<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
(Amendment #2)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] 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)
5619 DTC Parkway
Englewood, Colorado 80111
- --------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Tele-Communications, Inc. Series A TCI Group Common Stock,
par value $1.00 per share
Tele-Communications, Inc. Series B TCI Group Common Stock,
par value $1.00 per share
Tele-Communications, Inc. Series A Liberty Media Group
Common Stock, par value $1.00 per share
Tele-Communications, Inc. Series B Liberty Media Group
Common Stock, par value $1.00 per share
Tele-Communications, Inc. Series A TCI Ventures Group
Common Stock, par value $1.00 per share
Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock, par value $1.00 per share
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
Stock, par value $.01 per share
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
------ ------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
--------
The aggregate market value of the voting stock held by nonaffiliates of
Tele-Communications, Inc., computed by reference to the last sales price of such
stock, as of the close of trading on January 30, 1998, was approximately
$21,264,000,000.
The number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of treasury shares and shares held by subsidiaries), as of January
30, 1998, was:
Tele-Communications, Inc. Series A TCI Group common stock -
480,386,628 shares,
Tele-Communications, Inc. Series B TCI Group common stock -
38,882,055 shares,
Tele-Communications, Inc. Series A Liberty Media Group common stock
- 325,033,596 shares, Tele-Communications, Inc. Series B Liberty
Media Group common stock - 31,681,124 shares,.
Tele-Communications, Inc. Series A TCI Ventures Group common stock -
390,013,394 shares, and Tele-Communications, Inc. Series B TCI
Ventures Group common stock - 32,100,604 shares.
Documents Incorporated by Reference
-----------------------------------
Portions of the Registrant's definitive Proxy Statement to be used in
---------------------------------------------------------------------
connection with the 1998 Annual Meeting of Stockholders are incorporated
------------------------------------------------------------------------
by reference in Part III of this Form 10-K.
-------------------------------------------
<PAGE> 2
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: January 11, 1999 By: /s/ Stephen M. Brett
----------------------------------
Stephen M. Brett
Executive Vice President,
General Counsel and Secretary
<PAGE> 3
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Page No.
---------------
<S> <C>
Included in Part II of this Report:
Tele-Communications, Inc.:
Independent Auditors' Report II-71
Consolidated Balance Sheets,
December 31, 1997 and 1996 II-72 to II-73
Consolidated Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-74 to II-75
Consolidated Statements of Stockholders' Equity,
Years ended December 31, 1997, 1996 and 1995 II-76 to II-78
Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-79
Notes to Consolidated Financial Statements,
December 31, 1997, 1996 and 1995 II-80 to II-152
"TCI Group":
Independent Auditors' Report II-153
Combined Balance Sheets,
December 31, 1997 and 1996 II-154 to II-155
Combined Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-156
Combined Statements of Equity,
Years ended December 31, 1997, 1996 and 1995 II-157 to II-159
Combined Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-160
Notes to Combined Financial Statements,
December 31, 1997, 1996 and 1995 II-161 to II-210
</TABLE>
IV-1
<PAGE> 4
<TABLE>
<CAPTION>
Page No.
---------------
<S> <C>
"Liberty Media Group":
Independent Auditors' Report II-211
Combined Balance Sheets,
December 31, 1997 and 1996 II-212 to II-213
Combined Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-214
Combined Statements of Equity,
Years ended December 31, 1997, 1996 and 1995 II-215
Combined Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-216
Notes to Combined Financial Statements,
December 31, 1997, 1996 and 1995 II-217 to II-250
"TCI Ventures Group":
Independent Auditors' Report II-251
Combined Balance Sheets,
December 31, 1997 and 1996 II-252 to II-253
Combined Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-254
Combined Statements of Equity,
Years ended December 31, 1997, 1996 and 1995 II-255 to II-256
Combined Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-257 to II-258
Notes to Combined Financial Statements,
December 31, 1997, 1996 and 1995 II-259 to II-312
</TABLE>
IV-2
<PAGE> 5
(a) (2) Financial Statement Schedules
Included in Part IV of this Report:
(i) Financial Statement Schedules required to be filed:
<TABLE>
<CAPTION>
Page No.
---------------
<S> <C>
Independent Auditors' Report IV-16
Schedule I - Condensed Information as to the
Financial Position of the Registrant,
December 31, 1997 and 1996; Condensed Information
as to the Operations and Cash Flows of the
Registrant, Years ended
December 31, 1997, 1996 and 1995 IV-17 to IV-19
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1997, 1996 and 1995 IV-20
(ii) Separate financial statements for Sprint Spectrum
Holding Company, L.P. and Subsidiaries
Consolidated Financial Statements
Independent Auditors' Report IV-21
Consolidated Balance Sheets IV-22
Consolidated Statements of Operations IV-23
Consolidated Statements of Changes in
Partners' Capital IV-24
Consolidated Statements of Cash Flows IV-25
Notes to Consolidated Financial Statements IV-26 to IV-44
(iii) Separate financial statements for Telewest
Communications plc:
Consolidated Financial Statements
Independent Auditors' Report IV-45
Consolidated Statements of Operations IV-46 to IV-47
Consolidated Balance Sheets IV-48
Consolidated Statements of Cash Flows IV-49
Consolidated Statement of Shareholders' Equity IV-50
Notes to Consolidated Financial Statements IV-51 to IV-81
</TABLE>
IV-3
<PAGE> 6
(a) (3) Exhibits
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
3 - Articles of Incorporation and Bylaws:
3.1 The Restated Certificate of Incorporation, dated August 4, 1994,
as amended on August 4, 1994, August 16, 1994, October 11,
1994, October 21, 1994, January 26, 1995, August 3, 1995,
August 3, 1995, January 25, 1996, January 25, 1996, April 7,
1997, August 28, 1997, December 30, 1997 and December 30,
1997.**
3.2 The Bylaws as adopted June 16, 1994.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, as
amended by Form 10-K/A (Commission File No. 0-20421).
4 - Instruments Defining the Rights of Security Holders, including Indentures:
4.1 Form of Rights Agreement among Tele-Communications, Inc., TCI
Music, Inc. and the Bank of New York, as Rights Agent.
Incorporated by reference to Exhibit 4.3 to the Registration
Statement of Form S-4 of TCI Music and TCI (Reg. File Nos.
333-28613 and 333-28613-001).
10 - Material Contracts:
10.1 Amended and Restated Tele-Communications, Inc. 1994 Stock
Incentive Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.2 Amended and Restated Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.3 Amended and Restated Tele-Communications, Inc. 1996 Incentive
Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.4 Restated and Amended Employment Agreement, dated as of November
1, 1992, between the Company and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A for the year ended December 31,
1992 (Commission File No. 0-5550).
10.5 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc.
and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994,
as amended by Form 10-K/A (Commission File No. 0-20421).
(continued)
IV-4
<PAGE> 7
10 - Material contracts, continued:
10.6 Call Agreement, dated February 9, 1998, between
Tele-Communications, Inc., John C. Malone and Leslie Malone.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.7 Call Agreement, dated February 9, 1998, between
Tele-Communications, Inc., Gary Magness, both individually and
as representative, Kim Magness, both individually and as
representative, the Estate of Bob Magness, the Estate of Betsy
Magness and any individual or entity which thereafter becomes a
party thereto.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.8 Stockholders Agreement, dated February 9, 1998, by and among
Tele-Communications, Inc., John C. Malone, Leslie Malone, Gary
Magness, both individually and as representative, Kim Magness,
both individually and as representative, the Estate of Bob
Magness, the Estate of Betsy Magness and any individual or
entity which thereafter becomes a party thereto.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.9 Consulting Agreement, dated as of January 1, 1996, between
Tele-Communications, Inc. and Donne F. Fisher.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.10 Consulting Agreement, dated as March 11, 1995, between
Tele-Communications, Inc. and J.C. Sparkman.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.11 Consulting Agreement, dated as of January 1, 1998, between
Tele-Communications International, Inc. and Fred A. Vierra.**
10.12 Deferred Compensation Plan for Non-Employee Directors, effective
on November 1, 1992.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A for the year ended December 31,
1992 (Commission File No. 0-5550).
10.13 Amended and Restated Employment Agreement, dated as of July 18,
1995, among Tele-Communications, Inc., Tele-Communications
International, Inc. and Fred A. Vierra.*
Incorporated herein by reference to Tele-Communications
International, Inc.'s Registration Statement on Form S-1
(Commission File No. 33-80491).
(continued)
IV-5
<PAGE> 8
10 - Material contracts, continued:
10.14 Employment Agreement, dated as of January 1, 1993, between
Tele-Communications, Inc. and Larry E. Romrell.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.15 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc.
and Larry E. Romrell.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.16 Form of 1992 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.17 Form of 1993 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.18 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement, dated as of November 12, 1993, by and between
Tele-Communications, Inc. and Jerome H. Kern.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.19 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, Liberty Media Corporation and
grantee relating to stock appreciation rights granted pursuant
to letter dated September 17, 1991.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.20 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, Liberty Media Corporation and
grantee relating to the assumption of options and related stock
appreciation rights granted under the Liberty Media Corporation
1991 Stock Incentive Plan pursuant to letter dated July 26,
1993.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
(continued)
IV-6
<PAGE> 9
10 - Material contracts, continued:
10.21 Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and a
director of Tele-Communications, Inc. relating to assumption
of options and related stock appreciation rights granted
outside of an employee benefit plan pursuant to Tele-
Communications, Inc.'s 1993 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.22 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of options and related stock
appreciation rights granted under Tele-Communications, Inc.'s
1992 Stock Incentive Plan pursuant to Tele-Communications,
Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.23 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of grants pursuant to the
Agreement and Plan of Merger dated June 6, 1991 between United
Artists Entertainment Company and Tele-Communications, Inc.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.24 Form of letter dated September 17, 1991 from Liberty Media
Corporation to grantee relating to grant of stock appreciation
rights.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.25 Form of letter dated July 26, 1993 from Liberty Media Corporation
to grantee relating to grant of options and stock appreciation
rights.*
Incorporated by reference to Tele-Communications, Inc.'s Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.26 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of options and related stock
appreciation rights under Tele-Communications, Inc.'s 1992
Stock Incentive Plan pursuant to Tele-Communications, Inc.'s
1992 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
(continued)
IV-7
<PAGE> 10
10 - Material contracts, continued:
10.27 Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.28 Form of 1994 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.29 TCI 401(k) Stock Plan, restated effective January 1, 1998.*
10.30 Form of Restricted Stock Award Agreement for 1995 Award of Series
A TCI Group Restricted Stock pursuant to the Tele-
Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.31 Form of Restricted Stock Award Agreement for 1995 Award of Series
A Liberty Media Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.32 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1994 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.33 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1994
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
(continued)
IV-8
<PAGE> 11
10 - Material contracts, continued:
10.34 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.35 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1995
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.36 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1996 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.37 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.38 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1996 Stock Incentive
Plan.**
10.39 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Ventures Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.**
10.40 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.**
10.41 Form of Restricted Stock Award Agreement for 1997 Award of Series
A TCI Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*,**
10.42 Form of Restricted Stock Award Agreement for 1997 Award of Series
A TCI Ventures Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*,**
10.43 The Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to Tele-Communications
International, Inc. Registration Statement on Form S-1
(Commission File No. 33-91876).
(continued)
IV-9
<PAGE> 12
10 - Material contracts, continued:
10.44 Form of Restricted Stock Award Agreement for 1995 Award of Series
A Tele-Communications International, Inc. Restricted Stock
pursuant to the Tele-Communications International, Inc. 1995
Stock Incentive Plan.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.45 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock pursuant to the
Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.46 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.47 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock pursuant to the
Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*,**
10.48 Form of Restricted Stock Award Agreement for 1997 Award of Series
A Tele-Communications International, Inc. Restricted Stock
pursuant to the Tele-Communications International. Inc. 1995
Stock Incentive Plan.*,**
10.49 Restricted Stock Award Agreement, made as of July 1, 1996, among
Tele-Communications, Inc., Brendan Clouston and WestMarc
Communications, Inc. *
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.50 Option Agreement, dated as of December 4, 1996, by and between
TCI Satellite Entertainment, Inc. and Brendan R. Clouston.*
Incorporated herein by reference to the TCI Satellite
Entertainment, Inc. Annual Report on Form 10-K for the year
ended December 31, 1996 (Commission File No. 0-21317).
10.51 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Wireless Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and
Tele-Communications, Inc.*
10.52 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Teleport Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and
Tele-Communications, Inc.*
10.53 Form of Amended and Restated Option Agreement made as of the 1st
day of December, 1996, by and among TCI Wireline, Inc., Grantee
and Tele-Communications, Inc.*
(continued)
IV-10
<PAGE> 13
10 - Material contracts, continued:
10.54 Form of Option to Purchase Common Stock Agreement made as of the
1st day of December, 1996, by and among TCI.Net, Inc., Grantee
and Tele-Communications, Inc.*,**
10.55 Form of Stock Appreciation Right Agreement made as of the 1st day
of December, 1996, by and among TCI Internet Services, Inc.,
Tele-Communications, Inc. and Grantee.*,**
10.56 Letter Agreement, dated December 26, 1996, by
Tele-Communications, Inc. to purchase WestMarc Series C
Cumulative Compounding Redeemable Preferred Stock from Larry E.
Romrell.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.57 Employee Stock Purchase Plan for Bargaining Unit Employees of
United Cable Television of Baltimore Limited Partnership.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-60839).
10.58 Employee Stock Purchase Plan for Bargaining Unit Employees of
UACC Midwest, Inc. d/b/a TCI of Central Indiana.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-64827).
10.59 Employee Stock Purchase Plan for Bargaining Unit Employees of
TCI of Northern New Jersey, Inc.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-64831).
10.60 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P., dated as of January 31, 1996, among Sprint
Spectrum, L.P., TCI Network Services, Comcast Telephony
Services and Cox Telephony Partnership.
Second Amended and Restated Joint Venture Formation Agreement,
dated as of January 31, 1996, by and between Sprint
Corporation, Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc.
Parents Agreement, dated as of January 31, 1996, by Tele-
Communications, Inc. and Sprint Corporation.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 9, 1996 (Commission
File No. 0-20421).
(continued)
IV-11
<PAGE> 14
10- Material contracts, continued:
10.61 Agreement of Purchase and Sale of Partnership Interest, dated as
of January 31, 1996, among Halcyon Communications, Inc., ECP
Holdings, Inc. and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.62 Consent and Amendment of Amended Agreement of Partnership for
Halcyon Communications Partners, dated as of January 31, 1996,
by and among Halcyon Communications, Inc., ECP Holdings, Inc.
and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.63 Assignment and Assumption Agreement, made as of January 31,
1996, between ECP Holdings, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.64 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.65 Agreement of Purchase and Sale of Partnership Interests, dated as
of January 31, 1996, among Halcyon Communications, Inc.,
American Televenture of Minersville, Inc., TCI Cablevision of
Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc.
and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.66 Consent and First Amendment of Amended and Restated Agreement of
Limited Partnership for Halcyon Communications Limited
Partnership, dated as of January 31, 1996, by and among
Halcyon Communications, Inc., American Televenture of
Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI
Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.67 Assignment and Assumption Agreement, made as of January 31,
1996, between TCI Cablevision of Utah, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
(continued)
IV-12
<PAGE> 15
10- Material contracts, continued:
10.68 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of Utah,
Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.69 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Nevada, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.70 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Nevada, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.71 Assignment and Assumption Agreement, made as of January 31, 1996,
between American Televenture of Minersville, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.72 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and American Televenture of
Minersville, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.73 Assignment and Assumption Agreement, made as of January 31, 1996,
between TEMPO Cable, Inc. and Fisher Communications Associates,
L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.74 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TEMPO Cable, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.75 InterMedia Capital Management, L.P. Agreement of Limited
Partnership, dated as of June 10, 1997 and effective as of May
22, 1997, by and between InterMedia Management, Inc., Leo J.
Hindery, Jr. and TCI ICM I, Inc.**
10.76 InterMedia Capital Management III, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of June 10, 1997, by
and among Leo J. Hindery, Jr., InterMedia Management, Inc. and
TCI ICM III, Inc.**
(continued)
IV-13
<PAGE> 16
10- Material contracts, continued:
10.77 InterMedia Capital Management IV, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of August 5, 1997,
by and between InterMedia Management, Inc., TCI ICM IV, Inc.
and Leo J. Hindery, Jr.**
10.78 Amended and Restated Contribution and Merger Agreement, dated
as of June 6, 1997, among TCI Communications, Inc.,
Cablevision Systems Corporation, CSC Parent Corporation and
CSC Merger Corporation.
Stockholders Agreement dated as of March 4, 1998, by and among
Cablevision Systems Corporation, Tele-Communications, Inc. and
the Class B Entities (as defined therein)
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated March 6, 1998 (Commission File
No. 0-20421).
10.79 Amended and Restated Asset Contribution Agreement, dated
September 25, 1997, by and among Fisher Communications
Associates, L.L.C. and Tempo Cable, Inc., Communications
Services, Inc., TCI Cablevision of Oklahoma, Inc., TCI of
Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah,
Inc., TCI Cablevision of Arizona, Inc., Tulsa Cable
Television, Inc. and TCI American Cable Holdings III,
L.P. and Peak Cablevision, LLC.**
10.80 Amended and Restated Operating Agreement of Peak Cablevision,
LLC, made as of September 25, 1997, by TCI American Cable
Holdings III, L.P. and Fisher Communications Associates,
L.L.C.**
10.81 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.**
10.82 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and American Televentures
of Minersville, Inc.**
10.83 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Utah, Inc.**
10.84 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and Tempo Cable, Inc.**
10.85 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Nevada, Inc.**
21 - Subsidiaries of Tele-Communications, Inc.**
23 - Consent of Experts and Counsel
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of KPMG Audit Plc.
23.6 Consent of Deloitte & Touche LLP.
27 - Financial data schedule
* Constitutes management contract or compensatory arrangement.
** Previously filed.
IV-14
<PAGE> 17
(1) Certain exhibits to agreement have been omitted. A copy of any omitted
exhibit or schedule will be furnished supplementally to the Commission
upon request.
(b) Report on Form 8-K filed during the quarter ended December 31, 1997:
None.
IV-15
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tele-Communications, Inc.:
Under date of March 20, 1998 except for note 19 which is as of January 6, 1999,
we reported on the consolidated balance sheets of Tele-Communications, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997, which are included in
the December 31, 1997 annual report on Form 10-K, as amended. In connection
with our audits of the aforementioned consolidated financial statements, we
also audited the related consolidated financial statement schedules as listed
in the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
As discussed in note 19 to the consolidated financial statements as of December
31, 1997 and for the year then ended have been restated.
KPMG Peat Marwick LLP
Denver, Colorado
March 20, 1998, except for
note 19 which is as of
January 6, 1999
IV-16
<PAGE> 19
Schedule I
-----------
Page 1 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to the
Financial Position of the Registrant
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997** 1996*
- ------ ------- -------
amounts in millions
<S> <C> <C>
Investments in and advances to consolidated subsidiaries -
eliminated upon consolidation $ 6,850 6,230
Other assets, at cost, net of amortization 18 16
------- -------
$ 6,868 6,246
======= =======
Liabilities and Stockholders' Equity
- ------------------------------------
Accrued liabilities $ 455 149
Redeemable securities:
Preferred stock 655 658
Common stock 5 --
Stockholders' equity:
Series Preferred Stock, $.01 par value -- --
Convertible Redeemable Participating Preferred Stock,
Series F, $.01 par value -- --
Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock, $.01 par value -- --
Common stock, $1 par value:
Series A TCI Group. Authorized 1,750,000,000 shares;
issued 605,616,143 shares in 1997 and 696,325,478
shares in 1996 606 696
Series B TCI Group. Authorized 150,000,000 shares;
issued 78,203,044 shares in 1997 and 84,647,065
shares in 1996 78 85
Series A Liberty Media Group. Authorized 750,000,000
shares; issued 344,962,521 shares in 1997 and
341,766,655 shares in 1996 345 342
Series B Liberty Media Group. Authorized 75,000,000
shares; issued 35,180,385 shares in 1997 and
31,784,053 shares in 1996 35 32
Series A TCI Ventures Group. Authorized 750,000,000
shares; issued 377,386,032 shares in 1997 377 --
Series B TCI Ventures Group. Authorized 75,000,000
shares; issued 32,532,800 shares in 1997 33 --
Additional paid-in capital 6,304 4,808
Cumulative foreign currency translation adjustment,
net of taxes 4 26
Unrealized holding gains for available-for-sale securities,
net of taxes 774 15
Accumulated deficit (812) (251)
------- -------
7,744 5,753
Treasury stock and common stock held by subsidiaries,
at cost (1,991) (314)
------- -------
Total stockholders' equity 5,753 5,439
------- -------
$ 6,868 6,246
======= =======
</TABLE>
* Restated - see note 13 to the consolidated financial statements.
