly in connection with Adjusted TCI Group's comprehensive efforts
to review and correct computer systems, equipment and related software to
ensure readiness for the year 2000. See detailed discussion above.

         AT&T merger costs incurred by Adjusted TCI Group include investment
advisory, legal and accounting fees, and other incremental pre-closing costs
directly related to the AT&T Merger. See note 2 to the accompanying
consolidated financial statements.


                                     I-58
<PAGE>   60



         Adjusted TCI Group records stock compensation relating to restricted
stock awards, options and/or stock appreciation rights granted by the Company to
certain employees and directors. The amount of expense associated with stock
compensation for Adjusted TCI Group is based on the vesting of the related stock
options and stock appreciation rights and the market price of the underlying
common stock as of the date of the accompanying consolidated financial
statements. The estimated compensation liability relating to vested stock
appreciation rights has been recorded as of March 31, 1999, and is subject to
future adjustment based upon market values and, ultimately, on the final
determination of market values when such rights are exercised. See note 2 to the
accompanying consolidated financial statements.

The write-off of in-process research and development costs of $594 million
during March 1999 reflects the value, as of the date of the AT&T Merger, of New
TCI Group's research and development projects which have not yet reached
technological feasibility and which have no alternative for future use. See note
2 to the accompanying consolidated financial statements.

         Adjusted TCI Group's depreciation and amortization expense increased
$19 million or 5% for the three months ended March 31, 1999, as compared to the
corresponding prior year period. Such increase includes a $42 million increase
in amortization expense and a $23 million decrease in depreciation expense. The
increase in amortization expense is primarily attributable to the effects of
purchase accounting during the one month ended March 31, 1999. Such increase in
amortization expense is partially offset by the effects of dispositions. The
decrease in depreciation expense includes the net effect of (i) decreases
attributable to dispositions and purchase accounting, and (ii) increases
attributable to capital expenditures and acquisitions. See note 2 to the
accompanying consolidated financial statements.

         Other Income and Expenses

         Adjusted TCI Group's interest expense decreased $71 million or 26% for
the three months ended March 31, 1999, as compared to the corresponding prior
year period. The decrease is primarily the result of lower weighted average debt
balances resulting from debt reductions attributable to certain disposition
transactions in 1998 and 1999. Adjusted TCI Group's debt balances increased on
March 9, 1999 as a result of amounts borrowed by Adjusted TCI Group from AT&T
pursuant to the AT&T  Notes. See note 8 to the accompanying consolidated
financial statements.

         Adjusted TCI Group's investments in the Other Affiliates are comprised
of limited partnerships and other entities that are primarily engaged in the
domestic cable television business or other communications services businesses.
Adjusted TCI Group's share of earnings (losses) of affiliates was ($171 million)
and $2 million for the three months ended March 31, 1999 and 1998, respectively.
Adjusted TCI Group's share of losses of the Other Affiliates includes three
months of Adjusted TCI Group's share of CSC's losses in the 1999 period, as
compared to only one month of such losses in the 1998 period. Additionally, the
1999 losses include increased amortization due to the effects of purchase
accounting during the one month ended March 31, 1999. See note 2 to the
accompanying consolidated financial statements. Additionally, Adjusted TCI
Group's share of the Other Affiliates' losses during the three months ended
March 31, 1998 includes Adjusted TCI Group's share of gains recognized by two
affiliates in connection with certain transactions.



                                     I-59
<PAGE>   61



         Minority interests in earnings of consolidated subsidiaries aggregated
$35 million and $33 million for the three months ended March 31, 1999 and 1998,
respectively. Such amounts include dividends on the Trust Preferred Securities
and other preferred securities of TCI subsidiaries attributed to Adjusted TCI
Group of $45 million during each of the three-month periods ended March 31,
1999 and 1998. Such dividends are offset in part by the minority interests
share of the losses of @Home. See notes 9 and 13 to the accompanying
consolidated financial statements.

         During the two months ended February 28, 1999, @Home issued 1.1
million common shares. Due to the resulting increase in @Home's equity, net of
the dilution of Adjusted TCI Group's ownership interest in @Home, Adjusted TCI
Group recognized a gain of $17 million.

         Adjusted TCI Group's gains on disposition of assets of $139 million
during the three months ended March 31, 1999 include a $123 million gain
related to the sale of certain cable television systems serving approximately
145,000 customers. Adjusted TCI Group's gains on disposition of assets of $511
million during the three months ended March 31, 1998 are primarily attributable
to the March 4, 1998 contribution of cable television systems to CSC. See notes
6 and 7 to the accompanying consolidated financial statements.

         In connection with certain redemptions of notes payable, Adjusted TCI
Group recognized extraordinary losses on early extinguishment of debt of $5
million and $10 million during the three months ended March 31, 1999 and 1998,
respectively, which are stated net of related deferred income tax benefits of
$3 million and $6 million, respectively. Such extraordinary losses related to
prepayment penalties amounting to $4 million and $15 million for the three
months ended March 31, 1999 and 1998, respectively, and the retirement of
deferred loan costs.

         Net Earnings (Loss)

         As a result of the above-described fluctuations in Adjusted TCI
Group's results of operations, Adjusted TCI Group's net loss (before preferred
stock dividend requirements) of $895 million for the three months ended March
31, 1999 changed by $1,106 million, as compared to Adjusted TCI Group's net
earnings (before preferred stock dividend requirements) of $211 million for the
three months ended March 31, 1998.


