<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-20421
TELE-COMMUNICATIONS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1260157
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9197 S. Peoria
Englewood, Colorado 80112
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (720) 875-4000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE> 2
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
New TCI Old TCI
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
Assets amounts in millions
- ------
<S> <C> <C>
Cash and cash equivalents $ -- 419
Restricted cash (note 4) 19 185
Trade and other receivables, net 478 653
Prepaid and committed program rights -- 263
Investment in Liberty Media Group and related
receivables (note 5) 35,519 --
Investments in affiliates other than Liberty Media
Group (the "Other Affiliates"), accounted for under
the equity method (notes 6 and 12) 14,393 4,709
Investment in Time Warner, Inc. ("Time Warner")
(note 2) 34 7,118
Investment in AT&T Corp. ("AT&T") (notes 2 and 11) -- 3,556
Investment in Sprint Corporation (note 2) -- 2,446
Property and equipment, at cost:
Land 119 63
Distribution systems 6,243 10,107
Support equipment and buildings 999 1,769
---------- ----------
7,361 11,939
Less accumulated depreciation 492 4,786
---------- ----------
6,869 7,153
---------- ----------
Franchise costs and other intangible assets 32,895 15,782
Less accumulated amortization 508 2,723
---------- ----------
32,387 13,059
---------- ----------
Other assets, net of accumulated amortization 1,462 2,290
---------- ----------
$ 91,161 41,851
========== ==========
</TABLE>
(continued)
I-1
<PAGE> 3
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
New TCI Old TCI
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
Liabilities and Stockholders' Equity amounts in millions
<S> <C> <C>
Accounts payable $ 276 229
Accrued interest 136 253
Accrued programming expense 327 471
Other accrued expenses 743 1,128
Debt (notes 2 and 8):
Due to unaffiliated parties 9,449 14,052
Notes payable to AT&T 8,559 --
Deferred income taxes 18,277 9,749
Other liabilities 1,032 1,819
---------- ----------
Total liabilities 38,799 27,701
---------- ----------
Minority interests in equity of consolidated subsidiaries 2,175 1,460
Redeemable securities (note 2) -- 322
Company-obligated mandatorily redeemable preferred securities
of subsidiary trusts ("Trust Preferred Securities") holding
solely subordinated debt securities (note 9) 1,649 1,500
Stockholders' equity (notes 2 and 10):
Class A Series Preferred Stock, $.01 par value. Authorized
700,000 shares -- --
Class B 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock, $.01 par value. Authorized 1,675,096
shares; issued 1,552,490 shares -- --
Common stock, $.01 par value. Authorized 3,550,000,000
shares; issued 1,327,985,000 shares in 1999 13 --
Common stock, $1 par value:
Series A TCI Group. Authorized 1,750,000,000 shares;
issued 610,748,188 shares in 1998 -- 611
Series B TCI Group. Authorized 150,000,000 shares;
issued 73,929,229 shares in 1998 -- 74
Series A Liberty Media Group. Authorized 750,000,000
shares; issued 367,890,546 shares in 1998 -- 368
Series B Liberty Media Group. Authorized 75,000,000
shares; issued 35,198,156 shares in 1998 -- 35
Series A TCI Ventures Group. Authorized 750,000,000
shares; issued 377,253,230 shares in 1998 -- 377
Series B TCI Ventures Group. Authorized 75,000,000
shares; issued 45,750,534 shares in 1998 -- 46
Additional paid-in capital 52,531 5,987
Accumulated other comprehensive earnings, net of taxes 2,445 3,749
Retained earnings (accumulated deficit) (2,406) 1,124
---------- ----------
52,583 12,371
Investment in AT&T (notes 2 and 11) (4,045) --
Treasury stock and common stock held by subsidiaries, at
cost -- (1,503)
---------- ----------
Total stockholders' equity 48,538 10,868
---------- ----------
Commitments and contingencies (notes 13 and 14)
$ 91,161 41,851
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 4
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
New TCI Old TCI
------------------ ------------------
Three months Three months
ended ended
September 30, 1999 September 30, 1998
------------------ ------------------
amounts in millions,
except per share amounts
<S> <C> <C>
Revenue (note 11) $ 1,442 1,843
Operating costs and expenses:
Operating (note 11) 599 754
Selling, general and administrative (note 11) 324 412
Year 2000 costs 16 5
AT&T merger and integration costs 4 1
Stock compensation (2) 11
Depreciation and amortization 461 421
---------- ----------
1,402 1,604
---------- ----------
Operating income 40 239
Other income (expense):
Interest expense:
Unaffiliated parties (142) (272)
AT&T (notes 2 and 8) (106) --
Interest and dividend income 1 33
Share of losses of Liberty Media Group (note 5) (217) --
Share of losses of the Other Affiliates, net (note 6) (412) (397)
Minority interests in earnings of consolidated
subsidiaries, net (note 9) (45) (30)
Gain on issuance of stock by equity investee
(note 7) -- 58
Gain on issuance of equity interests by subsidiary
(note 6) -- 17
Gains on disposition of assets, net (notes 7 and 11) -- 2,605
Other, net 2 (7)
---------- ----------
(919) 2,007
---------- ----------
Earnings (loss) before income taxes and
extraordinary items (879) 2,246
Income tax benefit (expense) 239 (902)
---------- ----------
Earnings (loss) before extraordinary items (640) 1,344
Extraordinary gain (loss) (net of income taxes of $2
million and $9 million in 1999 and 1998,
respectively) (note 8) 4 (4)
---------- ----------
Net earnings (loss) (636) 1,340
Dividend requirements on preferred stocks (2) (5)
---------- ----------
Net earnings (loss) attributable to common
stockholders $ (638) 1,335
========== ==========
</TABLE>
(continued)
I-3
<PAGE> 5
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Statements of Operations, continued
(unaudited)
<TABLE>
<CAPTION>
New TCI Old TCI
------------------ ------------------
Three months Three months
ended ended
September 30, 1999 September 30, 1998
------------------ ------------------
amounts in millions,
except per share amounts
<S> <C> <C>
Net earnings (loss) attributable to common
stockholders:
TCI Group Series A and Series B common stock $ -- 47
Liberty Media Group Series A and Series B common
stock -- (11)
TCI Ventures Group Series A and Series B common
stock -- 1,299
---------- ----------
$ -- 1,335
========== ==========
Basic earnings (loss) attributable to common
stockholders per common share (note 3):
TCI Group Series A and Series B common stock $ -- .09
========== ==========
Liberty Media Group Series A and Series B
common stock $ -- (.03)
========== ==========
TCI Ventures Group Series A and Series B common
stock $ -- 3.07
========== ==========
Diluted earnings (loss) attributable to common
stockholders per common and potential common
share (note 3):
TCI Group Series A and Series B common stock $ -- .08
========== ==========
Liberty Media Group Series A and Series B
common stock $ -- (.03)
========== ==========
TCI Ventures Group Series A and Series B common
stock $ -- 2.88
========== ==========
Comprehensive earnings (loss) $ (202) 1,425
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
(continued)
I-4
<PAGE> 6
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Statements of Operations, continued
(unaudited)
<TABLE>
<CAPTION>
New TCI Old TCI
------------------ ---------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Revenue (note 11) $ 3,344 1,145 5,563
Operating costs and expenses:
Operating (note 11) 1,345 467 2,202
Selling, general and administrative (note 11) 807 322 1,316
Year 2000 costs 47 11 6
AT&T merger and integration costs 31 65 11
Stock compensation 72 366 423
Reserve for loss arising from contingent
obligation (note 13) 50 -- --
Write-off of in-process research and
development costs (note 2) 594 -- --
Depreciation and amortization 1,143 277 1,289
---------- ---------- ----------
4,089 1,508 5,247
---------- ---------- ----------
Operating income (loss) (745) (363) 316
Other income (expense):
Interest expense:
Unaffiliated parties (346) (161) (807)
AT&T (notes 2 and 8) (212) -- --
Interest and dividend income 7 13 72
Share of losses of Liberty Media Group
(note 5) (818) -- --
Share of losses of the Other Affiliates, net
(note 6) (789) (161) (986)
Minority interests in earnings of consolidated
subsidiaries, net (note 9) (103) (26) (95)
Gain on issuance of stock by equity
investee (note 7) -- -- 259
Gains on issuance of equity interests by
subsidiaries (notes 6 and 7) -- 389 55
Gains on disposition of assets, net (notes
6, 7 and 11) -- 144 3,704
Other, net 7 8 (25)
---------- ---------- ----------
(2,254) 206 2,177
---------- ---------- ----------
Earnings (loss) before income taxes and
extraordinary items (2,999) (157) 2,493
Income tax benefit (expense) 589 (119) (1,079)
---------- ---------- ----------
Earnings (loss) before extraordinary items (2,410) (276) 1,414
Extraordinary gain (loss) (net of income taxes of
$2 million and $3 million for the seven and
two month periods in 1999, respectively, and
$17 million in 1998) (note 8) 4 (5) (27)
---------- ---------- ----------
Net earnings (loss) (2,406) (281) 1,387
Dividend requirements on preferred stocks (5) (4) (18)
---------- ---------- ----------
Net earnings (loss) attributable to common
stockholders $ (2,411) (285) 1,369
========== ========== ==========
</TABLE>
(continued)
I-5
<PAGE> 7
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Statements of Operations, continued
(unaudited)
<TABLE>
<CAPTION>
New TCI Old TCI
------------------ ---------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Net earnings (loss) attributable to common
stockholders:
TCI Group Series A and Series B common
stock $ -- (226) 130
Liberty Media Group Series A and Series B
common stock -- (49) 227
TCI Ventures Group Series A and Series B
common stock -- (10) 1,012
---------- ---------- ----------
$ -- (285) 1,369
========== ========== ==========
Basic earnings (loss) attributable to common
stockholders per common share (note 3):
TCI Group Series A and Series B common
stock $ -- (.42) .25
========== ========== ==========
Liberty Media Group Series A and Series
B common stock $ -- (.13) .64
========== ========== ==========
TCI Ventures Group Series A and Series B
common stock $ -- (.02) 2.40
========== ========== ==========
Diluted earnings (loss) attributable to
common stockholders per common and
potential common share (note 3):
TCI Group Series A and Series B common
stock $ -- (.43) .22
========== ========== ==========
Liberty Media Group Series A and Series
B common stock $ -- (.13) .58
========== ========== ==========
TCI Ventures Group Series A and Series B
common stock $ -- (.09) 2.24
========== ========== ==========
Comprehensive earnings $ 39 691 2,330
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-6
<PAGE> 8
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Statement of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------------------------
Class B TCI Group Liberty Media Group TCI Ventures Group
Preferred -------------------- -------------------- --------------------
Stock Series A Series B Series A Series B Series A Series B
--------- -------- -------- -------- -------- -------- --------
amounts in millions
Old TCI
- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ -- 611 74 368 35 377 46
Net loss -- -- -- -- -- -- --
Reclassification of redeemable common stock
to equity upon expiration of put
obligations -- -- -- -- -- -- --
Proceeds received upon termination of equity
swap facilities (note 10) -- -- -- -- -- -- --
Settlement of equity swap transaction in
connection with preferred stock exchange
(note 10) -- -- -- -- -- -- --
Gain from contribution of cable television
systems to joint venture, net of taxes
(note 7) -- -- -- -- -- -- --
Issuance of common stock upon exercise of
stock options -- -- -- -- -- -- --
Recognition of stock compensation related to
restricted stock awards -- -- -- -- -- -- --
Issuance of restricted stock granted
pursuant to stock incentive plan -- 3 -- -- -- -- --
Conversion of Series B common stock to
Series A common stock -- -- -- -- -- 1 (1)
Accreted dividends on all classes of
preferred stock -- -- -- -- -- -- --
Accreted dividends on all classes of
preferred stock not subject to mandatory
redemption requirements -- -- -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- -- -- --
Change in unrealized holding gains for
available-for-sale securities, net of taxes -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Balance at February 28, 1999 $ -- 614 74 368 35 378 45
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Treasury
stock and
Accumulated common
other stock
Additional comprehensive held by Total
paid-in earnings, Retained subsidiaries, stockholders'
capital net of taxes earnings at cost equity
---------- ------------- -------- ------------- -------------
amounts in millions
Old TCI
- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 5,987 3,749 1,124 (1,503) 10,868
Net loss -- -- (281) -- (281)
Reclassification of redeemable common stock
to equity upon expiration of put
obligations 10 -- -- -- 10
Proceeds received upon termination of equity
swap facilities (note 10) 677 -- -- -- 677
Settlement of equity swap transaction in
connection with preferred stock exchange
(note 10) (29) -- -- -- (29)
Gain from contribution of cable television
systems to joint venture, net of taxes
(note 7) 9 -- -- -- 9
Issuance of common stock upon exercise of
stock options 3 -- -- -- 3
Recognition of stock compensation related to
restricted stock awards 12 -- -- -- 12
Issuance of restricted stock granted
pursuant to stock incentive plan (3) -- -- -- --
Conversion of Series B common stock to
Series A common stock -- -- -- -- --
Accreted dividends on all classes of
preferred stock -- -- (4) -- (4)
Accreted dividends on all classes of
preferred stock not subject to mandatory
redemption requirements 2 -- -- -- 2
Foreign currency translation adjustment -- (15) -- -- (15)
Change in unrealized holding gains for
available-for-sale securities, net of taxes -- 987 -- -- 987
-------- -------- -------- -------- --------
Balance at February 28, 1999 6,668 4,721 839 (1,503) 12,239
======== ======== ======== ======== ========
</TABLE>
(continued)
I-7
<PAGE> 9
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Statement of Stockholders' Equity, continued
(unaudited)
<TABLE>
<CAPTION>
Accumulated
other
Class B Additional comprehensive
Preferred Common paid-in earnings, Accumulated
Stock Stock capital net of taxes deficit
---------- ---------- ---------- ------------- -----------
amounts in millions
New TCI
- -------
<S> <C> <C> <C> <C> <C>
Balance at March 1, 1999 (note 2) $ -- 13 52,142 -- --
Net loss -- -- -- -- (2,406)
Payment of preferred stock dividends -- -- (10) -- --
Issuance of AT&T Common Stock upon
conversion of TCI notes payable (note 8) -- -- 40 -- --
Issuance of AT&T Liberty Tracking Stock upon
conversion of Liberty Media Group debt
(note 5) -- -- 354 -- --
Gain from issuance of common stock by
subsidiary and affiliate, net of
taxes (note 6) -- -- 484 -- --
Gain from issuance of common stock by
attributed subsidiary of Liberty Media
Group, net of taxes -- -- 50 -- --
Utilization of net operating loss
carryforwards by AT&T (notes 5 and 11) -- -- (580) -- --
Reclassification of liability for stock
options upon exercise and cancellation
of such options -- -- 42 -- --
Reclassification by Liberty Media Group of
redeemable common stock to equity upon
expiration of put obligation -- -- 9 -- --
Change in non-interest bearing intercompany
account with AT&T -- -- -- -- --
Change in unrealized holding gains for
available-for-sale securities, net of
taxes (note 5) -- -- -- 2,357 --
Foreign currency translation adjustments,
net of taxes (note 5) -- -- -- 88 --
---------- ---------- ---------- ---------- ----------
Balance at September 30, 1999 $ -- 13 52,531 2,445 (2,406)
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Total
Investment stockholders'
in AT&T equity
------------- -------------
amounts in millions
New TCI
- -------
<S> <C> <C>
Balance at March 1, 1999 (note 2) (4,018) 48,137
Net loss -- (2,406)
Payment of preferred stock dividends -- (10)
Issuance of AT&T Common Stock upon
conversion of TCI notes payable (note 8) -- 40
Issuance of AT&T Liberty Tracking Stock upon
conversion of Liberty Media Group debt
(note 5) -- 354
Gain from issuance of common stock by
subsidiary and affiliate, net of
taxes (note 6) -- 484
Gain from issuance of common stock by
attributed subsidiary of Liberty Media
Group, net of taxes -- 50
Utilization of net operating loss
carryforwards by AT&T (notes 5 and 11) -- (580)
Reclassification of liability for stock
options upon exercise and cancellation
of such options -- 42
Reclassification by Liberty Media Group of
redeemable common stock to equity upon
expiration of put obligation -- 9
Change in non-interest bearing intercompany
account with AT&T (27) (27)
Change in unrealized holding gains for
available-for-sale securities, net of
taxes (note 5) -- 2,357
Foreign currency translation adjustments,
net of taxes (note 5) -- 88
---------- ----------
Balance at September 30, 1999 (4,045) 48,538
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-8
<PAGE> 10
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(see notes 1 and 2)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
New TCI Old TCI
------------------- -------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------- ----------------- ------------------
amounts in millions
(see note 4)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) before extraordinary items $ (2,410) (276) 1,414
Adjustments to reconcile net earnings (loss) before
extraordinary items to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,143 277 1,289
Stock compensation 72 366 423
Payments of obligation relating to stock
compensation (47) (294) (161)
Reserve for loss arising from contingent obligation 50 -- --
Payment of amounts relating to contingent obligation (116) -- --
Share of losses of Liberty Media Group 818 -- --
Share of losses of the Other Affiliates, net 789 161 986
Minority interests in earnings of consolidated
subsidiaries, net 103 26 95
Gains on issuance of equity interests by subsidiaries -- (389) (55)
Gain on issuance of stock by equity investee -- -- (259)
Gains on disposition of assets, net -- (144) (3,704)
Deferred income tax expense (benefit) (377) 116 1,026
Write-off of in-process research and development
costs 594 -- --
Other noncash charges (credits) (53) 1 (3)
Changes in operating assets and liabilities, net of the
effect of acquisitions and dispositions:
Change in receivables and prepaids 11 (84) (191)
Change in non-interest bearing intercompany
account with AT&T (27) -- --
Change in other accruals and payables (23) 44 (112)
---------- ---------- ----------
Net cash provided by (used in) operating activities
527 (196) 748
---------- ---------- ----------
Cash flows from investing activities:
Cash paid for acquisitions and exchanges, net (75) (353) (166)
Capital expended for property and equipment (1,910) (297) (1,123)
Effect on cash and cash equivalents of deconsolidation of
subsidiaries (401) (53) --
Investments in and loans to affiliates (101) (52) (1,346)
Collections of loans to affiliates, net 127 709 1,675
Proceeds from disposition of assets 38 344 712
Change in restricted cash 36 112 (335)
Other investing activities (28) 65 (73)
---------- ---------- ----------
Net cash provided by (used in) investing
activities (2,314) 475 (656)
---------- ---------- ----------
Cash flows from financing activities:
Borrowings of debt 3,584 583 4,645
Repayments of debt (2,228) (1,468) (4,213)
Payment of dividends on subsidiary preferred stock and
Trust Preferred Securities (124) (12) (141)
Payment of preferred stock dividends (10) (4) (27)
Proceeds received upon termination of equity swap
facilities -- 677 --
Prepayment penalties -- (4) (39)
Repurchase of common stock -- -- (31)
Repurchase of subsidiary common and preferred stock -- (45) (15)
Payments for call agreements -- -- (274)
Proceeds from issuance of subsidiary stock -- -- 91
Other financing activities (10) 8 (12)
---------- ---------- ----------
Net cash provided by (used in) financing
activities 1,212 (265) (16)
---------- ---------- ----------
Net change in cash and cash equivalents (575) 14 76
Cash and cash equivalents at beginning of
period 575 419 244
---------- ---------- ----------
Cash and cash equivalents at end of period $ -- 433 320
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-9
<PAGE> 11
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of Tele-Communications, Inc. and those of all of its subsidiaries
("TCI" or the "Company"). On March 9, 1999, AT&T acquired TCI in a
merger transaction (the "AT&T Merger"). For financial reporting
purposes the AT&T Merger and related restructuring transactions
described in note 2 are deemed to have occurred on March 1, 1999. The
consolidated financial statements for periods prior to March 1, 1999
are referred to herein as "Old TCI", and the consolidated financial
statements for periods subsequent to February 28, 1999 are referred to
herein as "New TCI." Due to the March 1, 1999 application of purchase
accounting in connection with the AT&T Merger, the predecessor
consolidated financial statements of Old TCI are not comparable to the
successor consolidated financial statements of New TCI. In the
following text, "TCI" and "the Company" refer to both Old TCI and New
TCI. See note 2.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of operations
for any interim period are not necessarily indicative of results for
the full year. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes
thereto contained in TCI's Annual Report on Form 10-K for the year
ended December 31, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Prior to the AT&T Merger, TCI generally recognized changes in its
proportionate share of the underlying equity of a subsidiary or equity
method investee, which resulted from the issuance of additional equity
securities by such subsidiary or equity investee, in the consolidated
statement of operations. Upon consummation of the AT&T Merger, TCI
began to account for such changes in the underlying equity of its
subsidiaries and affiliates as equity transactions in order to conform
with AT&T's accounting policy.
Certain prior period amounts have been reclassified for comparability
with the current period presentation.
(continued)
I-10
<PAGE> 12
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Targeted Stock
Prior to the AT&T Merger, the Company's assets and operations were
included in three separate groups, each of which was tracked separately
by public equity securities. These groups were formerly known as the
"Liberty Media Group" (referred to herein as the "Old Liberty Group"),
the "TCI Ventures Group" and the "TCI Group."
Old Liberty Group was intended to reflect the separate performance of
TCI's assets which produce and distribute programming services.
The TCI Ventures Group was intended to reflect the separate performance
of TCI's principal international assets and businesses and
substantially all of TCI's non-cable and non-programming assets.
The TCI Group was intended to reflect the separate performance of TCI
and its subsidiaries and assets not attributed to Old Liberty Group or
TCI Ventures Group. Such subsidiaries and assets are comprised
primarily of TCI's domestic cable and communications business.
TCI Group, Old Liberty Group and TCI Ventures Group individually may be
referred to herein as a "Group."
The TCI Group was tracked separately through the Tele-Communications,
Inc. Series A TCI Group Common Stock (the "TCI Group Series A Stock")
and Series B TCI Group Common Stock (the "TCI Group Series B Stock,"
and together with the TCI Group Series A Stock, the "TCI Group Stock").
The Old Liberty Group was tracked through the Tele-Communications, Inc.
Series A Liberty Media Group Common Stock ("Liberty Group Series A
Stock") and Series B Liberty Media Group Common Stock ("Liberty Group
Series B Stock" and together with the Liberty Group Series A Stock, the
"Liberty Group Stock"). The TCI Ventures Group was tracked separately
through the Tele-Communications, Inc. Series A TCI Ventures Group
Common Stock ("TCI Ventures Group Series A Stock") and Series B TCI
Ventures Group Common Stock ("TCI Ventures Group Series B Stock" and
together with the TCI Ventures Group Series A Stock, the "TCI Ventures
Group Stock").