** Restated - see note 19 to the consolidated financial statements.
IV-17
<PAGE> 20
Schedule I
----------
Page 2 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to the
Operations of the Registrant
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997** 1996* 1995*
----- ----- -----
amounts in millions
<S> <C> <C> <C>
Income (expenses):
Selling, general and administrative $ (19) (82) (21)
Stock compensation (73) 13 (21)
Gain on sale of stock by subsidiary -- -- 123
----- ----- -----
Earnings (loss) before share of earnings (loss) of
consolidated subsidiaries (92) (69) 81
Share of earnings (loss) of consolidated subsidiaries (469) 361 (264)
----- ----- -----
Net earnings (loss) (561) 292 (183)
Dividend requirements on preferred stocks (42) (35) (34)
----- ----- -----
Net earnings (loss) attributable to common
stockholders $(603) 257 (217)
===== ===== =====
</TABLE>
* Restated - see note 13 to the consolidated financial statements.
** Restated - see note 19 to the consolidated financial statements.
IV-18
<PAGE> 21
Schedule I
Page 3 of 3
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Condensed Information as to
Cash Flows of the Registrant
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
----- ----- -----
amounts in millions
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) before share of earnings (loss) of
consolidated subsidiaries $ (92) (69) 81
Adjustments to reconcile earnings (loss) to net
cash provided (used) by operating activities:
Stock compensation 73 (13) 21
Payments of obligation relating to stock
compensation (43) (3) --
Gain on sale of subsidiary stock -- -- (123)
Change in accrued liabilities 276 56 53
----- ----- -----
Net cash provided (used) by operating activities 214 (29) 32
----- ----- -----
Cash flows from investing activities:
Reduction in (additional investments in and
advances to) consolidated subsidiaries, net 370 75 (430)
Other investing activities (2) (11) (9)
----- ----- -----
Net cash provided (used) by investing activities 368 64 (439)
----- ----- -----
Cash flows from financing activities:
Payment of preferred stock dividends (42) (35) (24)
Proceeds from issuances of common stock 5 -- 431
Repurchase of common stock (529) -- --
Other financing activities (16) -- --
----- ----- -----
Net cash provided (used) by financing activities (582) (35) 407
----- ----- -----
Change in cash -- -- --
Cash at beginning of year -- -- --
----- ----- -----
Cash at end of year $ -- -- --
===== ===== =====
</TABLE>
* Restated - see note 13 to the consolidated financial statements.
See also note 4 to the consolidated financial statements.
IV-19
<PAGE> 22
Schedule II
-----------
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
--------- ----------
BALANCE AT CHARGED TO WRITE-OFFS BALANCE
BEGINNING PROFIT NET OF AT END
DESCRIPTION OF YEAR AND LOSS RECOVERIES OF YEAR
- ----------- ---------- --------- ---------- --------
AMOUNTS IN MILLIONS
<S> <C> <C> <C> <C>
Year ended
December 31, 1997:
Allowance for doubtful
receivables - trade $ 36 96 (98) 34
==== === === ==
Year ended
December 31, 1996:
Allowance for doubtful
receivables - trade $ 34 121 (119) 36
==== === === ==
Year ended
December 31, 1995:
Allowance for doubtful
receivables - trade $ 23 86 (75) 34
==== === === ==
</TABLE>
IV-20
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Holding Company, L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sprint Spectrum
Holding Company, L.P. and subsidiaries ("the Partnership") as of December 31,
1997 and 1996, and the related consolidated statements of operations, changes in
partners' capital and cash flows for the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Sprint Spectrum
Holding Company, L.P. and subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for the three years then ended,
in conformity with generally accepted accounting principles.
The Partnership was in the development stage at December 31, 1996; during the
year ended December 31, 1997, the Partnership completed its development
activities and commenced its planned principal operations.
Deloitte & Touche
February 3, 1998
IV-21
<PAGE> 24
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................... $ 117,164 $ 69,988
Accounts receivable, net ................................ 113,507 3,310
Receivable from affiliates .............................. 96,291 12,901
Inventory ............................................... 101,366 72,414
Prepaid expenses and other assets, net .................. 28,495 14,260
Note receivable--unconsolidated partnership ............. -- 226,670
----------- -----------
Total current assets .................................. 456,823 399,543
INVESTMENT IN PCS LICENSES, net ............................ 2,303,398 2,122,908
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIP(S) ............... 273,541 179,085
PROPERTY, PLANT AND EQUIPMENT, net ......................... 3,429,238 1,408,680
MICROWAVE RELOCATION COSTS, net ............................ 264,215 135,802
MINORITY INTEREST .......................................... 56,667 --
OTHER ASSETS, net .......................................... 113,127 77,383
=========== ===========
TOTAL ASSETS ............................................... $ 6,897,009 $ 4,323,401
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Advances from partners .................................. $ -- $ 167,818
Accounts payable ........................................ 415,944 196,146
Payable to affiliate .................................... 11,933 5,626
Accrued interest ........................................ 56,678 34,057
Accrued expenses ........................................ 231,429 47,173
Current maturities of long-term debt .................... 34,562 49
----------- -----------
Total current liabilities ............................. 750,546 450,869
CONSTRUCTION OBLIGATIONS ................................... 705,280 714,934
LONG-TERM DEBT ............................................. 3,533,954 686,192
OTHER NONCURRENT LIABILITIES ............................... 48,975 11,356
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY .............................................. 13,722 13,397
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital ....................................... 3,964,750 3,003,484
Accumulated deficit ..................................... (2,120,218) (556,831)
----------- -----------
Total partners' capital ............................... 1,844,532 2,446,653
=========== ===========
TOTAL LIABILITIES AND PARTNERS' CAPITAL .................... $ 6,897,009 $ 4,323,401
=========== ===========
</TABLE>
See notes to consolidated financial statements
IV-22
<PAGE> 25
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUES .......................... $ 248,607 $ 4,175 $ --
OPERATING EXPENSES:
Cost of revenues ......................... 555,030 36,076 --
Selling, general and administrative ...... 696,911 312,697 66,340
Depreciation and amortization ............ 307,400 11,275 211
----------- ----------- -----------
Total operating expenses ............... 1,559,341 360,048 66,551
----------- ----------- -----------
LOSS FROM OPERATIONS ........................ (1,310,734) (355,873) (66,551)
OTHER INCOME (EXPENSE):
Interest income .......................... 26,456 8,593 460
Interest expense ......................... (121,844) (323) --
Other income ............................. 5,474 1,586 38
Equity in loss of unconsolidated
partnerships ........................... (168,935) (96,850) (46,206)
----------- ----------- -----------
Total other income (expense) ........... (258,849) (86,994) (45,708)
----------- ----------- -----------
NET LOSS BEFORE MINORITY INTEREST ........... (1,569,583) (442,867) (112,259)
MINORITY INTEREST ........................... 6,196 (227) 1,830
----------- ----------- -----------
NET LOSS .................................... $(1,563,387) $ (443,094) $ (110,429)
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
IV-23
<PAGE> 26
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' ACCUMULATED
CAPITAL DEFICIT TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, January 1, 1995 .......... $ 123,438 $ (3,308) $ 120,130
Contributions of capital .......... 2,168,368 -- 2,168,368
Net loss .......................... -- (110,429) (110,429)
----------- ----------- -----------
BALANCE, December 31, 1995 ........ 2,291,806 (113,737) 2,178,069
Contributions of capital .......... 711,678 -- 711,678
Net loss .......................... -- (443,094) (443,094)
----------- ----------- -----------
BALANCE, December 31, 1996 ........ 3,003,484 (556,831) 2,446,653
Contributions of capital .......... 973,001 -- 973,001
Net loss .......................... -- (1,563,387) (1,563,387)
Return of capital ................. (11,735) -- (11,735)
----------- ----------- -----------
BALANCE, December 31, 1997 ........ $ 3,964,750 $(2,120,218) $ 1,844,532
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
IV-24
<PAGE> 27
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ....................................................... $(1,563,387) $ (443,094) $ (110,429)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Equity in loss of unconsolidated partnership .................. 168,935 96,850 46,206
Minority interest ............................................. (6,196) 227 (1,830)
Depreciation and amortization ................................. 307,930 11,275 242
Amortization of debt discount and issuance costs ............. 49,061 14,008 --
Changes in assets and liabilities, net of effects
of acquisition of APC:
Receivables ................................................. (182,882) (15,871) (340)
Inventory ................................................... (24,870) (72,414) --
Prepaid expenses and other assets ........................... (12,497) (21,608) (178)
Accounts payable and accrued expenses ....................... 371,168 231,754 47,503
Other noncurrent liabilities ................................ 37,619 9,500 1,856
----------- ----------- -----------
Net cash used in operating activities ................. (855,119) (189,373) (16,970)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................................... (2,041,313) (1,386,346) (31,763)
Proceeds on sale of equipment ................................. -- -- 37
Microwave relocation costs, net ............................... (116,278) (135,828) --
Purchase of PCS licenses ...................................... -- -- (2,006,156)
Purchase of APC, net of cash acquired ......................... (6,764) -- --
Investment in unconsolidated partnerships ..................... (191,171) (190,390) (131,752)
Loan to unconsolidated partnership ............................ (111,468) (231,964) (655)
Payment received on loan to unconsolidated partnership ........ 246,670 5,950 --
----------- ----------- -----------
Net cash used in investing activities ................. (2,220,324) (1,938,578) (2,170,289)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from partners ........................................ -- 167,818 --
Net borrowing under revolving credit agreement ................ 605,000 -- --
Proceeds from issuance of long-term debt ...................... 1,763,045 674,201 --
Change in construction obligations ............................ (9,654) 714,934
Payments on long-term debt .................................... (170,809) (24) --
Debt issuance costs ........................................... (20,000) (71,791) --
Partner capital contributions ................................. 966,772 711,678 2,183,368
Return of capital ............................................. (11,735) -- --
----------- ----------- -----------
Net cash provided by financing activities ............. 3,122,619 2,196,816 2,183,368
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................... 47,176 68,865 (3,891)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................. 69,988 1,123 5,014
=========== =========== ===========
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................ $ 117,164 $ 69,988 $ 1,123
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
o Interest paid, net of amount capitalized .................. $ 35,629 $ 323 $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
o Accrued interest of $51,673 related to vendor
financing was converted to long-term debt during
the year ended December 31, 1997.
o A PCS license covering the Omaha MTA and valued
at $6,229 was contributed to the Company by Cox
Communications during the year ended
December 31, 1997.
</TABLE>
See notes to consolidated financial statements
IV-25
<PAGE> 28
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum Holding Company, L.P. ("Holdings" or the "Company") is a limited
partnership formed in Delaware on March 28, 1995, by Sprint Enterprises, L.P.,
TCI Spectrum Holdings, Inc., Cox Telephony Partnership and Comcast Telephony
Services (together the "Partners"). Holdings was formed pursuant to a
reorganization of the operations of an existing partnership, WirelessCo, L.P.
("WirelessCo") which transferred certain operating functions to Holdings. The
Partners are subsidiaries of Sprint Corporation ("Sprint"), Tele-Communications,
Inc. ("TCI"), Cox Communications, Inc. ("Cox"), and Comcast Corporation
("Comcast", and together with Sprint, TCI and Cox, the "Parents"), respectively.
The Company and certain other affiliated partnerships offer services as Sprint
PCS.
The Partners of the Company have the following ownership interests as of
December 31, 1997, and 1996:
<TABLE>
<S> <C>
Sprint Enterprises, L.P. 40%
TCI Spectrum Holdings, Inc. 30%
Cox Telephony Partnership 15%
Comcast Telephony Services 15%
</TABLE>
Each Partner's ownership interest consists of a 99% general partner interest and
a 1% limited partnership interest.
The Company is consolidated with its subsidiaries, including NewTelco, L.P.
("NewTelco") and Sprint Spectrum L.P., which, in turn, has several subsidiaries.
Sprint Spectrum L.P.'s subsidiaries are Sprint Spectrum Equipment Company, L.P.
("EquipmentCo"), Sprint Spectrum Realty Company, L.P. ("RealtyCo"), Sprint
Spectrum Finance Corporation ("FinCo"), and WirelessCo. RealtyCo and EquipmentCo
were organized on May 15, 1996 for the purpose of holding personal
communications service ("PCS") network-related real estate interests and assets.
FinCo was formed on May 20, 1996 to be a co-obligor of the debt obligations
discussed in Note 5. Additionally, the results of American PCS, L.P. ("APC") are
consolidated from November 1997, the date the Federal Communications Commission
("FCC") approved Holdings as the new managing partner (Note 4). APC, through
subsidiaries, owns a PCS license for and operates a broadband GSM (global system
for mobile communications) in the Washington D.C./Baltimore Major Trading Area
("MTA"), and is in the process of building a code division multiple access
("CDMA") overlay for its existing GSM PCS system. APC includes American PCS
Communications, LLC, APC PCS, LLC, APC Realty and Equipment Company, LLC and
American Personal Communications Holdings, Inc. MinorCo, L.P. ("MinorCo") holds
the minority ownership interests in NewTelco, Sprint Spectrum L.P., EquipmentCo,
RealtyCo and WirelessCo at December 31, 1997 and 1996, and APC at December 31,
1997.
VENTURE FORMATION AND AFFILIATED PARTNERSHIPS - A Joint Venture Formation
Agreement (the "Formation Agreement"), dated as of October 24, 1994, and
subsequently amended as of March 28, 1995, and January 31, 1996, was entered
into by the Parents, pursuant to which the Parents agreed to form certain
entities to (i) provide national wireless telecommunications services, including
acquisition and development of PCS licenses, (ii) develop a PCS wireless system
in the Los Angeles-San Diego MTA, and (iii) take certain other actions.
IV-26
<PAGE> 29
On October 24, 1994, WirelessCo was formed and on March 28, 1995, additional
partnerships were formed consisting of Holdings, MinorCo, NewTelco, and Sprint
Spectrum L.P. The Partners' ownership interests in WirelessCo were initially
held directly by the Partners as of October 24, 1994, the formation date of
WirelessCo, but were subsequently contributed to Holdings and then to Sprint
Spectrum L.P. on March 28, 1995.
SPRINT SPECTRUM HOLDING COMPANY, L.P. PARTNERSHIP AGREEMENT - The Amended and
Restated Agreement of Limited Partnership of MajorCo, L.P. (the "Holdings
Agreement"), dated as of January 31, 1996, among Sprint Enterprises, L.P., TCI
Spectrum Holdings, Inc., Comcast Telephony Services and Cox Telephony
Partnership provides that the purpose of the Company is to engage in wireless
communications services.
The Holdings Agreement generally provides for the allocation of profits and
losses according to each Partner's proportionate percentage interest, after
giving effect to special allocations. After special allocations, profits are
allocated to partners to the extent of and in proportion to cumulative net
losses previously allocated. Losses are allocated, after considering special
allocations, according to each Partner's allocation of net profits previously
allocated.
The Holdings Agreement provides for planned capital contributions by the
Partners ("Total Mandatory Contributions") of $4.2 billion, which includes
agreed upon values attributable to the contributions of certain additional PCS
licenses by a Partner. The Total Mandatory Contributions amount is required to
be contributed in accordance with capital contribution schedules to be set forth
in approved annual budgets. The partnership board of Holdings may request
capital contributions to be made in the absence of an approved budget or more
quickly than provided for in an approved budget, but always subject to the Total
Mandatory Contributions limit. The proposed budget for fiscal 1998 has not yet
been approved by the partnership board, which has resulted in the occurrence of
a Deadlock Event (as defined) under the Holdings Agreement as of January 1,
1998. If the 1998 proposed budget is not approved through resolution procedures
set forth in the Holdings Agreement, certain specified buy/sell procedures may
be triggered which may result in a restructuring of the partners' interest in
the Company or, in limited circumstances, liquidation of the Company. As of
December 31, 1997, approximately $4.0 billion of the Total Mandatory
Contributions had been contributed by the Partners to Holdings and its
affiliated partnerships, of which approximately $3.3 billion had been
contributed to Sprint Spectrum L.P.
EMERGENCE FROM DEVELOPMENT STAGE COMPANY - Prior to the third quarter of 1997,
the Company reported its operations as a development stage enterprise. The
Company has commenced service in all of the MTAs in which it owns a license. As
a result, the Company is no longer considered a development stage enterprise,
and the balance sheets and statements of operations and of cash flows are no
longer presented in development stage format.
Management believes that the Company will incur additional losses in 1998 and
require additional financial resources to support the current level of
operations and the remaining network buildout for the year ended December 31,
1998. Management believes the Company has the ability to obtain the required
levels of financing through additional financing arrangements or additional
equity funding from the Partners.
IV-27
<PAGE> 30
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The assets, liabilities, results of operations and cash
flows of entities in which the Company has a controlling interest have been
consolidated. All significant intercompany accounts and transactions have been
eliminated.
MINORITY INTERESTS - MinorCo, the limited partner in NewTelco, has been
allocated approximately $0.3 million and $0.2 million in income for the years
ended December 31, 1997, and 1996, respectively. Losses of $1.8 million for the
year ended December 31, 1995 incurred by NewTelco as losses in excess of the
general partner's capital accounts (which consisted of $1,000) are to be
allocated to the limited partner to the extent of its capital account.
In November 1997, concurrent with the acquisition discussed in Note 4, American
Personal Communications II, L.P. ("APC II") became the minority owner in APC.
APC II has been allocated approximately $6.5 million in losses in APC since the
date of acquisition. Prior to November 1997, APC II, as majority owner, had been
allocated approximately $50 million in losses in excess of its investment. At
December 31, 1997, after consolidation of APC, the total of such losses,
approximately $56.7 million, was recorded as minority interest in the Company's
consolidated balance sheet. This treatment reflects that APC II continued to be
responsible for funding its share of losses until January 1, 1998 when the
Company acquired the remaining interest in APC.
TRADEMARK AGREEMENT - Sprint(R) is a registered trademark of Sprint
Communications Company L.P. and Sprint(R) and Sprint PCS(R) are licensed to the
Company on a royalty-free basis pursuant to a trademark license agreement
between the Company and Sprint Communications Company L.P.
REVENUE RECOGNITION - Operating revenues for PCS services are recognized as
service is rendered. Operating revenues for equipment sales are recognized at
the time the equipment is delivered to a customer or an unaffiliated agent.
COST OF EQUIPMENT - The Company uses multiple distribution channels for its
inventory, including third-party retailers, Company-owned retail stores, its
direct sales force and telemarketing. Cost of equipment varies by distribution
channel and includes the cost of multiple models of handsets, related accessory
equipment, and warehousing and shipping expenses.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments
with original maturities of three months or less to be cash equivalents. The
Company maintains cash and cash equivalents in financial institutions with the
highest credit ratings.
ACCOUNTS RECEIVABLE - Accounts receivable are net of an allowance for doubtful
accounts of approximately $9.0 million and $0.2 million at December 31, 1997 and
1996, respectively.
INVENTORY - Inventory consists of wireless communication equipment (primarily
handsets). Inventory is stated at lower of cost (on a first-in, first-out basis)
or replacement value. Any losses on the sales of handsets are recognized at the
time of sale.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost
or fair value at the date of acquisition. Construction work in progress
represents costs incurred to design and construct the PCS network. Repair and
maintenance costs are charged to expense as incurred. When network equipment is
retired, or otherwise disposed of, its book value, net of salvage, is charged to
accumulated depreciation.