                                     I-60
<PAGE>   62

         Adjusted Liberty/Ventures Group (i.e. exclusive of @Home, NDTC and 
         WTCI)

         The consolidated operating results of the Company for the two months
ended February 28, 1999 and three months ended March 31, 1998 include the
operations of entities attributed to the Liberty/Ventures Group during such
periods. For the one month ended March 31, 1999, the Company's investment in
Liberty Media Group was accounted for under the equity method. The following
table presents certain combined operating information of Adjusted
Liberty/Ventures Group for the periods in which such information was included
in the Company's consolidated financial statements:

<TABLE>
<CAPTION>
                                                       Adjusted Liberty/Ventures Group
                                                       ---------------------------------
                                                          Two months       Three months
                                                            ended            ended
                                                       February 28, 1999  March 31, 1998
                                                       -----------------  --------------
                                                              amounts in millions
<S>                                                        <C>              <C>
   Revenue                                                 $ 235            317
                                                           -----           ----

   Cost of sales, operating costs and expenses:
       Operating                                             112            184
       Selling, general and administrative                    76             82
       Stock compensation                                    183            158
       Depreciation and amortization                          22             27
                                                           -----           ----
                                                             393            451
                                                           -----           ----

            Operating loss                                  (158)          (134)

   Other income (expense):
       Interest expense                                      (25)           (14)
       Dividend and interest income                           10             17
       Share of losses of affiliates, net                    (67)          (239)
       Minority interests in losses of attributed
          subsidiaries                                        (7)            --
       Gains on dispositions, net                             15            552
       Gains on issuance of equity by affiliates
          and subsidiaries                                   372             38
       Other, net                                             (2)             2
                                                           -----           ----
                                                             296            356
                                                           -----           ----

          Earnings before income taxes                       138            222

   Income tax expense                                       (206)           (87)
                                                           -----           ----

          Net earnings (loss)                              $ (68)           135
                                                           =====           ====
</TABLE>



                                     I-61
<PAGE>   63



         The foregoing results of operations of Adjusted Liberty/Ventures Group
are not comparable in that the 1999 period includes two months of operations
and the 1998 period includes three months of operations. In addition to
fluctuations that are attributable to the different lengths of the 1999 and
1998 periods, other factors have contributed to changes between such periods.
Such changes are discussed in relative terms below.

         The combined revenue of Adjusted Liberty/Ventures Group includes
programming revenue charged to Adjusted TCI Group and non-affiliates. The
relative increase in revenues relates primarily to higher revenue from the
distribution of "Encore" premium movie services to cable operators, including
Adjusted TCI Group, and higher revenue from TV Guide, Inc.

         Changes in Adjusted Liberty/Ventures Group's operating expenses relate
primarily to relatively higher costs to acquire programming content from
suppliers due primarily to an increase in first run movie content as a percent
of Encore's total movie content. Such first run movies are generally obtained
at higher costs than movies which are not first run. Other miscellaneous
increases include higher music rights costs and higher copyright fees.

         Changes in Adjusted Liberty/Ventures Group's selling, general and
administrative expenses relate primarily to relatively higher contract labor,
marketing and marketing support costs.

         Adjusted Liberty/Ventures Group recorded stock compensation relating
to restricted stock awards, options and/or stock appreciation rights granted by
the Company to certain employees and directors of Adjusted Liberty/Ventures
Group. The amount of expense associated with stock compensation is based on the
vesting of the related stock options and stock appreciation rights and the
market price of the underlying common stock as of the end of the periods
presented.

         Adjusted Liberty/Ventures Group's interest and dividend income
consisted primarily of (i) dividends received on a series of Time Warner, Inc.
("Time Warner") common stock with limited voting rights, (ii) dividends
received on preferred stock of Fox Kids Worldwide, Inc. ("FKW Preferred
Stock"), and (iii) interest income from cash balances and other
interest-earning assets. Dividends received on the Time Warner common stock
aggregated $3 million and $5 million, and dividends received on the FKW
Preferred Stock aggregated $5 million and $8 million, during the two months
ended February 28, 1999 and the three months ended March 31, 1998,
respectively.

         Investments in affiliates are comprise of limited partnerships and
other entities that are primarily engaged in programming and communications
services businesses. Adjusted Liberty/Ventures Group's share of losses of
affiliates were $67 million, and $239 million during the two months ended
February 28, 1999 and the three months ended March 31, 1998, respectively.


                                     I-62
<PAGE>   64



         Adjusted Liberty/Ventures Group's share of losses for the two months
ended February 28, 1999 were primarily comprised of (i) its share of losses of
Telewest Communications plc, which aggregated $38 million during the period,
and (ii) its share of losses of other foreign affiliates, which aggregated $27
million during the period.

         Adjusted Liberty/Ventures Group's share of losses for the three months
ended March 31, 1998 were primarily comprised of (i) its share of the losses of
Sprint Spectrum Holding Company, L.L.P., MinorCo, L.P. and PhillieCo
Partnership I, L.P. (the "PCS Ventures"), (ii) its share of Fox/Liberty
Networks' ("Fox Sports") losses, and (iii) its share of losses of various
foreign affiliates. During the three months ended March 31, 1998, Adjusted
Liberty/Ventures Group's share of the PCS Ventures' losses was $155 million. As
a result of a November 1998 transaction, Adjusted Liberty/Ventures Group no
longer accounts for its investment in the PCS Ventures under the equity method.
Prior to the first quarter of 1998, Adjusted Liberty/Ventures Group had no
obligation, nor intention, to fund Fox Sports. During 1998, Adjusted
Liberty/Ventures Group made the determination to provide funding to Fox Sports
based on specific transactions consummated by Fox Sports. Consequently,
Adjusted Liberty/Ventures Group's share of losses of Fox Sports for 1998
includes previously unrecognized losses of Fox Sports of approximately $36
million. Losses for Fox Sports were not recognized in prior periods due to the
fact that Adjusted Liberty/Ventures Group's investment in Fox Sports was less
than zero.

         Adjusted Liberty/Ventures Group's gain on disposition of $552 million
during the 1998 period is primarily the result of Adjusted Liberty/Ventures
Group's sale to Time Warner of the business of Southern Satellite Systems, Inc.
and certain of its subsidiaries.

         Gains on issuance of equity interests by subsidiaries were $372
million and $38 million during the two months ended February 28, 1999 and the
three months ended March 31, 1998, respectively. The 1999 gains relate
primarily to the issuance of common stock by UVSG, in connection with its
acquisition of the business of TV Guide. The 1998 gains primarily relate to the
February 1998 equity issuance by Liberty/Ventures Group's then subsidiary,
Superstar/Netlink Group LLC. See note 7 to the accompanying consolidated
financial statements.