Upon consummation of the AT&T Merger, each of the separate series of
Tele-Communications, Inc. common stock was converted either into shares
of AT&T common stock, par value $1.00 per share, ("AT&T Common Stock")
or shares of one of two classes of a new AT&T tracking stock designated
to track the combined Old Liberty Group and TCI Ventures Group after
giving effect to certain asset transfers. See note 2.
(continued)
I-11
<PAGE> 13
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Merger with AT&T and Related Accounting
On March 9, 1999, AT&T acquired TCI in the AT&T Merger, in which Italy
Merger Corp., a wholly-owned subsidiary of AT&T, merged with and into
TCI, and TCI thereby became a subsidiary of AT&T. As a result of the
AT&T Merger, (i) each share of TCI Group Series A Stock was converted
into 1.16355 shares of AT&T Common Stock, (ii) each share of TCI Group
Series B Stock was converted into 1.27995 shares of AT&T Common Stock,
(iii) each share of Liberty Group Series A Stock was converted into 2
shares of a newly created class of AT&T common stock designated as the
Class A Liberty Media Group Common Stock, par value $1.00 per share
(the "AT&T Liberty Class A Tracking Stock"), (iv) each share of Liberty
Group Series B Stock was converted into 2 shares of a newly created
class of AT&T common stock designated as the Class B Liberty Media
Group Common Stock, par value $1.00 per share (the "AT&T Liberty Class
B Tracking Stock" and together with the AT&T Liberty Class A Tracking
Stock, the "AT&T Liberty Tracking Stock"), (v) each share of TCI
Ventures Group Series A Stock was converted into 1.04 shares of AT&T
Liberty Class A Tracking Stock, (vi) each share of TCI Ventures Group
Series B Stock was converted into 1.04 shares of AT&T Liberty Class B
Tracking Stock, (vii) each share of TCI's Convertible Preferred Stock,
Series C-TCI Group (the "Series C-TCI Group Preferred Stock") was
converted into 154.589253 shares of AT&T Common Stock, (viii) each
share of TCI's Convertible Preferred Stock Series C-Liberty Media Group
(the "Series C-Liberty Media Group Preferred Stock") was converted into
112.50 shares of AT&T Liberty Class A Tracking Stock, (ix) each share
of TCI's Redeemable Convertible TCI Group Preferred Stock, Series G
("Series G Preferred Stock") was converted into 1.3846245 shares of
AT&T Common Stock and (x) each share of TCI's Redeemable Convertible
Liberty Media Group Preferred Stock, Series H ("Series H Preferred
Stock") was converted into 1.18125 shares of AT&T Liberty Class A
Tracking Stock. Following the AT&T Merger, each share of Class B 6%
Cumulative Redeemable Exchangeable Junior Preferred Stock ("Class B
Preferred Stock") continues to be outstanding as the Class B Preferred
Stock of TCI with the same rights and preferences such stock had prior
to the AT&T Merger. In general, the holders of shares of AT&T Liberty
Class A Tracking Stock and the holders of shares of AT&T Liberty Class
B Tracking Stock will vote together as a single class with the holders
of shares of AT&T Common Stock on all matters presented to such
stockholders, with the holders being entitled to 3/40th of a vote for
each share of AT&T Liberty Class A Tracking Stock held, 3/4ths of a
vote per share of AT&T Liberty Class B Tracking Stock held and 1 vote
per share of AT&T Common Stock held.
(continued)
I-12
<PAGE> 14
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger are
intended to reflect the separate performance of the businesses and
assets attributed to Old Liberty Group and TCI Ventures Group at the
time of the AT&T Merger. References herein to "Liberty/Ventures Group"
refer to the combined assets and businesses of Old Liberty Group and
TCI Ventures Group for periods prior to the AT&T Merger, and subsequent
to the AT&T Merger such combined assets and business are referred to as
"Liberty Media Group." Pursuant to, and subject to the terms and
conditions set forth in the Agreement and Plan of Restructuring and
Merger, dated as of June 23, 1998 (the "Merger Agreement"), immediately
prior to the AT&T Merger, certain assets previously attributed to TCI
Ventures Group (including, among others, the shares of AT&T Common
Stock received in the merger of AT&T and Teleport Communications Group,
Inc. ("TCG"), the stock of At Home Corporation ("@Home") attributed to
TCI Ventures Group, the assets and business of the National Digital
Television Center, Inc. ("NDTC") and TCI Ventures Group's equity
interest in Western Tele-Communications, Inc. ("WTCI")) were
transferred to TCI Group in exchange for approximately $5.5 billion in
cash. Also, upon consummation of the AT&T Merger, through a new tax
sharing agreement between Liberty Media Group and AT&T, Liberty Media
Group became entitled to the benefit of approximately $2 billion of net
operating loss carryforwards attributable to all entities included in
TCI's consolidated federal income tax return as of the date of the AT&T
Merger. Such net operating loss carryforwards are subject to adjustment
by the Internal Revenue Service and are subject to limitations on usage
which may affect the ultimate amount utilized. Additionally, certain
warrants to purchase shares of General Instruments Corporation ("GI")
previously attributed to TCI Group were transferred to Liberty/Ventures
Group in exchange for approximately $176 million in cash. The transfer
of certain immaterial assets was also effected.
Immediately prior to the AT&T Merger, AT&T and Liberty Media
Corporation entered into an agreement relating to the carriage of
programming of Liberty Media Group to be distributed over the AT&T
cable systems. Pursuant to this agreement, Liberty Media Group will be
granted, among other rights, "preferred vendor status" with respect to
certain types of new programming services. Liberty Media Group will
also be entitled to the use of channel capacity equal to one six
megahertz channel to be used for category specific interactive video
channels. In addition, such agreement also provided for the extension
of existing affiliation agreements between TCI and programming
affiliates of Liberty Media Group to a date not less than 10 years from
the closing of the AT&T Merger, upon the terms and conditions set forth
in such agreement.
(continued)
I-13
<PAGE> 15
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pursuant to amended corporate governance documents for the entities
included in Liberty Media Group and certain agreements among AT&T and
TCI, the business of Liberty Media Group will continue to be managed by
certain persons who were members of TCI's management prior to the AT&T
Merger. AT&T will initially designate one third of the directors of
such entities and its rights as the sole shareholder of the common
stock of such entities following the AT&T Merger will, in accordance
with Delaware law, be limited to actions which will require shareholder
approval. Therefore, management has concluded that TCI does not have a
controlling financial interest (as that term is used in Statement of
Financial Accounting Standards No. 94) in the entities comprising the
Liberty Media Group following the AT&T Merger, and will account for its
ownership interests in such entities under the equity method.
Immediately prior to the AT&T Merger, TCI restructured its ownership of
certain of its subsidiaries (the "Restructuring"). The Restructuring
included merging TCI's cable subsidiary, TCI Communications, Inc.
("TCIC"), into TCI. As a result of TCIC's merger with TCI, all assets
and liabilities of TCIC have been assumed by TCI, including TCIC's
public debt. In connection with TCIC's merger with TCI, each share of
TCIC's Cumulative Exchangeable Preferred Stock, Series A was converted
into 2.119 shares of TCI Group Series A Stock, and such shares of TCI
Group Series A Stock were subsequently converted into AT&T Common Stock
in connection with the AT&T Merger. All other public securities issued
by subsidiaries of TCIC (other than TCI Pacific Communications, Inc.
("Pacific")) otherwise remained unaffected. Furthermore, as part of the
Restructuring, (i) AT&T loaned TCI $5.5 billion pursuant to a
promissory note, (ii) certain asset transfers were made between TCI and
its subsidiaries, (iii) 123,896 shares of the Company's Convertible
Redeemable Participating Preferred Stock, Series F ("Series F Preferred
Stock") which were held by subsidiaries of TCI, were converted into
185,428,946 shares of TCI Group Series A Stock (which in turn were
converted into 215,755,850 shares of AT&T Common Stock in the AT&T
Merger and continue to be held by subsidiaries of TCI), (iv) the
remaining 154,411 shares of Series F Preferred Stock which were
formerly held by subsidiaries of TCI were distributed to TCI through a
series of liquidations and canceled, and (v) 125,728,816 shares of TCI
Group Series A Stock, 9,154,134 shares of TCI Group Series B Stock,
6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of
Liberty Group Series B Stock, and 67,536 shares of Class B Preferred
Stock, each formerly held by subsidiaries of TCI, were distributed to
TCI through a series of liquidations and canceled.
Under the terms of the 5% Class A Senior Cumulative Exchangeable
Preferred Stock of Pacific (the "Exchangeable Preferred Stock"), each
share of that preferred stock is exchangeable, from and after August 1,
2001, for approximately 6.3375 shares of AT&T Common Stock, subject to
certain anti-dilution adjustments. Additionally, Pacific may elect to
make any dividend, redemption or liquidation payment on the
Exchangeable Preferred Stock in cash, by delivery of shares of AT&T
Common Stock or by a combination of the foregoing forms of
consideration.
(continued)
I-14
<PAGE> 16
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The AT&T Merger has been accounted for using the purchase method of
accounting and has been deemed to be effective as of March 1, 1999 for
financial reporting purposes. Accordingly, the preliminary allocation
of AT&T's purchase price to acquire Old TCI has been reflected in TCI's
consolidated financial statements as of March 1, 1999. A final
allocation of such purchase price will be made upon resolution of
pre-acquisition contingencies and receipt of final third party
appraisals. Certain transactions occurring between March 1, 1999 and
March 9, 1999 that affected Old TCI's equity and stock compensation
have been reflected in the two-month period ended February 28, 1999.
The $52.2 billion aggregate value assigned to TCI's net assets as a
result of the application of purchase accounting was comprised of the
following:
<TABLE>
<CAPTION>
amounts in millions
<S> <C>
Issuance of AT&T Common Stock $ 26,798
Issuance of AT&T Liberty Tracking Stock 23,360
Assumption of convertible notes 1,593
Assumption of Class B Preferred Stock 154
Estimated merger costs 250
----------------
$ 52,155
================
</TABLE>
The value assigned to the AT&T Common Stock was based on the average
closing price of AT&T Common Stock a few days before and after the AT&T
Merger was agreed to and announced. The value assigned to the AT&T
Liberty Tracking Stock was based on the average closing price of
Liberty Group Stock a few days before and after the AT&T Merger was
agreed to and announced. The Liberty Group Stock was used to value the
AT&T Liberty Tracking Stock issued in the AT&T Merger because the fair
value of Liberty Group Stock was more readily determinable than the
fair value of the AT&T Liberty Tracking Stock.
(continued)
I-15
<PAGE> 17
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table reflects the opening summarized balance sheet of
New TCI as adjusted to give effect to the Restructuring, the
preliminary allocation of AT&T's purchase price to acquire TCI (as
adjusted through September 30, 1999), and the deconsolidation of the
entities comprising Liberty Media Group following the AT&T Merger:
<TABLE>
<CAPTION>
amounts in millions
Assets
<S> <C>
Cash and cash equivalents $ 575
Restricted cash 55
Receivables and prepaid assets 518
Investment in Liberty Media Group 33,728
Investment in the Other Affiliates 11,919
Property and equipment 5,455
Intangible assets 35,274
Other assets 2,437
--------
$ 89,961
========
Liabilities and Stockholders' Equity
Accounts payable and accrued expenses $ 1,742
Debt 16,844
Deferred income taxes 17,959
Other liabilities 1,053
--------
Total liabilities 37,598
--------
Minority interests in equity of consolidated
subsidiaries 2,566
Trust Preferred Securities 1,660
Stockholders' equity 52,155
Investment in AT&T (4,018)
--------
Total stockholders' equity 48,137
--------
$ 89,961
========
</TABLE>
The following table reflects the change in cash and cash equivalents as a result
of the Restructuring and the deconsolidation of Liberty Media Group:
<TABLE>
<CAPTION>
amounts in millions
<S> <C>
Cash and cash equivalents of
Old TCI at February 28,
1999 $ 433
Cash received from AT&T in
Restructuring 5,461
Decrease in cash due to
deconsolidation of Liberty
Media Group (5,319)
--------
Cash and cash equivalents of New TCI
at March 1, 1999 $ 575
========
</TABLE>
(continued)
I-16
<PAGE> 18
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As a result of the application of purchase accounting, New TCI has
recorded its assets and liabilities at their preliminary fair values on
March 9, 1999. During the third quarter of 1999, $19 billion of
goodwill recorded in connection with the preliminary allocation of
AT&T's purchase price to acquire Old TCI was reclassified to franchise
costs. Franchise costs represent the value attributable to the
agreements with local franchise authorities that allow access to homes
in TCI's service areas. As with goodwill, franchise costs are amortized
over 40 years. Generally accepted accounting principles require
deferred income taxes to be recorded on the difference between the
financial reporting basis and income tax basis of franchise costs,
whereas no such requirement exists for goodwill. Accordingly, during
the third quarter of 1999, New TCI recorded an increase to its deferred
income tax liability of approximately $12 billion, and recorded an
equal and offsetting increase to franchise costs. This reclassification
and its related deferred income tax effects were given retroactive
effect to the March 9, 1999 acquisition date in order to provide for
meaningful comparisons. Such retroactive treatment had no impact on New
TCI's net loss since the increased amortization of franchise costs was
fully offset by the deferred income tax benefit of such amortization.
During the second and third quarters of 1999, further refinements were
also made to the preliminary allocation of AT&T's purchase price to
acquire Old TCI as a result of the appraisal process. Refinements of
the allocation of AT&T's purchase price to acquire Old TCI are treated
as changes in estimates and accounted for prospectively. As of
September 30, 1999, the allocation of AT&T's purchase price to acquire
Old TCI had not been finalized. Accordingly, the Company may make
additional refinements to the preliminary allocation of AT&T's purchase
price to acquire Old TCI in future periods. In addition to the above,
certain of the more significant effects of purchase accounting are
described below.
New TCI's intangible assets in the March 1, 1999 opening consolidated
balance sheet also include $594 million of in-process research and
development costs. Such amount reflects the value, as of the
acquisition date, of the Company's research and development projects
which had not yet reached technological feasibility and which had no
alternative future use. Such in-process research and development costs
were written-off during March 1999.
As a result of the application of purchase accounting, the amount
assigned to New TCI's other liabilities includes $237 million which
represents New TCI's estimated liability for unvested stock
appreciation rights as of March 9, 1999. Such unvested stock
appreciation rights will vest over remaining periods ranging from 1 to
5 years. The amount assigned to New TCI's minority interests in equity
of consolidated subsidiaries includes $2.1 billion which represents the
fair value of the redeemable preferred stock of a subsidiary. For
additional information regarding the effects of purchase accounting on
New TCI's assets and liabilities, see notes 6, 8, 9 and 13.
(continued)
I-17
<PAGE> 19
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following unaudited condensed results of operations for the nine
months ended September 30, 1999 and 1998 were prepared assuming the
AT&T Merger, the Restructuring and the deconsolidation of Liberty Media
Group occurred on January 1, 1998. These pro forma amounts are not
necessarily indicative of operating results which would have occurred
if the AT&T Merger, the Restructuring and the deconsolidation of
Liberty Media Group had occurred on January 1, 1998.
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
----------- -----------
amounts in millions
<S> <C> <C>
Revenue $ 4,285 4,735
Net earnings (loss) before extraordinary items $ (2,958) 885
Net earnings (loss) $ (2,959) 858
</TABLE>
(3) Earnings (Loss) Per Common and Potential Common Share
Basic earnings per share ("EPS") is measured as the income or loss
attributable to common stockholders divided by the weighted average
outstanding common shares for the period. Diluted EPS is similar to
basic EPS but presents the dilutive effect on a per share basis of
potential common shares as if they had been converted at the beginning
of the periods presented. Potential common shares that have an
anti-dilutive effect are excluded from diluted EPS. Basic and diluted
EPS are presented only for periods prior to the AT&T Merger. Subsequent
to the AT&T Merger, all shares of common stock of TCI are held by AT&T.
See notes 1 and 2.
(a) TCI Group Stock
The basic earnings (loss) attributable to TCI Group common
stockholders per common share for the two months ended
February 28, 1999 and the three and nine month periods ended
September 30, 1998 was computed by dividing net earnings
(loss) attributable to TCI Group common stockholders by the
weighted average number of common shares outstanding of TCI
Group Stock during the period.
The diluted loss attributable to TCI Group common stockholders
per common share for the two months ended February 28, 1999
was computed by dividing net loss attributable to TCI Group
common stockholders, which is increased by aggregate fees paid
on equity swap facilities of $4 million during 1999, by the
weighted average number of common shares outstanding of TCI
Group Stock during the period. Potential common shares were
not included in the computation of weighted average shares
outstanding because their inclusion would be anti-dilutive.
(continued)
I-18
<PAGE> 20
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The diluted earnings attributable to TCI Group common
stockholders per common share for the three and nine months
ended September 30, 1998 was computed by dividing net earnings
attributable to TCI Group common stockholders, which is
adjusted by the addition of preferred stock dividends and
interest accrued during the three and nine months ended
September 30, 1998 to net earnings, assuming conversion of TCI
Group convertible securities as of the beginning of the period
to the extent that the assumed conversion of such securities
would have been dilutive, by the weighted average number of
common shares and dilutive potential common shares outstanding
of TCI Group Stock during the period. Shares issuable upon
conversion of the Series C-TCI Group Preferred Stock, the
Convertible Preferred Stock, Series D ("Series D Preferred
Stock"), the Series G Preferred Stock, certain stock rights,
preferred stock of subsidiaries, convertible notes payable,
stock options and other performance awards have been included
in the diluted calculation of weighted average shares to the
extent that the assumed issuance of such shares would have
been dilutive, as illustrated below. All of the outstanding
shares of Series D Preferred Stock were redeemed effective
April 1, 1998.
In connection with the March 9, 1999 AT&T Merger, TCI Group
Stock was converted into AT&T Common Stock. See note 2.
(continued)
I-19
<PAGE> 21
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information concerning the reconciliation of basic EPS to diluted EPS
with respect to TCI Group Stock is presented below:
<TABLE>
<CAPTION>
Old TCI
---------------------------------------------------------
Two months Three months Nine months
ended ended ended
February 28, 1999 September 30, 1998 September 30, 1998
----------------- ------------------ ------------------
amounts in millions, except per share amounts
<S> <C> <C> <C>
Basic EPS:
Earnings (loss) attributable to common
stockholders $ (226) 47 130
========== ========== ==========
Weighted average common shares 539 523 521
========== ========== ==========
Basic earnings (loss) per share
attributable to common stockholders $ (.42) .09 .25
========== ========== ==========
Diluted EPS:
Earnings (loss) attributable to common
stockholders $ (226) 47 130
Add preferred dividend requirements -- -- --
Add interest expense -- -- --
Less fees paid on equity swap facilities (4) 1 2
---------- ---------- ----------
Adjusted earnings (loss) attributable to common
stockholders assuming conversion of preferred
shares $ (230) 48 132
========== ========== ==========
Weighted average common shares 539 523 521
---------- ---------- ----------
Add dilutive potential common shares:
Employee and director options and other
performance awards -- 12 10
Stock right -- 1 --
Convertible notes payable -- 24 24
Series C-TCI Group Preferred Stock -- -- --
Series D Preferred Stock -- -- --
Series G Preferred Stock -- -- --
Preferred stock of subsidiaries -- 45 45
---------- ---------- ----------
Dilutive potential common shares
-- 82 79
---------- ---------- ----------
Diluted weighted average common shares 539 605 600
========== ========== ==========
Diluted earnings (loss) per share attributable to
common stockholders $ (.43) .08 .22
========== ========== ==========
</TABLE>
I-20
<PAGE> 22
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) Liberty Group Stock
The basic earnings (loss) attributable to Old Liberty Group
common stockholders per common share for the two months ended
February 28, 1999 and the three and nine month periods ended
September 30, 1998 was computed by dividing net earnings
(loss) attributable to Old Liberty Group common stockholders
by the weighted average number of common shares outstanding of
Liberty Group Stock during the period.
The diluted loss attributable to Old Liberty Group common
stockholders per common share for the two months ended
February 28, 1999 and the three months ended September 30,
1998 was computed by dividing the net loss attributable to Old
Liberty Group stockholders by the weighted average number of
common shares outstanding of Liberty Group Stock during the
period. Potential common shares were not included in the
computation of weighted average shares outstanding because
their inclusion would be anti-dilutive.
The diluted earnings attributable to Old Liberty Group common
stockholders per common and potential common share for the
nine months ended September 30, 1998 was computed by dividing
earnings attributable to Old Liberty Group common stockholders
by the weighted average number of common and dilutive
potential common shares outstanding of Liberty Group Stock
during the period. Shares issuable upon conversion of the
Series C-Liberty Media Group Preferred Stock, the Series D
Preferred Stock, the Series H Preferred Stock, convertible
notes payable, stock options and other performance awards have
been included in the diluted calculation of weighted average
shares to the extent that the assumed issuance of such shares
would have been dilutive, as illustrated below. All of the
outstanding shares of Series D Preferred Stock were redeemed
effective April 1, 1998. Numerator adjustments for dividends
and interest associated with the convertible preferred shares
and convertible notes payable, respectively, were not made to
the computation of diluted earnings per share as such
dividends and interest were paid by TCI Group.
In connection with the AT&T Merger, Liberty Group Stock was
converted into AT&T Liberty Tracking Stock. See note 2.
(continued)
I-21
<PAGE> 23
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Information concerning the reconciliation of basic EPS to diluted EPS
with respect to Liberty Group Stock is presented below:
<TABLE>
<CAPTION>
Old TCI
------------------------------------------------------------
Two months Three months Nine months
ended ended ended
February 28, 1999 September 30, 1998 September 30, 1998
----------------- ------------------ ------------------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Basic EPS:
Earnings (loss) attributable to common
stockholders $ (49) (11) 227
============ ============ ============
Weighted average common shares 367 357 357
============ ============ ============
Basic earnings (loss) per share attributable to
common stockholders $ (.13) (.03) .64
============ ============ ============
Diluted EPS:
Earnings (loss) attributable to common
stockholders $ (49) (11) 227
============ ============ ============
Weighted average common shares 367 357 357
------------ ------------ ------------
Add dilutive potential common shares:
Employee and director options and other
performance awards -- -- 8
Convertible notes payable -- -- 19
Series C-Liberty Media Group Preferred Stock -- -- 4
Series D Preferred Stock -- -- --
Series H Preferred Stock -- -- 4
------------ ------------ ------------
Dilutive potential common shares -- -- 35
------------ ------------ ------------
Diluted weighted average common shares 367 357 392
============ ============ ============
Diluted earnings (loss) per share attributable to
common stockholders $ (.13) (.03) .58
============ ============ ============
</TABLE>
(c) TCI Ventures Group Stock
The basic earnings (loss) attributable to TCI Ventures Group
common stockholders per common share for the two months ended
February 28, 1999 and the three and nine month periods ended
September 30, 1998 was computed by dividing net earnings
(loss) attributable to TCI Ventures Group common stockholders
by the weighted average number of common shares outstanding of
TCI Ventures Group Stock during the period.