IV-28
<PAGE> 31
When non-network equipment is sold, retired or abandoned, the cost and
accumulated depreciation are relieved and any gain or loss is recognized.
Property, plant and equipment are depreciated using the straight-line method
based on estimated useful lives of the assets. Depreciable lives range from 3 to
20 years.
EQUIPMENT UNDER CAPITAL LEASES - APC leases certain of its office and other
equipment under capital lease agreements. The assets and liabilities under
capital leases are recorded at the lesser of the present value of aggregate
future minimum lease payments, including estimated bargain purchase options, or
the fair value of the assets under lease. Assets under these capital leases are
depreciated over their estimated useful lives of 5 to 7 years. Depreciation
related to capital leases is included within depreciation expense.
INVESTMENT IN PCS LICENSES - During 1994 and 1995, the Federal Communications
Commission ("FCC") auctioned PCS licenses in specific geographic service areas.
The FCC grants licenses for terms of up to ten years, and generally grants
renewals if the licensee has complied with its license obligations. The Company
believes it will be able to secure renewal of the PCS licenses held by its
subsidiaries. PCS licenses are amortized over estimated useful lives of 40 years
once placed in service. Accumulated amortization for PCS licenses totaled
approximately $45.2 million and $1.7 million as of December 31, 1997, and 1996,
respectively. There was no amortization in 1995.
MICROWAVE RELOCATION COSTS - The Company has also incurred costs associated with
microwave relocation in the construction of the PCS network. Microwave
relocation costs are amortized over estimated useful lives of 40 years once
placed in service. Accumulated amortization for microwave relocation costs
totaled approximately $5.2 million as of December 31, 1997. There was no
amortization in 1996 or 1995.
INTANGIBLE ASSETS - The ongoing value and remaining useful life of intangible
assets are subject to periodic evaluation. The Company currently expects the
carrying amounts to be fully recoverable. Impairments of intangibles and
long-lived assets are assessed based on an undiscounted cash flow methodology.
CAPITALIZED INTEREST - Interest costs associated with the construction of
capital assets (including the PCS licenses) incurred during the period of
construction are capitalized. The total interest costs capitalized in 1997 and
1996 were approximately $98.6 million and $30.5 million, respectively. There
were no amounts capitalized in 1995.
DEBT ISSUANCE COSTS - Included in other assets are costs associated with
obtaining financing. Such costs are capitalized and amortized to interest
expense over the term of the related debt instruments using the effective
interest method. Accumulated amortization for the years ended December 31, 1997
and 1996 were approximately $13.4 million and $1.9 million, respectively. There
was no amortization in 1995.
OPERATING LEASES - Rent expense is recognized on the straight-line basis over
the life of the lease agreement, including renewal periods. Lease expense
recognized in excess of cash expended is included in non-current liabilities in
the consolidated balance sheet.
MAJOR CUSTOMER - The Company markets its products through multiple distribution
channels, including Company-owned retail stores and third-party retail outlets.
The Company's subscribers are disbursed throughout the United States. Sales to
one third-party retail customer represented approximately 21% and 88% of
operating revenue in the consolidated statements of operations for the years
ended December
IV-29
<PAGE> 32
31, 1997 and 1996, respectively. The Company reviews the credit history of
retailers prior to extending credit and maintains allowances for potential
credit losses. The Company believes that its risk from concentration of credit
is limited.
INCOME TAXES - The Company has not provided for federal or state income taxes
since such taxes are the responsibility of the individual Partners.
FINANCIAL INSTRUMENTS - The carrying value of the Company's short-term financial
instruments, including cash and cash equivalents, receivables from customers and
affiliates and accounts payable approximates fair value. The fair value of the
Company's long-term debt is based on quoted market prices for the same issues or
current rates offered to the Company for similar debt. A summary of the fair
value of the Company's long-term debt at December 31, 1997 and 1996 is included
in Note 5.
The fair value of the interest rate contracts is the estimated net amount that
APC would pay to terminate the contracts at the balance sheet date. The fair
value of the fixed rate loans is estimated using discounted cash flow analysis
based on APC's current incremental borrowing rate at which similar borrowing
agreements would be made under current conditions.
DERIVATIVE FINANCIAL INSTRUMENTS - Derivative financial instruments (interest
rate contracts) are utilized by APC to reduce interest rate risk. APC has
established a control environment which includes risk assessment and management
approval, reporting and monitoring of derivative financial instrument
activities. APC does not hold or issue derivative financial instruments for
trading purposes.
The differentials to be received or paid under interest rate contracts that are
matched against underlying debt instruments and qualify for settlement
accounting are recognized in income over the life of the contracts as
adjustments to interest expense. Gains and losses on terminations of interest
rate contracts are recognized as other income or expense when terminated in
conjunction with the retirement of associated debt. Gains and losses on
terminations of interest rate contracts not associated with the retirement of
debt are deferred and amortized to interest expense over the remaining life of
the associated debt to the extent that such debt remains outstanding.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1996 and
1995 consolidated financial statements to conform to the 1997 consolidated
financial statement presentation.
IV-30
<PAGE> 33
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land $ 1,444 $ 905
Buildings and leasehold improvements 618,281 86,467
Fixtures and office furniture 165,998 68,210
Network equipment 2,265,213 255,691
Telecommunications plant - construction work in progress 632,922 1,006,990
----------- -----------
3,683,858 1,418,263
Less accumulated depreciation (254,620) (9,583)
----------- -----------
$ 3,429,238 $ 1,408,680
=========== ===========
</TABLE>
Depreciation expense on property, plant and equipment was approximately $244.9
million, $ 9.6 million, and $0.2 million for the years ended December 31, 1997,
1996 and 1995, respectively.
4. INVESTMENTS IN PARTNERSHIPS
APC - On January 9, 1995, WirelessCo acquired a 49% limited partnership interest
in APC. In September 1997, Holdings increased its ownership in APC to a 58.3%
through additional capital contributions of $30 million, and became the managing
partner upon FCC approval in November, 1997. As of January 1, 1998, Holdings and
MinorCo increased their ownership percentages to 99.75% and 0.25%, respectively,
of the partnership interests for approximately $30 million.
The acquisition increasing ownership to 58.3% was accounted for as a purchase
and, accordingly, the operating results of APC has been included in the
Company's consolidated financial statements since the date of the FCC's approval
of the acquisition. The purchase price was allocated to the assets acquired and
the liabilities assumed based on a preliminary estimate of fair value. The
following table reflects the total of APC's assets and liabilities at the date
of acquisition:
<TABLE>
<S> <C>
Assets acquired $ 503
Cash paid (30)
Minority interest 50
-----
Liabilities assumed $ 523
=====
</TABLE>
The ultimate allocation of the purchase price may differ from the initial
estimate.
IV-31
<PAGE> 34
The following unaudited pro forma financial information assumes the acquisition
had occurred on January 1 of each year and that the Company had owned 100% of
APC and consolidated its results in the financial statements:
Proforma - Sprint Spectrum Holding Company, L.P.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net sales ................................... $ 355,038 $ 76,013
Net loss (before minority interest) ........ (1,646,551) (553,274)
</TABLE>
Pro forma data does not purport to be indicative of the results that would have
been obtained had these events actually occurred at the beginning of the periods
presented and is not intended to be a projection of future results.
Prior to acquisition of controlling interest, the Company's investment in APC
was accounted for under the equity method. The partnership agreement between the
Company and APC II specified that losses were allocated based on percentage
ownership interests and certain other factors. In January 1997, the Company and
APC II amended the APC partnership agreement with respect to the allocation of
profits and losses. For financial reporting purposes, profits and losses were
allocated in proportion to Holdings' and APC II's respective partnership
interests, except for costs related to stock appreciation rights and interest
expense attributable to the FCC interest payments which were allocated entirely
to APC II. Losses of approximately $60 million, $97 million and $46 million for
the years ended December 31, 1997, 1996 and 1995, respectively, are included in
equity in losses of unconsolidated subsidiaries during the period prior to the
acquisition of controlling interest.
COX COMMUNICATIONS PCS, L.P. - On December 31, 1996, the Company acquired a 49%
limited partner interest in Cox Communications PCS, L.P. ("Cox PCS"). Cox
Pioneer Partnership ("CPP") holds a 50.5% general and a 0.5% limited partner
interest and is the general and managing partner. The investment in Cox PCS is
accounted for under the equity method. Under the terms of the partnership
agreement, CPP and the Company are obligated to, among other things: (a) upon
FCC consent to the assumption and recognition of the license payment obligations
by Cox PCS, CPP is obligated to make capital contributions in an amount equal to
such liability and related interest (the PCS license covering the Los
Angeles-San Diego MTA was contributed to Cox PCS in March 1997) (b) the Company
is obligated to make capital contributions of approximately $368.9 million to
Cox PCS; (c) the Company is not obligated to make any cash capital contributions
upon the assumption by Cox PCS of the FCC payment obligations until CPP has
contributed cash in an amount equal to the aggregate principal and interest of
such obligations; and, (d) CPP and the Company are obligated to make additional
capital contributions in an amount equal to such partner's percentage interest
times the amount of additional capital contributions being requested.
As of December 31, 1997, approximately $348.2 million in equity, including $2.45
million to PCS Leasing Co, L.P. ("LeasingCo"), a subsidiary of Cox PCS, had been
contributed to Cox PCS by the Company. Through December 31, 1996, $168 million
had been contributed to Cox PCS. Losses are allocated to the partners based on
their ownership percentages. Subsequent to December 31, 1997, the Company
completed its funding obligation to Cox PCS under the partnership agreement.
Concurrent with this funding, the Company paid approximately $33.2 million in
interest that had accrued on the unfunded capital obligation.
IV-32
<PAGE> 35
Additionally, the Company acquired a 49% limited partner interest in LeasingCo.
LeasingCo was formed to acquire, construct or otherwise develop equipment and
other personal property to be leased to Cox PCS. The Company is not obligated to
make additional capital contributions to LeasingCo beyond the initial funding of
approximately $2.45 million .
Under the partnership agreement, CPP has the right to require that Holdings
acquire all or part of CPP's interest in Cox PCS based on fair market value at
the time of the transaction. Subsequent to December 31, 1997, CPP elected to
exercise this right. As a result, the Company intends to acquire 10.2% of Cox
PCS, subject to FCC approval, which will give the Company controlling interest.
The purchase price, currently estimated at $80 million, will be based on the
fair market value of Cox PCS as determined by independent appraisals. Through
December 2008, CPP may put any remaining interest in Cox PCS to the Company.
5. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consists of the following as of December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
11% Senior Notes due in 2006 $ 250,000 $ 250,000
12-1/2% Senior Discount Notes due in 2006, net of
unamortized discount of $177,720 and $214,501 at
December 31, 1997 and 1996, respectively 322,280 285,499
Credit Facility - term loans 300,000 150,000
Credit Facility - revolving credit 605,000 --
Vendor Financing 1,612,914 --
APC Senior Secured Term Loan Facility 220,000 --
APC Senior Secured Reducing Revolving Credit --
Facility 141,429
Due To FCC, net of unamortized discount of --
$11,989 90,355
Other 26,538 742
---------- ----------
Total debt 3,568,516 686,241
Less current maturities 34,562 49
---------- ----------
Long-term debt $3,533,954 $ 686,192
========== ==========
</TABLE>
SENIOR NOTES AND SENIOR DISCOUNT NOTES - In August 1996, Sprint Spectrum L.P.
and Sprint Spectrum Finance Corporation (together, the "Issuers") issued $250
million aggregate principal amount of 11% Senior Notes due 2006 ("the Senior
Notes"), and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes due 2006 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity and generated proceeds
of approximately $273 million. Cash interest on the Senior Notes will accrue at
a rate of 11% per annum and is payable semi-annually in arrears on each February
15 and August 15, commencing February 15, 1997. Cash interest will not accrue or
be payable on the Senior Discount Notes prior to August 15, 2001. Thereafter,
cash interest on the Senior Discount Notes
IV-33
<PAGE> 36
will accrue at a rate of 12 1/2% per annum and will be payable semi-annually in
arrears on each February 15 and August 15, commencing February 15, 2002.
On August 15, 2001, the Issuers will be required to redeem an amount equal to
$384.772 per $1,000 principal amount at maturity of each Senior Discount Note
then outstanding ($192 million in aggregate principal amount at maturity,
assuming all of the Senior Discount Notes remain outstanding at such date).
The Notes are redeemable at the option of the Issuers, in whole or in part, at
any time on or after August 15, 2001 at the redemption prices set forth below,
respectively, plus accrued and unpaid interest, if any, to the redemption date,
if redeemed during the 12 month period beginning on August 15 of the years
indicated below:
<TABLE>
<CAPTION>
SENIOR DISCOUNT
SENIOR NOTES NOTES
YEAR REDEMPTION PRICE REDEMPTION PRICE
---- ---------------- ----------------
<S> <C> <C>
2001 105.500% 110.000%
2002 103.667% 106.500%
2003 101.833% 103.250%
2004 and thereafter 100.000% 100.000%
</TABLE>
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of the
originally issued principal amount of the Notes with the net proceeds of one or
more public equity offerings, provided that at least 65% of the originally
issued principal amount at maturity of the Senior Notes and Senior Discount
Notes would remain outstanding immediately after giving effect to such
redemption. The redemption price of the Senior Notes is equal to 111.0% of the
principal amount of the Senior Notes so redeemed, plus accrued and unpaid
interest, if any, to the redemption date. The redemption price of the Senior
Discount Notes is equal to 112.5% of the accreted value at the redemption date
of the Senior Discount Notes so redeemed.
The Notes contain certain restrictive covenants, including (among other
requirements) limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting certain restricted subsidiaries.
BANK CREDIT FACILITY -Sprint Spectrum L.P. (the "Borrower") entered into an
agreement with The Chase Manhattan Bank ("Chase") as agent for a group of
lenders for a $2 billion bank credit facility dated October 2, 1996. The
proceeds of this facility are to be used to finance working capital needs,
subscriber acquisition costs, capital expenditures and other general Borrower
purposes.
The facility consists of a revolving credit commitment of $1.7 billion and a
$300 million term loan commitment.. In November 1997, certain terms relating to
the financial and operating conditions were amended. As of December 31, 1997,
$605 million had been drawn at a weighted average interest rate of 8.42%, with
$1.1 billion remaining available. There were no borrowings under the revolving
credit commitment as of December 31, 1996. Commitment fees for the revolving
portion of the agreement are payable quarterly based on average unused revolving
commitments. As of February 15, 1998, the Company had borrowed an additional
$225 million under the revolving credit facility.
IV-34
<PAGE> 37
The revolving credit commitment expires July 13, 2005. Availability will be
reduced in quarterly installments ranging from $75 million to $175 million
commencing January 2002. Further reductions may be required after January 1,
2002 to the extent that the Borrower meets certain financial conditions.
The term loans are due in sixteen consecutive quarterly installments beginning
January 2002 in aggregate principal amounts of $125,000 for each of the first
fifteen payments with the remaining aggregate outstanding principal amount of
the term loans due as the last installment.
Interest on the term loans and/or the revolving credit loans is at the
applicable LIBOR rate plus 2.5% ("Eurodollar Loans"), or the greater of the
prime rate or 0.5% plus the Federal Funds effective rate, plus 1.5% ("ABR
Loans"), at the Borrower's option. The interest rate may be adjusted downward
for improvements in the bond rating and/or leverage ratios. Interest on ABR
Loans and Eurodollar Loans with interest period terms in excess of 3 months is
payable quarterly. Interest on Eurodollar Loans with interest period terms of
less than 3 months is payable on the last day of the interest period. As of
December 31, 1997 and 1996, the weighted average interest rate on the term loans
was 8.39% and 8.19%, respectively.
Borrowings under the Bank Credit Facility are secured by the Borrower's
interests in WirelessCo, RealtyCo and EquipmentCo and certain other personal and
real property (the "Shared Lien"). The Shared Lien equally and ratably secures
the Bank Credit Facility, the Vendor Financing agreements (discussed below) and
certain other indebtedness of the Borrower. The credit facility is jointly and
severally guaranteed by WirelessCo, RealtyCo and EquipmentCo and is non-recourse
to the Parents and the Partners.
The Bank Credit Facility agreement and Vendor Financing agreements contain
certain restrictive financial and operating covenants, including (among other
requirements) maximum debt ratios (including debt to total capitalization),
limitations on capital expenditures, limitations on additional indebtedness and
limitations on dividends and other payment restrictions affecting certain
restricted subsidiaries. The loss of the right to use the Sprint(R) trademark,
the termination or non-renewal of any FCC license that reduces population
coverage below specified limits, or certain changes in controlling interest in
the Borrower, as defined, among other provisions, constitute events of default.
VENDOR FINANCING - As of October 2, 1996, the Company entered into financing
agreements with Northern Telecom, Inc. ("Nortel") and Lucent Technologies, Inc.
("Lucent" and together with Nortel, the "Vendors") for multiple drawdown term
loan facilities totaling $1.3 billion and $1.8 billion, respectively. The
proceeds of such facilities are to be used to finance the purchase of goods and
services provided by the Vendors. Additionally, the commitments allow for the
conversion of accrued interest into additional principal. Such conversions do
not reduce the availability under the commitments. Interest accruing on the debt
outstanding at December 31, 1997, can be converted into additional principal
through February 8, 1999 and March 30, 1999, for Lucent and Nortel,
respectively.
On April 30, 1997 and November 20, 1997, the Company amended the terms of its
financing agreement with Nortel. The amendments provide for a syndication of the
financing commitment between Nortel, several banks and other vendors (the
"Nortel Lenders"), and the modification of certain operating and financial
covenants. The commitment provides financing in two phases. During the first
phase, the Nortel Lenders will finance up to $800 million. Under the second
phase, the Nortel Lenders will finance up to an additional $500 million upon the
achievement of certain operating and financial conditions, as amended. As of
December 31, 1997, $630 million, including converted accrued interest of
IV-35
<PAGE> 38
$18.6 million, had been borrowed at a weighted average interest rate of 8.98%
with $189 million remaining available under the first phase. In addition, the
Company paid $20 million in origination fees upon the initial drawdown under the
first phase and will be obligated to pay additional origination fees on the date
of the initial drawdown loan under the second phase. As of February 15, 1998,
the Company had borrowed an additional $47.0 million under the Nortel facility.
There were no borrowings under the Nortel facility at December 31, 1996.
On May 29, 1997 and November 20, 1997, the Company amended the terms of its
financing agreement with Lucent. The amendments provide for a syndication of the
financing commitment between Lucent, Sprint and other banks and vendors (the
"Lucent Lenders"), and the modification of certain operating and financial
covenants. The Lucent Lenders have committed to financing up to $1.5 billion
through December 31, 1997, and up to an aggregate of $1.8 billion thereafter.
The Company pays a facility fee on the daily amount of certain loans outstanding
under the agreement, payable quarterly. The Lucent agreement terminates June 30,
2001. As of December 31, 1997, the Company had borrowed approximately $983
million, including converted accrued interest of $33.1 million, under the Lucent
facility at a weighted average interest rate of 8.94%, with $850 million
remaining available. As of February 15, 1998, the Company had borrowed an
additional $104.1 million under the Lucent facility. There were no borrowings
under the Lucent facility at December 31, 1996.
The principal amounts of the loans drawn under both the Nortel and Lucent
agreements are due in twenty consecutive quarterly installments, commencing on
the date which is thirty-nine months after the last day of such "Borrowing Year"
(defined in the agreements as any one of the five consecutive 12-month periods
following the date of the initial drawdown of the loan). The aggregate amount
due each year is equal to percentages ranging from 10% to 30% multiplied by the
total principal amount of loans during each Borrowing Year.
The agreements provide two borrowing rate options. During the first phase of the
Nortel agreement and throughout the term of the Lucent agreement "ABR Loans"
bear interest at the greater of the prime rate or 0.5% plus the Federal Funds
effective rate, plus 2%. "Eurodollar Loans" bear interest at the London
interbank (LIBOR) rate (any one of the 30-, 60- or 90-day rates, at the
discretion of the Company), plus 3%. During the second phase of the Nortel
agreement, ABR Loans bear interest at the greater of the prime rate or 0.5% plus
the Federal Funds effective rate, plus 1.5%; and Eurodollar loans bear interest
at the LIBOR rate plus 2.5%. Interest from the date of each loan through one
year after the last day of the Borrowing Year is added to the principal amount
of each loan. Thereafter, interest is payable quarterly.