         The Company's share of the losses of Liberty Media Group was $58
million for the one month ended March 31, 1999. If Adjusted Liberty/Ventures
Group had been deconsolidated January 1, 1998, the Company's share of Adjusted
Liberty/Ventures Group's net earnings (losses) would have been $(126) million
and $135 million for the three months ended March 31, 1999 and 1998,
respectively. Liberty Media Group's operating results for the month ended March
31, 1999 included additional depreciation and amortization as a result of the
application of purchase accounting in connection with the AT&T Merger.


                                     I-63
<PAGE>   65



         MATERIAL CHANGES IN FINANCIAL CONDITION

         As described in greater detail in note 2 to the accompanying
consolidated financial statements, on March 9, 1999, TCI was acquired by AT&T
in a merger and TCI thereby became a subsidiary of AT&T. The AT&T Merger also
resulted in the deconsolidation of the businesses and assets attributed to
Liberty Media Group at the time of the AT&T Merger.

         Pursuant to the Merger Agreement, immediately prior to the AT&T
Merger, certain assets previously attributed to TCI Ventures Group (including,
among others, the shares of AT&T Common Stock received in the merger of AT&T
and TCG, the stock of @Home attributed to TCI Ventures Group, the assets and
business of NDTC and TCI Ventures Group's equity interest in WTCI) were
transferred to TCI Group in exchange for approximately $5.5 billion in cash.
Also, upon consummation of the AT&T Merger, through a new tax sharing agreement
between Liberty Media Group and AT&T, Liberty Media Group became entitled to
the benefit of approximately $2.0 billion of net operating loss carryforwards
attributable to all entities included in TCI's consolidated federal income tax
return as of the date of the AT&T Merger. Such net operating loss carryforwards
are subject to adjustment by the Internal Revenue Service and are subject to
limitations on usage which may affect the ultimate amount utilized.
Additionally, certain warrants to purchase shares of GI previously attributed
to TCI Group were transferred to Liberty/Ventures Group in exchange for
approximately $176 million in cash. TCI funded the $5.5 billion payment to
Liberty/Ventures Group through borrowings from AT&T. Such borrowings are
evidenced by a $5.5 billion promissory note. Such promissory note accrues
interest at LIBOR, plus 15 basis points, and is due and payable on demand on or
before March 9, 2004.

         Immediately prior to the AT&T Merger, TCI consummated the
Restructuring. The Restructuring included merging TCI's cable subsidiary, TCIC,
into TCI. As a result of TCIC's merger with TCI, all assets and liabilities of
TCIC have been assumed by TCI, including TCIC's public debt. In connection with
TCIC's merger with TCI, each share of TCIC's Cumulative Exchangeable Preferred
Stock, Series A, was converted into 2.119 shares of TCI Group Series A Stock,
and such shares of TCI Group Series A Stock were subsequently converted into
AT&T Common Stock in connection with the AT&T Merger. All other public
securities issued by subsidiaries of TCIC (other than Pacific) otherwise
remained unaffected. Furthermore, as part of the Restructuring, (i) AT&T loaned
TCI $5.5 billion pursuant to a promissory note, (ii) certain asset transfers
were made between TCI and its subsidiaries, (iii) 123,896 shares of Series F
Preferred Stock, which were held by subsidiaries of TCI, were converted into
185,428,946 shares of TCI Group Series A Stock (which in turn were converted
into 143,837,233 shares of AT&T Common Stock (215,755,850 shares as adjusted
for an April 1999 three-for-two AT&T stock split) in the AT&T Merger and
continue to be held by subsidiaries of TCI), (iv) the remaining 154,411 shares
of Series F Preferred Stock which were formerly held by subsidiaries of TCI
were distributed to TCI through a series of liquidations and canceled, and (v)
125,728,816 shares of TCI Group Series A Stock, 9,154,134 shares of TCI Group
Series B Stock, 6,654,367 shares of Liberty Group Series A Stock, 3,417,187
shares of Liberty Group Series B Stock, and 67,536 shares of Class B Preferred
Stock, each formerly held by subsidiaries of TCI, were distributed to TCI
through a series of liquidations and canceled.


                                     I-64
<PAGE>   66



         After the AT&T Merger, under the terms of the Exchangeable Preferred
Stock of Pacific, each share of that preferred stock is exchangeable, from and
after August 1, 2001, for approximately 4.225 shares of AT&T Common Stock
(6.3375 shares as adjusted for an April 1999 three-for-two AT&T stock split),
subject to certain anti-dilution adjustments. Additionally, after the AT&T
Merger, Pacific may elect to make any dividend, redemption or liquidation
payment on the Exchangeable Preferred Stock in cash, by delivery of shares of
AT&T Common Stock or by a combination of the foregoing forms of consideration.

         As a result of the deconsolidation of Liberty Media Group in
connection with the AT&T Merger, Liberty Media Group's liquidity sources
(including the $5.5 billion payment from TCI) will be used towards the
liquidity requirements of Liberty Media Group and will not represent a source
of liquidity to TCI. Conversely, TCI anticipates that Liberty Media Group will
not require funds from TCI to satisfy Liberty Media Group's liquidity
requirements.

         The Company's lines of credit were terminated in March 1999 and,
accordingly, such lines of credit no longer represent a source of liquidity for
the Company. To the extent that funds generated by the Company's operating
activities are not sufficient to meet its liquidity needs, the Company
anticipates that it would obtain additional financing from AT&T or external
sources. No assurance can be given that any such additional financing could be
obtained on terms acceptable to the Company.

         At March 31, 1999, the Company held cash and cash equivalents of $401
million which were held entirely by @Home. The cash balances of @Home are
intended to be applied towards the liquidity needs of @Home, accordingly
@Home's cash balances will not be made available to TCI. TCI's restricted cash
is primarily comprised of proceeds received in connection with certain asset
dispositions. Such proceeds, which aggregated $46 million at March 31, 1999,
are designated to be reinvested in certain identified assets for income tax
purposes.