The diluted loss attributable to TCI Ventures Group common
stockholders per common share for the two months ended
February 28, 1999 was computed by dividing the net loss
attributable to TCI Ventures Group stockholders by the
weighted average number of common shares outstanding of TCI
Ventures Group during the period. In 1999, the net loss
attributable to TCI Ventures Group common stockholders is
increased by $29 million for charges recorded directly to
equity upon settlement of an equity swap transaction. See note
10. For purposes of computing diluted EPS such amount is
assumed to be charged to earnings. Potential common shares
were not included in the computation of weighted average
shares outstanding because their inclusion would be
anti-dilutive.
(continued)
I-22
<PAGE> 24
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The diluted earnings attributable to TCI Ventures Group common
stockholders per common share for the three and nine month
periods ended September 30, 1998 was computed by dividing net
earnings attributable to TCI Ventures Group common
stockholders by the weighted average number of common shares
outstanding of TCI Ventures Group Stock during the period.
Shares issuable upon conversion of convertible notes payable,
stock options and other performance awards have been included
in the diluted calculation of weighted average shares to the
extent that the assumed issuance of such shares would have
been dilutive, as illustrated below. Numerator adjustments for
interest associated with convertible notes payable were not
made to the computation of diluted earnings per share as such
interest was paid by TCI Group.
In connection with the March 9, 1999 AT&T Merger, TCI Ventures
Group Stock was converted into AT&T Liberty Tracking Stock.
See note 2.
Information concerning the reconciliation of basic EPS to diluted EPS with
respect to TCI Ventures Group is presented below:
<TABLE>
<CAPTION>
Old TCI
-----------------------------------------------------------
Two months Three months Nine months
ended ended ended
February 28, 1999 September 30, 1998 September 30, 1998
----------------- ------------------ ------------------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Basic EPS:
Earnings (loss) attributable to common
stockholders $ (10) 1,299 1,012
============ ============ ============
Weighted average common shares 423 423 422
============ ============ ============
Basic earnings (loss) per share attributable to common
stockholders $ (.02) 3.07 2.40
============ ============ ============
Diluted EPS:
Earnings (loss) attributable to common stockholders
$ (10) 1,299 1,012
============ ============ ============
Weighted average common shares 423 423 422
------------ ------------ ------------
Add dilutive potential common shares:
Employee and director options and other performance
awards -- 7 9
Convertible notes payable -- 21 21
------------ ------------ ------------
Dilutive potential common shares -- 28 30
------------ ------------ ------------
Diluted weighted average common shares 423 451 452
============ ============ ============
Diluted earnings (loss) per share attributable to
common stockholders $ (.09) 2.88 2.24
============ ============ ============
</TABLE>
(4) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $395 million, $287 million and $905 million
for the seven months ended September 30, 1999, the two months ended
February 28, 1999 and the nine months ended September, 1998,
respectively. Cash paid for income taxes was not material during such
periods.
(continued)
I-23
<PAGE> 25
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Significant non-cash investing and financing activities and certain
supplemental disclosures with respect to the statement of cash flows
are reflected below:
<TABLE>
<CAPTION>
New TCI Old TCI
------------------ --------------------------------------
Seven months Two months Nine months
ended ended ended
September 30, 1999 February 28, 1999 September 30, 1998
------------------ ----------------- ------------------
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Recorded value of assets acquired $ (34) (353) (906)
Net liabilities assumed -- -- 79
Deferred tax liability recorded in
acquisitions -- -- 105
Change in minority interests in equity
of consolidated subsidiaries -- -- (215)
Elimination of notes receivable from
affiliates -- -- 350
Common stock issued in acquisitions -- -- 376
------------ ------------ ------------
Cash paid for acquisitions $ (34) (353) (211)
============ ============ ============
Cash received (paid) in exchanges:
Recorded value of assets acquired $ (2,243) -- (72)
Historical cost of assets exchanged 2,202 -- 87
Gain recorded on exchange of assets -- -- 30
------------ ------------ ------------
Cash received (paid) in exchanges $ (41) -- 45
============ ============ ============
Capitalized costs of distribution
agreements for @Home $ 79 -- 83
============ ============ ============
</TABLE>
(continued)
I-24
<PAGE> 26
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company ceased to include TV Guide, Inc. ("TV Guide") in its
consolidated financial results and began to account for TV Guide using
the equity method of accounting effective February 28, 1999 (see note
7). In addition, during the second quarter of 1999, the Company ceased
to include @Home in its consolidated financial results and began to
account for @Home using the equity method of accounting (see note 6).
The effects of changing the method of accounting for the Company's
ownership interests in TV Guide and @Home from the consolidation method
to the equity method are summarized below:
<TABLE>
<CAPTION>
Seven months Two months
ended ended
September 30, 1999 February 28, 1999
------------------ -----------------
amounts in millions
<S> <C> <C>
Assets (other than cash and cash equivalents)
reclassified to investments in affiliates $ (918) (572)
Liabilities reclassified to investments in
affiliates 357 190
Minority interests in equity of subsidiaries
reclassified to investments in affiliates 474 63
Gain on issuance of equity by subsidiary, net of
taxes 488 372
------------ ------------
Decrease in cash and cash equivalents $ 401 53
============ ============
</TABLE>
For a description of certain additional non-cash transactions, see
notes 2, 6 and 7.
The Company's restricted cash of $19 million at September 30, 1999,
includes amounts held in escrow of $10 million and proceeds received in
connection with certain asset dispositions. Such proceeds, which
aggregated $9 million, are designated to be reinvested in certain
identified assets for income tax purposes.
(continued)
I-25
<PAGE> 27
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investment in Liberty Media Group
As described in note 2, immediately following the AT&T Merger, the
entities comprising the Liberty Media Group were deconsolidated. The
Company's investment in Liberty Media Group includes non-interest
bearing receivables from Liberty Media Group. Summarized unaudited
results of operations for Liberty Media Group for the period in which
the Company used the equity method to account for Liberty Media Group
are as follows:
<TABLE>
<CAPTION>
Seven months
ended
September 30, 1999
------------------
amounts in millions
<S> <C>
Revenue $ 506
Operating costs and expenses (408)
Stock compensation (432)
Depreciation and amortization (394)
------------
Operating loss (728)
Interest expense (87)
Share of losses of affiliates, net (597)
Other, net 189
------------
Loss before income taxes (1,223)
Income tax benefit 405
------------
Net loss $ (818)
============
</TABLE>
During March and April 1999, certain convertible debentures of a
subsidiary attributed to the Liberty Media Group were converted into
shares of AT&T Liberty Tracking Stock. The $354 million principal
amount of such converted debentures has been reflected as an increase
to New TCI's "Additional paid-in capital."
The accompanying consolidated statement of stockholders' equity for the
seven months ended September 30, 1999 includes changes in Liberty Media
Group's unrealized holding gains for available-for-sale securities
totaling $2,320 million, net of taxes, and Liberty Media Group's
foreign currency translation adjustments totaling $88 million, net of
taxes.
During the third quarter of 1999, AT&T utilized $85 million of Liberty
Media Group's net operating loss carryforwards to offset AT&T's current
federal income tax liability. Liberty Media Group did not receive any
consideration for the utilization of such net operating loss
carryforwards. Accordingly, AT&T's utilization of Liberty Media Group's
net operating loss carryforwards has been reflected as a decrease to
New TCI's "Additional paid-in capital."
(continued)
I-26
<PAGE> 28
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Investments in the Other Affiliates
The Company has various investments in the Other Affiliates accounted
for under the equity method. The following table includes the Company's
carrying value of its more significant investments in the Other
Affiliates as of the indicated dates:
<TABLE>
<CAPTION>
New TCI Old TCI
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
amounts in millions
<S> <C> <C>
Cablevision Systems
Corporation ("CSC")(a) $ 3,130 945
@Home(b) 2,866 --
Lenfest Communications,
Inc. 2,196 (138)
Texas Cable Partners, L.P. 1,570 111
Bresnan Communications
Group LLC ("Bresnan") 873 --
Falcon Communications, L.P.
("Falcon") 660 189
InterMedia Capital Partners IV,
L.P. ("InterMedia IV") and
InterMedia Capital Management IV, L.P.
("ICM IV") 641 201
USA Networks, Inc. and related
investments(c) -- 1,042
Various foreign equity
investments(c) -- 1,492
Other 2,457 867
------------ ------------
$ 14,393 4,709
============ ============
</TABLE>
-----------------
(a) CSC
On March 4, 1998, the Company contributed to CSC certain of
its cable television systems serving approximately 830,000
customers in exchange for approximately 48.9 million newly
issued CSC Class A common shares (the "CSC Transaction"). CSC
also assumed and repaid approximately $574 million of debt
owed by the Company to external parties and $95 million of
debt owed to the Company. As a result of the CSC Transaction,
the Company recognized a $506 million gain in the accompanying
consolidated statement of operations for the nine months ended
September 30, 1998. Such gain represents the excess of the
$1,161 million fair value of the CSC Class A common shares
received over the historical cost of the net assets
transferred by the Company to CSC.
(continued)
I-27
<PAGE> 29
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At September 30, 1999, the Company owned 48,942,172 shares of
CSC Class A common stock, which had a closing market price of
$72.75 per share on such date. Such shares represented an
approximate 32% equity interest in CSC's total outstanding
shares and an approximate 9% voting interest in CSC in all
matters except for (i) the election of directors, in which
case the Company effectively has the right to designate two of
CSC's directors, and (ii) any increase in authorized shares,
in which case the Company has agreed to vote its interest in
proportion with the public holders of CSC Class A common
shares. The ability of the Company to sell or increase its
investment in CSC is subject to certain restrictions and
limitations set forth in a stockholders agreement with CSC. As
a result of the deconsolidation of Liberty Media Group,
1,040,400 shares of CSC Class A common stock held by Liberty
Media Group are no longer included in the Company's investment
in CSC. See note 2.
(b) @Home
During the second quarter of 1999, the stockholders of @Home
approved certain changes in the corporate governance of @Home.
As a result of these changes, management concluded that TCI no
longer held a controlling financial interest (as that term is
used in Statement of Financial Accounting Standards No. 94) in
@Home and, accordingly, during the second quarter of 1999, TCI
ceased to consolidate @Home and began to account for @Home
using the equity method of accounting.
On May 28, 1999, @Home consummated a merger agreement with
Excite, Inc. ("Excite"), a global Internet media company that
offers consumers and advertisers comprehensive Internet
navigation services with extensive personalization
capabilities. Under the terms of the merger agreement, @Home
issued approximately 116 million shares of its common stock
for all of the outstanding common stock of Excite based on an
exchange ratio of 2.083804 shares of @Home's common stock for
each share of Excite's common stock. @Home may issue up to
approximately 46 million additional shares of common stock in
connection with the assumption of obligations under Excite's
stock option and employer stock purchase plans and outstanding
warrants. As a result of the merger, TCI's economic interest
in @Home decreased from 38% to 26%. Due to the resulting
increase in @Home's equity, net of the dilution of TCI's
ownership interest in @Home, TCI recorded a $488 million
increase to "Additional paid-in capital" and a $312 million
increase to "Deferred income tax liability." At September 30,
1999, the Company owned 63,720,000 shares of @Home Class A
common stock, which had a closing market price of $41.44 per
share on such date.
(continued)
I-28
<PAGE> 30
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the two months ended February 28, 1999, @Home issued
2.2 million common shares. Due to the resulting increase in
@Home's equity, net of the dilution of TCI's ownership
interest in @Home, TCI recognized a gain of $17 million.
(c) Liberty Media Group Investments
As a result of the deconsolidation of Liberty Media Group, the
indicated investments are no longer included in the Company's
consolidated investments. See note 2.
At September 30, 1999, the aggregate carrying value of the Company's
investments in the Other Affiliates exceeded the Company's aggregate
proportionate share of the Other Affiliates' underlying equity by $14.0
billion, of which $8.4 billion, $4.2 billion and $1.4 billion is being
amortized over 40 years, 25 years and 7 years, respectively.
TCI has entered into various agreements, which, among other matters,
contemplate the disposition of certain of its investments in the Other
Affiliates. See note 7.
Summarized unaudited combined results of operations for the Other
Affiliates for the periods in which the Company used the equity method
to account for the Other Affiliates are as follows:
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
Combined Operations 1999 1998
------------------- ------------ ------------
amounts in millions
<S> <C> <C>
Revenue $ 7,282 11,198
Operating expenses (5,661) (10,179)
Depreciation and amortization (2,110) (2,177)
------------ ------------
Operating loss (489) (1,158)
Interest expense (1,052) (1,458)
Other, net (149) (33)
------------ ------------
Net loss $ (1,690) (2,649)
============ ============
</TABLE>
(7) Acquisitions and Dispositions
On May 4, 1999, AT&T and Comcast Corporation ("Comcast") announced that
they had signed a letter of intent to exchange various cable systems,
including certain cable systems of TCI. In addition, Comcast will
receive an option from AT&T to purchase, over the next three years,
additional cable systems with a total of approximately 1.25 million
subscribers, which may include cable subscribers of TCI. The foregoing
letter of intent is subject to completion of definitive agreements,
consummation of certain other transactions, and regulatory and legal
approvals.
(continued)
I-29
<PAGE> 31
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On July 6, 1999, AT&T and Cox Communications, Inc. ("Cox") signed an
agreement whereby AT&T would redeem approximately 50.3 million shares
of AT&T Common Stock held by Cox in exchange for cable television
systems of TCI serving approximately 316,000 customers and TCI's
interest in certain equity method investments. The transaction is
subject to receipt of necessary government and regulatory approvals. No
assurance can be given that such transaction will be consummated. See
note 6.
TCI has entered into agreements with Century Communications Corp.
("Century") whereby TCI will contribute cable television systems
serving approximately 249,000 customers located in Southern California
to a newly formed limited partnership in which TCI will have an
approximate 25% partnership interest. TCI will also exchange with the
new partnership a cable television system serving approximately 100,000
customers in Southern California for cable television systems in
Northern California serving approximately 100,000 customers. The
transactions are subject to various closing conditions. No assurance
can be given that such transactions will be consummated. On October 1,
1999, a merger was consummated in which Century merged with and into
Adelphia Communications Corporation ("Adelphia"). As a result of such
merger, Adelphia assumed all of Century's rights and obligations
relating to the above described transaction.
On October 1, 1999, TCI, InterMedia IV, and InterMedia Partners, a
California Limited Partnership and a consolidated subsidiary of the
Company ("InterMedia Partners"), entered into a series of transactions
with unaffiliated third parties that resulted in the disposition of
certain cable television systems, the acquisition by InterMedia IV of
all of its partnership interests that were not owned by TCI and the
exchange of certain of InterMedia IV's and InterMedia Partners' cable
television systems. As a result of such transactions, InterMedia IV
became a consolidated subsidiary of TCI. See notes 6 and 12.
During the second quarter of 1999, TCI entered into separate agreements
to sell the majority of its 50% interest in Bresnan (the "Bresnan
Transaction") and its 46% interest in Falcon (the "Falcon Transaction")
to Charter. In accordance with the terms of the Bresnan Transaction,
TCI would receive consideration of approximately $900 million in the
form of cash, and an approximate 4.5% interest in a new entity to be
formed by Charter. In accordance with the terms of the Falcon
Transaction, TCI would receive cash proceeds of approximately $725
million for its interest in Falcon Communications, L.P. The
transactions are subject to various closing conditions. No assurance
can be given that such transactions will be consummated. See note 6.
(continued)
I-30
<PAGE> 32
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the second quarter of 1999, the Company paid $41 million in cash
and traded cable television systems serving approximately 618,000
customers located in Florida, Hawaii, Maine, New York, Ohio, Texas and
Wisconsin in exchange for cable television systems serving
approximately 565,000 customers located in Illinois, New Jersey, Oregon
and Pennsylvania (the "1999 Exchange"). The 1999 Exchange was
consummated pursuant to an agreement that was executed in November
1998. No gain was recognized on the 1999 Exchange due to the Company's
application of purchase accounting in connection with the AT&T Merger.
During the two months ended February 28, 1999, the Company completed a
transaction whereby the Company contributed cable television systems to
Bresnan, an entity in which the Company had an approximate 80%
ownership interest. Through a series of transactions, including the
contribution of cash by a third party in exchange for an ownership
interest in Bresnan, the Company's ownership interest in Bresnan was
reduced to a non-controlling 50% ownership interest (the "1999
Contribution Transaction"). In connection with the associated dilution
of the Company's ownership interest, the Company deconsolidated assets
and liabilities related to cable television systems serving
approximately 614,000 customers. The deconsolidated liabilities
included $210 million of debt owed to external parties and $709 million
of intercompany debt owed to the Company. In connection with the 1999
Contribution Transaction, the Company has agreed to take certain steps
to support compliance by Bresnan with its payment obligations under
certain debt instruments. See note 13. As a result of the dilution of
the Company's ownership interest from 80% to 50%, the Company recorded
a $9 million increase (net of deferred income taxes of $5 million) to
additional paid-in capital in connection with the 1999 Contribution
Transaction. No gain was recognized due to the Company's aforementioned
commitment to support the entity's payment obligations under certain
debt instruments.
During February 1999, the Company sold cable television assets serving
approximately 145,000 customers to an unaffiliated third party for
approximately $300 million. The Company recorded a $123 million gain on
such disposition.
During the year ended 1998, the Company completed various transactions
in addition to the CSC Transaction described in note 6, wherein the
Company contributed cable television systems serving in the aggregate
approximately 1.9 million customers to several joint ventures
(collectively, the "1998 Joint Ventures") in exchange for
non-controlling ownership interests in each of the 1998 Joint Ventures,
and the assumption and repayment by the 1998 Joint Ventures of debt
owed by the Company to external parties aggregating $323 million and
intercompany debt owed to the Company aggregating $2,374 million. In
connection with such transactions, the Company has agreed to take
certain steps to support compliance by the 1998 Joint Ventures with
their payment obligations under certain debt instruments. See notes 6
and 13.
(continued)
I-31
<PAGE> 33
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective February 28, 1999, TV Guide (formerly United Video Satellite
Group, Inc. ("UVSG")) and The News Corporation Limited ("News Corp.")
completed a transaction whereby News Corp.'s TV Guide properties were
combined with UVSG to create a platform for offering television guide
services to consumers and advertising and the resulting company was
named TV Guide. As part of this combination, a unit of News Corp.
received consideration consisting of $800 million in cash and 60
million shares of UVSG's stock, including 22.5 million shares of its
Class A common stock and 37.5 million shares of its Class B common
stock. In addition, News Corp. elected to purchase approximately 6.5
million additional shares of UVSG Class A common stock for $129 million
in order to equalize its ownership with that of Liberty/Ventures Group.
Prior to such transactions, UVSG was a subsidiary of TCI. Immediately
following these transactions, and another transaction completed on the
same date, News Corp., Liberty/Ventures Group and TV Guide's public
stockholders owned on an economic basis approximately 44%, 44% and 12%,
respectively, of TV Guide and News Corp. and Liberty/Ventures Group
each had approximately 49% of the voting power of TV Guide's
outstanding stock. Due to the resulting increase in TV Guide's equity,
net of the dilution of TCI's ownership interest in TV Guide, TCI
recognized a $372 million gain (before deducting deferred income tax
expense of $147 million).
Effective September 1, 1998, Telewest Communications plc ("Telewest")
and General Cable PLC ("General Cable") consummated a merger in which
General Cable merged with and into Telewest. As a result of such
merger, TCI's ownership interest in Telewest decreased to 22%. In
connection with such dilution, TCI recognized a gain of $58 million
(before deducting deferred income tax expense of $20 million).
On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T
was consummated. See note 11. On April 22, 1998, TCG completed a merger
transaction with ACC Corp. ("ACC") in which ACC shares were exchanged
for shares of TCG. As a result of ACC's merger with TCG, Old TCI's
interest in TCG was reduced to approximately 26%. In connection with
the dilution of Old TCI's interest in TCG, Old TCI recorded a gain of
$201 million (before deducting deferred income tax expense of $71
million).
Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
contributed the assets, obligations and operations of its retail C-band
satellite business to Superstar/Netlink Group LLC ("Superstar/Netlink")
in exchange for an approximate 20% interest in Superstar/Netlink. As a
result of this transaction, the Company's ownership interest in
Superstar/Netlink decreased from 100% to approximately 80% and the
Company recognized a gain of $38 million (before deducting deferred
income tax expense of $15 million). Turner Vision's contribution to
Superstar/Netlink was accounted for as a purchase, and the $61 million
excess of the purchase price over the fair value of the assets acquired
was recorded as goodwill.
(continued)
I-32
<PAGE> 34
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
New TCI Old TCI
------------- ------------
September 30, December 31,
1999 1998
------------- ------------
amounts in millions
<S> <C> <C>
AT&T Notes (a) $ 8,559 --
Other notes payable (b) 9,154 9,412
Bank credit facilities (c) -- 3,773
Commercial paper -- 109
Convertible notes (d) -- 40
Capital lease obligations and other debt 295 718
------------ ------------
$ 18,008 14,052
============ ============
</TABLE>
(a) Amounts outstanding under the notes payable to AT&T ("AT&T
Notes") bear interest at the London Interbank Offered Rate
("LIBOR") plus 15 basis points (6.23% at September 30, 1999)
and are due and payable on or before March 9, 2004. Interest
on the AT&T Notes is compounded quarterly.
(b) During the seven months ended September 30, 1999, the Company
redeemed certain notes payable which had an aggregate
principal balance of $64.6 million and fixed interest rates
ranging from 7.875% to 8.75%. In connection with such
redemptions, the Company recognized a pre-tax gain on early
extinguishment of debt of $6 million. Such gain related to the
excess of the fair value assigned to the debt in purchase
accounting over the amount paid to redeem the debt.
During the two months ended February 28, 1999, the Company
redeemed certain notes payable which had an aggregate
principal balance of $21 million and fixed interest rates
ranging from 8.75% to 9.25%. In connection with such
redemptions, the Company recognized a pre-tax loss on early
extinguishment of debt of $4 million. Such loss related to
prepayment penalties and the retirement of deferred loan
costs.
During the nine months ended September 30, 1998, the Company
redeemed certain notes payable which had an aggregate
principal balance of $352 million and fixed interest rates
ranging from 8.67% to 10.25%. In connection with such
redemptions, the Company recognized a pre-tax loss on early
extinguishment of debt of $44 million in 1998. Such loss
related to prepayment penalties amounting to $39 million and
the retirement of deferred loan costs.
(c) During the two months ended February 28, 1999, the Company
repaid a bank credit facility. In connection with such
repayment, the Company recognized a pre-tax loss on early
extinguishment of debt of $4 million. Such loss related to the
retirement of deferred loan costs.
(continued)
I-33
<PAGE> 35
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As security for borrowings under one of Old TCI's credit
facilities, Old TCI had pledged a portion of its Time Warner
common stock. As a result of the deconsolidation of
Liberty/Ventures Group, such borrowings and the associated
Time Warner common stock are no longer reflected in the
Company's consolidated debt and asset balances.