Borrowings under the Vendor Financing are secured by the Shared Lien. The Vendor
Financing is jointly and severally guaranteed by WirelessCo, RealtyCo, and
EquipmentCo and is non-recourse to the Parents and the Partners.
Certain amounts included under construction obligations on the consolidated
balance sheets may be financed under the Vendor Financing agreements.
DUE TO FCC - APC became obligated to the FCC for $102 million upon receipt of
the commercial PCS license covering the Washington D.C./Baltimore MTA. In March
1996, the FCC determined that interest on the amount due would begin to accrue
on March 8, 1996, at an interest rate of 7.75%. Beginning with the first payment
due in April 1996, the FCC granted two years of interest-only payments followed
by three years of principal and interest payments. Based on the interest and
payment provisions determined by the FCC and APC's incremental borrowing rate
for similar debt at the time the debt was issued, APC has accrued interest
beginning upon receipt of the license at an effective rate of 13%.
IV-36
<PAGE> 39
In connection with the acquisition discussed in Note 4, Holdings became
responsible for making principal and interest payments under the APC's
obligation to the FCC.
APC SENIOR SECURED CREDIT FACILITIES - As of February 7, 1997, American PCS
Communications, LLC entered into credit facilities of $420 million, consisting
of a term loan facility of $220 million and a reducing revolving credit facility
of $200 million (together, the "Credit Agreement"). The Credit Agreement is
secured by first priority liens on all the equity interests held by American PCS
Communications LLC in its direct subsidiaries, including the equity interests of
the subsidiaries which will hold APC's PCS license and certain real property
interest and equipment and a first priority security interest in, and mortgages
on, substantially all other intangible and tangible assets of APC and
subsidiaries. The Credit Agreement matures February 7, 2005, with an interest
rate of LIBOR plus 2.25%. The interest rate may be stepped down over the term of
the credit agreement based on the ratio of outstanding debt to earnings before
interest, tax, depreciation and amortization. Proceeds from the Credit Agreement
were used to repay the outstanding financing from Holdings as of the closing
date of the credit agreement, capital expenditures for the communications
systems, general working capital requirements, and net operating losses.
The Credit Agreement contains covenants which require APC to maintain certain
levels of wireless subscribers, as well as other financial and non-financial
requirements.
In January 1998 APC completed negotiations with its lenders to amend the Credit
Agreement. As amended, the Credit Agreement contains certain covenants which,
among other things, contain certain restrictive financial and operating
covenants including, maximum debt ratios (including debt to total
capitalization) and limitations on capital expenditures. The covenants require
American PCS Communications, LLC to enter into interest rate contracts on a
quarterly basis to protect and limit the interest rate on 40% of its aggregate
debt outstanding.
OTHER DEBT - At December 31, 1997, other debt included a note payable to Lucent
for the financing of debt issuance costs, a note payable for certain leasehold
improvements, and capital leases acquired in the purchase of APC. Maturities on
the debt range from 3 to 10 years, at interest rates from 8.32% to 21%.
INTEREST RATE CONTRACTS - As of December 31, 1997, APC had entered into nine
interest rate contracts (swaps and a collar), with an aggregate notional amount
of $122 million. Under the agreements APC pays a fixed rate and receives a
variable rate such that it will protect APC against interest rate fluctuations
on a portion of its variable rate debt. The fixed rates paid by APC on the
interest rate swap contracts range from approximately 5.97% to 6.8%. Option
features contained in certain of the swaps operate in a manner such that the
interest rate protection in some cases is effective only when rates are outside
a certain range. Under the collar arrangement, APC will receive 6.19% when LIBOR
falls below 6.19% and pay 8% when LIBOR exceeds 8%. The contracts expire in
2001. The fair value of the interest rate contracts at December 31, 1997 was an
unrealized loss of approximately $1.3 million. The notional amounts represent
reference balances upon which payments and receipts are based and consequently
are not indicative of the level of risk or cash requirements under the
contracts. APC has exposure to credit risk to the counterparty to the extent it
would have to replace the interest rate swap contract in the market when and if
a counterparty were to fail to meet its obligations. The counterparties to all
contracts are primary dealers that meet APC's criteria for managing credit
exposures.
IV-37
<PAGE> 40
FAIR VALUE - The estimated fair value of the Company's long-term debt at
December 31, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
11% Senior Notes $250,000 $280,650 $250,000 $270,625
12 1/2% Senior Discount Notes 322,280 389,300 285,499 337,950
Credit facility - term loans 300,000 300,000 150,000 151,343
Credit facility - revolver 605,000 605,000 -- --
Vendor facility - Lucent 983,299 983,299 -- --
Vendor facility - Nortel 629,615 629,615 -- --
APC Senior Secured Term Loan
Facility 220,000 220,000 -- --
APC Senior Secured Reducing Revolving
Credit Facility 141,429 141,429 -- --
FCC debt 90,355 98,470 -- --
</TABLE>
At December 31, 1997, scheduled maturities of long-term debt and capital leases
during each of the next five years are as follows (in thousands):
<TABLE>
<CAPTION>
Long-term Capital
Debt Leases
--------- -------
<S> <C> <C>
1998 $ 29,800 $ 5,411
1999 40,425 3,667
2000 53,624 591
2001 395,291 42
2002 583,113 -
-------
9,711
Less interest (898)
-------
Present value of minimum
lease payments 8,813
=======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - Minimum rental commitments as of December 31, 1997, for all
noncancelable operating leases, consisting principally of leases for cell and
switch sites and office space, for the next five years, are as follows (in
thousands):
<TABLE>
<S> <C>
1998 $ 135,124
1999 131,279
2000 104,658
2001 63,379
2002 21,254
</TABLE>
IV-38
<PAGE> 41
Gross rental expense for cell and switch sites aggregated approximately $92.1
million and $13.1 million for the years ended December 31, 1997 and 1996,
respectively. Gross rental expense for office space approximated $33.2 million,
$11.4 million, and $0.7 million for the years ended December 31, 1997, 1996, and
1995, respectively. Certain cell and switch site leases contain renewal options
(generally for terms of 5 years) that may be exercised from time to time and are
excluded from the above amounts.
PROCUREMENT CONTRACTS - On January 31, 1996, the Company entered into
procurement and services contracts with AT&T Corp. (subsequently assigned to
Lucent ) and Nortel for the engineering and construction of a PCS network. Each
contract provides for an initial term of ten years with renewals for additional
one-year periods. The Vendors must achieve substantial completion of the PCS
network within an established time frame and in accordance with criteria
specified in the procurement contracts. Pricing for the initial equipment,
software and engineering services has been established in the procurement
contracts. The procurement contracts provide for payment terms based on delivery
dates, substantial completion dates, and final acceptance dates. In the event of
delay in the completion of the PCS network, the procurement contracts provide
for certain amounts to be paid to the Company by the Vendors. The minimum
commitments for the initial term are $0.8 billion and $1.0 billion from Lucent
and Nortel, respectively, which include, but are not limited to, all equipment
required for the establishment and installation of the PCS network.
HANDSET PURCHASE AGREEMENTS - In June, 1996, the Company entered into a
three-year purchase and supply agreement with a vendor for the purchase of
handsets and other equipment totaling approximately $500 million. During 1997
and 1996, the Company purchased $332.7 million and $85 million under the
agreement, respectively. The total purchase commitment must be satisfied by
April 30, 1998.
In September, 1996, the Company entered into another three-year purchase and
supply agreement with a second vendor for the purchase of handsets and other
equipment totaling more than $600 million, with purchases that commenced in
April, 1997. During 1997, the Company purchased $147.6 million under the
agreement. The total purchase commitment must be satisfied by April 2000.
SERVICE AGREEMENTS - The Company has entered into an agreement with a vendor to
provide PCS call record and retention services. Monthly rates per subscriber are
variable based on overall subscriber volume. If subscriber fees are less than
specified annual minimum charges, the Company will be obligated to pay the
difference between the amounts paid for processing fees and the annual minimum.
Annual minimums range from $20 million to $60 million through 2001. The
agreement extends through December 31, 2001, with two automatic, two-year
renewal periods, unless terminated by the Company. The Company may terminate the
agreement prior to the expiration date, but would be subject to specified
termination penalties.
The Company has also entered into an agreement with a vendor to provide prepaid
calling services. Monthly rates per minute of use are based on overall call
volume. If the average minutes of use are less than monthly specified minimums,
the Company is obligated to pay the difference between the average minutes used
at the applicable rates and the monthly minimum. Monthly minimums range from
$40,000 to $50,000 during the initial term. Certain installation and setup fees
for processing and database centers are also included in the agreement and are
dependent upon a need for such centers. The agreement extends through July 1999,
with successive one-year term renewals, unless terminated by the Company. The
Company may terminate the agreement prior to the expiration date, but would be
subject to specified termination penalties.
IV-39
<PAGE> 42
In January 1997, the Company entered into a four and one-half year contract for
consulting services. Under the terms of the agreement, consulting services will
be provided at specified hourly rates for a minimum number of hours. The total
commitment is approximately $125 million over the term of the agreement.
LITIGATION - The Company is involved in various legal proceedings incidental to
the conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the outcome
of such proceedings, individually and in the aggregate, will not have a material
adverse effect on the Company's financial condition or results of operations.
7. EMPLOYEE BENEFITS
Employees performing services for the Company were employed by Sprint through
December 31, 1995. Amounts paid to Sprint relating to pension expense and
employer contributions to the Sprint Corporation 401(k) plan for these employees
approximated $0.3 million in 1995.
The Company maintains short-term and long-term incentive plans. All salaried
employees of Sprint Spectrum L.P. are eligible for the short-term incentive plan
commencing at date of hire. Employees of APC are covered by the APC plans.
Short-term incentive compensation is based on incentive targets established for
each position based on the Company's overall compensation strategy. Targets
contain both an objective Company component and a personal objective component.
Charges to operations for the short-term plan approximated $20.0 million, $12.3
million, and $3.5 million for the years ended December 31, 1997, 1996, and 1995,
respectively.
LONG-TERM COMPENSATION OBLIGATION - The Company has two long-term incentive
plans, the 1996 Plan and the 1997 Plan. Employees meeting certain eligibility
requirements are considered to be participants in each plan. Participants in the
1996 Plan will receive 100% of the pre-established targets for the period from
July 1, 1995 to June 30, 1996 (the "Introductory Term"). Participants in the
1996 Plan elected either a payout of the amount due or converted 50% or 100% of
the award to appreciation units. Unless converted to appreciation units, payment
for the Introductory Term of the 1996 Plan will be made in the third quarter of
1998. Under the 1996 plan, appreciation units vest 25% per year commencing on
the second anniversary of the date of grant and expire after a term of ten
years. The 1997 Plan appreciation units vest 25% per year commencing on the
first anniversary of the date of the grant and also expire after ten years. For
the years ended December 31, 1997, 1996, and 1995, $18.1 million, $9.5 million,
and $1.9 million, respectively, has been expensed under both plans. At December
31, 1997 a total of approximately 103 million units have been authorized for
grant for both plans. The Company has applied APB Opinion No. 25, "Accounting
for Stock Issued to Employees" for 1997 and 1996. No significant difference
would have resulted if SFAS No. 123, "Accounting for Stock-Based Compensation"
had been applied.
SAVINGS PLAN - Effective January, 1996, the Company established a savings and
retirement program (the "Savings Plan") for certain employees, which qualifies
under Section 401(k) of the Internal Revenue Code. Most permanent full-time, and
certain part-time, employees are eligible to become participants in the plan
after one year of service or upon reaching age 35, whichever occurs first.
Participants make contributions to a basic before tax account and supplemental
before tax account. The maximum contribution for any participant for any year is
16% of such participant's compensation. For each eligible employee who elects to
participate in the Savings Plan and makes a contribution to the basic before tax
account, the Company makes a matching contribution. The matching contributions
equal 50%
IV-40
<PAGE> 43
of the amount of the basic before tax contribution of each participant up to the
first 6% that the employee elects to contribute. Contributions to the Savings
Plan are invested, at the participant's discretion, in several designated
investment funds. Distributions from the Savings Plan generally will be made
only upon retirement or other termination of employment, unless deferred by the
participant. Expense under the Savings Plan approximated $4.9 million and $1.1
million in 1997 and 1996, respectively.
APC also has an employee savings plan that qualifies under Section 401(k) of the
Internal Revenue code. All APC employees completing one year of service are
eligible and may contribute up to 15% of their pretax earnings. APC matches 100%
of the first 3% of the employee's contribution. Employees are immediately fully
vested in APC's contributions. In addition, APC makes discretionary
contributions on behalf of eligible participants in the amount of 2% of
employee's compensation. Expenses relating to the employee savings plan have not
been significant since the date of acquisition.
PROFIT SHARING (RETIREMENT) PLAN - Effective January, 1996, the Company
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts of
the Company's retirement plan. Vesting occurs once a participant completes five
years of service. For the years ended December 31, 1997 and 1996, expense under
the profit sharing plan approximated $2.5 million and $0.7 million,
respectively.
DEFERRED COMPENSATION PLAN FOR EXECUTIVES - Effective January, 1997, the Company
established a non-qualified deferred compensation plan which permits certain
eligible executives to defer a portion of their compensation. The plan allows
the participants to defer up to 80% of their base salary and up to 100% of their
annual short-term incentive compensation. The deferred amounts earn interest at
the prime rate. Payments will be made to participants upon retirement,
disability, death or the expiration of the deferral election under the payment
method selected by the participant.
8. RELATED PARTY TRANSACTIONS
BUSINESS SERVICES - The Company reimburses Sprint for certain accounting and
data processing services, for participation in certain advertising contracts,
for certain cash payments made by Sprint on behalf of the Company and other
management services. The Company is allocated the costs of such services based
on direct usage.
Allocated expenses of approximately $10.5 million, $11.9 million, and
$2.6 million are included in selling, general and administrative expense in the
consolidated statements of operations for 1997, 1996, and 1995, respectively. In
addition to the miscellaneous services agreement described above, the Company
has entered into agreements with Sprint for invoicing services, operator
services, and switching equipment. The Company is also using Sprint as its
interexchange carrier, with the agreement for such services covered under the
Holdings partnership agreement. Charges are based on the volume of services
provided, and are similar to those that would be incurred with an unrelated
third-party vendor.
APC - The Company entered into an affiliation agreement with APC in January 1995
which provides for the reimbursement of certain allocable costs and payment of
affiliation fees. For the year ended December 31, 1997, the reimbursement of
allocable costs of approximately $14.0 million is included in selling, general
and administrative expenses. There were no reimbursements recognized in 1996 or
1995. Additionally, affiliation fees are recognized based on a percentage of
APC's net revenues. During the year ended December 31, 1997, affiliation fees of
$4.2 million are included in other income.
IV-41
<PAGE> 44
COX PCS - Concurrent with the execution of the partnership agreement, the
Company entered into an affiliation agreement with Cox PCS which provides for
the reimbursement of certain allocable costs and payment of affiliate fees. For
the years ended December 31, 1997 and 1996, allocable costs of approximately
$20.0 million and $7.3 million, respectively, are netted against selling,
general and administrative expenses in the accompanying consolidated statements
of operations. Of these total allocated costs, approximately $1.6 million and
$7.3 million were included in receivables from affiliates in the consolidated
balance sheets. In addition, the Company purchases certain equipment, such as
handsets, on behalf of Cox PCS. Receivables from affiliates for handsets and
related equipment were approximately $31.2 million and $6 million at December
31, 1997 and 1996, respectively.
PHILLIECO, L.P. - The Company provides various services to PhillieCo, L.P.
("PhillieCo"), a limited partnership organized by and among subsidiaries of
Sprint, TCI and Cox. PhillieCo owns a PCS license for the Philadelphia MTA.
During the year ended December 31, 1997, costs for services incurred during 1996
and 1997 of $36.3 million were allocated to PhillieCo. and are included as a
reduction of selling, general and administrative expenses in the accompanying
consolidated statements of operations. Additionally, affiliation fees are
recognized based on a percentage of PhillieCo's net revenues. During the year
ended December 31, 1997, affiliation fees of $0.3 million are included in other
income in the accompanying consolidated statements of operations. The allocated
costs and affiliate fees of $36.6 million are included in receivable from
affiliates at December 31, 1997 and were paid during January 1998.
There were no such costs at December 31, 1996.
IV-42
<PAGE> 45
SPRINTCOM, INC. - The Company provides services to SprintCom, Inc.
("SprintCom"), an affiliate of Sprint. The Company is currently building out the
network infrastructure in certain BTA markets where SprintCom was awarded
licenses. Such services include engineering, management, purchasing, accounting
and other related services. For the year ended December 31, 1997, costs for
services provided of $29.1 million were allocated to SprintCom, and are included
as a reduction of selling, general and administrative expenses in the
accompanying consolidated statements of operations. Of the total allocated
costs, approximately $14.0 million are included in receivables from affiliates
at December 31, 1997. No such costs were incurred in 1996.
PAGING SERVICES - In 1996, the Company commenced paging services pursuant to
agreements with Paging Network Equipment Company and Sprint Communications
Company L.P. ("Sprint Communications"). For the years ended December 31, 1997
and 1996, Sprint Communications received agency fees of approximately $10.6
million and $4.9 million, respectively.
ADVANCES FROM PARTNERS - In December 1996, the Partners advanced approximately
$168 million to the Company, which was contributed to Cox PCS (Note 4). The
advances were repaid in February 1997.
IV-43
<PAGE> 46
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 First Second Third Fourth
---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Operating revenues ........... $ 9,467 $ 25,386 $ 72,534 $141,220
Operating expenses ........... 200,281 303,098 455,236 600,726
Net loss ..................... 188,884 287,664 420,914 665,925
1996
----
Operating revenues ........... $ -- $ -- $ -- $ 4,175
Operating expenses ........... 30,978 46,897 87,135 195,038
Net loss ..................... 67,425 90,770 101,497 183,402
</TABLE>
10. SUBSEQUENT EVENTS
Subsequent to December 31, 1997, the Company reorganized operations under which
certain field offices will be consolidated. Costs associated with this
reorganization are expected to be recorded in the first quarter of 1998 and will
consist primarily of severance pay, write-off of certain leasehold improvements
and termination payments under lease agreements.
IV-44
<PAGE> 47
Independent Auditors' Report
To the Board of Directors and Shareholders of
Telewest Communications plc
We have audited the accompanying consolidated balance sheet of Telewest
Communications plc and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations and cash flows for each of the
years in the three year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Telewest
Communications plc and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1996, in conformity with generally
accepted accounting principles in the United States of America.