         During the one month ended March 31, 1999, the two months ended
February 28, 1999, and the three months ended March 31, 1998 the Company had
Operating Cash Flow of $178 million, $367 million and $705 million,
respectively. Operating Cash Flow is a measure of value and borrowing capacity
within the cable television industry and is not intended to be a substitute for
cash flows provided by operating activities, a measure of performance prepared
in accordance with generally accepted accounting principles, and should not be
relied upon as such. Operating Cash Flow, as defined, does not take into
consideration substantial costs of doing business, such as interest expense,
and should not be considered in isolation to other measures of performance.

         The Company's operating activities provided (used) cash of $(26)
million, $(255) million and $93 million during the one month ended March 31,
1999, the two months ended February 28, 1999, and the three months ended March
31, 1998, respectively. Net cash provided by operating activities generally
reflects net cash from operations of TCI available for TCI's liquidity needs
after taking into consideration the aforementioned additional substantial costs
of doing business not reflected in Operating Cash Flow. Following the
deconsolidation of Liberty Media Group in connection with the AT&T Merger,
Liberty Media Group's cash flows are no longer be included in the Company's
consolidated statements of cash flows.


                                     I-65
<PAGE>   67



         Cash provided by (used by) the Company's investing activities
aggregated $(215) million, $534 million and $231 million during the one month
ended March 31, 1999, the two months ended February 28, 1999, and the three
months ended March 31, 1998, respectively. Following the deconsolidation of
Liberty Media Group in connection with the AT&T Merger, Liberty Media Group's
cash flows are no longer included in the Company's consolidated statements of
cash flows.

         The amount of capital expended by TCI for property and equipment was
$282 million, $297 million and $246 million during the one month ended March
31, 1999, the two months ended February 28, 1999, and the three months ended
March 31, 1998, respectively. Such expenditures primarily relate to TCI's cable
distribution systems. TCI estimates that it will expend approximately $5
billion through the period ended December 31, 2000 to expand the capacity of
its cable distribution systems to allow for the provision of two-way service
offerings. No assurance can be given that actual capital costs will not exceed
such estimated capital costs. Additionally, the foregoing estimate does not
include customer specific capital costs required to deliver local telephony
services. TCI cannot reasonably estimate such costs since the actual capital
costs will be largely dependent upon the extent of customer penetration and the
average per-unit-cost to install customer premise equipment.

         During the two months ended February 28, 1999, the Company completed a
transaction whereby the Company contributed cable television systems to an
entity in which the Company had an approximate 80% ownership interest. Through
a series of transactions, including the contribution of cash by a third party
in exchange for an ownership interest, the Company's ownership interest in such
majority-owned entity was diluted to a non-controlling 50% ownership interest.
In connection with the associated dilution of the Company's ownership interest,
the Company deconsolidated assets and liabilities related to cable television
systems serving approximately 416,000 customers. The deconsolidated liabilities
included $210 million of debt owed to external parties and $709 million of
intercompany debt owed to the Company. In connection with such transaction, the
Company has agreed to take certain steps to support compliance by such entity
with its payment obligations under certain debt instruments. See note 14 to the
accompanying consolidated financial statements. In connection with the 1999
Contribution Transaction, the Company recorded a $9 million increase (net of
deferred income taxes of $5 million) to additional paid-in capital. No gain was
recognized due to the Company's aforementioned commitment to support the
entity's payment obligations under such certain debt instruments.

         Including the 1999 Contribution Transaction, the Company, as of March
31, 1999, had contributed in 1999 or has signed agreements or letters of intent
to contribute within the next twelve months, the Contributed Cable Systems
serving approximately 1.2 million basic customers to joint ventures in which
the Company will retain non-controlling ownership interests. Following the
completion of the Contribution Transactions, the Company will no longer
consolidate the Contributed Cable Systems. Accordingly it is anticipated that
the completion of the Contribution Transactions, as currently contemplated,
will result in aggregate estimated reductions (based on 1998 amounts) to the
Company's debt, annual revenue and annual Operating Cash Flow of $1.5 billion,
$500 million and $200 million, respectively. No assurance can be given that any
of the pending Contribution Transactions will be consummated.


                                     I-66
<PAGE>   68



         During February 1999, the Company sold cable television assets serving
approximately 145,000 customers to an unaffiliated third party for
approximately $300 million. The Company recorded a $123 million gain on such
disposition.

         During May 1999, AT&T announced two agreements which may result in the
acquisition and disposition of cable television systems of TCI. See note 17 to
the accompanying consolidated financial statements.

         On January 19, 1999, @Home entered into a merger agreement with
Excite, a global internet media company that offers consumers and advertisers
comprehensive internet navigation services with extensive personalization
capabilities. Under the terms of the merger agreement, @Home will issue
approximately 55 million shares of its common stock for all of the outstanding
common stock of Excite based on an exchange ratio of 1.041902 shares of @Home's
common stock for each share of Excite's common stock. @Home may issue up to
approximately 15 million additional shares of common stock in connection with
the assumption of obligations under Excite's stock option and employer stock
purchase plans and outstanding warrants. @Home will account for the transaction
as a purchase. @Home's preliminary estimate of the total purchase consideration
is approximately $7 billion, based on the fair value at the time of
announcement of the merger, of common stock to be issued and stock option,
stock purchase plan and warrant obligations assumed, plus estimated transaction
costs. As a result of the proposed merger, the Company's economic interest in
@Home would decrease from 38.8% to 26.5%. The merger is subject to several
conditions, including approval by both companies' stockholders and the
expiration of applicable waiting periods under certain antitrust laws. The
pending merger of @Home and Excite and certain related potential changes in
@Home's corporate governance documents may impact management's ability to
exercise control over @Home's Board of Directors.