(d) The convertible notes, which were stated net of unamortized
discount of $166 million at December 31, 1998, were scheduled
to mature on December 12, 2021. The notes required an annual
interest payment equal to 1.85% of the face amount of the
notes. On March 26, 1999, all of the notes were converted into
shares of AT&T Common Stock, AT&T Liberty Class A Tracking
Stock and TCI Satellite Entertainment, Inc. Series A common
stock, $1.00 par value per share ("Satellite Series A Common
Stock") in accordance with the terms of the notes. Following
such conversion, none of such notes remain outstanding. Such
notes were held by a then director of the Company, as well as
several members of his family. In connection with the AT&T
Merger, such director resigned. Immediately prior to the AT&T
Merger, the notes were convertible, at the option of the
holders, into an aggregate of 24,163,259 shares of TCI Group
Series A Stock, 19,416,889 shares of Liberty Group Series A
Stock, 20,711,364 shares of TCI Ventures Group Series A Stock
and 3,451,897 shares of Satellite Series A Common Stock.
Pursuant to the terms of the Merger Agreement and a certain
stock purchase agreement, dated as of July 9, 1986, among the
Company and the holders of such convertible notes, the
conversion feature of the convertible notes was adjusted such
that as of the March 9, 1999 consummation date of the AT&T
Merger, such notes were convertible into an aggregate of
28,632,122 shares of AT&T Common Stock, 60,373,632 shares of
AT&T Liberty Class A Tracking Stock and 3,451,897 shares of
Satellite Series A Common Stock.
Certain debt instruments of a subsidiary of the Company contain
restrictive covenants which require, among other things, the
maintenance of certain earnings, specified cash flow and financial
ratios (primarily the ratios of cash flow to total debt and cash flow
to debt service, as defined), and include certain limitations on
indebtedness, investments, guarantees, dispositions, stock repurchases
and/or dividend payments.
The aggregate fair value assigned in purchase accounting to New TCI's
debt and related variable and fixed interest rate exchange agreements
("Interest Rate Swaps") exceeded the aggregate recorded value at the
date of the AT&T Merger by $938 million. Such excess is being amortized
over the respective remaining 1 to 30 year lives of the underlying debt
obligations and Interest Rate Swaps. See note 2.
The fair value of the Company's debt, exclusive of the AT&T Notes, is
estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the
same remaining maturities. At September 30, 1999, the fair value of the
Company's debt, exclusive of the AT&T Notes, was $9,007 million, as
compared to a carrying value of $9,449 million on such date. Due to its
related party nature, it is not practical to obtain a reasonable
estimate of the fair value of the AT&T Notes.
(continued)
I-34
<PAGE> 36
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company may enter into Interest Rate Swaps pursuant
to which it (i) pays fixed interest rates (the "Fixed Rate Agreements")
and receives variable interest rates and (ii) pays variable interest
rates (the "Variable Rate Agreements") and receives fixed interest
rates. At December 31, 1998, all of the Company's Fixed Rate Agreements
had expired. During the nine months ended September 30, 1998, the
Company's payments pursuant to the Fixed Rate Agreements were less than
$1 million. During the seven months ended September 30, 1999, the two
months ended February 28, 1999 and the nine months ended September 30,
1998, the Company's net receipts pursuant to the Variable Rate
Agreements were $16 million, $1 million and $8 million, respectively.
Information concerning the Company's Variable Rate Agreements at
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Amount to be
Expiration Interest rate Notional received (paid) upon
date to be received amount termination (a)
---------- -------------- -------- --------------------
dollar amounts in millions
<S> <C> <C> <C>
February 2000 5.8%-6.6% $ 300 $ 1
March 2000 5.8%-6.0% 675 --
September 2000 5.1% 75 (1)
March 2027 9.7% 300 2
December 2036 9.7% 200 (3)
---------- ----------
$ 1,550 $ (1)
========== ==========
</TABLE>
--------------------
(a) The estimated amount that the Company would receive (pay) to
terminate the agreements at September 30, 1999, taking into
consideration current interest rates and the current
creditworthiness of the counterparties, represents the fair
value of the Interest Rate Swaps.
In addition to the Variable Rate Agreements, the Company has entered
into Interest Rate Swaps pursuant to which it pays a variable rate
based on LIBOR (6.4% at September 30, 1999) and receives a variable
rate based on the Constant Maturity Treasury Index ("CMT") (6.1% at
September 30, 1999) on a notional amount of $400 million through
September 2000; and pays a variable rate based on LIBOR (6.3% at
September 30, 1999) and receives a variable rate based on CMT (6.2% at
September 30, 1999) on notional amounts of $95 million through February
2000. During each of the seven months ended September 30, 1999, the two
months ended February 28, 1999 and the nine months ended September 30,
1998, the Company's net payments pursuant to such agreements were $1
million. At September 30, 1999, the Company would be required to pay
less than $1 million to terminate such Interest Rate Swaps.
(continued)
I-35
<PAGE> 37
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of
nonperformance by the other parties to the agreements. However, the
Company does not anticipate that it will incur any material credit
losses because it does not anticipate nonperformance by the
counterparties. Further, the Company does not anticipate material
near-term losses in future earnings, fair values or cash flows
resulting from derivative financial instruments as of September 30,
1999.
(9) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities
The Trust Preferred Securities are presented together in a separate
line item in the accompanying consolidated balance sheets captioned
"Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely subordinated debt securities."
Dividends accrued on the Trust Preferred Securities aggregated $83
million, $23 million and $106 million during the seven months ended
September 30, 1999, the two months ended February 28, 1999 and the nine
months ended September 30, 1998, respectively, and are included in
minority interests in earnings of consolidated subsidiaries in the
accompanying consolidated financial statements.
The aggregate fair value assigned to the Trust Preferred Securities in
purchase accounting exceeded the aggregate recorded value at the date
of the AT&T Merger by $160 million. Such excess is being amortized over
the remaining 28 to 46 year terms of such securities.
(10) Stockholders' Equity
Treasury Stock and Common Stock Held by Subsidiaries, at Cost
In conjunction with the AT&T Merger, Old TCI shares held in treasury
and Old TCI shares held by subsidiaries were canceled. See note 2.
General
During 1997, Old TCI entered into certain equity swap facilities. Due
to Old TCI's ability to issue shares to settle periodic price
fluctuations and fees under the equity swap facilities, Old TCI
recorded all amounts received or paid under these arrangements as
increases or decreases, respectively, to equity. From February 1, 1999
to March 5, 1999, Old TCI terminated all transactions under the equity
swap facilities and the related swap agreements. In connection with the
termination of such transactions, the Company received aggregate cash
payments of $677 million. Such cash payments are reflected in Old TCI's
consolidated financial statements for the two months ended February 28,
1999.
(continued)
I-36
<PAGE> 38
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In July 1998, the Company entered into an equity swap transaction with
a commercial bank, which provided the Company with the right but not
the obligation to acquire 1,084,056 shares of TCI Group Series A Stock
for approximately $45 million on or before April 19, 1999. During the
two months ended February 28, 1999, the Company acquired the 1,084,056
shares of TCI Group Series A Stock under the agreement. Such shares
were used to satisfy the exchange requirements of a subsidiary's
preferred stock. The $29 million excess of the amount paid for the TCI
Group Series A Stock over the Company's minority interest in such
subsidiary has been reflected as a decrease to stockholders' equity in
the accompanying consolidated financial statements for the two months
ended February 28, 1999.
(11) Transactions with Related Parties
On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T,
was consummated. As a result of such merger, TCI received in exchange
for all of its interest in TCG, 70,429,248 shares of AT&T Common Stock.
TCI recognized a $2.3 billion gain on such transaction during the third
quarter of 1998 based on the difference between the carrying amount of
TCI's interest in TCG and the fair value of the AT&T Common Stock
received. Prior to the AT&T Merger, TCI had accounted for its ownership
interest in AT&T Common Stock as an available-for-sale security. Such
AT&T Common Stock was transferred from Liberty/Ventures Group to TCI
Group in connection with the AT&T Merger. See note 2. In addition,
immediately prior to the AT&T Merger, certain shares of Series F
Preferred Stock were converted into shares of TCI Group Stock which, in
turn, were converted into 215,755,850 shares of AT&T Common Stock. Such
converted shares are recorded at Old TCI's historical cost basis. New
TCI treats its investment in AT&T Common Stock as an investment in its
parent. Accordingly, New TCI's investment in AT&T Common Stock is
reflected as a reduction of TCI's equity. Old TCI recognized dividend
income of $15.5 million on its AT&T Common Stock during the third
quarter of 1998. The Company has not received any dividends on its
investment in AT&T Common Stock subsequent to the AT&T Merger.
The Company's non-interest bearing intercompany account with AT&T ($27
million at September 30, 1999) is included in TCI's "Investment in
AT&T" in the accompanying consolidated balance sheet.
Certain entities attributed to Liberty Media Group produce and/or
distribute programming to the Company. Charges to the Company
aggregated $121 million for the seven months ended September 30, 1999.
Such amount is included in operating costs and expenses in the
accompanying consolidated statements of operations.
AT&T provides long distance service and allocates certain other
administrative costs to the Company. During the seven months ended
September 30, 1999, such amounts aggregated $29 million and are
included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.
(continued)
I-37
<PAGE> 39
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NDTC leases transponder facilities to entities attributed to Liberty
Media Group. Charges by NDTC for such arrangements were $14 million for
the seven months ended September 30, 1999 and are included in revenue
in the accompanying consolidated statements of operations.
During the third quarter of 1999, AT&T utilized $495 million of TCI's
net operating loss carryforwards to offset AT&T's current federal
income tax liability. TCI did not receive any consideration for the
utilization of such net operating loss carryforwards. Accordingly, TCI
has reflected AT&T's utilization of the net operating loss
carryforwards as a decrease to "Additional paid-in capital" in the
accompanying consolidated financial statements.
(12) Transactions with Officers and Directors
After the Company's stockholders voted to approve the terms of the AT&T
Merger, on February 17, 1999, TCI's Board of Directors approved the
payment by Liberty/Ventures Group of $1 million to each of two
directors of the Company for their services on the Special Committee of
TCI's Board of Directors in evaluating the AT&T Merger and the
consideration to be received by the stockholders of the Company. In
addition, Liberty/Ventures Group paid $10 million to a director and
executive officer of TCI, immediately prior to the AT&T Merger, for his
services in negotiating the merger agreement and completing the AT&T
Merger.
Prior to the AT&T Merger, a limited liability company owned by Dr.
Malone, a director of the Company and TCI's former Chairman and Chief
Executive Officer, acquired, from certain subsidiaries of Old TCI,
working cattle ranches located in Wyoming in exchange for $17 million.
The purchase price paid by such limited liability company was in the
form of a 12-month note in the amount of $17 million having an interest
rate of 7%. Such note is payable to an entity attributed to Liberty
Media Group at any time without penalty and is personally guaranteed by
Dr. Malone. No gain or loss was recognized by TCI on this transaction.
As described more fully in note 7, the Company, on October 1, 1999,
became the owner of all of the partnership interests in InterMedia IV.
An individual who was a director and executive officer of TCI had a
.001% special limited partnership interest in ICM IV, which in turn has
a 1.19% limited partnership interest in InterMedia IV. Such
individual's special limited partnership interest in ICM IV was created
in August 1997 in connection with TCI's acquisition of all of the
partnership interests (other than a .002% general partnership interest
and a .001% special limited partnership interest) in ICM IV. In
connection with the transaction described in note 7, such individual,
by virtue of his .001% special limited partnership interest in ICM IV,
participated in a profit sharing mechanism of InterMedia IV and
received cash consideration of approximately $11 million based on the
valuation of InterMedia IV.
For additional transactions involving the Company's officers and
directors, see notes 8 and 13.
(continued)
I-38
<PAGE> 40
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Commitments and Contingencies
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") imposed certain rate regulations on the cable
television industry. Under the 1992 Cable Act, all cable systems are
subject to rate regulation, unless they face "effective competition,"
as defined by the 1992 Cable Act and expanded in the Telecommunications
act of 1996 (the "1996 Act"), in their local franchise area.
Although the Federal Communications Commission (the "FCC") has
established regulations required by the 1992 Cable Act, local
government units (commonly referred to as local franchising
authorities) are primarily responsible for administering the regulation
of a cable system's basic service tier ("BST"). The FCC itself directly
administered rate regulation of any cable programming service tier
("CPST"). The FCC's authority to regulate CPST rates expired on March
31, 1999. The FCC has taken the position that it will still adjudicate
CPST complaints filed after this sunset date (but no later than 180
days after the last CPST rate increase imposed prior to March 31,
1999), and will strictly limit its review (and possible refund orders)
to the time period predating the sunset date.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had
their rate increases governed by a complicated price structure that
allows for the recovery of inflation and certain increased costs, as
well as providing some incentive for expanding channel carriage.
Operators also have the opportunity to bypass this "benchmark"
regulatory structure in favor of the traditional "cost-of-service"
regulation in cases where the latter methodology appears favorable.
Premium cable services offered on a per-channel or per-program basis
remain unregulated, as do affirmatively marketed packages consisting
entirely of new programming product.
The Company believes that it has complied in all material respects with
the provisions of the 1992 Cable Act and the 1996 Act, including its
rate setting provisions. If, as a result of the review process, a
system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund
the excess portion of rates received. Any refunds of the excess portion
of CPST rates would be retroactive to the date of complaint. Any
refunds of the excess portion of BST or equipment rates would be
retroactive to one year prior to the implementation of the rate
reductions.
(continued)
I-39
<PAGE> 41
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company is obligated and/or has guaranteed Liberty Media Group's
obligation to pay fees for the rights to exhibit certain films that are
released by various producers through 2017 (the "Film Licensing
Obligations"). Based on customer levels at September 30, 1999, these
agreements require minimum payments aggregating approximately $440
million. The aggregate amount of the Film Licensing Obligations under
these license agreements is not currently estimable because such amount
is dependent upon the number of qualifying films released theatrically
by certain motion picture studios as well as the domestic theatrical
exhibition receipts upon the release of such qualifying films.
Nevertheless, required aggregate payments under the Film Licensing
Obligations could prove to be significant.
The Company is a party to affiliation agreements with programming
suppliers. Pursuant to certain of such agreements, the Company is
committed to carry such suppliers' programming on its cable systems.
Additionally, certain of such agreements provide for penalties and
charges in the event the programming is not carried or not delivered to
a contractually specified number of customers.
The Company is committed to purchase billing services from a third
party pursuant to three successive five-year agreements. Pursuant to
such arrangement, the Company is obligated at September 30, 1999 to
make minimum payments aggregating approximately $1.5 billion through
2012. Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $47 million at September 30, 1999. The Company also has
agreed to take certain steps to support debt compliance with respect to
obligations aggregating $1,720 million of certain cable television
partnerships in which the Company has non-controlling ownership
interests. See note 7. The Company also has guaranteed the performance
of certain affiliates and other parties with respect to such parties'
contractual and other obligations. Although there can be no assurance,
management of the Company believes that it will not be required to meet
its obligations under such guarantees, or if it is required to meet any
of such obligations, that they will not be material to the Company.
During 1999, a subsidiary of the Company entered into a contribution
agreement ("Contribution Agreement") with certain shareholders of
Phoenixstar, Inc. (formerly Primestar, Inc.) ("Phoenixstar") pursuant
to which the Company would, to the extent it is relieved of $166
million of contingent liabilities then owed to certain creditors of
Phoenixstar and its subsidiaries, contribute up to $166 million to
Phoenixstar to the extent necessary to satisfy liabilities of
Phoenixstar. During the second quarter of 1999 and the fourth quarter
of 1998, the Company recorded charges of $50 million and $90 million,
respectively, to provide for the estimated losses that were expected to
result from the Contribution Agreement. During 1999, the Company
contributed approximately $116 million to Phoenixstar in partial
satisfaction of its obligation. The Company's remaining obligation
under the Contribution Agreement will expire in 2001. An individual who
is a director of TCI is also the Chairman of the Board of TCI Satellite
Entertainment, Inc. ("TSAT"). TSAT has an approximate 37% ownership
interest in Phoenixstar.
(continued)
I-40
<PAGE> 42
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
TCI has agreed to make fixed monthly payments to an entity attributed
to Liberty Media Group pursuant to an affiliation agreement. The fixed
annual commitments increase annually from $190 million in 1999 to $267
million in 2003, and will increase with inflation through 2022. In
addition, TCI is obligated to make minimum revenue payments through
2017 and minimum license fee payments through 2007 aggregating $385
million to an entity attributed to Liberty Media Group. Such minimum
payments are subject to inflation and other adjustments pursuant to the
terms of the underlying agreements.
Effective as of December 16, 1997, NDTC on behalf of the Company and
other cable operators that may be designated from time to time by NDTC
("Approved Purchasers"), entered into an agreement with GI to purchase
a minimum of 6.5 million set-top devices during calendar years 1998,
1999 and 2000 at an average price of $318 per set-top device. The 1998
purchase commitment of 1.5 million set-top devices was met. The
agreement with GI was amended in the third quarter of 1999 to change
the remaining minimum purchase commitment for set-top devices to
1,880,000 devices in 1999 and 2,500,000 devices in 2000. During the
nine months ended September 30, 1999, approximately 1.4 million set-top
devices had been purchased under the 1999 commitment. In connection
with NDTC's purchase commitment, GI agreed to grant warrants to
purchase its common stock proportional to the number of devices ordered
by each organization. In connection with the AT&T Merger, such warrants
were transferred to Liberty/Ventures Group in exchange for
approximately $176 million in cash. To the extent such warrants do not
vest because TCI fails to meet its purchase commitments, as amended,
TCI is required to repay a proportional amount of such cash to Liberty
Media Group. NDTC has the right to terminate the agreement if, among
other reasons, GI fails to meet a material milestone designated in the
agreement with respect to the development, testing and delivery of
advanced digital set-top devices.
(continued)
I-41
<PAGE> 43
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On July 17, 1998, the Company acquired 21.4 million shares of common
stock of GI in exchange for (i) certain of the assets of NDTC's set-top
authorization business, (ii) the license of certain related software to
GI, (iii) a $50 million promissory note from the Company to GI, and
(iv) a nine-year revenue guarantee from the Company in favor of GI. In
connection therewith, NDTC also entered into a services agreement
pursuant to which it will provide certain postcontract services to GI's
set-top authorization business. As a result of the deconsolidation of
Liberty Media Group, the 21.4 million shares of GI common stock are no
longer included in the Company's consolidated assets. The excess of the
fair value of GI common stock received in 1998 over (i) the book value
of certain assets transferred from NDTC to GI, and (ii) the present
value of the promissory note due from the Company to GI, was deferred
by the Company. As a result of the application of purchase accounting
in connection with the AT&T Merger, the deferred amount related to the
revenue guarantee was reduced to $61 million and the remaining deferred
amount was reduced to $48 million.
The Company has contingent liabilities related to legal proceedings and
other matters arising in the ordinary course of business. Although it
is reasonably possible the Company may incur losses upon conclusion of
such matters, an estimate of any loss or range of loss cannot be made.
In the opinion of management, it is expected that amounts, if any,
which may be required to satisfy such contingencies will not be
material in relation to the accompanying consolidated financial
statements.
(14) Year 2000
During the nine months ended September 30, 1999, the Company continued
its enterprise-wide, comprehensive efforts to assess and remediate its
computer systems and related software and equipment to verify that such
systems, software and equipment recognize, process and store
information in the year 2000 and thereafter. The Company's year 2000
remediation efforts include an assessment of its most critical systems,
such as customer service and billing systems, headends and other cable
plant systems that support the Company's programming services, business
support operations, and other equipment and facilities. The Company
also continued its efforts to verify the year 2000 readiness of its
significant suppliers and vendors and continued to communicate with
significant business partners and affiliates to assess such partners'
and affiliates' year 2000 status.
(continued)
I-42
<PAGE> 44
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has a year 2000 Program Management Office (the "PMO") to
organize and manage its year 2000 efforts. The PMO is responsible for
overseeing the process and standards of the Company's year 2000
efforts, controlling data, and reporting on the Company's year 2000
efforts. At September 30, 1999, the PMO was comprised of a 133-member,
full-time staff, accountable to executive management of the Company.
During the nine months ended September 30, 1999, the Company continued
its survey of third-party vendors and suppliers whose systems, services
or products are important to the Company's operations, and whose year
2000 readiness is critical to continued provision of the Company's
cable service. The Company has examined the public disclosures
regarding the year 2000 readiness status made by vendors of critical
systems products utilized by the Company (such as addressable
controllers, accounting systems and other critical hardware and
software), and the public disclosures regarding the year 2000 readiness
status made by critical suppliers (such as utilities, banking, and
similar critical operational services). Verification of the survey
results may include, as deemed necessary, conducting functionality
tests, reviewing vendors' and suppliers' test data, scripts and
certifications, engaging in regular conferences with vendors' and
suppliers' year 2000 teams, or re-examining public disclosures for
changes in status. The Company generally has required any new vendors
to provide assurances that their products and services are year 2000
ready. For those critical vendors that may not be year 2000 ready by
year end, contingency plans will be implemented.
Significant market value is associated with the Company's investments
in certain public and private corporations, partnerships and other
businesses. Accordingly, the Company is monitoring the public
disclosure of such publicly-held business entities, including CSC and
@Home, to determine their year 2000 readiness. In addition, the Company
has surveyed and monitored the year 2000 status of certain
privately-held business entities in which the Company has significant
investments.
Year 2000 expenses and capital expenditures incurred during the seven
months ended September 30, 1999 were $47 million and $18 million,
respectively. Year 2000 expenses and capital expenditures incurred
during the two months ended February 28, 1999 were $11 million and $2
million, respectively. Year 2000 expenses and capital expenditures for
the seven months ended September 30, 1999 are exclusive of costs
attributable to Liberty Media Group, which was deconsolidated as of
March 1, 1999. See note 2. Management of the Company currently
estimates the remaining costs, exclusive of future costs attributable
to the assessment and remediation of year 2000 issues associated with
Liberty Media Group, to be not less than $25 million, bringing the
total estimated cost associated with the Company's year 2000
remediation efforts to be not less than $117 million (including $36
million for replacement of noncompliant information technology
systems). Also included in this estimate is $7 million in future
payments to be made pursuant to unfulfilled executory contracts or
commitments with vendors for year 2000 remediation services.
(continued)
I-43
<PAGE> 45
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. There
can be no assurance that the Company's systems or the systems of other
companies on which the Company relies will be converted in time or that
any such failure to convert by the Company or other companies will not
have a material adverse effect on its financial position, results of
operations or cash flows.
(15) Information about the Company's Operating Segments
Prior to the AT&T Merger, Old TCI had two reportable segments: domestic
cable and communications services and domestic programming services.