KPMG Audit Plc
Chartered Accountants
Registered Auditors
March 19, 1998
London, England
IV-45
<PAGE> 48
Telewest Communications - US GAAP
Consolidated statements of operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1997 1996 1995
$'000 L. '000 L. '000 L. '000
(NOTE 2)
<S> <C> <C> <C> <C>
REVENUE
Cable television 262,698 159,918 121,224 64,740
Telephony - residential 273,748 166,645 125,013 57,597
Telephony - business 72,085 43,882 34,562 17,449
Other (L. 3,573, L. 1,600 and L. 1,451 in 1997, 1996 and 1995,
respectively, from related parties) 26,370 16,053 9,467 4,998
-------- -------- -------- --------
634,901 386,498 290,266 144,784
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Programming (153,496) (93,441) (69,906) (32,194)
Telephony (82,373) (50,145) (52,572) (29,526)
Selling, general, and administrative (including L. 1,170, L. 2,560
and L. 3,257 in 1997, 1996 and 1995, respectively, to related
parties) (317,591) (193,335) (167,323) (105,388)
Depreciation (291,318) (177,341) (129,716) (60,019)
Amortization of goodwill (43,359) (26,395) (26,149) (7,854)
-------- -------- -------- --------
(888,137) (540,657) (445,666) (234,981)
-------- -------- -------- --------
OPERATING LOSS (253,236) (154,159) (155,400) (90,197)
OTHER INCOME/(EXPENSE):
Interest income (including L. 3,178, L. 1,723 and L. 1,583 in 1997,
1996 and 1995, respectively, from related parties) 13,074 7,959 16,651 15,645
Interest expense (232,805) (141,721) (105,172) (26,649)
Loss on disposal of interest rate swaps -- -- -- (8,609)
Foreign exchange losses, net (38,676) (23,544) (2,838) (14,575)
Share of net losses of affiliates (35,640) (21,696) (15,973) (12,777)
Gain/(loss) on disposal of assets 1,871 1,139 571 (419)
Minority interests in profits of consolidated subsidiaries, net (482) (293) (180) (16)
Other, net -- -- -- 82
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (545,894) (332,315) (262,341) (137,515)
Income tax expense (note 14) (225) (137) (50) (16)
-------- -------- -------- --------
NET LOSS (546,119) (332,452) (262,391) (137,531)
-------- -------- -------- --------
</TABLE>
IV-46
<PAGE> 49
Telewest Communications - US GAAP
Consolidated statements of operations (continued)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1997 1996 1995
$* L. * L. * L. *
(EXCEPT NUMBER (except number
OF SHARES) of shares)
<S> <C> <C> <C> <C>
BASIC AND DILUTED LOSS PER ORDINARY SHARE
Weighted average number of ordinary shares
outstanding 927,567,600 927,567,600 925,425,473 861,424,848
BASIC AND DILUTED LOSS PER ORDINARY SHARE (0.59) (0.36) (0.28) (0.16)
</TABLE>
See accompanying notes to the consolidated financial statements
* EXCEPT NUMBER OF SHARES
IV-47
<PAGE> 50
Telewest Communications - US GAAP
Consolidated balance sheets
<TABLE>
<CAPTION>
DECEMBER 31
1997 1997 1996
$'000 L. '000 L. '000
ASSETS (note 2)
<S> <C> <C> <C>
Cash and cash equivalents 48,595 29,582 79,116
Trade receivables (net of allowance for doubtful accounts of
L. 6,507 and L. 5,405) 60,167 36,627 29,305
Other receivables (note 7) 43,050 26,207 32,394
Prepaid expenses 12,526 7,625 5,168
Investment in affiliates, accounted for under the equity method,
and related receivables (note 8) 98,081 59,707 69,420
Other investments, at cost 42,162 25,666 25,666
Property and equipment (less accumulated depreciation of
L. 481,451 and L. 308,240) (note 9) 2,801,658 1,705,520 1,447,194
Goodwill (less accumulated amortization of L. 64,301 and L. 37,907 ) 765,342 465,905 491,290
Other assets (less accumulated amortization of L. 10,140 and L. 4,162)
(note 11) 92,833 56,513 62,387
---------- ---------- ----------
TOTAL ASSETS 3,964,414 2,413,352 2,241,940
---------- ---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable 43,877 26,710 46,855
Other liabilities (note 12) 326,345 198,664 190,200
Debt (note 13) 2,255,516 1,373,054 879,351
Capital lease obligations (note 17) 124,080 75,534 54,390
---------- ---------- ----------
TOTAL LIABILITIES 2,749,818 1,673,962 1,170,796
---------- ---------- ----------
MINORITY INTERESTS 1,051 640 347
---------- ---------- ----------
SHAREHOLDERS' EQUITY (note 15)
Convertible preference shares, 10p par value; 661,000,000 shares
authorized and 496,066,708 shares issued and outstanding 81,489 49,607 49,607
Ordinary shares, 10p par value; 2,010,000,000 shares authorized;
927,567,600 issued and outstanding in 1997 and 1996 152,372 92,757 92,757
Additional paid-in capital 2,189,533 1,332,887 1,332,887
Accumulated deficit (1,206,661) (734,560) (402,108)
---------- ---------- ----------
1,216,733 740,691 1,073,143
Ordinary shares held in trust for the Telewest Restricted Share
Scheme (note 16) (3,188) (1,941) (2,346)
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY 1,213,545 738,750 1,070,797
---------- ---------- ----------
Commitments and contingencies (note 17)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,964,414 2,413,352 2,241,940
---------- ---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements
IV-48
<PAGE> 51
Telewest Communications - US GAAP
Consolidated statements of cash flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1997 1996 1995
$'000 L. '000 L. '000 L. '000
(NOTE 2)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (546,119) (332,452) (262,391) (137,531)
Adjustments to reconcile Net loss to net
cash provided by / (used in) operating
activities:
Depreciation 291,318 177,341 129,716 60,019
Amortization of goodwill 43,359 26,395 26,149 7,854
Amortization of deferred financing costs and issue discount
on senior discount debentures 127,280 77,482 74,104 16,605
Accrued interest on senior debentures -- -- -- 5,451
Unrealized loss on foreign currency translation 38,676 23,544 2,838 14,575
Loss on disposal of interest rate swaps -- -- -- 8,609
Share of net losses of affiliates 35,640 21,696 15,973 12,777
(Gain)/loss on disposals of assets (1,871) (1,139) (571) 419
Minority interests in profits of consolidated subsidiaries 482 293 180 16
Changes in operating assets and liabilities, net of effect of
acquisition of subsidiaries:
Change in receivables (7,011) (4,268) (15,908) (5,282)
Change in prepaid expenses (4,036) (2,457) 953 (3,367)
Change in accounts payable (11,648) (7,091) (4,575) (5,603)
Change in other liabilities 38,825 23,635 51,668 19,206
Other -- -- -- (356)
-------- -------- -------- --------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 4,895 2,979 18,136 (6,608)
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (714,635) (435,037) (464,367) (254,453)
Cash paid for acquisition of subsidiaries (999) (608) (14,167) (3,232)
Additional investments in and loans to affiliates (14,825) (9,025) (2,728) (9,143)
Additions to other investments -- -- (5,000) --
Proceeds from disposals of assets 9,962 6,066 3,059 688
Other investing activities -- -- -- 335
-------- -------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (720,497) (438,604) (483,203) (265,805)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for credit facility arrangement costs -- -- (18,400) --
Proceeds from debenture issue -- -- -- 754,812
Cash paid for foreign currency option -- -- -- (88,070)
Repayment of borrowings (3,901) (2,375) (937) (157,930)
Cash paid for debenture issue costs -- -- (829) (20,574)
Cash paid for share issue costs -- -- -- (6,141)
Proceeds from borrowings 644,760 392,500 100,400 --
Capital element of finance lease repayments (6,523) (3,971) (1,231) (1,291)
-------- -------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 634,336 386,154 79,003 480,806
-------- -------- -------- --------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (81,266) (49,471) (386,064) 208,393
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (103) (63) 362 8,423
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 129,964 79,116 464,818 248,002
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR 48,595 29,582 79,116 464,818
-------- -------- -------- --------
</TABLE>
See accompanying notes to the consolidated financial statements
IV-49
<PAGE> 52
Telewest Communications - US GAAP
Consolidated statement of shareholders' equity
<TABLE>
<CAPTION>
Convertible Shares Additional Accumulated
preference Ordinary held Paid-in deficit
shares shares in trust Capital Total
L. '000 L. '000 L. '000 L. '000 L. '000 L. 'OOO
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 15,300 84,824 (7,280) 686,276 (2,186) 776,934
Conversion of ordinary shares into
convertible preference shares (see note 15) 11,227 (11,227) -- -- -- --
Shares issued in connection with the
acquisition of TCMN (see notes 5 and 15) 23,080 18,399 -- 636,695 -- 678,174
Accrued employee compensation
relating to the Telewest Restricted Share Scheme -- -- 5,171 -- -- 5,171
Net Loss -- -- -- -- (137,531) (137,531)
BALANCE AT DECEMBER 31, 1995 49,607 91,996 (2,109) 1,322,971 (139,717) 1,322,748
Ordinary shares issued -- 761 -- 9,916 -- 10,677
Accrued employee compensation
relating to the Telewest Restricted Share Scheme -- -- (237) -- -- (237)
Net loss -- -- -- -- (262,391) (262,391)
BALANCE AT DECEMBER 31, 1996 49,607 92,757 (2,346) 1,332,887 (402,108) 1,070,797
Accrued employee compensation
relating to the Telewest Restricted Share Scheme -- -- 405 -- -- 405
Net loss -- -- -- -- (332,452) (332,452)
---------- ---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1997 49,607 92,757 (1,941) 1,332,887 (734,560) 738,750
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
IV-50
<PAGE> 53
Telewest Communications - US GAAP
Notes to the consolidated financial statements
Years ended December 31, 1997 and 1996
1) ORGANIZATION AND HISTORY
Telewest Communications plc ("the Company") is a cable television and
telephony operator which offers these services to business and
residential customers in the United Kingdom ("UK"). The Company derives
its cable television revenues from installation fees, monthly basic and
premium service fees and advertising charges. The Company derives its
telephony revenues from connection charges, monthly line rentals, call
charges, special residential service charges and interconnection fees
payable by other operators. The cable television and telephony services
account for approximately 41% and 54%, respectively, of the Company's
revenue. This revenue is predominantly derived from residential, rather
than business, customers.
The Company was incorporated on October 20, 1994 under the laws of
England and Wales in preparation for the October 2,1995 internal
reorganization of Telewest Communications Cable Limited ("TCCL"), then
called Telewest Communications plc, and its subsidiaries whereby the
entire issued share capital of TCCL was transferred to the Company in
exchange for fully paid up shares of the Company. TCCL had traded since
November 22, 1994 when affiliates of Tele-Communications, Inc. (the "TCI
Affiliates") and affiliates of US WEST (the "US WEST Affiliates")
contributed their UK cable interests to TCCL (the "Contribution"). These
interests were previously held by the TCI Affiliates and US WEST
Affiliates through TCI/US Cable Communications Group, a general
partnership. TCI/US WEST Cable Communications Group and its subsidiaries
collectively are referred to herein as the "Joint Venture" and the TCI
Affiliates and US WEST Affiliates collectively are referred to herein as
the "Joint Venturers".
2) BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States of
America ("US GAAP"). The preparation of financial statements in
conformity with US GAAP 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
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The economic environment and currency in which the Company operates is
the UK and hence its reporting currency is Pounds Sterling (L.).
Certain financial information for the year ended December 31, 1997 has
also been translated into US Dollars, with such US Dollar amounts being
unaudited and presented solely for the convenience of the reader, at the
rate of $1.6427 = L. 1.00, the Noon Buying Rate of the Federal
Reserve Bank of New York on December 31, 1997. The presentation of the
US Dollar amounts should not be construed as a representation that the
Pounds Sterling amounts could be so converted into US Dollars at the
rate indicated or at any other rate.
IV-51
<PAGE> 54
Telewest Communications - US GAAP
Notes to consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and those of all majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated upon
consolidation.
All acquisitions have been accounted for under the purchase method of
accounting. Under this method, the results of subsidiaries and
affiliates acquired in the year are included in the consolidated
statement of operations from the date of acquisition.
Impairment of Long-Lived Assets. Effective January 1, 1996, the company
adopted Statement of Financial Accounting Standards No. 121 (FAS 121),
"Accounting for Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of." FAS 121 requires that long-lived assets and certain
identifiable intangibles, including goodwill, to be held and used by an
entity, to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Upon adoption of this standard, the company evaluated its
long-lived assets using projected undiscounted future cash flows and
operating income for each subsidiary and determined that no material
impairment of these assets existed at January 1, 1996, and, accordingly,
no loss was recognized. The company believes that no material impairment
existed at December 31, 1997.
Goodwill arising on consolidation (representing the excess of the fair
value of the consideration given over the fair value of the identifiable
net assets acquired) is amortized over the acquisition's useful life or
over a maximum period of 40 years. The Company assesses the
recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through projected undiscounted future operating cash flows of
the acquired operations. The assessment of the recoverability of
goodwill will be impacted if projected future operating cashflows are
not achieved. The amount of goodwill impairment, if any, is measured
based on the projected discounted future operating cashflows using a
discount rate reflecting the Company's cost of funds.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly-liquid investments with
original maturities of three months or less that are readily convertible
into cash.
IV-52
<PAGE> 55
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
FINANCIAL INSTRUMENTS
The Company uses foreign currency option contracts which permit, but do
not require, the Company to exchange foreign currencies at a future date
with another party at a contracted exchange rate. The Company also
enters into combined foreign currency and interest rate swap contracts
("Foreign Currency Swaps"). Such contracts are used to hedge against
adverse changes in foreign currency exchange rates associated with
obligations denominated in foreign currency. The foreign currency option
and Foreign Currency Swaps are recorded on the balance sheet in other
assets or other liabilities at their fair value at the reporting period
with changes in their fair value during the reporting period being
reported as part of the foreign exchange gain or loss in the
consolidated statement of operations. Such gains and losses are offset
against foreign exchange gains and losses on the obligations denominated
in foreign currencies which have been hedged.
Interest swap agreements which are used to manage interest rate risk on
the Company's borrowings are accounted for using the accruals method,
Net income or expense resulting from the differential between floating
and fixed rate interest payments is recorded on an accruals basis. To
the extent that the interest rate swap agreements are delaying starting,
net income or expense is not recognized until the effective date of the
agreement.
Other interest rate swaps which are held as trading assets are recorded
on the consolidated balance sheet at their fair value at the end of each
reporting period with changes in their fair value being recorded as
gains and losses in the consolidated statement of operations.
INVESTMENTS
Investments in partnerships, joint ventures and subsidiaries in which
the Company's voting interest is 20% to 50%, and others where the
Company has significant influence, are accounted for using the equity
method. Investments which do not have a readily determinable fair value,
in which the Company's voting interest is less than 20%, and in which
the Company does not have significant influence, are carried at cost and
written down to the extent that there has been an other-than-temporary
diminution in value.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The amount of advertising
costs expensed was L. 25,920,000, L. 24,846,000, and L. 10,246,000 for
the years ended 31 December 1997, 1996, and 1995, respectively.
IV-53
<PAGE> 56
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including the historical
carryover basis cost from the Contribution. Except during the
pre-maturity period as described below, depreciation is provided to
write off the cost, less estimated residual value, of property and
equipment by equal installments over their estimated useful economic
lives as follows:
<TABLE>
<S> <C>
Freehold and long leasehold buildings 50 years
Cable and ducting 20 years
Electronic equipment
- Systems electronics 8 years
- Switching equipment 8 years
- Subscriber electronics 5 years
- Headend, studio, and playback facilities 5 years
Other equipment
- Office furniture and fittings 5 years
- Motor vehicles 4 years
</TABLE>
During the pre-maturity period, depreciation of cable and ducting and
system electronics is charged monthly to write off the estimated cost at
the end of the pre-maturity phase over a useful life of 20 and 8 years,
respectively. In accordance with Statement of Financial Accounting
Standard ("SFAS") No 51, "Financial Reporting by Cable Television
Companies", the monthly charge is scaled down by a ratio of average
customers in the current period to the estimated customer base at the
end of the pre-maturity period. The pre-maturity period covers the
period between connecting the first customer and substantial completion
of the network.
Pre-construction costs which are included within cable and ducting are
amortized over the life of the franchise from the date of the first
customer.
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable systems under SFAS No 51.
The estimated useful lives of cable and ducting and systems electronics
were reassessed with effect from January 1, 1996, and were changed from
25-30 years and 10 years to 20 years and 8 years,
IV-54
<PAGE> 57
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
respectively. The net book value of these assets are being written off
over their revised estimated remaining lives.
In 1997, the treatment of activation costs was reviewed. With effect
from 1 January 1997, activation labour was reclassified from cable and
ducting to electronics to be consistent with the classification of
activation materials. The assets are now depreciated over 8 years rather
than 20 years.
FRANCHISE COSTS
Expenditure incurred on successful applications for franchise licences
is included in property and equipment and is amortized over the
remaining life of the original franchise term. Costs relating to
unsuccessful applications are charged to the consolidated statement of
operations.
DEFERRED FINANCING COSTS
Costs incurred in raising debt are deferred and recorded on the
consolidated balance sheet in other assets. The costs are amortized to
the consolidated statement of operations at a constant rate to the
carrying value of the debt over the life of the obligation.
MINORITY INTERESTS
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests'
allocable portion of the equity of those consolidated subsidiaries.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of
exchange in effect at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated using the
rate of exchange ruling at the balance sheet date and the gains or
losses on translation are included in the consolidated statement of
operations.
REVENUE RECOGNITION
Revenue is recognized as services are delivered. Other revenues include
connection fees which are recognized in the period of connection to the
extent that the fee is offset by direct selling costs. The remainder is
recognized over the estimated average period that customers are expected
to remain connected to the system.
PENSION COSTS
The Company operates a defined contribution scheme or contributes up to
specified limits to third-party schemes on behalf of the employees. The
amount included in losses in 1997, 1996 and 1995 of L. 2,801,000, L.
2,580,000, and L. 1,538,000, respectively, represents the contributions
payable to the selected schemes in respect of the relevant accounting
periods.
IV-55
<PAGE> 58
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
Under the asset and liability method of SFAS No 109, deferred tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered.
SHARE-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but
does not require, companies to record compensation cost for share-based
employee compensation plans at fair value. The Company has chosen to
continue to account for share-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for share options is measured as the
excess, if any, of the quoted market price of the Company's share at the
date of the grant over an employee must pay to acquire the shares.
Share purchased by the trustees in connection with the Telewest
Restricted Share Scheme, are valued at the market price on the date on
which they are purchased and are reflected as a reduction of
shareholders' equity in the consolidated balance sheet. This equity
account is reduced when the shares are awarded to employees based on the
original cost of the shares to the trustees. The value of awards of
ordinary shares to be made to employees in future years is charged to
the consolidated statement of operations to the extent that the awards
have been awarded to and earned by employees in the current accounting
period. The value of shares which have been awarded to, but have not
been earned by employees is included as deferred compensation expense
within other assets.
NEW ACCOUNTING STANDARDS APPLICABLE TO THE COMPANY
EARNINGS PER SHARE AND CAPITAL STRUCTURE
The Company adopted the provisions of SFAS No. 128, "Earnings per
Share." This Statement required that all prior-period earnings per
share calculations be restated to conform with the provisions of this
statement. Basic earnings per share has been computed by dividing net
income available to ordinary shareholders by the weighted average number
of ordinary shares outstanding during the period. Diluted earnings per
share is computed by adjusting the weighted average number of ordinary
shares outstanding during the period for all dilutive potential ordinary
shares outstanding during the period and adjusting the net loss for any
changes in income or loss that would result from the conversion of such
potential ordinary shares. There is no difference in net income and
number of shares used for basic and diluted net income per ordinary
share, as potential ordinary share equivalents are not included in the
computation as their effect would be to decrease the loss per share.
IV-56
<PAGE> 59
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier periods
for comparative purposes is required. It requires that all items that
are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. It
requires that an enterprise (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section
of the statement of financial position. The Company is currently
reviewing the likely impact on the classification of items included in
the shareholders' equity.
SEGMENT INFORMATION
In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information," which is effective for fiscal
years beginning after December 15, 1997. In the initial year of
application comparative information for earlier years is to be restated.
It requires that companies disclose segment data based on how management
makes decisions about allocating resources to segments and measuring
their performance. It also requires entity-wide disclosures about the
products and services an entity provides, the material countries in
which it holds assets and reports revenues, and its major customers. The
Company is currently reviewing the likely impact on the level of
disclosure currently provided in its financial statements.
PENSIONS AND OTHER POST-RETIREMENT BENEFITS
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 "Employers'
Disclosure about Pensions and other Post-retirement Benefits" (SFAS No.
132" ). SFAS No. 132 revises disclosure requirements about employers'
pension and other post-retirement benefit plans. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The
company has not determined the impact that SFAS No. 132 will have on its
pension and other post-retirement benefit disclosures.
IV-57
<PAGE> 60
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(4) FINANCIAL INSTRUMENTS
FOREIGN CURRENCY OPTION CONTRACT
At December 31, 1997, the Company held a Pounds Sterling put option to
purchase US$1,537,000,000 to hedge its exposure to adverse fluctuations
in exchange rates on the principal amount at maturity of its US
Dollar-denominated Senior Discount Debentures due 2007 ("Senior Discount
Debentures"). The expiration date of this option contract is September
28, 2000. The put option has a strike price at expiration of L. 1.00 =
US$1.4520. The foreign currency option has been included in other assets
at its fair value on December 31, 1997.