         @Home has issued performance-based warrants to certain cable operators
to purchase up to 11.6 million shares of @Home Series A common stock at an
exercise price of $10.50 per share. Warrants to purchase approximately 920,000
and 330,000 shares of @Home's Series A common stock became exercisable during
the year ended December 31, 1998 and the three months ended March 31, 1999. In
the event the performance milestones are met with respect to the remaining
unexercisable performance based warrants, @Home will record non-cash increases
to its intangible assets in future periods based on the difference between the
then fair market value of @Home's Series A common stock and the exercise price
of $10.50 per share.

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T,
was consummated. As a result of such merger, TCI received in exchange for all
of its interest in TCG, 46,952,832 shares of AT&T Common Stock (70,429,248
shares as adjusted for an April 1999 three-for-two AT&T stock split). Such AT&T
common stock was transferred from TCI Ventures Group to TCI Group in connection
with the AT&T Merger. See note 2 to the accompanying consolidated financial
statements. New TCI treats its investment in AT&T Common Stock as an investment
in its parent. Accordingly, TCI's investment in AT&T Common Stock is reflected
as a reduction of TCI's equity. TCI does not expect to receive any dividends on
its investment in AT&T Common Stock subsequent to the AT&T Merger.

         During February and March, 1999, Old TCI terminated certain equity
swap facilities. In connection with the termination of such transactions, Old
TCI received aggregate cash payments of $677 million. For additional
information see note 10 to the accompanying consolidated financial statements.


                                     I-67
<PAGE>   69



         Many of the Company's subsidiaries operate in industries, primarily
the telecommunications industry and the internet services industry, which have
experienced and are expected to continue to experience (i) rapid and
significant changes in technology, (ii) ongoing improvements in the capacity
and quality of such services, (iii) frequent and new product and service
introductions, and (iv) enhancements and changes in end-user requirements and
preferences. The degree to which these changes will affect such entities and
the ability of such entities to compete in their respective businesses cannot
be predicted. If markets fail to develop, develop more slowly than expected, or
become highly competitive, the Company's operating results and financial
condition may be materially adversely affected.

         TCI is committed to purchase billing services from a third party
pursuant to three successive five year agreements. Pursuant to such
arrangement, TCI is obligated at March 31, 1999 to make minimum payments
aggregating approximately $1.5 billion through 2012. Such minimum payments are
subject to inflation and other adjustments pursuant to the terms of the
underlying agreements.

         Prior to the AT&T Merger, transactions between TCI Group and
Liberty/Ventures Group were eliminated in TCI's consolidated financial
statements. Following the deconsolidation of Liberty Media Group in connection
with the AT&T Merger, Liberty Media Group's results of are no longer included
in the consolidated operating income of TCI. In this regard, TCI has agreed to
make fixed monthly payments to an entity attributed to Liberty Media Group
pursuant to an affiliation agreement. The fixed annual commitments increase
annually from $190 million in 1999 to $267 million in 2003, and will increase
with inflation through 2022. In addition, pursuant to certain agreements
between TCI and an entity attributed to Liberty Media Group, TCI is obligated
at March 31, 1999 to make minimum revenue payments through 2017 and minimum
license fee payments through 2007 aggregating approximately $399 million to
such attributed entity. Such minimum payments are subject to inflation and
other adjustments pursuant to the terms of the underlying agreements.


                                     I-68
<PAGE>   70



         The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $75
million at March 31, 1999. The Company also has agreed to take certain steps to
support debt compliance with respect to obligations aggregating $1,690 million
of certain cable television partnerships in which the Company has
non-controlling ownership interests. See notes 7 and 14 to the accompanying
consolidated financial statements. The Company also has guaranteed the
performance of certain affiliates and other parties with respect to such
parties' contractual and other obligations. Although there can be no assurance,
management of the Company believes that it will not be required to meet its
obligations under such guarantees, or if it is required to meet any of such
obligations, that they will not be material to the Company. Following the
deconsolidation of Liberty/Ventures Group in connection with the AT&T Merger,
notes payable and other obligations guaranteed by entities attributed to
Liberty Media Group are no longer included with those of TCI.

         During 1999, a subsidiary of the Company entered into a contribution
agreement with certain shareholders of Phoenixstar pursuant to which the
Company would, to the extent it is relieved of $166 million of contingent
liabilities currently owed to certain creditors of Phoenixstar and its
subsidiaries, contribute up to $166 million to Phoenixstar to the extent
necessary to satisfy liabilities of Phoenixstar. On April 28, 1999 the Company
contributed approximately $77 million to Phoenixstar as partial satisfaction of
this obligation. The Company's remaining obligation under the Contribution
Agreement will expire in 2001. During the fourth quarter of 1998, the Company
recorded a $90 million charge to provide for the estimated losses that were
expected to result from the Contribution Agreement. An increase in the
Company's estimate of its losses with respect to the Contribution Agreement may
necessitate an additional charge during the second quarter of 1999.

         The Company is obligated and/or has guaranteed Liberty Media Group's
obligation to pay fees for the rights to exhibit certain films that are
released by various producers through 2017. Based on customer levels at March
31, 1999, these agreements require minimum payments aggregating approximately
$319 million. The aggregate amount of the Film Licensing Obligations under
these license agreements is not currently estimable because such amount is
dependent upon the number of qualifying films released theatrically by certain
motion picture studios as well as the domestic theatrical exhibition receipts
upon the release of such qualifying films. Nevertheless, required aggregate
payments under the Film Licensing Obligations could prove to be significant.

         TCI is a party to affiliation agreements with programming suppliers.
Pursuant to certain of such agreements, TCI is committed to carry such
suppliers' programming on its cable systems. Additionally, certain of such
agreements provide for penalties and charges in the event the programming is
not carried or not delivered to a contractually specific number of customers.