Domestic cable and communications services receive video, audio and
data signals from various sources, and amplify and distribute the
signals by coaxial cable and optical fiber to the premises of customers
who pay a fee for the service. Domestic programming services are
produced, acquired, and distributed, through all available formats and
media, branded entertainment and informational programming and
software, including multimedia products, delivered in both analog and
digital form. Old TCI's domestic cable and communications services
business and assets were included in TCI Group, and Old TCI's domestic
programming business and assets were included in Old Liberty Group. Old
TCI's principal international businesses and assets and Old TCI's
remaining non-cable and non-programming domestic businesses and assets
were included in TCI Ventures Group.
As described in note 2, immediately prior to the AT&T Merger, Old TCI
purchased certain assets from Liberty/Ventures Group and the net assets
attributed to Liberty Media Group were deconsolidated. As a result of
these transactions, domestic cable and communications services is the
only reportable segment of New TCI. Accordingly, segment information is
not provided for New TCI.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. Old TCI evaluated
performance based on a measure of "Operating Cash Flow" (defined by the
Company as operating income before depreciation, amortization, other
non-cash items, year 2000 costs, AT&T merger and integration costs and
stock compensation). Operating Cash Flow is a measure of value and
borrowing capacity within the cable television industry and is not
intended to be a substitute for cash flow provided by operating
activities, or a measure of performance prepared in accordance with
generally accepted accounting principles, and should not be relied upon
as such.
Old TCI generally accounted for intersegment sales and transfers as if
the sales or transfers were to third parties, that is, at current
market prices.
Old TCI's reportable segments were strategic business units that
offered different products and services. They were managed separately
because each segment required different technology and marketing
strategies.
(continued)
I-44
<PAGE> 46
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Old TCI utilized the following interim financial information for
purposes of making decisions about allocating resources to a segment
and assessing a segment's performance:
<TABLE>
<CAPTION>
Domestic cable Domestic
& communications programming All
services services other Total
---------------- ------------ ------------ ------------
amounts in millions
<S> <C> <C> <C> <C>
Two months ended
February 28, 1999:
External and intersegment revenue $ 902 128 165 1,195
Intersegment revenue $ -- 39 11 50
Segment Operating Cash Flow $ 301 30 25 356
Three months ended
September 30, 1998:
External and intersegment revenue $ 1,497 176 249 1,922
Intersegment revenue $ (4) 69 14 79
Segment Operating Cash Flow $ 603 31 43 677
Nine months ended
September 30, 1998:
External and intersegment revenue $ 4,613 498 685 5,796
Intersegment revenue $ (13) 210 36 233
Segment Operating Cash Flow $ 1,882 75 88 2,045
</TABLE>
(continued)
I-45
<PAGE> 47
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of reportable segment Operating Cash Flow to Old TCI's
consolidated earnings (loss) before income taxes and extraordinary
items is as follows:
<TABLE>
<CAPTION>
Old TCI
------------------------------------------
Two months Nine months
ended ended
February 28, 1999 September 30, 1998
------------------ ------------------
amounts in millions
<S> <C> <C>
Total Operating Cash Flow for reportable segments 331 1,957
Other Operating Cash Flow 25 88
Other items excluded from Operating
Cash Flow:
Year 2000 costs (11) (6)
AT&T merger and integration costs (65) (11)
Stock compensation (366) (423)
Reserve for loss arising from contingent obligation -- --
Write-off of in-process research and development costs -- --
Depreciation and amortization (277) (1,289)
Interest expense (161) (807)
Interest and dividend income 13 72
Share of losses of Liberty Media Group -- --
Share of losses of the Other Affiliates, net (161) (986)
Minority interest in earnings of consolidated
subsidiaries, net (26) (95)
Gains on issuance of equity interests by subsidiaries 389 55
Gain on issuance of stock by equity investee -- 259
Gains on disposition of assets, net 144 3,704
Other, net 8 (25)
------------------ ------------------
Earnings (loss) before income taxes and
extraordinary items (157) 2,493
================== ==================
</TABLE>
I-46
<PAGE> 48
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company. Such
discussion should be read in conjunction with the accompanying consolidated
financial statements and notes thereto. Additionally, the following discussion
and analysis should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations and financial
statements included in Part II of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. The following discussion focuses on material
trends, risks and uncertainties affecting the results of operations and
financial condition of the Company.
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under this caption are forward-looking. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company (or
entities in which the Company has interests), or industry results, to differ
materially from future results, performance or achievements expressed or implied
by such forward-looking statements. Such risks, uncertainties and other factors
include, among others: general economic and business conditions and industry
trends; the regulatory and competitive environment of the industries in which
the Company, and the entities in which the Company has interests, operate;
uncertainties inherent in new business strategies; uncertainties inherent in the
changeover to the year 2000, including the Company's projected state of
readiness, the projected costs of remediation, the expected date of completion
of each program or phase, the projected worst case scenarios, and the expected
contingency plans associated with such worst case scenarios; new product
launches and development plans; rapid technological changes; the acquisition,
development and/or financing of telecommunications networks and services; the
development and provision of programming for new television and
telecommunications technologies; future financial performance, including
availability, terms and deployment of capital; the ability of vendors to deliver
required equipment, software and services; availability of qualified personnel;
changes in, or failure or inability to comply with, government regulations,
including, without limitation, regulations of the FCC, and adverse outcomes from
regulatory proceedings; changes in the nature of key strategic relationships
with partners and joint venturers; competitor responses to the Company's
products and services, and the products and services of the entities in which
the Company has interests, and the overall market acceptance of such products
and services; and other factors. These forward-looking statements (and such
risks, uncertainties and other factors) speak only as of the date of this
Report, and the Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in the Company's expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based. Any statement contained within Management's Discussion and
Analysis of Financial Condition and Results of Operations on this Form 10-Q
related to year 2000 are hereby denominated as "Year 2000 Statements" within the
meaning of the Year 2000 Information and Readiness Disclosure Act.
I-47
<PAGE> 49
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
Targeted Stock
The Company, through its subsidiaries and affiliates, is principally
engaged in the construction, acquisition, ownership, and operation of cable
television systems and, through its ownership interests in Liberty Media Group,
the provision of satellite-delivered video entertainment, information and home
shopping programming services to various video distribution media, principally
cable television systems. Liberty Media Group also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies.
Prior to the AT&T Merger, the Company's assets and operations were
included in three separate groups, each of which was tracked separately by
public equity securities. These groups were formerly known as the Liberty Media
Group (referred to herein as the Old Liberty Group), the TCI Ventures Group and
the TCI Group.
The Old Liberty Group was intended to reflect the separate performance
of TCI's assets which produce and distribute programming services.
The TCI Ventures Group was intended to reflect the separate performance
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets.
The TCI Group was intended to reflect the separate performance of TCI
and its subsidiaries and assets not attributed to the Old Liberty Group or TCI
Ventures Group. Such subsidiaries and assets are comprised primarily of TCI's
domestic cable and communications business. For additional information, see note
1 to the accompanying consolidated financial statements.
The TCI Group was tracked separately through the TCI Group Series A
Stock and the TCI Group Series B Stock. The Old Liberty Group was tracked
separately through the Liberty Group Series A Stock and Liberty Group Series B
Stock. The TCI Ventures Group was tracked separately through the TCI Ventures
Group Series A Stock and TCI Ventures Group Series B Stock.
I-48
<PAGE> 50
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
AT&T Merger and Restructuring
On March 9, 1999, AT&T acquired TCI in the AT&T Merger in which Italy
Merger Corp., a wholly-owned subsidiary of AT&T, merged with and into TCI, and
TCI thereby became a subsidiary of AT&T. As a result of the AT&T Merger, (i)
each share of TCI Group Series A Stock was converted into 1.16355 shares of AT&T
Common Stock, (ii) each share of TCI Group Series B Stock was converted into
1.27995 shares of AT&T Common Stock, (iii) each share of Liberty Group Series A
Stock was converted into 2 shares of a newly created class of AT&T common stock
designated as the AT&T Liberty Class A Tracking Stock, (iv) each share of
Liberty Group Series B Stock was converted into 2 shares of a newly created
class of AT&T common stock designated as the AT&T Liberty Class B Tracking
Stock, (v) each share of TCI Ventures Group Series A Stock was converted into
1.04 shares of AT&T Liberty Class A Tracking Stock, (vi) each share of TCI
Ventures Group Series B Stock was converted into 1.04 shares of AT&T Liberty
Class B Tracking Stock, (vii) each share of Series C-TCI Group Preferred Stock
was converted into 154.589253 shares of AT&T Common Stock, (viii) each share of
Series C-Liberty Media Group Preferred Stock was converted into 12.5 shares of
AT&T Liberty Class A Tracking Stock, (ix) each share of Series G Preferred Stock
was converted into 1.3846245 shares of AT&T Common Stock and (x) each share of
Series H Preferred Stock was converted into 1.18125 shares of AT&T Liberty Class
A Tracking Stock. Following the AT&T Merger, each share of Class B Preferred
Stock continues to be outstanding with the same rights and preferences such
stock had prior to the AT&T Merger. In general, the holders of shares of AT&T
Liberty Class A Tracking Stock and the holders of shares of AT&T Liberty Class B
Tracking Stock will vote together as a single class with the holders of shares
of AT&T Common Stock on all matters presented to such stockholders, with the
holders being entitled to 3/40th of a vote for each share of AT&T Liberty Class
A Tracking Stock held, 3/4ths of a vote per share of AT&T Liberty Class B
Tracking Stock held and 1 vote per share of AT&T Common Stock held.
I-49
<PAGE> 51
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger are
intended to reflect the separate performance of the businesses and assets
attributed to Old Liberty Group and TCI Ventures Group at the time of the AT&T
Merger. References herein to Liberty/Ventures Group refer to the combined assets
and businesses of Old Liberty Group and TCI Ventures Group for periods prior to
the AT&T Merger, and subsequent to the AT&T Merger such combined assets and
businesses are referred to as Liberty Media Group. Pursuant to, and subject to
the terms and conditions set forth in the Merger Agreement, immediately prior to
the AT&T Merger, certain assets previously attributed to TCI Ventures Group
(including, among others, the shares of AT&T Common Stock received in the merger
of AT&T and TCG, the stock of @Home attributed to TCI Ventures Group, the assets
and business of NDTC and TCI Ventures Group's equity interest in WTCI were
transferred to TCI Group in exchange for approximately $5.5 billion in cash.
Also, upon consummation of the AT&T Merger, through a new tax sharing agreement
between Liberty Media Group and AT&T, Liberty Media Group became entitled to the
benefit of approximately $2.0 billion of net operating loss carryforwards
attributable to all entities included in TCI's consolidated federal income tax
return as of the date of the AT&T Merger. Such net operating loss carryforwards
are subject to adjustment by the Internal Revenue Service and are subject to
limitations on usage which may affect the ultimate amount utilized.
Additionally, certain warrants to purchase shares of GI previously attributed to
TCI Group were transferred to Liberty/Ventures Group in exchange for
approximately $176 million in cash. The transfer of certain immaterial assets
was also effected.
Immediately prior to the AT&T Merger, AT&T and Liberty Media
Corporation entered into an agreement relating to the carriage of programming of
Liberty Media Corporation and its affiliates to be distributed over the AT&T
cable systems. Pursuant to this agreement, Liberty Media Corporation will be
granted, among other rights, "preferred vendor status" with respect to certain
types of new programming services. Liberty Media Corporation will also be
entitled to the use of channel capacity equal to one six megahertz channel to be
used for category specific interactive video channels. In addition, such
agreement also provided for the extension of existing affiliation agreements
between TCI and programming affiliates of Liberty Media Corporation to a date
not less than 10 years from the closing of the AT&T Merger, upon the terms and
conditions set forth in such agreement.
Pursuant to amended corporate governance documents for the entities
included in Liberty Media Group and certain agreements among AT&T and TCI, the
business of Liberty Media Group will continue to be managed by certain persons
who were members of TCI's management prior to the AT&T Merger. AT&T will
initially designate one third of the directors of such entities and its rights
as the sole shareholder of the common stock of such entities following the AT&T
Merger will, in accordance with Delaware law, be limited to actions which will
require shareholder approval. Therefore, management has concluded that TCI does
not have a controlling financial interest (as that term is used in Statement of
Financial Accounting Standards No. 94) in the entities comprising the Liberty
Media Group following the AT&T Merger, and will account for its ownership
interests in such entities under the equity method.
I-50
<PAGE> 52
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
Accordingly, effective with the AT&T Merger, the results of operations
of the entities attributed to Liberty/Ventures Group (exclusive of @Home, NDTC
and WTCI which were transferred to TCI Group immediately prior to the AT&T
Merger) will no longer be consolidated in the TCI consolidated financial
statements. The results of operations for such deconsolidated entities prior to
the date of the deconsolidation is discussed further below under the caption
"Material Changes in Results of Operations - Adjusted Liberty/Ventures Group."
Immediately prior to the AT&T Merger, TCI consummated the
Restructuring. The Restructuring included merging TCI's cable subsidiary, TCIC,
into TCI. As a result of TCIC's merger with TCI, all assets and liabilities of
TCIC have been assumed by TCI, including TCIC's public debt. In connection with
TCIC's merger with TCI, each share of TCIC's Cumulative Exchangeable Preferred
Stock, Series A was converted into 2.119 shares of TCI Group Series A Stock, and
such shares of TCI Group Series A Stock were subsequently converted into AT&T
Common Stock in connection with the AT&T Merger. All other public securities
issued by subsidiaries of TCIC (other than Pacific) otherwise remained
unaffected. Furthermore, as part of the Restructuring, (i) AT&T loaned TCI $5.5
billion pursuant to a promissory note, (ii) certain asset transfers were made
between TCI and its subsidiaries, (iii) 123,896 shares of the Series F Preferred
Stock, which were held by subsidiaries of TCI, were converted into 185,428,946
shares of TCI Group Series A Stock (which in turn were converted into
215,755,850 shares of AT&T Common Stock in the AT&T Merger and continue to be
held by subsidiaries of TCI), (iv) the remaining 154,411 shares of Series F
Preferred Stock which were formerly held by subsidiaries of TCI were distributed
to TCI through a series of liquidations and canceled, and (v) 125,728,816 shares
of TCI Group Series A Stock, 9,154,134 shares of TCI Group Series B Stock,
6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of Liberty
Group Series B Stock, and 67,536 shares of Class B Preferred Stock, each
formerly held by subsidiaries of TCI, were distributed to TCI through a series
of liquidations and canceled.
Under the terms of the Exchangeable Preferred Stock, each share of that
preferred stock is exchangeable, from and after August 1, 2001, for
approximately 6.3375 shares of AT&T Common Stock, subject to certain
anti-dilution adjustments. Additionally, Pacific may elect to make any dividend,
redemption or liquidation payment on the Exchangeable Preferred Stock in cash,
by delivery of shares of AT&T Common Stock or by a combination of the foregoing
forms of consideration.
For information concerning the accounting treatment of the AT&T Merger,
see note 2 to the accompanying consolidated financial statements.
I-51
<PAGE> 53
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
Year 2000
During the nine months ended September 30, 1999, the Company continued
its enterprise-wide, comprehensive efforts to assess and remediate its computer
systems and related software and equipment to verify that such systems, software
and equipment recognize, process and store information in the year 2000 and
thereafter. The Company's year 2000 remediation efforts include an assessment of
its most critical systems, such as customer service and billing systems,
headends and other cable plant systems that support the Company's programming
services, business support operations, and other equipment and facilities. The
Company also continued its efforts to verify the year 2000 readiness of its
significant suppliers and vendors and continued to communicate with significant
business partners and affiliates to assess such partners and affiliates' year
2000 status.
The Company has a year 2000 Program Management Office to organize and
manage its year 2000 efforts. The PMO is responsible for overseeing the process
and standards of the Company's year 2000 efforts, controlling data and reporting
on the Company's year 2000 efforts. At September 30, 1999, the PMO was comprised
of a 133-member, full-time staff, accountable to executive management of the
Company.
The PMO has defined a four-phase approach to determining the year 2000
readiness of the Company's systems, software and equipment. Such approach is
intended to provide a detailed method for tracking the evaluation, repair and
testing of the Company's critical systems, software and equipment. Phase 1,
Assessment, involved the inventory of all critical systems, software and
equipment and the identification of any year 2000 issues. Phase 1 also included
the preparation of the workplans needed for remediation. Phase 2, Remediation,
involved repairing, upgrading and/or replacing any non-compliant critical
equipment and systems. Phase 3, Testing, involved testing the Company's critical
systems, software, and equipment for year 2000 readiness, or in certain cases,
relying on test results provided to the Company. Phase 4, Implementation,
involves placing remediated systems, software and equipment into production or
service.
At September 30, 1999, TCI's overall progress by phase was as follows:
<TABLE>
<CAPTION>
Percentage of Year 2000 Expected Completion Date --
Phase Projects Completed by Phase* All Year 2000 Projects
- ----- ---------------------------- -----------------------------
<S> <C> <C>
Phase 1-Assessment 100% Completed
Phase 2-Remediation 100% Completed
Phase 3-Testing 100% Completed
Phase 4-Implementation 98% November 1999
</TABLE>
- ---------------------
*The percentages set forth above were calculated by dividing the number of year
2000 projects that have completed a given phase by the total number of year 2000
projects. Such calculations do not reflect any systems or businesses that may be
acquired subsequent to September 30, 1999. See related discussion below.
I-52
<PAGE> 54
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
The completion information set forth above is based on the Company's
current expectations and information, and could be subject to change if
circumstances arise which impact the year 2000 readiness of a critical product
or service. The information could be subject to change in the event of
unforeseen changes in the Company's inventory of products or systems, or
unforeseen changes in status information provided by the Company's critical
vendors. The information also could change as a result of continuing efforts to
verify, validate and audit the program processes and procedures. Further, due to
the uncertainties inherent in any year 2000 program, no assurances can be given
as to whether Phase 4 will be completed by the date indicated above. The Company
has attempted to plan for unforeseen circumstances by implementing (i)
contingency plans as described below, (ii) audit and other controls and (iii)
processes to monitor the year 2000 readiness status of critical outside parties.
The Company has completed the inventory, assessment, testing and
implementation of critical systems with embedded technologies that impact its
operations. The progress by phase of year 2000 compliance work on such systems
is included in the table above.
During the nine months ended September 30, 1999, the Company continued
its survey of third-party vendors and suppliers whose systems, services or
products are important to the Company's operations, and whose year 2000
readiness is critical to continued provision of the Company's cable service. The
Company has examined the public disclosures regarding the year 2000 readiness
status made by vendors of critical systems products utilized by the Company
(such as addressable controllers, accounting systems and other critical hardware
and software), and the public disclosures regarding the year 2000 readiness
status made by critical suppliers (such as utilities, banking, and similar
critical operational services). Verification of the survey results may include,
as deemed necessary, conducting functionality tests, reviewing vendors' and
suppliers' test data, scripts and certifications, engaging in regular
conferences with vendors' and suppliers' year 2000 teams, or re-examining public
disclosures for changes in status. The majority of the Company's current vendors
are either year 2000 ready, or are expected to be year 2000 ready by year end.
The Company generally has required any new vendors to provide assurances that
their products and services are year 2000 ready. For those critical vendors that
may not be year 2000 ready by year end, contingency plans will be implemented.
Significant market value is associated with the Company's investments
in certain public and private corporations, partnerships and other businesses.
Accordingly, the Company is monitoring the public disclosure of such
publicly-held business entities, including CSC and @Home, to determine their
year 2000 readiness. For updated information related to the year 2000 programs
of CSC and @Home, please refer to their most recent periodic filings with the
Securities and Exchange Commission. In addition, the Company has surveyed and
monitored the year 2000 status of certain privately-held business entities in
which the Company has significant investments.
I-53
<PAGE> 55
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
Year 2000 expenses and capital expenditures incurred during the seven
months ended September 30, 1999 were $47 million and $18 million, respectively.
Year 2000 expenses and capital expenditures incurred during the two months ended
February 28, 1999 were $11 million and $2 million, respectively. Year 2000
expenses and capital expenditures for the seven months ended September 30, 1999
are exclusive of costs attributable to Liberty Media Group, which was
deconsolidated as of March 1, 1999. See "AT&T Merger and Restructuring," above.
Management of the Company currently estimates the remaining costs, exclusive of
future costs attributable to the assessment and remediation of year 2000 issues
associated with Liberty Media Group, to be not less than $25 million, bringing
the total estimated cost associated with the Company's year 2000 remediation
efforts to be not less than $117 million (including $36 million for replacement
of noncompliant information technology ("IT") systems). Also included in this
estimate is $7 million in future payments to be made pursuant to unfulfilled
executory contracts or commitments with vendors for year 2000 remediation
services. Although no assurances can be given, management currently expects that
(i) cash flow from operations or advances from AT&T will fund the costs
associated with year 2000 compliance and (ii) the total projected cost
associated with the Company's year 2000 program will not be material to the
Company's financial position, results of operations or cash flows.
The Company is a widely distributed enterprise in which allocation of
certain resources, including IT support, is decentralized. Accordingly, the
Company does not consolidate an IT budget. Therefore, total estimated year 2000
costs as a percentage of an IT budget are not available. There are currently no
planned IT projects being deferred due to year 2000 costs.
During 1999, the Company has continued to enter into certain strategic
acquisition transactions wherein the Company has acquired or will acquire in the
future cable systems and other businesses from third parties. To adequately
address any year 2000 impact from these acquisitions, the PMO has instituted a
mergers and acquisition program whereby members of the PMO evaluate the year
2000 readiness of any cable systems or other businesses which have been or will
be acquired in the future to determine the year 2000 readiness of such systems
or businesses. The PMO monitors such systems'/businesses' year 2000 readiness
from the signing of the letters of intent or definitive agreements through the
closing of the proposed transactions.
Please note that the information set forth in this section concerning
progress by phase and other matters applies only to systems or businesses owned
and operated by the Company or its affiliates as of September 30, 1999 and does
not include information for systems or equipment acquired after September 30,
1999.
I-54
<PAGE> 56
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. Management
believes that its year 2000 program will significantly reduce the Company's
risks associated with the changeover to the year 2000. As part of its year 2000
readiness efforts, the Company has implemented certain contingency plans to
minimize the effect of any potential year 2000 related disruptions. The risks
and the uncertainties discussed below and the associated contingency plans
relate to systems, software, equipment, and services that the Company has deemed
critical in regard to customer service, business operations, financial impact or
safety.
Satellite system failures could prevent the delivery of programming to
cable headends and disrupt service to customers. The Company is in the process
of securing transponder space on alternate satellites for transmitting
programming that originates from the Company in the event of such failures. In
addition, the Company has made arrangements for alternative programming that
will be broadcast on channels where signal disruption has occurred.