FOREIGN CURRENCY SWAP
The Company has entered into a Foreign Currency Swap to hedge its
exposure to adverse fluctuations in exchange rates on the principal
amount of its US Dollar-denominated Senior Debentures due 2006 ("Senior
Debentures"). The terms of the contract provided for the Company to make
an initial exchange of principal of US$300,000,000 in exchange for
L. 196,078,000. On expiration on October 1, 2000, the initial principal
amounts will be re-exchanged. The interest element of the Foreign
Currency Swap requires the Company to make Pounds Sterling fixed-rate
interest payments and to receive US Dollar fixed-rate interest payments
on the initial exchange amounts on a semi annual basis. The foreign
currency swap contract has been included in other liabilities at its
fair value on December 31, 1997.
INTEREST RATE SWAPS
The Company has also entered into certain delayed-starting interest rate
swap agreements in order to manage interest rate risk on its senior
secured credit facility ("Senior Secured Facility"). The effective dates
of the swap agreements are January 2, 1997 and March 3, 1997, and the
agreements mature on December 31, 2001 and March 28, 2002. The aggregate
notional principal amount of the swaps adjusts upwards on a semi-annual
basis to a maximum of L. 750 million. In accordance with the swap
agreements, the Company receives interest at the six month LIBOR rate
and pays a fixed interest rate in the range of 7.835-7.975%.
IV-58
<PAGE> 61
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(4) FINANCIAL INSTRUMENTS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 119 "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments" requires disclosure of an estimate of
the fair values of certain financial instruments. SFAS No. 119 defines
the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties other than in a forced sale. Fair value estimates are made at a
specific point in time, based upon relevant market information and
information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgement, and therefore cannot be determined precisely.
Changes in assumptions could significantly affect the estimates.
At 31 December 1997, the Company's significant financial instruments
include cash and cash equivalents, trade receivables, a foreign currency
option contract, a Foreign Currency Swap, interest rate swap agreements,
trade payables and long-term borrowings. The following table summarizes
the fair value of the foreign currency option contract, the Foreign
Currency Swap, the interest rate swap agreement, the Senior Discount
Debentures and the Senior Debentures. The fair value of the other
financial instruments held by the Company approximates their recorded
carrying amount due to the short maturity of these instruments and these
instruments are not presented in the following table.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997 At December 31, 1996
CARRYING FAIR VALUE Carrying Fair value
AMOUNT amount
L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C>
Assets:
Foreign currency option
contract 26,145 26,145 25,828 25,828
Liabilities:
Interest rate swap agreements -- 25,543 -- 4,776
Foreign Currency Swap 18,039 18,039 26,481 26,481
Senior Discount Debentures 696,954 729,532 600,799 621,367
Senior Debentures 182,626 189,931 175,203 179,582
</TABLE>
IV-59
<PAGE> 62
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(4) FINANCIAL INSTRUMENTS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair value of the foreign currency option contract, the
interest rate swap agreements and the Foreign Currency Swap are based on
quotations received from independent, third party financial institutions
and represent the net amount receivable or payable to terminate the
position, taking into consideration market rates and counter-party
credit risk. The estimated fair values of the Senior Discount Debentures
and the Senior Debentures are also based on quotations from independent
third party financial institutions and are based on discounting the
future cash flows to net present values using appropriate market
interest rates prevailing at the year end.
MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
Market risk is the sensitivity of the value of the financial instruments
to changes in related currency and interest rates. Generally, the
Company is not exposed to such market risk because gains and losses on
the financial instruments are offset by gains and losses on the
underlying assets and liabilities.
The Company may be exposed to potential losses due to the credit risk of
non-performance by the counter-parties to its foreign currency option,
interest rate swap agreements and Foreign Currency Swap contract,
however such losses are not anticipated as these counter-parties are
major international financial institutions.
Temporary cash investments also potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105 "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risks." The Company
places its temporary cash investments with major international financial
institutions and limits the amount of credit exposure to any one
financial institution. Concentrations of credit risk with respect to
trade receivables are limited due to the large number of customers
comprising the Company's customer base.
At December 31, 1997, the Company had no significant concentration of
credit risk.
IV-60
<PAGE> 63
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(5) BUSINESS COMBINATIONS
On January 10, 1996, the Company acquired the entire issued share
capital of Telewest Communications (Worcester) Limited, then called Bell
Cablemedia (Worcester) Limited and owner of the Worcester cable
franchise for cash consideration of L. 9,849,000. Telewest
Communications (Worcester) Limited was otherwise a dormant company with
net assets of L. 2 representing its called up share capital. This
acquisition had been accounted for under the purchase method of
accounting. The goodwill arising on acquisition was L. 9,849,000 and
is being amortised on a straight-line basis over 20 years.
During 1996, the Company made various other minor acquisitions, largely
for share consideration. The goodwill arising on these acquisitions was
L. 11,708,000 and is being amortised on a straight-line basis over
20 years.
On October 3, 1995, the Company acquired the entire share capital of
Telewest Communications Midlands & North West) Limited ("TCMN"), then
called SBC CableComms (UK), a company which holds cable television and
telephony interests in the UK, from an affiliate of Cox Communications,
Inc. and affiliates of SBC Communications, Inc. in exchange for an
aggregate of 183,994,960 ordinary shares of 10 pence each and
230,790,208 convertible preference shares of 10 pence each. The value
attributable to the shares issued was L. 1.635 per share, being the
market price of the shares on June 8, 1995, the day the terms of the
acquisition were agreed to and announced. The fair value of the share
consideration using this share price was L. 678,174,000. The
aggregate cost of acquisition was L. 689,878,000 including the costs
of acquisition. This acquisition has been accounted for under the
purchase method of accounting. The goodwill arising on acquisition is
L. 464,872,000 and is being amortized on a straight-line basis over
20 years.
IV-61
<PAGE> 64
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(6) SUPPLEMENTAL DISCLOSURES TO THE CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest was L. 63,479,000, L. 25,795,000 and L. 6,041,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
Significant non-cash investing activities of the Company are described
below. The amounts stated for 1996 represent the purchase of former
minority shareholders' interests in certain UK cable interests held by
the Company. The amounts stated for 1995 represent the purchase of TCMN
for largely share consideration as described in Note 5 to the
consolidated financial statements.
<TABLE>
<CAPTION>
1997 1996 1995
L. '000 L. '000 L. '000
<S> <C> <C> <C>
Purchase/contribution of cable interests:
Assets -- -- 428,080
Liabilities assumed -- -- (45,144)
Debt assumed -- -- (157,930)
-------- -------- --------
Net assets acquired/contributed -- -- 225,006
Goodwill on acquisition -- 9,874 464,872
-------- -------- --------
-- 9,874 689,878
-------- -------- --------
Share consideration/capital contribution -- 9,869 678,174
Costs of acquisition -- 5 11,704
-------- -------- --------
-- 9,874 689,878
-------- -------- --------
</TABLE>
IV-62
<PAGE> 65
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(7) OTHER RECEIVABLES
<TABLE>
<CAPTION>
At December 31
1997 1996
L. '000 L. '000
<S> <C> <C>
Value Added Tax refund 4,567 10,633
Interconnection receivables 1,505 3,865
Interest receivable 807 63
Accrued income 8,290 4,356
Prepaid expenses 3,161 5,714
Other 7,877 7,763
------ ------
26,207 32,394
------ ------
</TABLE>
(8) INVESTMENTS
The Company has investments in affiliates accounted for under the equity
method at December 31, 1997 and 1996 as follows:
<TABLE>
<CAPTION>
Percentage ownership
At December 31,
1997 1996
<S> <C> <C>
Cable London plc 50.00% 50.00%
Birmingham Cable Corporation Limited 27.47% 27.47%
London Interconnect Limited 16.67% 16.67%
Central Cable Sales Limited 50.00% 50.00%
Front Row Television Limited 40.00% --
</TABLE>
The Company has accounted for its investment in London Interconnect
Limited under the equity method because it is in a position to exercise
a significant influence over London Interconnect Limited.
IV-63
<PAGE> 66
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
Summarized combined financial information for such affiliates which
operate principally in the cable television and telephony industries is
as follows:
COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
AT DECEMBER 31
1997 1996
L. '000 L. '000
<S> <C> <C>
Property and equipment, net 429,161 391,183
Intangible assets, net 4,859 3,845
Other assets, net 30,249 105,475
------- -------
TOTAL ASSETS 464,269 500,503
------- -------
Debt 293,492 281,500
Other liabilities 98,758 91,947
Owners' equity 72,019 127,056
------- -------
TOTAL LIABILITIES AND EQUITY 464,269 500,503
------- -------
</TABLE>
COMBINED OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
L. '000 L. '000
<S> <C> <C>
Revenue 120,468 98,329
Operating expenses (150,768) (124,358)
-------- --------
Operating loss (30,300) (26,029)
Interest expense (26,311) (15,945)
-------- --------
NET LOSS (56,611) (41,974)
-------- --------
</TABLE>
The Company's investments in affiliates are comprised as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
L. '000 L. '000
<S> <C> <C>
Loans 39,863 29,089
Share of net assets 19,844 40,331
------ ------
59,707 69,420
------ ------
</TABLE>
IV-64
<PAGE> 67
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
Any excess of the purchase cost over the value of the net assets
acquired is treated as goodwill and amortized over 20 years on a
straight-line basis.
(9) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
CABLE AND ELECTRONIC OTHER
LAND BUILDINGS DUCTING EQUIPMENT EQUIPMENT TOTAL
L. '000 L. '000 L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1997 4,223 45,956 1,101,961 489,835 113,459 1,755,434
Reclassification -- (62) (118,331) 117,954 439 --
Additions 11 8,683 280,814 101,204 49,882 440,594
Disposals -- -- (182) (556) (8,319) (9,057)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 4,234 54,577 1,264,262 708,437 155,461 2,186,971
---------- ---------- ---------- ---------- ---------- ----------
ACCUMULATED DEPRECIATION
Balance at January 1, 1997 -- 7,378 121,181 130,483 49,198 308,240
Reclassification -- -- (12,792) 12,792 -- --
Charge for year -- 3,824 59,324 88,502 25,691 177,341
Disposals -- -- (182) (229) (3,719) (4,130)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 -- 11,202 167,531 231,548 71,170 481,451
---------- ---------- ---------- ---------- ---------- ----------
1997 NET BOOK VALUE 4,234 43,375 1,096,731 476,889 84,291 1,705,520
---------- ---------- ---------- ---------- ---------- ----------
ACQUISITION COSTS
Balance at January 1, 1996 4,223 36,005 766,866 359,617 79,239 1,245,950
Additions -- 9,951 335,844 130,783 39,012 515,590
Disposals -- -- (749) (565) (4,792) (6,106)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 4,223 45,956 1,101,961 489,835 113,459 1,755,434
---------- ---------- ---------- ---------- ---------- ----------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996 -- 4,920 74,532 70,810 31,880 182,142
Charge for year -- 2,458 47,374 60,220 19,664 129,716
Disposals -- -- (725) (547) (2,346) (3,618)
---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 -- 7,378 121,181 130,483 49,198 308,240
---------- ---------- ---------- ---------- ---------- ----------
1996 NET BOOK VALUE 4,223 38,578 980,780 359,352 64,261 1,447,194
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
IV-65
<PAGE> 68
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
Cable and ducting consists principally of civil engineering and fibre optic
costs. In addition, cable and ducting includes net book value of
pre-construction and franchise costs of L. 9,807,000 and L. 13,220,000
as of December 31, 1997 and 1996, respectively. Electronic equipment includes
the Company's switching, headend and converter equipment. Other equipment
consists principally of motor vehicles, office furniture and fixtures, leasehold
improvements.
(10) VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS CHARGED
TO
BALANCE AT ACQUISITION OF COSTS AND BALANCE AT
JANUARY 1 TCMN EXPENSES DEDUCTIONS DECEMBER 31
L. '000 L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C> <C>
1997
Allowance for
doubtful accounts 5,405 -- 8,815 (7,713) 6,507
------ ------ ------ ------ ------
1996
Allowance for
doubtful accounts 4,695 -- 9,020 (8,310) 5,405
------ ------ ------ ------ ------
1995
Allowance for
doubtful accounts 1,736 1,063 5,920 (4,024) 4,695
------ ------ ------ ------ ------
</TABLE>
(11) OTHER ASSETS
The components of other assets, net of amortization, are as follows:
<TABLE>
<CAPTION>
At December 31
1997 1996
L. '000 L. '000
<S> <C> <C>
Deferred financing costs of debentures 13,770 17,510
Deferred financing costs of Senior Secured Facility 15,963 18,186
Foreign currency option contract 26,145 25,828
Other 635 863
------ ------
56,513 62,387
------ ------
</TABLE>
(12) OTHER LIABILITIES
Other liabilities are summarised as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31
1997 1996
L. '000 L. '000
<S> <C> <C>
Amounts due to affiliated or other related parties 61 1,901
Accrued interest 13,641 8,921
Accrued construction costs 30,235 36,397
Accrued expenses and deferred income 112,198 82,938
Foreign Currency Swap 18,039 26,481
Other liabilities 24,490 33,562
------- -------
198,664 190,200
</TABLE>
IV-66
<PAGE> 69
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(13) DEBT
Debt is summarized as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Weighted average 1997 1996
interest rate L. '000 L. '000
1997 1996
<S> <C> <C> <C> <C>
Senior Debentures 9.625% 9.625% 182,626 175,203
Senior Discount Debentures 11.000% 11.000% 696,954 600,799
Senior Secured Facility 9.071% 8.281% 492,500 100,000
Other debt 8.719% 7.790% 974 3,349
-------- --------
1,373,054 879,351
-------- --------
</TABLE>
SENIOR DEBENTURES
In October 1995, the Company issued US$300,000,000 principal amount of
Senior Debentures with a yield to maturity of 9.625%. The cash
consideration received at the date of issue was L. 188,703,000. The
Senior Debentures mature on October 1, 2006. Interest on the Senior
Debentures accrues semi annually and is payable in arrears. The Senior
Debentures are redeemable, in whole or in part, at the option of the
Company at any time on or after October 1, 2000 at the redemption price
of 104.813% of the principal amount during the year commencing October
1, 2000, 102.406% of the principal amount during the year commencing
October 1, 2001, and thereafter at 100% of the principal amount plus
accrued and unpaid interest.
The Senior Debentures and the Senior Discount Debentures, which are
described below, were issued to finance working capital, capital
expenditure, foreign currency swap and options to hedge against adverse
fluctuations in exchange rates, and additional investments in affiliated
companies. A portion of the net proceeds of the issue also was used to
repay the L. 157,930,000 indebtedness outstanding under the loan
facility held by TCMN at the date that it was acquired by the Company.
The indenture under which the Senior Debentures were issued contains
various covenants which among other things, restrict the ability of the
Company to incur additional indebtedness, pay dividends, create certain
liens, enter into certain transactions with shareholders or affiliates,
or sell certain assets. The Company was in compliance with the covenants
at December 31, 1997.
IV-67
<PAGE> 70
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(13) DEBT (CONTINUED)
The Company has entered into a Foreign Currency Swap to hedge its
exposure to adverse fluctuations in exchange rates on the principal
amount which will be outstanding on October 1, 2000, the earliest
redemption date, and the associated interest payments of the Senior
Debentures. The terms of the Foreign Currency Swap are described in Note
4 to the consolidated financial statements.
The Senior Debentures are unsecured liabilities of the Company.
SENIOR DISCOUNT DEBENTURES
In October 1995, the Company issued US$1,536,413,000 principal amount at
maturity of Senior Discount Debentures with a yield to maturity of 11%.
The cash consideration received at the date of issue was L. 566,109,000
(US$900,000,000). At December 31, 1997, the unamortized portion of the
discount on issue was L. 238,344,000 (US$391,528,000). The Senior
Discount Debentures mature on October 1, 2007. Interest on the Senior
Discount Debentures accrues semi annually. Cash interest will not accrue
on the Senior Discount Debentures prior to October 1, 2000 and is
thereafter payable in arrears on April 1 and October 1 of each year at a
rate of 11% per annum. The Senior Discount Debentures are redeemable, in
whole or in part, at the option of the Company at any time on or after
October 1, 2000 at the redemption price of 100% of the principal amount
plus accrued and unpaid interest.
The indenture under which the Senior Discount Debentures were issued
contains various covenants as set out for the Senior Debentures above
and the Company was in compliance with such covenants at December 31,
1997.
The Company has purchased a five year Pounds Sterling put option to
purchase US$1,537,000,000 to hedge its exposure to adverse fluctuations
in exchange rates on the principal amount which will be outstanding on
October 1, 2000, the earliest redemption date, of the Senior Discount
Debentures. The terms of the foreign currency option contract are
described in Note 4 to the consolidated financial statements.
The Senior Discount Debentures are unsecured liabilities of the Company.
SENIOR SECURED FACILITY
During 1996 a subsidiary of the Company entered into a senior secured
facility (the "Senior Secured Facility") with a syndicate of banks. The
facility is available to finance the capital expenditure, working
capital requirements and other permitted related activities involving
the construction and operation of all the Company's owned and operated
franchises, to pay cash interest on the Company's unsecured debentures,
to fund the repayment of existing secured borrowings in respect of the
London South and South West Regional Franchise Areas, to fund loans to
or investments in affiliated companies, to bid for or purchase, and
subsequently construct, licenses or franchises which may become
available and to refinance advances and the payment of interest, fees,
and expenses in respect of the Senior Secured Facility.
IV-68
<PAGE> 71
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
The facility is divided into two tranches: the first portion (Tranche A)
is available on a revolving basis for up to L. 300 million, reducing to
L. 100 million by June 30, 1998 with full repayment by December 31,
1998; the second portion (Tranche B) is available on a revolving basis
concurrently with Tranche A for an amount up to 6.5 times the trailing,
rolling six month annualised consolidated net operating cash flow,
gradually reducing throughout the period of the facility to 4 times by
January 1, 2000. Thereafter, the amount outstanding under the facility
converts to a term loan amortising over 5 years. The aggregate drawing
at any time under both tranches cannot exceed L. 1.2 billion. At
December 31, 1997 L. 125 million (1996:$100 million) was outstanding
under Tranche A, and L. 367.5 million under Tranche B (1996:$nil)
Borrowings under the facility are secured by the assets of the Company,
including the partnership interests and shares of subsidiaries, and bear
interest at 2.25% above LIBOR for Tranche A and between 0.5% and 1.875%
above LIBOR (depending on the ratio of borrowings to the trailing,
rolling six month annualized consolidated net operating cash flow) for
Tranche B.
(13) DEBT (CONTINUED)
Since 31 December 1997, this facility has been restructured with revised
financial covenants, a reduction in the amount available under the
facility from $1,200 million to $1,000 million, and a supplementary
L. 100 million revolving credit facility secured with a second fixed and
floating charge, and interest costs on the latter ranging from 3.5% -
5.5% above LIBOR
The Company's ability to borrow under the facility is subject to, among
other things, its compliance with the financial and other covenants and
borrowing conditions contained therein.
The Company was in compliance with the covenants at December 31,1997.
OTHER DEBT
Other debt is represented by property loans which are secured on
freehold land and buildings held by the Company which matures from 1998
onwards. The property loans bear interest at a rate of between 1.00% and
1.50% above LIBOR.