                                     I-69
<PAGE>   71



         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC, entered into
an agreement with GI to purchase advanced digital set-top devices. The hardware
and software incorporated into these devices are designed and manufactured to
be compatible and interoperable with the OpenCable(TM) architecture
specifications adopted by CableLabs, the cable television industry's research
and development consortium, in November 1997. NDTC has agreed that Approved
Purchasers will purchase, in the aggregate, a minimum of 6.5 million set-top
devices during calendar years 1998, 1999 and 2000 at an average price of $318
per set-top device. The 1998 purchase commitment of 1.5 million set-top devices
was met. During the three months ended March 31, 1999, approximately 570,000
set-top devices had been purchased related to the 1999 commitment of 1,750,000
devices. GI agreed to provide NDTC and its Approved Purchasers the most
favorable prices, terms and conditions made available by GI to any customer
purchasing advanced digital set-top devices. In connection with NDTC's purchase
commitment, GI agreed to grant warrants to purchase its common stock
proportional to the number of devices ordered by each organization. In
connection with the AT&T Merger, such warrants were transferred to
Liberty/Ventures Group in exchange for approximately $176 million in cash. To
the extent that such warrants do not vest because TCI fails to meet its
purchase commitments, TCI is required to repay a proportional amount of such
cash to Liberty Media Group. NDTC has the right to terminate the Digital
Terminal Purchase Agreement if, among other reasons, GI fails to meet a
material milestone designated in the Digital Terminal Purchase Agreement with
respect to the development, testing and delivery of advanced digital set-top
devices.

         On July 17, 1998, the Company acquired 21.4 million shares of common
stock of GI in exchange for (i) certain of the assets of NDTC's set-top
authorization business, (ii) the license of certain related software to GI,
(iii) a $50 million promissory note from the Company to GI, and (iv) a
nine-year revenue guarantee from the Company in favor of GI. In connection
therewith, NDTC also entered into a services agreement pursuant to which it
will provide certain postcontract services to GI's set-top authorization
business. The 21.4 million shares of GI common stock are, in addition to other
transfer restrictions, restricted as to their sale by NDTC for a three-year
period. The Company recorded its investment in such shares at fair value which
included a discount attributable to the above-described liquidity restriction.
As a result of the deconsolidation of Liberty Media Group, the 21.4 million
shares of GI common stock are no longer included in the Company's consolidated
assets. The $346 million excess of the fair value of GI common stock received
in 1998 over (i) the book value of certain assets transferred from NDTC to GI,
and (ii) the $42 million present value of the promissory note due from the
Company to GI, has been deferred by the Company in the accompanying
consolidated financial statements. A portion of such excess equal to the $160
million present value of the annual amounts specified by the revenue guarantee
will be amortized to revenue over nine years in proportion to such annual
guaranteed amounts. The remaining $186 million excess will be amortized to
revenue on a straight-line basis over the nine-year period that NDTC is
required to perform postcontract services.

         The Company leases business offices, has entered into converter lease
agreements, pole rental agreements, transponder lease agreements and uses
certain equipment under lease arrangements.

         The Company's various partnerships and other affiliates accounted for
by the equity method generally fund their acquisitions, required debt
repayments and capital expenditures through borrowings under and refinancing of
their own credit facilities, through net cash provided by their own operating
activities and, in certain circumstances, through required capital
contributions from their partners.


                                     I-70
<PAGE>   72



         In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company may enter into Interest Rate Swaps pursuant to which
it (i) pays fixed interest rates and receives variable interest rates and (ii)
pays variable interest rates and receives fixed interest rates. During the three
months ended March 31, 1998, the Company's net payments pursuant to the Fixed
Rate Agreements were less than $1 million. No such payments were made in 1999.
The Company's net receipts (payments) pursuant to the Variable Rate Agreements
during the one month ended March 31, 1999, the two months ended February 28,
1999 and the three months ended March 31, 1998, were $4 million, $1 million and
$3 million, respectively. At December 31, 1998, all of the Company's Fixed Rate
Agreements had expired. At March 31, 1999, the Company would be entitled to
receive $40 million upon termination of the Variable Rate Agreements.

         In addition to the Variable Rate Agreements, the Company entered into
fixed Interest Rate Swaps pursuant to which it pays a variable rate based on
LIBOR (5.3% at March 31, 1999) and receives a variable rate based on CMT (5.4%
at March 31, 1999) on a notional amount of $400 million through September 2000;
and pays a variable rate based on LIBOR (5.3% at March 31, 1999) and receives a
variable rate based on CMT (5.5% at March 31, 1999) on notional amounts of $95
million through February 2000. During the one month ended March 31, 1999, the
two months ended February 28, 1999 and the three months ended March 31, 1998,
the Company's net payments pursuant to such agreements were $1 million, less
than $1 million and less than $1 million, respectively. At March 31, 1999, the
Company would be required to pay an estimated $1 million to terminate such
Interest Rate Swaps.

         The Company is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of nonperformance by the
other parties to the agreements. However, the Company does not anticipate that
it will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, as of March 31, 1999, the Company
does not anticipate material near-term losses in future earnings, fair values or
cash flows resulting from derivative financial instruments. See note 8 to the
accompanying consolidated financial statements for additional information
regarding Interest Rate Swaps.

         At March 31, 1999, after considering the net effect of the
aforementioned Interest Rate Swaps, the Company had $8.3 billion (or 79%) of
fixed rate debt due to non-affiliates and $2.3 billion (or 21%) of variable-rate
debt due to non-affiliates. In addition, at March 31, 1999 the Company had
outstanding variable rate indebtedness under the AT&T Notes of $6.4 billion.
TCI's interest rate exposure is primarily to changes in LIBOR rates.


                                     I-71

<PAGE>   73
                           TELE-COMMUNICATIONS, INC.