The failure of addressable controllers contained in the cable system
headends could disrupt the delivery of premium and pay-per-view services to
customers and could necessitate crediting customers for failure to receive such
services. In this unlikely event, the Company has secured the right to broadcast
alternative programming from the NDTC for 48 hours. All alternative programming
will be rated "G" for general audience viewing.
Customer service networks failure could prevent access to customer
account information, hamper installation and service call scheduling and disable
the processing of pay-per-view billings. In the event of such failure, the
Company would manually schedule service calls and correct billing omissions as
soon as the networks are restored. In the event of automated voice response
systems failure, the Company plans to have its customer service representatives
on hand to answer telephone calls from customers directly.
A failure of the services provided by billing systems service providers
could disrupt the ability to provide service to and bill customers for a
protracted period. The Company's billing system service provider has contingency
plans in place to protect customer information and provide for continuation of
service to the Company. The Company has set up arrangements to have its billing
system service provider on site as part of its PMO during the rollover to the
year 2000. The billing system service provider has developed staffing and
operations plans that will provide for continuous support to the Company during
and subsequent to the rollover to the year 2000.
I-55
<PAGE> 57
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
Advertising revenue could be adversely affected by the failure of
certain equipment which could impede or prevent the insertion of advertising
spots in the Company's programming. The Company anticipates that it can minimize
such effect by the manual operation of insertion systems for indefinite periods
of time, if necessary.
The Company owns investments in numerous cable operators and other
businesses. The market value of the Company's investment in these entities could
be adversely impacted by material failures of such entities to address year 2000
issues (including supplier and vendor issues) related to their services and
businesses. Further, due to tax and strategic considerations, the Company has a
limited ability to dispose of these investments if year 2000 issues develop.
Therefore, as a contingency plan, the Company has undertaken an extensive effort
to verify and, in certain cases, assist in the year 2000 remediation efforts of
companies in which it has significant investments. The Company has assisted such
entities to varying degrees, including sharing program information and results
to improve their year 2000 programs.
Security and fire protection systems failures could leave facilities
vulnerable to intrusion and destruction. The Company expects to return such
systems to normal functioning by turning the power off and then on again ("power
off/on"). The Company also plans to have additional security staff on site where
needed and plans to implement a backup plan for communicating with local fire
and police departments. Also, certain personal computers interface with and
control elevators, escalators, wireless systems, public access systems and
certain telephony systems. In the event such computers do not operate properly,
conducting a power off/on is expected to resume normal functioning. If a power
off/on does not resume normal functioning, management expects to resolve the
problem by resetting the computer to a pre-designated date which precedes the
year 2000. Because the Company leases certain of its facilities, it may need to
implement the previously mentioned contingency plan with the cooperation and
assistance of the lessor of the site.
In the event that the local public utilities cannot supply power, the
Company expects to supply power for a limited time to the Company's cable
headends, the NDTC and select office sites through backup generators.
If critical systems related to the Company's cable TV and programming
services experience year 2000 problems, the Company could face claims of breach
of contract from customers of NDTC, from parties to cable system sale or
exchange agreements, from certain programming providers, from advertisers and
from other cable TV businesses that rely on the Company's programming services.
I-56
<PAGE> 58
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
General (continued)
The financial impact of any or all of the above worst-case scenarios
has not been and cannot be estimated by the Company due to the numerous
uncertainties and variables associated with such scenarios.
Estimated costs of the Company's year 2000 program and projected
completion dates are based on management's best estimates of future events and
are forward-looking statements which may be updated as additional information
becomes available.
The Year 2000 statements set forth herein are Year 2000 Readiness
Disclosures, pursuant to the Year 2000 Information and Readiness Disclosure Act,
15 U.S.C. section 1 note. Please note that, for purposes of any action brought
under the securities laws, as that term is defined in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), the Year 2000
Information and Readiness and Disclosure Act does not apply to any statements
contained in any documents or materials filed with the Securities and Exchange
Commission, or with Federal banking regulators, pursuant to section 12(i) of the
Securities Exchange Act of 1934 (15 U.S.C. 78l(i)), or disclosures or writing
that when made accompanied the solicitation of an offer or sale of securities.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
GENERAL
As described in notes 1 and 2 to the accompanying consolidated
financial statements, for financial reporting purposes the AT&T Merger and the
related Restructuring are deemed to have occurred on March 1, 1999. Accordingly,
the financial statements for periods prior to March 1, 1999 are referred to
herein as Old TCI, and the financial statements for periods subsequent to
February 28, 1999 are referred to herein as New TCI. Due to the March 1, 1999
application of purchase accounting in connection with the AT&T Merger, the
predecessor consolidated financial statements of Old TCI are not comparable to
the successor consolidated financial statements of New TCI.
I-57
<PAGE> 59
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
Summarized operating data with respect to New TCI and Old TCI is
presented below for the indicated periods:
<TABLE>
<CAPTION>
New TCI Old TCI
------------ ------------------------------
Seven months Two months Nine months
ended ended ended
September 30, February 28, September 30,
1999 1999 1998
------------- ------------- -------------
amounts in millions
<S> <C> <C> <C>
Revenue $ 3,344 1,145 5,563
Operating expenses 1,345 467 2,202
Selling, general and administrative expenses 807 322 1,316
Year 2000 costs 47 11 6
AT&T merger costs 31 65 11
Stock compensation 72 366 423
Reserve for loss arising from contingent obligation 50 -- --
Write-off of in-process research and development costs 594 -- --
Depreciation and amortization 1,143 277 1,289
------------- ------------- -------------
4,089 1,508 5,247
------------- ------------- -------------
Operating income (loss) (745) (363) 316
Interest expense (558) (161) (807)
Interest and dividend income 7 13 72
Share of losses of Liberty Media Group (818) -- --
Share of losses of the Other Affiliates, net (789) (161) (986)
Minority interests in earnings of consolidated
subsidiaries, net (103) (26) (95)
Gains on issuance of equity interests by subsidiaries -- 389 55
Gain on issuance of stock by equity investee -- -- 259
Gains on disposition of assets, net -- 144 3,704
Other, net 7 8 (25)
------------- ------------- -------------
(2,254) 206 2,177
------------- ------------- -------------
Earnings (loss) before income taxes and
extraordinary items (2,999) (157) 2,493
Income tax benefit (expense) 589 (119) (1,079)
------------- ------------- -------------
Earnings (loss) before extraordinary items (2,410) (276) 1,414
Extraordinary gain (loss), net of income taxes 4 (5) (27)
------------- ------------- -------------
Net earnings (loss) $ (2,406) (281) 1,387
============= ============= =============
</TABLE>
I-58
<PAGE> 60
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
Due to the consummation of the AT&T Merger, the Company's 1999
statement of operations includes information reflecting the seven-month period
ended September 30, 1999 and the two-month period ended February 28, 1999. Prior
to March 1, 1999 the Company consolidated the operations of Liberty/Ventures
Group, and subsequent to February 28, 1999 the Company accounted for its
ownership interests in Liberty Media Group under the equity method. The
following discussion of the Company's results of operations includes a section
that addresses the combined operating results of the former TCI Group, @Home
(under the consolidated method prior to the second quarter of 1999 and under the
equity method thereafter, see note 6 to the accompanying consolidated financial
statements), NDTC and WTCI (collectively, the "Adjusted TCI Group") and a
section that addresses the combined operating results of Liberty/Ventures Group,
exclusive of @Home, NDTC and WTCI (the "Adjusted Liberty/Ventures Group").
I-59
<PAGE> 61
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
ADJUSTED TCI GROUP
For purposes of the following table and discussion, the combined
operating results of Adjusted TCI Group for the seven months ended September 30,
1999 have been combined with the combined operating results of Adjusted
TCI Group for the two months ended February 28, 1999 in order to provide a
meaningful basis for comparing the nine months ended September 30, 1999 and
1998. Depreciation, amortization and certain other line items included in the
operating results of Adjusted TCI Group are not necessarily comparable between
periods as the three-month and seven-month successor periods ended September 30,
1999 include the effects of purchase accounting adjustments related to the AT&T
Merger, and prior predecessor periods do not. The combining of predecessor and
successor accounting periods is not acceptable under generally accepted
accounting principles. See note 2 to the accompanying consolidated financial
statements. The unaudited combined results of operations for Adjusted TCI Group
are as follows:
<TABLE>
<CAPTION>
Adjusted TCI Group
----------------------------------------------------------------------
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
amounts in millions
<S> <C> <C> <C> <C>
Revenue $ 1,442 1,549 4,285 4,735
Operating expenses (599) (617) (1,732) (1,802)
Selling, general and administrative
expenses (324) (322) (1,053) (1,048)
Year 2000 costs (16) (4) (58) (5)
AT&T merger and integration costs (4) (1) (96) (11)
Stock compensation 2 (13) (255) (160)
Reserve for loss arising from contingent
obligation -- -- (50) --
Write-off of in-process research and
development costs -- -- (594) --
Depreciation and amortization (461) (392) (1,398) (1,198)
----------- ----------- ----------- -----------
Operating income (loss) 40 200 (951) 511
Interest expense (248) (239) (694) (745)
Share of losses of the Other Affiliates,
net (412) (93) (883) (158)
Minority interests in earnings of
attributed subsidiaries, net (45) (33) (123) (99)
Gain on issuance of equity interests by
attributed subsidiary -- 17 17 17
Gain on issuance of stock by equity
investee -- -- -- 201
Gains on disposition of assets, net -- 2,589 129 3,130
Other, net 3 12 28 10
----------- ----------- ----------- -----------
Earnings (loss) before income taxes
and extraordinary items (662) 2,453 (2,477) 2,867
Income tax benefit (expense) 239 (955) 677 (1,178)
----------- ----------- ----------- -----------
Earnings (loss) before extraordinary
items (423) 1,498 (1,800) 1,689
Extraordinary gain (loss), net of income
taxes 4 (4) (1) (27)
----------- ----------- ----------- -----------
Net earnings (loss) $ (419) 1,494 (1,801) 1,662
=========== =========== =========== ===========
</TABLE>
I-60
<PAGE> 62
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
Acquisitions and Dispositions
Since January 1, 1998, Adjusted TCI Group has contributed cable
television systems serving approximately 3,368,000 customers to a number of
joint ventures in which Adjusted TCI Group has retained non-controlling
ownership interests. Contribution transactions during the nine months ended
September 30, 1999 accounted for approximately 614,000 of such contributed
customers. In addition, during the second quarter of 1999, the Company
discontinued using the consolidation method to account for its ownership
interest in @Home and began to account for its ownership interest in @Home under
the equity method. Adjusted TCI Group also has completed certain other
acquisitions and dispositions since January 1, 1998. The above-described
transactions adversely affect the comparability of operating results between
periods. Accordingly, in the following discussion, the collective effects of
such acquisitions and dispositions are sometimes excluded in order to provide a
more meaningful basis of comparison.
Revenue and Expenses
Adjusted TCI Group's revenue decreased $107 million or 7% for the three
months ended September 30, 1999, as compared to the corresponding prior year
period. Exclusive of the effects of acquisitions and dispositions, revenue
increased $90 million or 7%. Revenue from domestic cable customers accounted for
a 6% increase in revenue, primarily due to the net effect of a 6% increase in
basic revenue, an increase in revenue from digital products, an increase in
pay-per-view revenue and a 7% decrease in traditional premium revenue. The
Company experienced a 5% increase in its average basic rate, an increase of 1%
in the number of average basic customers, a 14% decrease in its average rate for
traditional premium services and an 8% increase in the number of average
traditional premium subscriptions.
Adjusted TCI Group's revenue decreased $450 million or 10% for the nine
months ended September 30, 1999, as compared to the corresponding prior year
period. Exclusive of the effects of acquisitions and dispositions, revenue
increased $280 million or 7%. Revenue from domestic cable customers accounted
for a 6% increase in revenue, primarily due to the net effect of a 5% increase
in basic revenue, an increase in revenue from digital products, an increase in
pay-per-view revenue and a 5% decrease in traditional premium revenue. The
Company experienced a 3% increase in its average basic rate, an increase of 1%
in the number of average basic customers, a 10% decrease in its average rate for
traditional premium services and a 6% increase in the number of average
traditional premium subscriptions.
Adjusted TCI Group's operating expenses decreased $18 million or 3% and
$70 million or 4% for the three and nine month periods ended September 30, 1999,
respectively, as compared to the corresponding prior year periods. Exclusive of
the effects of acquisitions and dispositions, operating expenses increased $81
million or 16% and $268 million or 19% for the three and nine month periods,
respectively. Higher programming costs accounted for over one-half of such
increases. It is anticipated that Adjusted TCI Group's programming costs will
continue to increase in future periods. The remaining increases relate primarily
to higher labor costs associated with increased levels of customer service, and
increased launch and development costs related to the roll-out of Adjusted TCI
Group's digital video products and other new service offerings.
I-61
<PAGE> 63
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
Adjusted TCI Group's selling, general and administrative expenses
increased $2 million or 1% and $5 million or less than 1% for the three and nine
month periods ended September 30, 1999, respectively, as compared to the
corresponding prior year periods. Exclusive of the effects of acquisitions and
dispositions, the expenses increased $25 million or 8% and $83 million or 9%,
for the three and nine month periods, respectively. The increases are due
primarily to higher salaries and benefits associated with increased levels of
customer service, and increased launch and development costs related to the
roll-out of Adjusted TCI Group's digital video products and other new service
offerings.
Adjusted TCI Group's year 2000 costs include fees and other expenses
incurred directly in connection with Adjusted TCI Group's comprehensive efforts
to review and correct computer systems, equipment and related software to ensure
readiness for the year 2000. See detailed discussion above.
AT&T merger and integration costs incurred by Adjusted TCI Group
include investment advisory, legal and accounting fees, and other incremental
costs directly related to the AT&T Merger. See note 2 to the accompanying
consolidated financial statements
Adjusted TCI Group records stock compensation relating to restricted
stock awards, options and/or stock appreciation rights granted by the Company to
certain employees and directors. The amount of expense associated with stock
compensation for Adjusted TCI Group is based on the vesting of the related stock
options and stock appreciation rights and the market price of the underlying
common stock as of the date of the accompanying consolidated financial
statements. The estimated compensation liability relating to vested stock
appreciation rights has been recorded as of September 30, 1999, and is subject
to future adjustment based primarily upon the market value of AT&T Liberty
Tracking Stock and, ultimately, on the final determination of market value when
such rights are exercised. See note 2 to the accompanying consolidated financial
statements.
During the second quarter of 1999, the Company recorded a charge of $50
million to provide for additional estimated losses that were expected to result
from the Contribution Agreement. See note 13 to the accompanying consolidated
financial statements.
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
The write-off of in-process research and development costs of $594
million during March 1999 reflects the value, as of the date of the AT&T Merger,
of New TCI's research and development projects which have not yet reached
technological feasibility and which have no alternative for future use. Such
costs included @Home's in-process research and development projects. During the
second quarter of 1999, the Company ceased to consolidate @Home and began to
account for its investment in @Home under the equity method of accounting.
Accordingly, the Company will no longer report on the in-process research and
development projects of @Home. The projects identified for New TCI related to
the Company's efforts to offer voice over Internet protocol, cost savings
efforts for cable telephony implementation and product integration efforts for
advanced set-top devices that would enable the Company to offer next-generation
digital services. Although there are significant technological issues to
overcome in order to successfully complete the acquired in-process research and
development, the Company expects successful completion. The Company currently
anticipates that (i) it will deploy equipment to offer voice over Internet
protocol to two cities in the year 2001, (ii) field deployable devices will be
available by the end of the year with respect to the Company's cost savings
efforts for cable telephony implementation, and (iii) field trials will begin in
mid-year 2000 for next-generation digital services. If, however, the Company is
unable to establish technological feasibility and produce a commercially viable
product/service, then anticipated incremental future cash flows attributable to
expected profits from such new product/service may not be realized. See note 2
to the accompanying consolidated financial statements.
Adjusted TCI Group's depreciation and amortization expense increased
$69 million or 18% and $200 million or 17% for the three and nine months ended
September 30, 1999, respectively, as compared to the corresponding prior year
periods. Such changes include $123 million and $312 million increases in
amortization expense and $54 million and $112 million decreases in depreciation
expense for the three and nine month periods, respectively. The increase in
amortization expense is primarily attributable to the effects of purchase
accounting during the three and seven months ended September 30, 1999. Such
increase in amortization expense is partially offset by the effects of
dispositions. The decrease in depreciation expense includes the net effect of
(i) decreases attributable to dispositions and purchase accounting, and (ii)
increases attributable to capital expenditures and acquisitions. See note 2 to
the accompanying consolidated financial statements.
Other Income and Expenses
Adjusted TCI Group's interest expense increased $9 million or 4% and
decreased $51 million or 7% for the three and nine months ended September 30,
1999, respectively, as compared to the corresponding prior year periods. The
increase for the three months ended September 30, 1999 is due to an increase in
the average outstanding debt balance which was partially offset by a decrease in
the weighted average interest rate. See note 8 to the accompanying consolidated
financial statements. The decrease for the nine months ended September 30, 1999
is primarily the result of a decrease in the weighted average interest rate
which was partially offset by an increase in the average outstanding debt
balance.
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<PAGE> 65
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
Adjusted TCI Group's investments in the Other Affiliates are comprised
of limited partnerships and other entities that are primarily engaged in the
domestic cable television business or other communications services businesses.
Adjusted TCI Group's share of losses of the Other Affiliates was $412 million
and $883 million for the three and nine months ended September 30, 1999,
respectively, as compared to $93 million and $158 million for the corresponding
prior year periods. Such increases are primarily attributable to (i) increases
of $193 million and $363 million during the three and nine months ended
September 30, 1999, respectively, in the Company's share of losses of CSC, @Home
and certain of the Other Affiliates (exclusive of the effects of purchase
accounting) that were formed or otherwise acquired during the twenty-one-month
period ended September 30, 1999, (ii) increases of $113 million and $267 million
during the three and nine months ended September 30, 1999 in the amortization of
the excess carrying value of the Company's investments in the Other Affiliates
due to the application of purchase accounting and (iii) increases in the
Company's share of losses of certain of the Other Affiliates. For additional
information, see notes 2, 6 and 7 to the accompanying consolidated financial
statements. Additionally, Adjusted TCI Group's share of the Other Affiliates'
losses during the nine months ended September 30, 1998 includes Adjusted TCI
Group's share of gains recognized by two affiliates in connection with certain
transactions.
Minority interests in earnings of consolidated subsidiaries aggregated
$45 million and $123 million for the three and nine months ended September 30,
1999, respectively, as compared to $33 million and $99 million in the
corresponding prior year periods. Such amounts include dividends on the Trust
Preferred Securities and other preferred securities of TCI subsidiaries
attributed to Adjusted TCI Group of $45 million during each of the three month
periods ended September 30, 1999 and 1998, respectively, and $134 million during
each of the nine month periods ended September 30, 1999 and 1998, respectively.
See note 9 to the accompanying consolidated financial statements. Through the
first quarter of 1999, such dividends were offset in part by the minority
interests share of the losses of @Home. As described in note 6 to the
accompanying consolidated financial statements, during the second quarter of
1999, the Company ceased to consolidate @Home and began to account for @Home
under the equity method of accounting.
During the two months ended February 28, 1999, @Home issued 1.1 million
common shares. Due to the resulting increase in @Home's equity, net of the
dilution of Adjusted TCI Group's ownership interest in @Home, Adjusted TCI Group
recognized a gain of $17 million.
On April 22, 1998, TCG completed a merger transaction with ACC in which
ACC's shares were exchanged for shares of TCG. In connection with the dilution
of Adjusted TCI Group's interest in TCG, Adjusted TCI Group recorded a gain of
$201 million. See note 7 to the accompanying consolidated financial statements.
Gains on disposition of assets during the nine months ended September
30, 1999 includes a $123 million gain related to the February 1999 sale of
certain cable television systems serving approximately 145,000 customers.
Adjusted TCI Group's gains on disposition of assets of $3,130 million during the
nine months ended September 30, 1998 are primarily attributable to TCG's merger
with AT&T and the March 4, 1998 contribution of cable television systems to CSC.
For additional information, see notes 6, 7 and 11 to the accompanying
consolidated financial statements.
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
Adjusted TCI Group recognized extraordinary gains (losses) on early
extinguishment of debt of $4 million and $(1 million) for the three and nine
months ended September 30, 1999, respectively, as compared to $(4 million) and
$(27 million) in the corresponding prior year periods. Such amounts are net of
taxes and relate to (i) prepayment penalties and the retirement of deferred loan
costs prior to the AT&T Merger and (ii) the excess of the fair value assigned to
the debt in purchase accounting over the amount paid to redeem the debt during
the three months ended September 30, 1999.
Net Earnings (Loss)
As a result of the above-described fluctuations in Adjusted TCI Group's
results of operations, Adjusted TCI Group's net loss of $419 million for the
three months ended September 30, 1999 changed by $1,913 million, as compared to
Adjusted TCI Group's net earnings of $1,494 million for the three months ended
September 30, 1998. Adjusted TCI Group's net loss of $1,801 million for the nine
months ended September 30, 1999 changed by $3,463 million, as compared to
Adjusted TCI Group's net earnings of $1,662 million for the nine months ended
September 30, 1998.
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<PAGE> 67
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
ADJUSTED LIBERTY/VENTURES GROUP
The consolidated operating results of the Company for the two months
ended February 28, 1999 and the three and nine months ended September 30, 1998
include the operations of entities attributed to the Liberty/Ventures Group
during such periods. For the three and seven months ended September 30, 1999,
the Company's investment in Liberty Media Group was accounted for under the
equity method. The following table presents certain combined operating
information of Adjusted Liberty/Ventures Group (Liberty/Ventures Group exclusive
of @Home, NDTC and WTCI) for the periods in which such information was included
in the Company's consolidated financial statements:
<TABLE>
<CAPTION>
Adjusted Liberty/Ventures Group
-----------------------------------------------------------------------
Two months Three months Nine months
ended ended ended
February 28, 1999 September 30, 1998 September 30, 1998
------------------ ------------------ ------------------
amounts in millions
<S> <C> <C> <C>
Revenue $ 240 362 1,022
Operating costs and expenses:
Operating, selling, general and
administrative 192 296 863
Stock compensation 183 (2) 263
Depreciation and amortization 22 31 86
------------------ ------------------ ------------------
397 325 1,212
------------------ ------------------ ------------------
Operating income (loss) (157) 37 (190)
Other income (expense):
Interest expense (25) (34) (71)
Dividend and interest income 10 18 50
Share of losses of affiliates, net (67) (307) (829)
Minority interests in losses (gains) of
attributed subsidiaries (6) 5 (2)
Gains on dispositions, net 15 17 574
Gains on issuance of equity by affiliates
and attributed subsidiaries 372 58 96
Other, net (4) (4) (4)
------------------ ------------------ ------------------
295 (247) (186)
------------------ ------------------ ------------------
Earnings (loss) before income taxes 138 (210) (376)
Income tax benefit (expense) (206) 54 100
------------------ ------------------ ------------------
Net loss $ (68) (156) (276)
================== ================== ==================
</TABLE>
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<PAGE> 68
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
The foregoing results of operations of Adjusted Liberty/Ventures Group
are not comparable in that the 1999 year-to-date period includes two months of
operations and the 1998 year-to-date period includes nine months of operations.