IV-69
<PAGE> 72
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(14) INCOME TAXES
Loss before income taxes is solely attributable to the UK:
The provisions for income taxes follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
L. '000 L. '000 L. '000
<S> <C> <C> <C>
Currently payable 137 50 16
--- --- ---
</TABLE>
A reconciliation of income taxes determined using the statutory UK rate
of 31.5% (1996:33%) to the effective rate of income tax is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
% % %
<S> <C> <C> <C>
Corporate tax at UK statutory rates (31.5) (33) (33)
Permanent differences 0.5 1 3
Valuation allowance and other temporary differences 29 30 26
Share of losses of affiliates 2 2 4
-------- ------- -------
-- -- --
======== ======= =======
</TABLE>
IV-70
<PAGE> 73
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(14) INCOME TAXES (continued)
Deferred income tax assets and liabilities at December 31, 1997 and 1996
are summarised as follows:
<TABLE>
<CAPTION>
1997 1996
L. '000 L. '000
<S> <C> <C>
Deferred tax assets relating to:
Fixed assets 79,100 --
Net operating loss carried forward 181,800 310,300
Other 2,400 3,400
-------- --------
Deferred tax asset 263,300 313,700
Valuation allowance (247,400) (175,200)
-------- --------
Deferred tax liabilities relating to: 15,900 138,500
-------- --------
Fixed assets -- (110,600)
Other (15,900) (27,900)
-------- --------
Deferred tax liabilities (15,900) (138,500)
-------- --------
DEFERRED TAX ASSET PER BALANCE SHEET -- --
-------- --------
</TABLE>
At December 31 1997 the company estimates that it has subject to Inland
Revenue agreement, net operating losses ("NOLS") of L. 587,000,000
available to relieve against future profits. This excludes capital
allowances on assets which were available to the company, but had not
been claimed.
Due to a history of operating losses the company has established a
valuation allowance with respect to deferred tax assets, except to the
extent of deferred tax liabilities.
The NOLs have an unlimited carry-forward period under UK tax law, but
are limited to their use to the type of business which has generated the
loss.
IV-71
<PAGE> 74
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(15) SHAREHOLDERS' EQUITY
MOVEMENTS IN SHARE CAPITAL
In 1996 the Company issued 7,604,200 ordinary shares at 10 pence each
for the following consideration: an additional 0.25% of the ordinary
shares of Cable London plc, the surrender by Trans-Global (UK) Limited
of is option to acquire 9.9% of equity in the South East Regional
Franchise Area, and the remaining 20% of the ordinary shares of Telewest
Communications (Cotswolds) Limited held by a minority interest.
On October 3, 1995, the Company acquired the entire share capital of
TCMN from its former shareholders in exchange for an aggregate of
183,994,960 ordinary shares of 10 pence each and 230,790,208 convertible
preference shares of 10 pence each. On October 2, 1995, pursuant to a
court-approved scheme of arrangement (the "Scheme of Arrangement"), the
Company exchanged 735,468,440 ordinary shares of 10 pence each and
265,276,500 convertible preference shares of 10 pence each in
consideration for the transfer of shares of TCCL to the Company.
Dealings in ordinary shares and ADSs representing ordinary shares of
TCCL ceased on the London Stock Exchange and NASDAQ National Market
immediately prior to the execution of the Scheme of Arrangement and upon
completion of the Scheme of Arrangement, dealings in the ordinary shares
and ADSs representing ordinary shares of the Company commenced.
Immediately prior to the execution of the Scheme of Arrangement on
October 2, 1995, TCCL restructured its share capital by converting
112,276,500 ordinary shares of 10 pence each into 112,276,500
convertible preference shares of 10 pence each.
CONVERTIBLE PREFERENCE SHARES
The convertible preference shares are convertible into fully paid up
ordinary shares at any time on the basis of one ordinary share for every
convertible preference share provided that, immediately following the
conversion, the percentage of the issued ordinary share capital of the
Company held by members of the public, as defined by the listing rules
of the London Stock Exchange, does not fall below 25%. The ordinary
shares arising on conversion will rank pari passu in all respects with
the ordinary shares then in issue.
The holders of the convertible preference shares are entitled to receive
a dividend of such amount as is declared and paid in relation to each
ordinary share, subject to the dividend to be paid not exceeding 20
pence per share net of any associated tax credit.
In the event of a winding-up of the Company or other return of capital,
the assets of the Company available for distribution will be paid first
to the holders of the convertible preference shares up to the sum of
capital paid-up or credited as paid-up unless the right of election upon
a winding-up of the Company has been exercised in respect of the
convertible preference shares ("the Elected Shares"). If the election
has been exercised, the holders of the ordinary shares and the Elected
Shares will receive any surplus in accordance with the amount paid-up or
credited as paid-up on the shares held.
The holders of the convertible preference shares are not entitled to
vote at any general meeting of the Company unless the meeting includes
the consideration of a resolution for winding up the Company or a
resolution modifying the rights or privileges attaching to the
convertible preference shares.
IV-72
<PAGE> 75
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(16) SHARE-BASED COMPENSATION PLANS
At December 31, 1997, the Company operates five types of share-based
compensation plans: the Telewest Executive Share Option Schemes, the
Telewest Sharesave Schemes, and the Telewest Restricted Share Scheme, as
replaced in 1997 by the Telewest Long Term Incentive Plan ("LTIP") and
an Equity Participation Plan ("EPP").
The Company applies APB Opinion Bulletin No. 25 and related
interpretations in accounting for its share-based compensation plans.
Accordingly, no compensation cost has been charged to the consolidated
statement of operations in respect of performance-based option grants
since the options do not have exercise prices less than the market value
of the Company's ordinary shares. Compensation cost has been recognized
for fixed option grants since the options have exercise prices less than
the market value of the Company's ordinary shares at the date of grant.
Compensation cost has also been recognized for awards over ordinary
shares made in under the Telewest Restricted Share Scheme since the
awards have no exercise price. Compensation cost recognized for fixed
option grants and awards under the Telewest Restricted Share Scheme was
(L.496,000), L.1,380,000, and L.1,334,000 for 1997, 1996, and 1995,
respectively. If compensation costs for share option grants and awards
under the Telewest Restricted Share Scheme and LTIP Scheme had been
determined based on their fair value at the date of grant for 1997 and
1996 consistent with the method prescribed by SFAS 123 "Accounting for
Stock-Based Compensation", the Company's net loss and basic and diluted
loss per share would have been adjusted to the pro forma amounts set out
below:
<TABLE>
<CAPTION>
1997 1996 1995
L. '000 L. '000 L. '000
<S> <C> <C> <C>
Net loss - As reported (332,452) (262,391) (137,531)
- Proforma (336,737) (264,579) (138,468)
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
L. L. L.
<S> <C> <C> <C>
Loss per share - As reported (0.36) (0.28) (0.16)
- Proforma (0.36) (0.29) (0.16)
</TABLE>
PERFORMANCE-BASED SHARE OPTION COMPENSATION PLANS
The Company has two performance-based share option plans: the Telewest
1995 (No. 1) Executive Share Option Scheme and the Telewest 1995 (No. 2)
Executive Share Option Scheme. Under both plans, certain officers and
key employees are granted options to purchase ordinary shares of the
Company. The exercise price of each option generally equals the market
price of the Company's ordinary shares on the date of grant. The options
are exercisable between three and ten years after the date of the grant
with exercise conditional on the Company's shares outperforming by
price the FT-SE100 Index over any three year period preceding exercise.
The Company may grant options for up to 92,000,000 ordinary shares.
IV-73
<PAGE> 76
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(16) SHARE COMPENSATION PLANS (continued)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with a weighted-average
risk-free interest rate of 6.8, 8.1 and 8.3 percent used for grants in
1997, 1996 and 1995, respectively, and an expected volatility of between
30 and 45 percent used for grants in these years. The Company does not
expect to pay a dividend on its ordinary shares at any time during the
expected life of the option.
A summary of the status of the Company's performance-based share option
plan as of December 31, 1997, 1996, and 1995, the first year in which
the options were granted, and changes during the years ended on those
dates is presented below:
PERFORMANCE-BASED SHARE OPTION COMPENSATION PLANS (continued)
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED Weighted Weighted
NUMBER AVERAGE Number average Number average
OF EXERCISE of exercise of exercise
SHARES PRICE shares price shares price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 11,238,852 153.0p 8,645,229 160.4p -- --
Granted 8,994,654 83.7p 4,121,474 140.9p 8,871,398 160.3p
Forfeited (1,205,075) 147.1p (1,527,851) 162.6p (226,169) 158.0p
----------- ----------- -----------
Outstanding at end of year 19,028,431 120.6p 11,238,852 153.0p 8,645,229 160.4p
----------- ----------- -----------
Options exercisable at year-end 3,375,739 152.3p 1,023,042 154.3p -- --
Weighted-average fair value of
options granted during the year 50.4p 75.6p 86.0p
</TABLE>
IV-74
<PAGE> 77
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(16) SHARE COMPENSATION PLANS (continued)
The following table summarizes information about the Company's
performance-based share option plans outstanding at December 31, 1997.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Number Weighted- Number
Range of outstanding at average Weighted- exercisable at Weighted-
exercise prices 31 December remaining average 31 December average
1997 contractual life exercise price 1997 exercise price
<S> <C> <C> <C> <C> <C> <C>
71.0-73.0p 2,666,913 7.4 years 72.6p
82.5p-83.0p 5,297,509 7.6 years 82.9p
117.5-118.0p 765,847 9.2 years 117.5p
135.0-141.0p 3,674,467 6.2 years 140.6p 1,293,086 140.8p
154.5-155.5p 4,842,914 4.8 years 154.5p 1,502,527 154.6p
171.5-173.5p 1,780,781 5.9 years 172.4p 580,126 171.9p
71.0-173.5P 19,028,431 6.5 years 120.6P 3,375,739 152.3P
</TABLE>
FIXED SHARE OPTION COMPENSATION PLANS
The Company also operates the Telewest Sharesave Scheme, a fixed share
option compensation scheme. Under this plan, the Company grants options
to employees to purchase ordinary shares at a 20% discount to market
price. These options can be exercised only with funds saved by employees
over time in a qualified savings account. The options are exercisable
between 37 and 66 months after the date of grant.
IV-75
<PAGE> 78
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(16) SHARE COMPENSATION PLANS (continued)
FIXED SHARE OPTION COMPENSATION PLANS (continued)
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with a weighted-average
risk-free interest rate of 6.95 percent, 7.4 percent, and 7.2 percent,
used for grants in 1997, 1996 and 1995, respectively and an expected
volatility of between 30 and 45 percent. The Company does not expect to
pay a dividend on its ordinary shares at any time during the expected
life of the option.
A summary of the status of the Company's fixed share option plan as of
December 31, 1997, 1996, and 1995 and the changes during the years ended
on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
NUMBER WEIGHTED Number Weighted Number Weighted
OF AVERAGE of average of average
SHARES EXERCISE shares exercise shares exercise
PRICE price price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 4,076,635 119.8p 3,345,941 139.6p 1,666,534 150.0p
Granted 5,341,783 58.0p 2,165,009 102.5p 2,168,157 134.0p
Forfeited (2,450,243) 120.7p (1,434,315) 139.8p (488,750) 150.0p
---------- ----------- ----------
Outstanding at end of year 6,968,175 72.1p 4,076,635 119.8p 3,345,941 139.6p
---------- ----------- ----------
Options exercisable at year-end -- -- --
Weighted-average fair value of
options granted during the
year 42.7p 49.7p 79.3p
</TABLE>
The following table summarizes information about the Company's fixed
share options outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Options outstanding
Number Weighted-average
outstanding at Remaining
Exercise price 31 December 1997 Contractual life
<S> <C> <C> <C>
58.0p 5,341,783 3.6 years
102.5p 941,444 2.6 years
134.0p 404,256 3.6 years
150.0p 280,692 2.6 years
--------------- ------------- -------------
58.0P - 150.0 p 6,968,175 3.4 YEARS
</TABLE>
IV-76
<PAGE> 79
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
TELEWEST RESTRICTED SHARE SCHEME
The Company operates the Telewest Restricted Share Scheme in conjunction
with an employment trust, the Telewest Employees Share Ownership Plan
Trust (the "Telewest ESOP"), which has been designed to provide
incentives to executives of the Company based on the performance of the
Company. Under the Telewest Restricted Share Scheme, executives may be
granted awards over ordinary shares of the Company based on a percentage
of salary. The awards made for no consideration. The awards generally
vest three years after the date of the award and are exercisable for up
to seven years after the date when they vest. Awards granted under the
Telewest Restricted Share Scheme may be made over a maximum of 4,000,000
ordinary shares of the Company.
The fair value of each award is the share price of the ordinary shares
on the date the award was made.
A summary of the status of the Company's Restricted Share Scheme at
December 31, 1997, 1996, and 1995 and changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
NUMBER OF Number of Number of
SHARES shares shares
<S> <C> <C> <C>
Outstanding at beginning of year 2,648,433 2,616,857 --
Granted 377,975 328,297 2,857,191
Exercised (1,123,324) (62,920) --
Forfeited (155,922) (233,801) (240,334)
---------- ---------- ----------
Outstanding at end of year 1,747,162 2,648,433 2,616,857
---------- ---------- ----------
924,008 646,341 49,867
Awards exercisable at year end -- -- --
WEIGHTED-AVERAGE FAIR VALUE OF AWARDS
GRANTED DURING THE YEAR 1.25 1.47 1.72
</TABLE>
At December 31, 1997, the 1,747,162 awards outstanding and the 924,008
awards exercisable have weighted average remaining contractual lives of
6.7 years and 6.6 years respectively.
The Telewest Restricted Share Scheme has been replaced with a Long-Term
Incentive Plan ("LTIP") for share awards to executive Directors and
senior executives. Under the LTIP, an executive will be awarded the
provisional right to receive, for no payment, a number of Telewest
shares with a value equating to a percentage of base salary. The shares
will not vest unless certain performance criteria, based on total
shareholder return assessed over a three year period are met. The
percentage of salary will be determined by the Remuneration Committee
and will be up to 100% of base salary for executive Directors.
IV-77
<PAGE> 80
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
TELEWEST LONG TERM INCENTIVE PLAN ("LTIP")
A summary of the status of the Company's Long Term Incentive Plan at
December 31, 1997 and 1996 and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
1997
NUMBER OF
SHARES
<S> <C>
Outstanding at beginning of year --
Granted 574,309
-------
Outstanding at end of year 574,309
-------
Awards exercisable at year end --
-------
Weighted-average fair value of awards
granted during the year 0.81
</TABLE>
At December 31, 1997, the 574,309 awards outstanding have weighted
average remaining contractual lives of 9.8 years.
IV-78
<PAGE> 81
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(17) COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
The Company leases a number of assets under arrangements accounted for
as capital leases, as follows:
<TABLE>
<CAPTION>
Acquisition Accumulated Net book
costs Depreciation Value
L. '000 L. '000 L. '000
<S> <C> <C> <C>
At December 31, 1997
Electronic equipment 58,465 (16,061) 42,404
Other equipment 40,207 (8,050) 32,157
At December 31, 1996
Electronic equipment 46,634 (8,376) 38,258
Other equipment 8,780 (1,900) 6,880
</TABLE>
Depreciation charged on these assets was L. 10,889,000 and L. 7,106,000
for the years ended 31 December, 1997 and 1996 respectively
The Company leases business offices and uses certain equipment under
lease arrangements accounted for as operating leases. Minimum rental
expense under such arrangements amounted to L. 3,198,000, L. 3,065,000
and L. 2,276,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Future minimum lease payments under capital and operating leases are
summarized as follows as of December 31, 1997:
<TABLE>
<CAPTION>
Capital leases Operating leases
L. '000 L. '000
<S> <C> <C>
1998 15,712 3,059
1999 14,488 2,989
2000 12,740 2,939
2001 11,883 2,885
2002 8,741 2,884
2003 and thereafter 38,413 14,323
--------
101,977
Imputed interest (26,443)
--------
Total 75,534
--------
</TABLE>
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced.
Contingent liabilities
The Company is a party to various legal proceedings in the ordinary
course of business which it does not believe will result, in aggregate,
in a material adverse effect on its financial condition.
IV-79
<PAGE> 82
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
(18) RELATED PARTY TRANSACTIONS
The Company, in the normal course of providing cable television
services, purchases certain of its programming from certain UK
affiliates of TCI. Such programming is purchased on
commercially-available terms. Total purchases in the year amounted to L.
9,681,000.
The Company has management agreements with TCI and US WEST under which
amounts are paid by the Company relating to TCI and US WEST employees
who have been seconded to the Company. For the years ended December 31,
1997, 1996, and 1995, fees paid by the Company under the agreements were
L. 968,000, L. 2,185,000 and L. 3,042,000 respectively. The Company has
similar management agreements with Cox Communications, Inc and SBC
Communications, Inc. For the years ended December 31,1997, and 1996,
fees paid by the Company under these agreements were L. 202,000 and L.
374,000.
The Company has entered into consulting agreements with its affiliates
pursuant to which the Company provides consulting services related to
telephony operations. Under the agreements, the Company receives an
annual fee from each affiliate based upon the affiliate's revenues. Fees
received for the years ended December 31,1997, 1996 and 1995 were L.
786,000, L. 642,000 and L. 566,000, respectively. The Company also
receives a fee for providing switching support services, comprising of a
fixed element based on a number of switches, and a variable element
based on a number of lines. Fees received for the years ended December
31, 1997, 1996 and 1995, were L. 740,000, L. 741,000 and L. 827,000,
respectively.
(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997
FOURTH THIRD SECOND First
TOTAL QUARTER QUARTER QUARTER quarter
L. '000 L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C> <C>
Revenue 386,498 104,972 100,087 91,052 90,390
Operating loss (154,159) (39,578) (41,394) (36,421) (36,766)
Finance expenses, net (156,167) (29,604) (43,613) (30,992) (51,958)
Net loss (332,452) (74,887) (90,780) (72,902) (93,883)
Basic and diluted loss per
ordinary share (36 pence) (8 pence) (10 pence) (8 pence) (10 pence)
</TABLE>
<TABLE>
<CAPTION>
1996
FOURTH THIRD SECOND First
TOTAL QUARTER QUARTER QUARTER quarter
L. '000 L. '000 L. '000 L. '000 L. '000
<S> <C> <C> <C> <C> <C>
Revenue 290,266 83,663 73,123 68,320 65,160
Operating loss (155,400) (46,095) (34,512) (38,536) (36,257)
Finance expenses, net (90,788) 28,222 (30,710) (54,503) (33,797)
Net loss (262,391) (22,361) (69,303) (97,080) (73,647)
Basic and diluted loss per
ordinary share (28 pence) (2 pence) (7 pence) (10 pence) (8 pence)
</TABLE>
IV-80
<PAGE> 83
Telewest Communications - US GAAP
Notes to the consolidated financial statements (continued)
The Company regularly reviews estimated useful lives of its property and
equipment and the estimates in calculating the capitalised overheads
which relate to the construction of the cable network. With effect from
January 1, 1996, the company has revised the estimated lives of certain
assets as set out in Note 3 to the consolidated financial statements and
certain estimates used in calculating capitalizable overheads. The
impact of these revisions was to increase the depreciation charge for
1996 from L. 110,223,000 to L. 129,716,000 and to increase the basic and
diluted loss per ordinary share for the year by 2 pence, and to increase
the capitalization of overheads in 1996 from L. 38,812,000 to L.
54,019,000 and to reduce the basic and diluted loss per share for the
year by 2 pence. The impact was principally accounted for in the fourth
quarter of 1996. In 1997, the treatment of activation costs was
reviewed. With effect from 1 January 1997, activation labour was
reclassified from Cable and Ducting to Electronics to be consistent with
the classification of activation materials. The impact of this change,
was an additional depreciation charge of L. 10,359,000, with activation
labour now depreciated over 8 years rather than 20 years.
Finance expenses include foreign exchange gains and losses on the
retranslation or valuation of non sterling denominated financial
instruments using period end exchange rates and market valuations.
IV-81
<PAGE> 84
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3 - Articles of Incorporation and Bylaws:
3.1 The Restated Certificate of Incorporation, dated August 4, 1994,
as amended on August 4, 1994, August 16, 1994, October 11,
1994, October 21, 1994, January 26, 1995, August 3, 1995,
August 3, 1995, January 25, 1996, January 25, 1996, April 7,
1997, August 28, 1997, December 30, 1997 and December 30,
1997.**
3.2 The Bylaws as adopted June 16, 1994.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, as
amended by Form 10-K/A (Commission File No. 0-20421).
4 - Instruments Defining the Rights of Security Holders, including Indentures:
4.1 Form of Rights Agreement among Tele-Communications, Inc., TCI
Music, Inc. and the Bank of New York, as Rights Agent.