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

         There were no new material legal proceedings or material developments
         in previously reported legal proceedings during the quarter ended
         March 31, 1999 to which TCI or any of its consolidated subsidiaries is
         a party or of which any of its property is the subject, except as
         follows:

         Intellectual Property Development Corporation-Patent Claims and
         Litigation. As previously reported, in September 1994, an action
         captioned Intellectual Property Development Corporation v UA-Columbia
         Cablevision of Westchester, Inc. and Tele-Communications, Inc., was
         filed in United States District Court ("USDC"), Southern District of
         New York, Case No. 94 CIV 6296 for an alleged patent infringement.
         Intellectual Property Development Corporation ("IPD") claims that
         defendants infringe U.S. Patent No. 4,135,202 ("the 202 patent")
         titled "Broadcasting Systems with Fiber Optic Transmission Lines."
         Plaintiff seeks unspecified treble damages and injunctive relief. In
         March 1999, similar actions were filed against others entities
         affiliated with Tele-Communications, Inc., which actions are as
         follows: Intellectual Property Development v TCI Cablevision of
         California, Inc., filed March 22, 1999 in USDC, Central District of
         California, Western Division, Case No. 99-CV-2982; Intellectual
         Property Development, Inc. v TCI Cablevision of Florida, Inc., filed
         March 29, 1999 in USDC, Middle District of Florida (Orlando), Case No.
         99-CV-347; Intellectual Property Development, Inc. v TCI TKR of South
         Florida, Inc., filed March 17, 1999, Case No. 99-CV-744; Intellectual
         Property Development, Inc. v UACC Midwest, Inc. and North West
         Illinois Cable Co., filed March 22, 1999 in the USDC, Central District
         of Illinois (Peoria), Case No. 99-CV-1090; Intellectual Property
         Development, Inc. v TCI of Illinois, Inc., South Chicago Cable, Inc.
         and Telenois, Inc. filed on March 19, 1999 in the USDC, Northern
         District of Illinois (Chicago), Case No. 99-CV-1805; Intellectual
         Property Development, Inc. V TCI of Indiana, Inc. filed March 19, 1999
         in the USDC, Northern District of Indiana (Hammond), Case No.
         99-CV-79; Intellectual Property Development, Inc. v TCI Cablevision of
         Maryland, Inc. and United Cable Television of Baltimore Limited
         Partnership, filed March 29, 1999 in USDC of Maryland (Baltimore),
         Case No. 99-CV-858; Intellectual Property Development, Inc. v TCI of
         New York, Inc., filed March 18, 1999, in USDC, Southern District of
         New York, Case No. 99-CV-2019; Intellectual Property Development, Inc.
         v TCI Cablevision of Texas, Inc. filed March 19, 1999 in USDC,
         Northern District of Texas (Dallas), Case No. 99-CV-611; Intellectual
         Property Development, Inc. v Communications Services, Inc., filed
         March 22, 1999 in USDC, Southern District of Texas (Houston), Case No.
         H-99-828; Intellectual Property Development, Inc. v Westmarc
         Development Joint Venture, TCI Cablevision of Greater Michigan, Inc.
         filed April 5, 1999 in USDC, Western District of Michigan (Grand
         Rapids), Case No. 99-CV-269; and Intellectual Property Development,
         Inc. v TCI of Virginia, Inc. filed April 6, 1999 in the USDC, Western
         District of Virginia, Charlottesville Division, Case No. 3:99CV0030.
         It is anticipated that similar actions may be filed against other
         entities affiliated with Tele-Communications, Inc. Tolling agreements
         have been entered by the following entities: TCI Communications, Inc.,
         TCI Atlantic, Inc., TCI Southeast, Inc., TCI Central, Inc., TCI Great
         Lakes, Inc., TCI West, Inc., TCI Northwest, Inc., TCI East, Inc., TCI
         Northeast, Inc., and TCI North

                                                                     (continued)


                                      II-1

<PAGE>   74


                           TELE-COMMUNICATIONS, INC.


Item 1.  Legal Proceedings (continued).

         Central, Inc. (all Delaware corporations except TCI Atlantic, Inc.,
         which is a Colorado corporation). Based upon the facts available,
         management believes that, although no assurance can be given as to the
         outcome of these actions, the ultimate disposition should not have a
         material adverse effect upon the financial condition of the Company.

         Donald E. Watson V. Tele-Communications, Inc., et al.  

         As previously reported, on March 10, 1995, Donald Watson, doing
         business under the name of Tri-County Cable, filed suit in Superior
         Court for the District of Columbia against TCI, TCI East, Inc.,
         District Cablevision Limited Partnership, District Cablevision, Inc.,
         TCI of D.C., Inc., TCI of Maryland, Inc., TCI Development Corporation,
         United Cable Television of Baltimore Limited Partnership, TCI of
         Pennsylvania, Inc. and two individuals, Richard Bushey and Roy
         Harbert. A breach of contract verdict was entered against the Company
         for an amount that will not have a material adverse effect upon the
         financial condition of the Company. A motion for Reversal of Judgment
         has been filed. This case will not be reported in the future.


         Teleport Communications Group Shareholder Litigation.  

         As previously reported, in December of 1997 and January of 1998,
         actions captioned: Sternberg v TCI Communications, Inc., et al., Case
         No. 16092; Cirillo v Tele-Communications, Inc., et al., Case No.
         16139; and Blain v Tele-Communications, Inc., et. al., Case No. 16161
         were filed in the Court of Chancery of the State of Delaware. This
         case was dismissed in April of 1999 without prejudice and will not be
         reported on in the future.



                                      II-2


<PAGE>   75


                           TELE-COMMUNICATIONS, INC.

Item 2.  Changes in Securities

         Immediately prior to the March 9, 1999 AT&T Merger, 123,896 shares
of the Company's Convertible Redeemable Participating Preferred Stock, Series F
which were held by subsidiaries of TCI, were converted into 185,428,946 shares
of TCI Group Series A Stock. The issuance was made in reliance on the exemption
from registration of a private placement offering as afforded by Section 4(2)
under the Securities Act of 1933.


Item 4.  Submission of Matters to a Vote of Security Holders. 


         At a Special Meeting of Stockholders, held on February 17, 1999, the
         following matters were voted upon and approved by the stockholders of
         TCI:

          1.        A proposal to amend TCI's Restated Certificate of 
               Incorporation, as amended, to combine the Liberty Media Group and
               the TCI Ventures Group, reclassify each share of TCI Ventures
               Group tracking stock into 0.52 of a share of Liberty Media Group
               tracking stock, provide that the number of authorized shares of
               Liberty Media Group tracking stock following the combination will
               be equal to the sum of the number of shares of Liberty Media
               Group tracking stock and TCI Ventures Group tracking stock
               currently authorized and amend the definition of the assets and
               businesses of the Liberty Media Group (2,318,044,935 For;
               2,405,746 Against; 1,228,654 Withheld).