In addition to fluctuations that are attributable to the different lengths of
the 1999 and 1998 periods, other factors have contributed to changes between
such periods. Such changes are discussed in relative terms below.
The combined revenue of Adjusted Liberty/Ventures Group includes
programming revenue derived from Adjusted TCI Group and non-affiliates. The
relative increase in revenue relates primarily to higher revenue from the
distribution of "Encore" premium movie services to cable operators, including
Adjusted TCI Group.
Changes in Adjusted Liberty/Ventures Group's operating, selling,
general and administrative expenses relate primarily to the net effect of
decreases in costs due to certain dispositions and increases in costs due to
relatively higher costs to acquire programming content from suppliers. Higher
costs to acquire programming content are primarily due to an increase in first
run movie content as a percent of Encore's total movie content. Such first run
movies are generally obtained at higher costs than movies which are not first
run. Other miscellaneous increases include higher music rights costs, copyright
fees and marketing costs.
Adjusted Liberty/Ventures Group recorded stock compensation relating to
restricted stock awards, options and/or stock appreciation rights granted by the
Company to certain employees and directors of Adjusted Liberty/Ventures Group.
The amount of expense associated with stock compensation is based on the vesting
of the related stock options and stock appreciation rights and the market price
of the underlying common stock as of the end of the periods presented.
Adjusted Liberty/Ventures Group's interest and dividend income
consisted primarily of (i) dividends received on a series of Time Warner common
stock with limited voting rights, (ii) dividends received on preferred stock of
Fox Kids Worldwide, Inc. ("FKW Preferred Stock"), and (iii) interest income from
cash balances and other interest-earning assets. Dividends received on the Time
Warner common stock aggregated $3 million and $15 million, and dividends
received on the FKW Preferred Stock aggregated $5 million and $23 million,
during the two months ended February 28, 1999 and the nine months ended
September 30, 1998, respectively.
Investments in affiliates are comprise of limited partnerships and
other entities that are primarily engaged in programming and communications
services businesses. Adjusted Liberty/Ventures Group's share of losses of
affiliates were $67 million and $829 million during the two months ended
February 28, 1999 and the nine months ended September 30, 1998, respectively.
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Results of Operations (continued)
Adjusted Liberty/Ventures Group's share of losses for the two months
ended February 28, 1999 included its (i) share of losses of Telewest
Communications plc, which aggregated $38 million during the period, and (ii)
share of losses of other foreign affiliates, which aggregated $27 million during
the period.
Adjusted Liberty/Ventures Group's share of losses for the nine months
ended September 30, 1998 included its (i) $510 million share of the losses of
Sprint Spectrum Holding Company, L.L.P., MinorCo, L.P. and PhillieCo Partnership
I, L.P. (the "PCS Ventures"), (ii) $184 million share of the losses of various
foreign affiliates and (iii) $76 million share of the losses of Fox/Liberty
Networks ("Fox Sports"). As a result of a November 1998 transaction, Adjusted
Liberty/Ventures Group no longer accounts for its investment in the PCS Ventures
under the equity method. Prior to the first quarter of 1998, Adjusted
Liberty/Ventures Group had no obligation, nor intention, to fund Fox Sports.
During 1998, Adjusted Liberty/Ventures Group made the determination to provide
funding to Fox Sports based on specific transactions consummated by Fox Sports.
Consequently, Adjusted Liberty/Ventures Group's share of losses of Fox Sports
for 1998 includes previously unrecognized losses of Fox Sports of approximately
$64 million. Losses for Fox Sports were not recognized in prior periods due to
the fact that Adjusted Liberty/Ventures Group's investment in Fox Sports was
less than zero.
Adjusted Liberty/Ventures Group's gain on disposition of $574 million
during the nine months ended September 30, 1998 is primarily the result of
Adjusted Liberty/Ventures Group's sale to Time Warner of the business of
Southern Satellite Systems, Inc. and certain of its subsidiaries.
Gains on issuance of equity interests by attributed subsidiaries were
$372 million and $96 million during the two months ended February 28, 1999 and
the nine months ended September 30, 1998, respectively. The 1999 gains relate
primarily to the issuance of common stock by UVSG, in connection with its
acquisition of the business of TV Guide. The 1998 gains primarily relate to
General Cable's merger with and into Telewest and the February 1998 equity
issuance by Liberty/Ventures Group's then subsidiary, Superstar/Netlink Group
LLC. See note 7 to the accompanying consolidated financial statements.
The Company's share of the losses of Liberty Media Group was $818
million for the seven months ended September 30, 1999. If Adjusted
Liberty/Ventures Group had been deconsolidated January 1, 1998, the Company's
share of Adjusted Liberty/Ventures Group's net losses would have been $886
million and $276 million for the nine months ended September 30, 1999 and 1998,
respectively. The increase in such Liberty Media Group losses is primarily
attributable to a $352 million increase in Liberty Media Group's stock
compensation and higher depreciation and amortization due primarily to the
application of purchase accounting in connection with the AT&T Merger.
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
MATERIAL CHANGES IN FINANCIAL CONDITION
As described in greater detail in note 2 to the accompanying
consolidated financial statements, on March 9, 1999, TCI was acquired by AT&T in
a merger and TCI thereby became a subsidiary of AT&T. The AT&T Merger also
resulted in the deconsolidation of the businesses and assets attributed to
Liberty Media Group at the time of the AT&T Merger.
Pursuant to the Merger Agreement, immediately prior to the AT&T Merger,
certain assets previously attributed to TCI Ventures Group (including, among
others, the shares of AT&T Common Stock received in the merger of AT&T and TCG,
the stock of @Home attributed to TCI Ventures Group, the assets and business of
NDTC and TCI Ventures Group's equity interest in WTCI) were transferred to TCI
Group in exchange for approximately $5.5 billion in cash. Also, upon
consummation of the AT&T Merger, through a new tax sharing agreement between
Liberty Media Group and AT&T, Liberty Media Group became entitled to the benefit
of approximately $2 billion of net operating loss carryforwards attributable to
all entities included in TCI's consolidated federal income tax return as of the
date of the AT&T Merger. Such net operating loss carryforwards are subject to
adjustment by the Internal Revenue Service and are subject to limitations on
usage which may affect the ultimate amount utilized. Additionally, certain
warrants to purchase shares of GI previously attributed to TCI Group were
transferred to Liberty/Ventures Group in exchange for approximately $176 million
in cash. The transfer of certain immaterial assets was also effected. TCI funded
the $5.5 billion payment to Liberty/Ventures Group through borrowings from AT&T.
Such borrowings are evidenced by a $5.5 billion promissory note. Such promissory
note accrues interest at LIBOR, plus 15 basis points, and is due and payable on
demand on or before March 9, 2004.
Immediately prior to the AT&T Merger, TCI consummated the
Restructuring. The Restructuring included merging TCI's cable subsidiary, TCIC,
into TCI. As a result of TCIC's merger with TCI, all assets and liabilities of
TCIC have been assumed by TCI, including TCIC's public debt. In connection with
TCIC's merger with TCI, each share of TCIC's Cumulative Exchangeable Preferred
Stock, Series A, was converted into 2.119 shares of TCI Group Series A Stock,
and such shares of TCI Group Series A Stock were subsequently converted into
AT&T Common Stock in connection with the AT&T Merger. All other public
securities issued by subsidiaries of TCIC (other than Pacific) otherwise
remained unaffected. Furthermore, as part of the Restructuring, (I) AT&T loaned
TCI $5.5 billion pursuant to a promissory note, (ii) certain asset transfers
were made between TCI and its subsidiaries, (iii) 123,896 shares of Series F
Preferred Stock, which were held by subsidiaries of TCI, were converted into
185,428,946 shares of TCI Group Series A Stock (which in turn were converted
into 215,755,850 shares of AT&T Common Stock in the AT&T Merger and continue to
be held by subsidiaries of TCI), (iv) the remaining 154,411 shares of Series F
Preferred Stock which were formerly held by subsidiaries of TCI were distributed
to TCI through a series of liquidations and canceled, and (v) 125,728,816 shares
of TCI Group Series A Stock, 9,154,134 shares of TCI Group Series B Stock,
6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of Liberty
Group Series B Stock, and 67,536 shares of Class B Preferred Stock, each
formerly held by subsidiaries of TCI, were distributed to TCI through a series
of liquidations and canceled.
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<PAGE> 71
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Financial Condition (continued)
Under the terms of the Exchangeable Preferred Stock of Pacific, each
share of that preferred stock is exchangeable, from and after August 1, 2001,
for approximately 6.3375 shares of AT&T Common Stock, subject to certain
anti-dilution adjustments. Additionally, after the AT&T Merger, Pacific may
elect to make any dividend, redemption or liquidation payment on the
Exchangeable Preferred Stock in cash, by delivery of shares of AT&T Common Stock
or by a combination of the foregoing forms of consideration.
As a result of the deconsolidation of Liberty Media Group in connection
with the AT&T Merger, Liberty Media Group's liquidity sources (including the
$5.5 billion payment from TCI) will be used towards the liquidity requirements
of Liberty Media Group and will not represent a source of liquidity to TCI.
Conversely, TCI anticipates that Liberty Media Group will not require funds from
TCI to satisfy Liberty Media Group's liquidity requirements.
The Company's lines of credit were terminated in March 1999 and,
accordingly, such lines of credit no longer represent a source of liquidity for
the Company. To the extent that funds generated by the Company's operating
activities are not sufficient to meet its liquidity needs, the Company
anticipates that it would obtain additional financing from AT&T or external
sources. No assurance can be given that any such additional financing could be
obtained on terms acceptable to the Company.
TCI's restricted cash of $19 million at September 30, 1999, includes
amounts held in escrow of $10 million and proceeds received in connection with
certain asset dispositions. Such proceeds, which aggregated $9 million at
September 30, 1999, are designated to be reinvested in certain identified assets
for income tax purposes.
During the seven months ended September 30, 1999, the two months ended
February 28, 1999, and the nine months ended September 30, 1998 the Company had
Operating Cash Flow of $1,192 million, $356 million and $2,045 million,
respectively. Operating Cash Flow is a measure of value and borrowing capacity
within the cable television industry and is not intended to be a substitute for
cash flows provided by operating activities, a measure of performance prepared
in accordance with generally accepted accounting principles, and should not be
relied upon as such. Operating Cash Flow, as defined, does not take into
consideration substantial costs of doing business, such as interest expense, and
should not be considered in isolation to other measures of performance.
The Company's operating activities provided (used) cash of $527
million, $(196 million) and $748 million during the seven months ended September
30, 1999, the two months ended February 28, 1999, and the nine months ended
September 30, 1998, respectively. Net cash provided by operating activities
generally reflects net cash from operations of TCI available for TCI's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow. Following the
deconsolidation of Liberty Media Group in connection with the AT&T Merger and
the deconsolidation of @Home during the second quarter of 1999, Liberty Media
Group's and @Home's operating activities are no longer included in the Company's
consolidated statements of cash flows.
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<PAGE> 72
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Financial Condition (continued)
Cash provided by (used in) the Company's investing activities
aggregated $(2,314 million), $475 million and $(656 million) during the seven
months ended September 30, 1999, the two months ended February 28, 1999, and the
nine months ended September 30, 1998, respectively. Following the
deconsolidation of Liberty Media Group in connection with the AT&T Merger and
the deconsolidation of @Home during the second quarter of 1999, Liberty Media
Group's and @Home's investing activities are no longer included in the Company's
consolidated statements of cash flows. The Company's investing activities
include a reduction in the Company's cash and cash equivalents of $401 million
during the seven months ended September 30, 1999 resulting from the
deconsolidation of @Home.
The amount of capital expended by TCI for property and equipment was
$1,910 million, $297 million and $1,123 million during the seven months ended
September 30, 1999, the two months ended February 28, 1999, and the nine months
ended September 30, 1998, respectively. Such expenditures relate primarily to
TCI's cable distribution systems. TCI estimates that total capital expenditures
will be approximately $3.5 billion and $2.4 billion in 1999 and 2000,
respectively. No assurance can be given that actual capital costs will not
exceed such estimated capital costs. Additionally, the foregoing estimate does
not include customer specific capital costs required to deliver local telephony
services. TCI cannot reasonably estimate such costs since the actual capital
costs will be largely dependent upon the extent of customer penetration and the
average per-unit-cost to install customer premise equipment.
During the two months ended February 28, 1999, the Company completed a
transaction whereby the Company contributed cable television systems to Bresnan,
an entity in which the Company had an approximate 80% ownership interest.
Through a series of transactions, including the contribution of cash by a third
party in exchange for an ownership interest, the Company's ownership interest in
Bresnan was diluted to a non-controlling 50% ownership interest. In connection
with the associated dilution of the Company's ownership interest, the Company
deconsolidated assets and liabilities related to cable television systems
serving approximately 614,000 customers. The deconsolidated liabilities included
$210 million of debt owed to external parties and $709 million of intercompany
debt owed to the Company. In connection with such transaction, the Company has
agreed to take certain steps to support compliance by such entity with its
payment obligations under certain debt instruments. See note 7 to the
accompanying consolidated financial statements.
During February 1999, the Company sold cable television assets serving
approximately 145,000 customers to an unaffiliated third party for approximately
$300 million.
Several agreements have been announced which may result in the
acquisition and disposition of cable television systems by TCI. In addition, the
Company has entered into agreements to sell certain of its investments in the
Other Affiliates. See notes 6 and 7 to the accompanying consolidated financial
statements.
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<PAGE> 73
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Financial Condition (continued)
During the second quarter of 1999, @Home consummated a merger agreement
with Excite. Under the terms of the merger agreement, @Home issued approximately
116 million shares of its common stock for all of the outstanding common stock
of Excite. As a result of the merger, the Company's economic interest in @Home
decreased from 38% to 26%. Due to the resulting increase in @Home's equity, net
of the dilution of the Company's ownership interest in @Home, the Company
recorded a $488 million increase to "Additional paid-in capital" and a $312
million increase to "Deferred income tax liability." For additional information
see note 6 to the accompanying consolidated financial statements.
During February and March, 1999, Old TCI terminated certain equity swap
facilities. In connection with the termination of such transactions, Old TCI
received aggregate cash payments of $677 million. For additional information see
note 10 to the accompanying consolidated financial statements.
Many of the Company's subsidiaries operate in the telecommunications
industry which has experienced and is expected to continue to experience (i)
rapid and significant changes in technology, (ii) ongoing improvements in the
capacity and quality of such services, (iii) frequent and new product and
service introductions, and (iv) enhancements and changes in end-user
requirements and preferences. The degree to which these changes will affect such
entities and the ability of such entities to compete in their respective
businesses cannot be predicted. If markets fail to develop, develop more slowly
than expected, or become highly competitive, the Company's operating results and
financial condition may be materially adversely affected.
TCI is committed to purchase billing services from a third party
pursuant to three successive five year agreements. Pursuant to such arrangement,
TCI is obligated at September 30, 1999 to make minimum payments aggregating
approximately $1.5 billion through 2012. Such minimum payments are subject to
inflation and other adjustments pursuant to the terms of the underlying
agreements.
TCI has agreed to make fixed monthly payments to an entity attributed
to Liberty Media Group pursuant to an affiliation agreement. The fixed annual
commitments increase annually from $190 million in 1999 to $267 million in 2003,
and will increase with inflation through 2022. In addition, pursuant to certain
agreements between TCI and an entity attributed to Liberty Media Group, TCI is
obligated at September 30, 1999 to make minimum revenue payments through 2017
license fee payments through 2007 aggregating approximately $385 million to such
attributed entity. Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.
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<PAGE> 74
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Financial Condition (continued)
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $47
million at September 30, 1999. The Company also has agreed to take certain steps
to support debt compliance with respect to obligations aggregating $1,720
million of certain cable television partnerships in which the Company has
non-controlling ownership interests. See notes 7 and 13 to the accompanying
consolidated financial statements. The Company also has guaranteed the
performance of certain affiliates and other parties with respect to such
parties' contractual and other obligations. Although there can be no assurance,
management of the Company believes that it will not be required to meet its
obligations under such guarantees, or if it is required to meet any of such
obligations, that they will not be material to the Company. Following the
deconsolidation of Liberty Media Group in connection with the AT&T Merger, notes
payable and other obligations guaranteed by entities attributed to Liberty Media
Group are no longer included with those of TCI.
During 1999, a subsidiary of the Company entered into a Contribution
Agreement with certain shareholders of Phoenixstar pursuant to which the Company
would, to the extent it is relieved of $166 million of contingent liabilities
currently owed to certain creditors of Phoenixstar and its subsidiaries,
contribute up to $166 million to Phoenixstar to the extent necessary to satisfy
liabilities of Phoenixstar. During the second quarter of 1999 and the fourth
quarter of 1998, the Company recorded charges of $50 million and $90 million,
respectively, to provide for the estimated losses that were expected to result
from the Contribution Agreement. During 1999, the Company contributed
approximately $116 million to Phoenixstar as partial satisfaction of this
obligation. The Company's remaining obligation under the Contribution Agreement
will expire in 2001.
The Company is obligated and/or has guaranteed Liberty Media Group's
obligation to pay fees for the rights to exhibit certain films that are released
by various producers through 2017. Based on customer levels at September 30,
1999, these agreements require minimum payments aggregating approximately $440
million. The aggregate amount of the Film Licensing Obligations under these
license agreements is not currently estimable because such amount is dependent
upon the number of qualifying films released theatrically by certain motion
picture studios as well as the domestic theatrical exhibition receipts upon the
release of such qualifying films. Nevertheless, required aggregate payments
under the Film Licensing Obligations could prove to be significant.
TCI is a party to affiliation agreements with programming suppliers.
Pursuant to certain of such agreements, TCI is committed to carry such
suppliers' programming on its cable systems. Additionally, certain of such
agreements provide for penalties and charges in the event the programming is not
carried or not delivered to a contractually specific number of customers.
I-73
<PAGE> 75
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Financial Condition (continued)
Effective as of December 16, 1997, NDTC, on behalf of the Company and
other cable operators that may be designated from time to time by NDTC, entered
into an agreement with GI to purchase a minimum of 6.5 million set-top devices
during calendar years 1998, 1999 and 2000 at an average price of $318 per
set-top device. The 1998 purchase commitment of 1.5 million set-top devices was
met. The agreement with GI was amended in the third quarter of 1999 to change
the remaining purchase commitment for set-top devices to 1,880,000 devices in
1999 and 2,500,000 devices in 2000. During the nine months ended September 30,
1999, approximately 1.4 million set-top devices had been purchased under the
1999 commitment. In connection with NDTC's purchase commitment, GI agreed to
grant warrants to purchase its common stock proportional to the number of
devices ordered by each organization. In connection with the AT&T Merger, such
warrants were transferred to Liberty/Ventures Group in exchange for
approximately $176 million in cash. To the extent that such warrants do not vest
because TCI fails to meet its purchase commitments, as amended, TCI is required
to repay a proportional amount of such cash to Liberty Media Group. NDTC has the
right to terminate the agreement if, among other reasons, GI fails to meet a
material milestone designated in the agreement with respect to the development,
testing and delivery of advanced digital set-top devices.
On July 17, 1998, the Company acquired 21.4 million shares of common
stock of GI in exchange for (i) certain of the assets of NDTC's set-top
authorization business, (ii) the license of certain related software to GI,
(iii) a $50 million promissory note from the Company to GI, and (iv) a nine-year
revenue guarantee from the Company in favor of GI. In connection therewith, NDTC
also entered into a services agreement pursuant to which it will provide certain
postcontract services to GI's set-top authorization business. As a result of the
deconsolidation of Liberty Media Group, the 21.4 million shares of GI common
stock are no longer included in the Company's consolidated assets. The excess of
the fair value of GI common stock received in 1998 over (i) the book value of
certain assets transferred from NDTC to GI, and (ii) the present value of the
promissory note due from the Company to GI, was deferred by the Company. As a
result of the application of purchase accounting in connection with the AT&T
Merger, the deferred amount related to the revenue guarantee was reduced to $61
million and the remaining deferred amount was reduced to $48 million.
The Company leases business offices, has entered into converter lease
agreements, pole rental agreements, transponder lease agreements and uses
certain equipment under lease arrangements.
The Company's various partnerships and other affiliates accounted for
by the equity method generally fund their acquisitions, required debt repayments
and capital expenditures through borrowings under and refinancing of their own
credit facilities, through net cash provided by their own operating activities
and, in certain circumstances, through required capital contributions from their
partners.
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<PAGE> 76
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Material Changes in Financial Condition (continued)
In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company may enter into Interest Rate Swaps pursuant to which
it (i) pays fixed interest rates and receives variable interest rates and (ii)
pays variable interest rates and receives fixed interest rates. At December 31,
1998, all of the Company's Fixed Rate Agreements had expired. During the nine
months ended September 30, 1998, the Company's net payments pursuant to the
Fixed Rate Agreements were less than $1 million. The Company's net receipts
pursuant to the Variable Rate Agreements during the seven months ended September
30, 1999, the two months ended February 28, 1999 and the nine months ended
September 30, 1998, were $16 million, $1 million and $8 million, respectively.
At September 30, 1999, the Company would have had to pay $1 million to terminate
the Variable Rate Agreements.
In addition to the Variable Rate Agreements, the Company entered into
fixed Interest Rate Swaps pursuant to which it pays a variable rate based on
LIBOR (6.4% at September 30, 1999) and receives a variable rate based on CMT
(6.1% at September 30, 1999) on a notional amount of $400 million through
September 2000; and pays a variable rate based on LIBOR (6.3% at September 30,
1999) and receives a variable rate based on CMT (6.2% at September 30, 1999) on
notional amounts of $95 million through February 2000. During each of the four
months ended September 30, 1999, the two months ended February 28, 1999 and the
nine months ended September 30, 1998, the Company's net payments pursuant to
such agreements were $1 million. At September 30, 1999, the Company would be
required to pay less than $1 million to terminate such Interest Rate Swaps.
The Company is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of nonperformance by the
other parties to the agreements. However, the Company does not anticipate that
it will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, as of September 30, 1999, the
Company does not anticipate material near-term losses in future earnings, fair
values or cash flows resulting from derivative financial instruments. See note 8
to the accompanying consolidated financial statements for additional information
regarding Interest Rate Swaps.
At September 30, 1999, after considering the net effect of the
aforementioned Interest Rate Swaps, the Company had $7.6 billion (or 80%) of
fixed rate debt due to non-affiliates and $1.8 billion (or 20%) of variable-rate
debt due to non-affiliates. In addition, at September 30, 1999, the Company had
outstanding variable rate indebtedness under the AT&T Notes of $8.6 billion.