Incorporated by reference to Exhibit 4.3 to the Registration
Statement of Form S-4 of TCI Music and TCI (Reg. File Nos.
333-28613 and 333-28613-001).
10 - Material Contracts:
10.1 Amended and Restated Tele-Communications, Inc. 1994 Stock
Incentive Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.2 Amended and Restated Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.3 Amended and Restated Tele-Communications, Inc. 1996 Incentive
Plan.*
Incorporated herein by reference to the Company's
Registration Statement on Form S-8 (Commission File No.
333-40141).
10.4 Restated and Amended Employment Agreement, dated as of November
1, 1992, between the Company and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A for the year ended December 31,
1992 (Commission File No. 0-5550).
10.5 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc.
and John C. Malone.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994,
as amended by Form 10-K/A (Commission File No. 0-20421).
(continued)
<PAGE> 85
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 - Material contracts, continued:
10.6 Call Agreement, dated February 9, 1998, between
Tele-Communications, Inc., John C. Malone and Leslie Malone.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.7 Call Agreement, dated February 9, 1998, between
Tele-Communications, Inc., Gary Magness, both individually and
as representative, Kim Magness, both individually and as
representative, the Estate of Bob Magness, the Estate of Betsy
Magness and any individual or entity which thereafter becomes a
party thereto.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.8 Stockholders Agreement, dated February 9, 1998, by and among
Tele-Communications, Inc., John C. Malone, Leslie Malone, Gary
Magness, both individually and as representative, Kim Magness,
both individually and as representative, the Estate of Bob
Magness, the Estate of Betsy Magness and any individual or
entity which thereafter becomes a party thereto.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 25, 1998 (Commission
File No. 0-20421).
10.9 Consulting Agreement, dated as of January 1, 1996, between
Tele-Communications, Inc. and Donne F. Fisher.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.10 Consulting Agreement, dated as March 11, 1995, between
Tele-Communications, Inc. and J.C. Sparkman.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.11 Consulting Agreement, dated as of January 1, 1998, between
Tele-Communications International, Inc. and Fred A. Vierra.**
10.12 Deferred Compensation Plan for Non-Employee Directors, effective
on November 1, 1992.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992,
as amended by Form 10-K/A for the year ended December 31,
1992 (Commission File No. 0-5550).
10.13 Amended and Restated Employment Agreement, dated as of July 18,
1995, among Tele-Communications, Inc., Tele-Communications
International, Inc. and Fred A. Vierra.*
Incorporated herein by reference to Tele-Communications
International, Inc.'s Registration Statement on Form S-1
(Commission File No. 33-80491).
(continued)
<PAGE> 86
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 - Material contracts, continued:
10.14 Employment Agreement, dated as of January 1, 1993, between
Tele-Communications, Inc. and Larry E. Romrell.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.15 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc.
and Larry E. Romrell.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.16 Form of 1992 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.17 Form of 1993 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.18 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement, dated as of November 12, 1993, by and between
Tele-Communications, Inc. and Jerome H. Kern.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.19 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, Liberty Media Corporation and
grantee relating to stock appreciation rights granted pursuant
to letter dated September 17, 1991.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.20 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, Liberty Media Corporation and
grantee relating to the assumption of options and related stock
appreciation rights granted under the Liberty Media Corporation
1991 Stock Incentive Plan pursuant to letter dated July 26,
1993.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
(continued)
<PAGE> 87
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 - Material contracts, continued:
10.21 Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and a
director of Tele-Communications, Inc. relating to assumption
of options and related stock appreciation rights granted
outside of an employee benefit plan pursuant to Tele-
Communications, Inc.'s 1993 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.22 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of options and related stock
appreciation rights granted under Tele-Communications, Inc.'s
1992 Stock Incentive Plan pursuant to Tele-Communications,
Inc.'s 1993 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.23 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of grants pursuant to the
Agreement and Plan of Merger dated June 6, 1991 between United
Artists Entertainment Company and Tele-Communications, Inc.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.24 Form of letter dated September 17, 1991 from Liberty Media
Corporation to grantee relating to grant of stock appreciation
rights.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.25 Form of letter dated July 26, 1993 from Liberty Media Corporation
to grantee relating to grant of options and stock appreciation
rights.*
Incorporated by reference to Tele-Communications, Inc.'s Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
10.26 Form of Assumption and Amended and Restated Stock Option
Agreement between the Company, TCI/Liberty Holding Company and
grantee relating to assumption of options and related stock
appreciation rights under Tele-Communications, Inc.'s 1992
Stock Incentive Plan pursuant to Tele-Communications, Inc.'s
1992 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Post
Effective Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement (Commission
File No. 33-54263).
(continued)
<PAGE> 88
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 - Material contracts, continued:
10.27 Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993,
as amended by Form 10-K/A for the year ended December 31,
1993 (Commission File No. 0-5550).
10.28 Form of 1994 Non-Qualified Stock Option and Stock Appreciation
Rights Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K dated December 31, 1994, as amended by
Form 10-K/A (Commission File No. 0-20421).
10.29 TCI 401(k) Stock Plan, restated effective January 1, 1998.*
10.30 Form of Restricted Stock Award Agreement for 1995 Award of Series
A TCI Group Restricted Stock pursuant to the Tele-
Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.31 Form of Restricted Stock Award Agreement for 1995 Award of Series
A Liberty Media Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.32 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1994 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.33 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1994
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
(continued)
<PAGE> 89
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 - Material contracts, continued:
10.34 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.35 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1995
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.36 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1996 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.37 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.38 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 1996 Stock Incentive
Plan.**
10.39 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Ventures Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.**
10.40 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.**
10.41 Form of Restricted Stock Award Agreement for 1997 Award of Series
A TCI Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*,**
10.42 Form of Restricted Stock Award Agreement for 1997 Award of Series
A TCI Ventures Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*,**
10.43 The Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to Tele-Communications
International, Inc. Registration Statement on Form S-1
(Commission File No. 33-91876).
(continued)
<PAGE> 90
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 - Material contracts, continued:
10.44 Form of Restricted Stock Award Agreement for 1995 Award of Series
A Tele-Communications International, Inc. Restricted Stock
pursuant to the Tele-Communications International, Inc. 1995
Stock Incentive Plan.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.45 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock pursuant to the
Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.46 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.47 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A Tele-Communications
International, Inc. common stock pursuant to the
Tele-Communications International, Inc. 1995 Stock Incentive
Plan.*,**
10.48 Form of Restricted Stock Award Agreement for 1997 Award of Series
A Tele-Communications International, Inc. Restricted Stock
pursuant to the Tele-Communications International. Inc. 1995
Stock Incentive Plan.*,**
10.49 Restricted Stock Award Agreement, made as of July 1, 1996, among
Tele-Communications, Inc., Brendan Clouston and WestMarc
Communications, Inc. *
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.50 Option Agreement, dated as of December 4, 1996, by and between
TCI Satellite Entertainment, Inc. and Brendan R. Clouston.*
Incorporated herein by reference to the TCI Satellite
Entertainment, Inc. Annual Report on Form 10-K for the year
ended December 31, 1996 (Commission File No. 0-21317).
10.51 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Wireless Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and
Tele-Communications, Inc.*
10.52 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Teleport Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and
Tele-Communications, Inc.*
10.53 Form of Amended and Restated Option Agreement made as of the 1st
day of December, 1996, by and among TCI Wireline, Inc., Grantee
and Tele-Communications, Inc.*
(continued)
<PAGE> 91
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10 - Material contracts, continued:
10.54 Form of Option to Purchase Common Stock Agreement made as of the
1st day of December, 1996, by and among TCI.Net, Inc., Grantee
and Tele-Communications, Inc.*,**
10.55 Form of Stock Appreciation Right Agreement made as of the 1st day
of December, 1996, by and among TCI Internet Services, Inc.,
Tele-Communications, Inc. and Grantee.*,**
10.56 Letter Agreement, dated December 26, 1996, by
Tele-Communications, Inc. to purchase WestMarc Series C
Cumulative Compounding Redeemable Preferred Stock from Larry E.
Romrell.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996
(Commission File No. 0-20421).
10.57 Employee Stock Purchase Plan for Bargaining Unit Employees of
United Cable Television of Baltimore Limited Partnership.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-60839).
10.58 Employee Stock Purchase Plan for Bargaining Unit Employees of
UACC Midwest, Inc. d/b/a TCI of Central Indiana.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-64827).
10.59 Employee Stock Purchase Plan for Bargaining Unit Employees of
TCI of Northern New Jersey, Inc.*
Incorporated herein by reference to the Tele-Communications,
Inc. Registration Statement on Form S-8 (Commission File
No. 33-64831).
10.60 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P., dated as of January 31, 1996, among Sprint
Spectrum, L.P., TCI Network Services, Comcast Telephony
Services and Cox Telephony Partnership.
Second Amended and Restated Joint Venture Formation Agreement,
dated as of January 31, 1996, by and between Sprint
Corporation, Tele-Communications, Inc., Comcast Corporation
and Cox Communications, Inc.
Parents Agreement, dated as of January 31, 1996, by Tele-
Communications, Inc. and Sprint Corporation.
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated February 9, 1996 (Commission
File No. 0-20421).
(continued)
<PAGE> 92
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10- Material contracts, continued:
10.61 Agreement of Purchase and Sale of Partnership Interest, dated as
of January 31, 1996, among Halcyon Communications, Inc., ECP
Holdings, Inc. and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.62 Consent and Amendment of Amended Agreement of Partnership for
Halcyon Communications Partners, dated as of January 31, 1996,
by and among Halcyon Communications, Inc., ECP Holdings, Inc.
and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.63 Assignment and Assumption Agreement, made as of January 31,
1996, between ECP Holdings, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.64 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.65 Agreement of Purchase and Sale of Partnership Interests, dated as
of January 31, 1996, among Halcyon Communications, Inc.,
American Televenture of Minersville, Inc., TCI Cablevision of
Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc.
and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.66 Consent and First Amendment of Amended and Restated Agreement of
Limited Partnership for Halcyon Communications Limited
Partnership, dated as of January 31, 1996, by and among
Halcyon Communications, Inc., American Televenture of
Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI
Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.67 Assignment and Assumption Agreement, made as of January 31,
1996, between TCI Cablevision of Utah, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
(continued)
<PAGE> 93
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10- Material contracts, continued:
10.68 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of Utah,
Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.69 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Nevada, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.70 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Nevada, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.71 Assignment and Assumption Agreement, made as of January 31, 1996,
between American Televenture of Minersville, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.72 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and American Televenture of
Minersville, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.73 Assignment and Assumption Agreement, made as of January 31, 1996,
between TEMPO Cable, Inc. and Fisher Communications Associates,
L.L.C.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.74 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TEMPO Cable, Inc.
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.75 InterMedia Capital Management, L.P. Agreement of Limited
Partnership, dated as of June 10, 1997 and effective as of May
22, 1997, by and between InterMedia Management, Inc., Leo J.
Hindery, Jr. and TCI ICM I, Inc.**
10.76 InterMedia Capital Management III, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of June 10, 1997, by
and among Leo J. Hindery, Jr., InterMedia Management, Inc. and
TCI ICM III, Inc.**
(continued)
<PAGE> 94
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10- Material contracts, continued:
10.77 InterMedia Capital Management IV, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of August 5, 1997,
by and between InterMedia Management, Inc., TCI ICM IV, Inc.
and Leo J. Hindery, Jr.**
10.78 Amended and Restated Contribution and Merger Agreement, dated
as of June 6, 1997, among TCI Communications, Inc.,
Cablevision Systems Corporation, CSC Parent Corporation and
CSC Merger Corporation.
Stockholders Agreement dated as of March 4, 1998, by and among
Cablevision Systems Corporation, Tele-Communications, Inc. and
the Class B Entities (as defined therein)
Incorporated herein by reference to the Company's Current
Report on Form 8-K, dated March 6, 1998 (Commission File
No. 0-20421).
10.79 Amended and Restated Asset Contribution Agreement, dated
September 25, 1997, by and among Fisher Communications
Associates, L.L.C. and Tempo Cable, Inc., Communications
Services, Inc., TCI Cablevision of Oklahoma, Inc., TCI of
Kansas, Inc., Wentronics, Inc., TCI Cablevision of Utah,
Inc., TCI Cablevision of Arizona, Inc., Tulsa Cable
Television, Inc. and TCI American Cable Holdings III,
L.P. and Peak Cablevision, LLC.**
10.80 Amended and Restated Operating Agreement of Peak Cablevision,
LLC, made as of September 25, 1997, by TCI American Cable
Holdings III, L.P. and Fisher Communications Associates,
L.L.C.**
10.81 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.**
10.82 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and American Televentures
of Minersville, Inc.**
10.83 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Utah, Inc.**
10.84 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and Tempo Cable, Inc.**
10.85 Promissory Note, dated January 15, 1998, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of
Nevada, Inc.**
21 - Subsidiaries of Tele-Communications, Inc.**
23 - Consent of Experts and Counsel
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of KPMG Peat Marwick LLP.
23.5 Consent of KPMG Audit Plc.
23.6 Consent of Deloitte & Touche LLP.
27 - Financial data schedule
* Constitutes management contract or compensatory arrangement.
** Previously filed.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-63139, 33-64127, 33-65311, 33-65493,
333-00265, 333-00835, 333-06723, 333-07615, 333-27039, 333-29849, 333-40131,
333-41435, 333-44745 and 333-56635 on Form S-3, the Registration Statement (No.
333-64297) on Form S-4, and the Registration Statements (Nos. 33-44543,
33-54263, 33-60839, 33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487,
333-06177, 333-06179, 333-16025, 333-16027, 333-40141, 333-42917 and 333-58083)
on Form S-8 of Tele-Communications, Inc. of our reports dated March 20, 1998,
except for note 19 which is as of January 6, 1999, relating to the consolidated
balance sheets of Tele-Communications, Inc. and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997, and all related schedules, which reports appear
in the December 31, 1997 Annual Report on Form 10-K, as amended by Form 10-K/A
(Amendment No. 2), of Tele-Communications, Inc.
KPMG LLP
Denver, Colorado
January 7,1999
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-63139, 33-64127, 33-65311, 33-65493,
333-00265, 333-00835, 333-06723, 333-07615, 333-27039, 333-29849, 333-40131,
333-41435, 333-44745 and 333-56635) on Form S-3, the Registration Statement (No.
333-64297) on Form S-4, and the Registration Statements (Nos. 33-44543,
33-54263, 33-60839, 33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487,
333-06177, 333-06179, 333-16025, 333-16027, 333-40141, 333-42917 and 333-58083)
on Form S-8 of Tele-Communications, Inc. of our report dated March 20, 1998,
relating to the combined balance sheets of TCI Group as of December 31, 1997 and
1996, and the related combined statements of operations, equity (deficit), and
cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 Annual Report on Form 10-K,
as amended by Form 10-K/A (Amendment No. 2), of Tele-Communications, Inc. Our
report covering the combined financial statements refers to the effects of not
consolidating TCI Group's interest in Liberty Media Group and TCI Ventures Group
for all periods that TCI Group has an interest in Liberty Media Group and TCI
Ventures Group, respectively.
KPMG LLP
Denver, Colorado
January 7, 1999
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-63139, 33-64127, 33-65311, 33-65493,
333-00265, 333-00835, 333-06723, 333-07615, 333-27039, 333-29849, 333-40131,
333-41435, 333-44745 and 333-56635) on Form S-3, the Registration Statement (No.
333-64297) on Form S-4, and the Registration Statements (Nos. 33-44543,
33-54263, 33-60839, 33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487,
333-06177, 333-06179, 333-16025, 333-16027, 333-40141, 333-42917 and 333-58083)
on Form S-8 of Tele-Communications, Inc. of our report dated March 20, 1998,
relating to the combined balance sheets of Liberty Media Group as of December
31, 1997 and 1996, and the related combined statements of operations, equity,
and cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 Annual Report on Form 10-K,
as amended by Form 10-K/A (Amendment No. 2), of Tele-Communications, Inc.
KPMG LLP
Denver, Colorado
January 7, 1999
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-63139, 33-64127, 33-65311, 33-65493,
333-00265, 333-00835, 333-06723, 333-07615, 333-27039, 333-29849, 333-40131,
333-41435, 333-44745 and 333-56635) on Form S-3, the Registration Statement (No.
333-64297) on Form S-4, and the Registration Statements (Nos. 33-44543,
33-54263, 33-60839, 33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487,
333-06177, 333-06179, 333-16025, 333-16027, 333-40141, 333-42917 and 333-58083)
on Form S-8 of Tele-Communications, Inc. of our report dated March 20, 1998,
except for note 18 which is as of January 6, 1999, relating to the combined
balance sheets of TCI Ventures Group as of December 31, 1997 and 1996, and the
related combined statements of operations, equity, and cash flows for each of
the years in the three-year period ended December 31, 1997, which report appears
in the December 31, 1997 Annual Report on Form 10-K, as amended by Form 10-K/A
(Amendment No. 2), of Tele-Communications, Inc.
KPMG LLP
Denver, Colorado
January 7, 1999
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Telewest Communications plc
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-63139, 33-64127, 33-65311, 33-65493,
333-00265, 333-00835, 333-06723, 333-07615, 333-27039, 333-29849, 333-40131,
333-41435, 333-44745 and 333-56635) on Form S-3, the Registration Statement (No.
333-64297) on Form S-4, and the Registration Statements (Nos. 33-44543,
33-54263, 33-60839, 33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487,
333-06177, 333-06179, 333-16025, 333-16027, 333-40141, 333-42917 and 333-58083)
on Form S-8 of Tele-Communications, Inc. of our report dated March 19, 1998,
relating to the consolidated balance sheet of Telewest Communications plc and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations and cash flows for each of the years in the three-year
period ended December 31, 1997, which report appears in the December 31, 1997
Annual Report on Form 10-K, as amended by Form 10-K/A (Amendment No. 2), of
Tele-Communications, Inc.
KPMG Audit Plc
Chartered Accountants
Registered Auditors
London, England
January 7, 1999
<PAGE> 1
Exhibit 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-56271, 33-57177, 33-57399, 33-63139, 33-64127, 33-65311, 33-65493,
333-00265, 333-00835, 333-06723, 333-07615, 333-27039, 333-29849, 333-40131,
333-41435, 333-44745 and 333-56635) on Form S-3, the Registration Statement (No.
333-64297) on Form S-4, and the Registration Statements (Nos. 33-44543,
33-54263, 33-60839, 33-60843, 33-64827, 33-64829, 33-64831, 33-65485, 33-65487,
333-06177, 333-06179, 333-16025, 333-16027, 333-40141, 333-42917 and 333-58083)
on Form S-8 of Tele-Communications, Inc. of our report dated February 3, 1998 on
the consolidated financial statements of Sprint Spectrum Holding Company, L. P.
and subsidiaries (which expresses an unqualified opinion and includes an
explanatory paragraph referring to the emergence from the development stage of
Sprint Spectrum Holding Company, L. P. and subsidiaries) for each of the three
years ended December 31, 1997 appearing in the Annual Report on Form 10-K/A
(Amendment No. 2) of Tele-Communications, Inc. for the year ended December 31,
1997.
Deloitte & Touche LLP
Kansas City, Missouri
January 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TELE-COMMUNICATIONS, INC.'S ANNUAL REPORT ON FORM 10-K/A
(AMENDMENT #2) FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. PRIMARY AND DILUTED
EARNINGS PER SHARE REPRESENT EARNINGS PER SHARE OF THE COMPANY'S TCI GROUP
STOCK. SEE THE COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 284
<SECURITIES> 0
<RECEIVABLES> 529
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,438
<DEPRECIATION> 4,759
<TOTAL-ASSETS> 32,487
<CURRENT-LIABILITIES> 0
<BONDS> 15,250
655
0
<COMMON> 1,474
<OTHER-SE> 3,018
<TOTAL-LIABILITY-AND-EQUITY> 32,487
<SALES> 0
<TOTAL-REVENUES> 7,570
<CGS> 0
<TOTAL-COSTS> 2,850
<OTHER-EXPENSES> 1,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,160
<INCOME-PRETAX> (795)
<INCOME-TAX> (234)
<INCOME-CONTINUING> (561)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (561)
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