          2.        A proposal to increase the number of authorized shares of 
               Series A Liberty Media Group common stock to 2,500,000,000 and
               the number of authorized shares of Series B Liberty Media Group
               common stock to 250,000,000 if the Liberty/Ventures combination
               is approved (2,186,411,449 For; 133,687,491 Against; 1,580,395
               Withheld).

          3.        A proposal to approve the Agreement and Plan of 
               Restructuring and Merger, dated as of June 23, 1998, among AT&T
               Corp., Italy Merger Corp. and TCI, under which TCI would become a
               subsidiary of AT&T and holders of TCI common stock would receive
               AT&T common stock (2,319,128,104 For; 1,362,742 Against;
               1,188,489 Withheld).




                                      II-3

<PAGE>   76


                           TELE-COMMUNICATIONS, INC.


Item 6.  Exhibit and Reports on Form 8-K.

         (a)      Exhibit -

                  (27)     Tele-Communications, Inc. Financial Data Schedule

         (b) Reports on Form 8-K filed during the quarter ended March 31, 1999:

<TABLE>
<CAPTION>

                              Date of                   Items
                              Report                   Reported         Financial Statements Filed
                              ------                   --------         --------------------------
<S>                                                <C>                <C>
                         January 7, 1999              Items 5 and 7       Tele-Communications, Inc.
                                                                             Nine months ended
                                                                              September 30, 1998
                                                                              and 1997 (unaudited)
                                                                             Years ended December 31,
                                                                              1997, 1996 and 1995
                                                                          Liberty/Ventures Group
                                                                             Nine months ended
                                                                              September 30, 1998 and
                                                                              1997 (unaudited)
                                                                             Years ended December 31,
                                                                              1997, 1996 and 1995

                        January 8, 1999               Items 5 and 7               None

                        January 8, 1999               Items 5 and 7               None

                        January 11, 1999              Items 5 and 7       Tele-Communications, Inc.
                                                                             Nine months ended
                                                                              September 30, 1998
                                                                              and 1997 (unaudited)
                                                                             Years ended December 31,
                                                                              1997, 1996 and 1995
                                                                          Liberty/Ventures Group
                                                                             Nine months ended
                                                                              September 30, 1998 and
                                                                              1997 (unaudited)
                                                                             Years ended December 31,
                                                                              1997, 1996 and 1995

                        March 10, 1999                    Item 5                     None

                        March 11, 1999                 Items 1, 4, 5                 None
                                                          and 7
</TABLE>


                                      II-4

<PAGE>   77


                                   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 thereunto duly authorized.

                                                   TELE-COMMUNICATIONS, INC.




Date:        May 14, 1999                          By: /s/ Leo J. Hindery, Jr.
                                                       ------------------------
                                                           Leo J. Hindery, Jr.
                                                           President and Chief
                                                           Operating Officer





Date:        May 14, 1999                          By: /s/ Ann M. Koets
                                                       ------------------------
                                                           Ann M. Koets
                                                      Executive Vice President
                                                     and Chief Financial Officer
                                                     (Chief Accounting Officer)



<PAGE>   78




                                  EXHIBIT INDEX


The following exhibit is filed herewith (according to the number assigned to it
in Item 601 of Regulation S-K) as noted:

    (27)        Tele-Communications, Inc. Financial Data Schedule

























<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TELE-COMMUNICATIONS, INC.'S QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE SUMMARY FINANCIAL INFORMATION FOR
THE TWO MONTH PERIOD ENDED FEBRUARY 28, 1999 IS FOR OLD TCI PRIOR TO THE AT&T
MERGER. THE SUMMARY FINANCIAL INFORMATION FOR THE ONE MONTH PERIOD ENDED MARCH
31, 1999 IS FOR NEW TCI SUBSEQUENT TO THE AT&T MERGER.
</LEGEND>
<MULTIPLIER> 1,000,000
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   2-MOS                   1-MO
<FISCAL-YEAR-END>                          DEC-31-1999             DEC-31-1999
<PERIOD-START>                             JAN-01-1999             MAR-01-1999
<PERIOD-END>                               FEB-28-1999             MAR-31-1999
<CASH>                                               0                     401
<SECURITIES>                                         0                       0
<RECEIVABLES>                                        0                     449
<ALLOWANCES>                                         0                       0
<INVENTORY>                                          0                       0
<CURRENT-ASSETS>                                     0                       0
<PP&E>                                               0                   6,353
<DEPRECIATION>                                       0                      74
<TOTAL-ASSETS>                                       0                  77,079
<CURRENT-LIABILITIES>                                0                       0
<BONDS>                                              0                  10,560
                                0                       0
                                          0                       0
<COMMON>                                             0                  52,233
<OTHER-SE>                                           0                 (3,834)
<TOTAL-LIABILITY-AND-EQUITY>                         0                  77,079
<SALES>                                              0                       0
<TOTAL-REVENUES>                                 1,145                     483
<CGS>                                                0                       0
<TOTAL-COSTS>                                      467                     188
<OTHER-EXPENSES>                                   277                     167
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                                 161                      69
<INCOME-PRETAX>                                  (157)                   (755)
<INCOME-TAX>                                       119                    (15)
<INCOME-CONTINUING>                              (276)                   (740)
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                    (5)                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                     (281)                   (740)
<EPS-PRIMARY>                                    (.42)<F1>                   0
<EPS-DILUTED>                                    (.43)<F1>                   0
<FN>
<F1>PRIMARY AND DILUTED EARNINGS PER SHARE REPRESENT EARNINGS PER SHARE OF TCI
GROUP STOCK.
</FN>
        

</TABLE>



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