TCI's interest rate exposure is primarily to changes in LIBOR rates.
I-75
<PAGE> 77
TELE-COMMUNICATIONS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no new material legal proceedings or material developments
in previously reported legal proceedings during the quarter ended
September 30, 1999 to which TCI or any of its consolidated subsidiaries
is a party or of which any of its property is the subject, except as
follows:
James Dalton, et al. V. Tele-Communications, Inc., et al.
As previously reported, on February 24, 1997, James Dalton, et al.
filed suit in District Court for Arapahoe County, Colorado, Case No.
97-CV421, against TCI and certain current and former officers of TCI
and its subsidiary, TCIC (John C. Malone, Brendan R. Clouston, Barry P.
Marshall, Camille K. Jayne, Sadie N. Decker, Bruce W. Ravenel, Gerald
W. Gaines, Bernard W. Schotters, II) and Daniel L. Ritchie and Donne F.
Fisher, in their capacity as co-personal representatives of the estate
of Bob Magness. This case was settled in August 1999 for an amount that
will not have a material adverse effect upon the financial condition of
the Company. This case will not be reported on in the future.
Tele-Communications International, Inc. Stockholder Litigation.
As previously reported, on July 13, 1998, two putative class action
complaints were filed by certain stockholders of Tele-Communications
International, Inc. in the Delaware Chancery Court. The actions, which
have identical claims and allegations, are styled as Berkowitz v.
Tele-Communications, Inc., et al., C.A. No. 16533, and Chetkov v.
Tele-Communications, Inc., et al., C.A. No. 16534, respectively. This
case was settled and dismissed in July 1999. The settlement did not
have a material adverse effect upon the financial condition of the
Company. This case will not be reported on in the future.
<PAGE> 78
TELE-COMMUNICATIONS, INC.
Item 6. Exhibit and Reports on Form 8-K.
(a) Exhibits
10 - Material Contracts
10.1 Amendment to Employment Agreement, effective
as of March 9, 1999, between Liberty Media
Corporation and John C. Malone
10.2 Employment Agreement between
Tele-Communications, Inc. and Marvin Jones,
dated as of July 14, 1999.
10.3 Employment Agreement between AT&T Corp. and
Stephen M. Brett, dated as of April 1, 1999.
27 - Tele-Communications, Inc. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September
30, 1999:
None.
<PAGE> 79
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: November 12, 1999 By: /s/ Daniel E. Somers
----------------------------------
Daniel E. Somers
President and Chief
Executive Officer
Date: November 12, 1999 By: /s/ Stephen M. Brett
----------------------------------
Stephen M. Brett
Senior Executive Vice
President
Date: November 12, 1999 By: /s/ Ann M. Koets
----------------------------------
Ann M. Koets
Executive Vice President
and Chief Financial Officer
(Chief Accounting Officer)
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 - Amendment to Employment Agreement, effective as of March 9, 1999,
between Liberty Media Corporation and John C. Malone
10.2 - Employment Agreement between Tele-Communications, Inc. and Marvin
Jones, dated as of July 14, 1999.
10.3 - Employment Agreement between AT&T Corp. and Stephen M. Brett, dated
as of April 1, 1999.
27 - Tele-Communications, Inc. Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement (this "Amendment"), effective
as of March 9, 1999, is between Liberty Media Corporation, a Delaware
corporation (the "Company"), and John C. Malone ("Executive").
RECITALS
Executive and Tele-Communications, Inc. ("TCI") are parties to a
Restated and Amended Employment Agreement (the "Employment Agreement") dated as
of November 1, 1992, setting forth various terms applicable to Executive's
employment by TCI. A copy of the Employment Agreement is attached as Appendix A
to this Amendment. In connection with the acquisition of TCI by AT&T Corp. on
March 9, 1999, the Company assumed the obligations of TCI under the Employment
Agreement.
The Company and Executive desire to amend the Employment Agreement in
various respects.
AGREEMENT
In consideration of the mutual covenants set forth in this Amendment
and the Employment Agreement, the parties, intending to be legally bound, agree
as follows:
1. Definitions. As used in this Amendment, all terms with initial
capital letters that are not defined in this Amendment will have the meaning
ascribed to them in the Employment Agreement.
2. Services to be Rendered by Executive. The first sentence of Section
2 of the Employment Agreement is amended in its entirety to read as follows:
"Executive agrees to serve the Company as the Chairman of the
Company's Board of Directors."
3. Time to be Devoted by Executive. Section 3 of the Employment
Agreement is amended in its entirety to read as follows:
"Executive will use his best efforts to promote the interests of the
Company and will devote such of his business time, attention, efforts
and abilities as reasonably may be required to perform the duties
contemplated hereby."
4. Compensation Payable to Executive. The first sentence of Section
4(a) of the Employment Agreement is amended in its entirety to read as follows:
<PAGE> 2
"Effective as of March 1, 1999, and thereafter during the Employment
Term, the Company will pay to Executive a salary at the rate of $2,600
per annum."
5. Executive Benefit Plans; Use of Company Aircraft.
(a) The first sentence of Section 7(b) of the Employment Agreement
is amended by changing the reference in that sentence to "35,000 per year" to
"$200,000 per year."
(b) The following will be added as subsection (c) to Section 7 of
the Employment Agreement:
"(c) The Company will pay, or will reimburse Executive for, all fees
and other costs for professional services reasonably incurred by
Executive in obtaining estate or tax planning advice or services, up
to a maximum amount of $50,000 per year."
6. Notices. The address for notices to Executive set forth in Section
14 of the Employment Agreement is amended to read as follows:
Mr. John C. Malone
12750 Pine Drive
Parker, CO 80134
This Agreement has been signed on June 30, 1999, but will be effective
as of the date first written above.
LIBERTY MEDIA CORPORATION
By: /s/ ROBERT R. BENNETT
-------------------------------------
Robert R. Bennett, President
/s/ JOHN C. MALONE
-------------------------------------
John C. Malone
-2-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT by and between Tele-Communications, Inc., a Delaware
corporation (the "Company" or "TCI), and Marvin Jones (the "Executive"), dated
as of the 14th day of July, 1999 (the "Effective Date").
WHEREAS, the Executive is employed as of the Effective Date by the
Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
to employ the Executive and the Executive desires to serve in that capacity;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company shall employ the Executive, and the
Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for the Employment Period (as defined in the next sentence).
The "Employment Period" shall mean the period beginning on the Effective Date
and ending on March 31, 2000, unless earlier terminated as set forth herein.
2. Position and Duties. (a) During the Employment Period, the
Executive shall serve in the position and have the duties and responsibilities
set forth on Exhibit A hereto.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the
<PAGE> 2
performance of the Executive's responsibilities as an employee of the Company
in accordance with this Agreement.
(c) The Executive's services shall be performed primarily at the
principal office location where the Executive performed his duties immediately
prior to the Effective Date (or otherwise within 35 miles of such office),
subject to any travel requirements necessary to perform his duties hereunder.
3. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall be paid an annual base salary ("Annual Base Salary") at a rate
equal to the rate set forth on Exhibit B hereto, payable pursuant to the
Company's normal payroll practices.
(b) Benefits. During the Employment Period, the Executive shall be
entitled to participate in savings and welfare benefit plans, practices,
policies and programs of the Company that are provided generally to similarly
situated employees of the Company.
(c) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable business expenses
incurred by the Executive in accordance with the Company's policies, practices
and procedures.
(d) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company.
(e) TCI Equity Awards. Effective as of the Effective Date, the
Company shall accelerate the vesting of the Executive's outstanding unvested
stock options and shares of restricted stock that are set forth on Exhibit C
hereto (the "Exhibit C Grants"). All remaining stock options and restricted
stock initially granted to the Executive with respect to the Company or Liberty
Media Corporation prior to the Effective Date, which do not become vested
pursuant to the immediately preceding sentence ("Remaining TCI Awards"), shall
continue to vest during the Employment Period pursuant to their scheduled
vesting terms and, if not previously vested, shall become immediately vested on
March 31, 2000. In the event the Executive exercises a stock option or sells a
share of stock that had been restricted stock (in
-2-
<PAGE> 3
each case, that was an Exhibit C Grant or Remaining TCI Award) within 60 days
after the earlier of (i) the vesting of such stock option or share of restricted
stock pursuant to the terms of such award or (ii) March 31, 2000 (or any earlier
vesting date under this Agreement), the Company shall pay the Executive, with
respect to each such stock option or share, a cash payment (the "Equity
Payment"), within 10 days following the exercise of the stock option or sale of
stock, equal to the excess, if any, of: (A) with respect to Exhibit C Grants or
Remaining TCI Awards denominated in AT&T Corp. common stock, $57.81 over the
average of the high and low price of AT&T Corp. common stock on the New York
Stock Exchange on the date of such exercise or sale, as applicable, and (B) with
respect to Exhibit C Grants or Remaining TCI Awards denominated in "AT&T Liberty
Tracking Shares," $26.67 over the average of the high and low price of AT&T
Liberty Tracking Shares on the New York Stock Exchange on the date of such
exercise or sale, as applicable. Each Equity Payment amount shall be subject to
equitable adjustment in the event of any adjustment in the capitalization of
AT&T Corp. (e.g., stock split, spin-off, extraordinary dividend, reorganization
or similar corporate transaction, including any adjustments relating to the AT&T
Liberty Tracking Shares) which occurs following the Effective Date and prior to
the date of any such exercise or sale.
(f) Supplemental Payment. Except as otherwise provided in Section
5(b) of this Agreement, the Company shall pay the Executive a lump sum cash
payment equal to the amount set forth on Exhibit D hereto (the "Supplemental
Payment") within 30 days following the expiration of the Employment Period or
pursuant to the provisions of Section 5 of this Agreement.
4. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. The Company shall be entitled to terminate the Executive's
employment because of the Executive's Disability during the Employment Period.
"Disability" means that (i) the Executive is unable to perform the Executive's
duties under this Agreement for a period of not less than 180 consecutive days,
as a result of physical or mental illness or injury, and (ii) a physician
selected by the Company or its insurers, and acceptable to the Executive or the
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<PAGE> 4
Executive's legal representative, has determined that the Executive's
incapacity is total and permanent. A termination of the Executive's employment
by the Company for Disability shall be communicated to the Executive or the
Executive's legal representative by written notice, and shall be effective on
the 10th day after receipt of such notice by the Executive or the Executive's
legal representative (the "Disability Effective Date").
(b) By the Company. The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
shall mean illegal conduct or gross misconduct by the Executive, in either case
that is willful and results in material and demonstrable damage to the business
or reputation of the Company or any of its affiliates.
(c) By the Executive. (i) The Executive may terminate employment for
Good Reason or without Good Reason. "Good Reason" means, without the
Executive's written consent:
A. the Company's assignment to the Executive of any duties
inconsistent in any material respect with the duties described in
Exhibit A of this Agreement; provided, that a diminution or
reduction in the Executive's duties, responsibilities or authority
shall not be a basis for Good Reason;
B. any failure by the Company to comply with any material
provision of Section 3 of this Agreement;
C. any requirement by the Company that the Executive's services be
rendered primarily at a location or locations other than that
provided for in Section 2(c) of this Agreement; or
D. any failure by the Company to comply with Section 10(c) of this
Agreement.
-4-
<PAGE> 5
An isolated, insubstantial and inadvertent failure or action by the Company
that is not taken in bad faith and is remedied by the Company promptly after
receipt of notice thereof from the Executive shall not be a basis for Good
Reason. A termination of employment by the Executive for Good Reason shall be
effectuated by giving the Company written notice ("Notice of Termination for
Good Reason") of the termination, setting forth in reasonable detail the
specific conduct of the Company that constitutes Good Reason and the specific
provision(s) of this Agreement upon which the Executive is relying. A
termination of employment by the Executive for Good Reason shall be effective
(unless disputed by the Company) on the fifth business day following the date
when the Notice of Termination for Good Reason is received by the Company,
unless the notice sets forth a later date (which date shall in no event be later
than 30 days after the notice is received by the Company).
(d) Date of Termination. The "Date of Termination" means the date of
the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company or by the Executive for
Good Reason is effective, or the last day the Executive provides services under
this Agreement, in the case of the Executive's termination of employment without
Good Reason, as the case may be.
5. Obligations of the Company upon Termination. Following the
Executive's Date of Termination, the Company shall have the obligations to the
Executive set forth in this Section 5, and shall have no further obligations
under this Agreement, other than, if applicable, any obligations to reimburse
expenses due to the Executive under Section 3(c) or to make an Equity Payment
to the Executive under Section 3(e).
(a) Other Than for Cause; Death or Disability; Good Reason. If,
during the Employment Period, the Company terminates the Executive's
employment, other than for Cause, or the Executive's employment is terminated
because of death or Disability, or the Executive terminates employment for Good
Reason, the Company shall make the payments and provide the benefits set forth
in (i) and (ii) below. In addition, if the Executive's employment is terminated
by the Company other than for Cause or Disability, or by the Executive for Good
Reason, the Company shall provide the Executive with reasonable
-5-
<PAGE> 6
outplacement services. The payments and benefits provided pursuant to this
Section 5(a) are intended as liquidated damages for a termination of the
Executive's employment by the Company other than for Cause, or for the actions
of the Company leading to a termination of the Executive's employment by the
Executive for Good Reason, or for the Executive's termination of employment as a
result of death, and shall be the sole and exclusive remedy therefor.
(i) The Company shall pay the Executive the amounts set forth below
in a lump sum in cash within 30 days following the Date of Termination:
The sum of (1) the Executive's Annual Base Salary through the
Date of Termination, (2) the value of the Executive's accrued,
but unused, vacation days, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1) and (2) shall be hereinafter referred to as the "Accrued
Obligations") and (3) the Supplemental Payment; and
(ii) All unvested Remaining TCI Awards shall become immediately
vested. In the event of the Executive's death or Disability, the payments under
this Section 5(a) may be made to the Executive's estate or legal
representatives, if applicable.
(b) Cause; Other than for Good Reason. If, during the Employment
Period, the Executive's employment is terminated by the Company for Cause or
the Executive voluntarily terminates employment other than for Good Reason, the
Company shall pay the Executive the Accrued Obligations in a lump sum in cash
within 30 days following the Date of Termination and, notwithstanding anything
in this Agreement to the contrary, the Company shall have no obligation to make
the Supplemental Payment, and the Remaining TCI Awards that are not vested as
of the Date of Termination shall be forfeited immediately.
6. Full Settlement. The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or
other claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek
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<PAGE> 7
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced, regardless of whether the Executive obtains other
employment.
7. Confidential Information; Noncompetition; Nonsolicitation. (a) The
Executive shall hold in a fiduciary capacity for the benefit of the Company all
secret or confidential information, knowledge or data relating to the Company
and its respective businesses that the Executive obtains during the Executive's
employment by the Company (before and after the Effective Date) and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 7(a)) ("Confidential Information"). The Executive shall not
communicate, divulge or disseminate Confidential Information at any time during
or after the Executive's employment with the Company, except with the prior
written consent of the Company or as otherwise required by law or legal
process.
(b) For purposes of Sections 7(b), (c) and (d) the "Noncompetition
Period" means the period during which the Executive is employed by the Company
pursuant to this Agreement and 24 months after the first to occur (i) the
Executive's Date of Termination or (ii) the end of the scheduled Employment
Period. During the Noncompetition Period, the Executive shall not solicit any
business of the type engaged in by the Company from any clients, customers,
former clients or customers, or prospects of the Company who were solicited
directly by the Executive when the Executive was an employee of the Company or
with respect to which the Executive supervised, directly or indirectly, in
whole or in part, the solicitation activities related to any such persons when
the Executive was an employee of the Company.
(c) During the Noncompetition Period, the Executive shall not
solicit any business of the type engaged in by the Company from any person
whatsoever if such solicitation involves a product of the Company which the
Board deems, in its reasonable judgment, to be proprietary to the Company and
otherwise non-public.
(d) During the Noncompetition Period, the Executive shall not
induce or solicit any employee of the Company to terminate his or her
employment.
-7-
<PAGE> 8
(e) The provisions of Sections 7(b), (c) and (d) shall remain in
full force and effect until the expiration of the Noncompetition Period
notwithstanding the earlier termination of the Executive's employment
hereunder. In the event of a breach of the Executive's covenants under this
Section 7, it is understood and agreed that the Company shall be entitled to
injunctive relief, as well as any other legal remedies. For purposes of Section
7, the "Company" shall include all entities controlling, controlled by or under
common control with the Company ("affiliates").
8. Dispute Resolution. At the option of the Executive or the Company,
any dispute, controversy, or question arising under, out of or relating to this
Agreement or the breach thereof, other than that for injunctive relief to this
Agreement or the breach thereof, other than that for injunctive relief under
Section 7(e), shall be referred for decision by arbitration in the State of
Colorado by a neutral arbitrator selected by the parties hereto. The proceeding
shall be governed by the Rules of the American Arbitration Association then in
effect or such rules last in effect (in the event such Association is no longer
in existence). If the parties are unable to agree upon such a neutral arbitrator
within 30 days after either party has given the other written notice of the
desire to submit the dispute, controversy or question for decision as aforesaid,
then either party may apply to the American Arbitration Association for an
appointment of a neutral arbitrator, or if such Association is not then in
existence or does not act in the matter within 30 days of application, either
party may apply to the Presiding Judge of the District Court of any county in
Colorado for an appointment of a neutral arbitrator to hear the parties and
settle the dispute, controversy or question, and such Judge is hereby authorized
to make such appointment. In the event that either party exercises the right to
submit a dispute arising hereunder to arbitration, the decision of the neutral
arbitrator shall be final, conclusive and biding on all interested persons and
no action at law or equity shall be instituted or, if instituted, further
prosecuted by either party other than to enforce the award of the neutral
arbitrator. The award of the neutral arbitrator may be entered in any court that
has jurisdiction. In the event that the Executive is successful in pursuing any
material claim(s) or dispute(s) arising out of this Agreement, the Company shall
pay the Executive's attorney and expenses of any Arbitrator in connection with
such claims or
-8-
<PAGE> 9
disputes. In any other case, the Executive and the Company shall each bear all
their own costs and attorneys fees, except the Company shall in all events pay
the costs of any arbitrator appointed hereunder.
9. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company shall require any successors (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of its business and/or assets expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would have been required to perform it if no such succession had taken
place. Except as specifically provided, herein, as used in this Agreement,
"Company" shall mean both the Company as defined above and any such successor
that assumes and agrees to perform this Agreement, by operation of law or
otherwise.
10. Miscellaneous. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
-9-
<PAGE> 10
If to the Executive: Mr. Marvin Jones
16 Parkway Drive
Englewood, CO 80110.
If to the Company: Telecommunications, Inc.
c/o AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Executive Vice President,
Human Resources and
Executive Vice President,
Merger and Joint Venture
Integration of AT&T Corp.
or to such other address as either party furnishes to the other in writing in
accordance with this Section 10(b). Notices and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(f) Except as to (i) the "Special Continuees benefit program
letter" to the Executive, dated March 8, 1999, as clarified by the letter to
the Executive dated June 23, 1999, and (ii) the Tax Protection Agreement
between the Executive and the Company, dated
-10-
<PAGE> 11
as of March 1, 1999, the Executive and the Company acknowledge that this
Agreement supersedes any other agreement between them or between the Executive
and AT&T Corp. and/or any Company plan or practice (or plan or practice of
Liberty Media Corporation) concerning the subject matter hereof, including the
Company's Severance Pay Plan or any other severance policy of the Company, AT&T
Corp. or any of their affiliates (collectively, the "Severance Plans"). The
Executive hereby irrevocably waives any rights to severance benefits under the
Severance Plans or to acceleration of equity awards under the Severance Plans or
any equity award plan of the Company, Liberty Media Corporation or AT&T Corp.,
except as may be provided in this Agreement.
(g) The Executive shall be covered under the indemnification
policies of the Company applicable to similarly situated officers of the
Company.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand, and the Company has caused this Agreement to be executed in its name on
its behalf, all as of the day and year first above written.
/s/ MARVIN JONES
----------------------------------------
[Executive]
TELE-COMMUNICATIONS, INC.
By: /s/ Stephen M. Brett
------------------------------------
-11-
<PAGE> 12
EXHIBIT A
JOB DESCRIPTION
MARVIN JONES
EXECUTIVE VICE PRESIDENT
PRIMARY DUTIES & RESPONSIBILITIES:
Mr. Jones will serve as Executive Vice President - AT&T Broadband & Internet
Services. His duties include advising Leo Hindery on operational issues and
implementation of Digital and @Home. He will also assist Bill Fitzgerald on
budget, planning and special projects.
<PAGE> 13
EXHIBIT B
Marvin Jones
Annual Base Salary of $612,346
<PAGE> 14
EXHIBIT C
<PAGE> 15
SCHEDULE B
MARVIN JONES
The following stock options will be accelerated upon the Effective Date as
defined herein:
July 23, 1997, grant (AT&T) (formerly TCOMA)
May 15, 1997, grant (AT&T) (formerly TCOMA)
July 23, 1997, grant (Liberty Media) (formerly TCIVA)
The following restricted stock grants will be accelerated upon the Effective
Date as defined herein:
None.
<PAGE> 16
GRANTS NOT ACCELERATED
MARVIN JONES
The following stock options will not be accelerated upon the Effective Date:
May 15, 1997, grant (Liberty Media) (formerly TCIVA)
The following restricted stock grants will not be accelerated upon the
Effective Date:
December 10, 1998, grant (AT&T) (formerly TCOMA)
September 3, 1998, grant (AT&T) (formerly TCOMA)
<PAGE> 17
EXHIBIT D
Marvin Jones
2 times annual base salary ($612,346) for an amount equal to $1,224,692
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT by and between AT&T Corp., a New York corporation (the
"Company"), and Stephen M. Brett (the "Executive"), dated as of the 1st day of
April, 1999 (the "Effective Date").
WHEREAS, the Executive is employed as of the Effective Date by the
Company; and
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
to employ the Executive and the Executive desires to serve in that capacity;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. The Company shall employ the Executive, and
the Executive shall serve the Company, on the terms and conditions set forth in
this Agreement, for the Employment Period (as defined in the next sentence).
The "Employment Period" shall mean the period beginning on the Effective Date
and ending on March 31, 2000, unless extended or earlier terminated as set
forth herein. Effective on April 1, 2000, the Employment Period shall be
extended until either party provides the other party with 45 days written
notice to terminate the Employment Period.
2. Position and Duties. (a) During the Employment Period, the Executive
shall serve in the position and have the duties and responsibilities set forth
on Exhibit A hereto.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive shall
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive under this Agreement, use the
Executive's reasonable best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver
<PAGE> 2
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement.
(c) The Executive's services shall be performed primarily at the
principal office location where the Executive performed his duties immediately
prior to the Effective Date (or otherwise within 35 miles of such office),
subject to any travel requirements necessary to perform his duties hereunder.
3. Compensation. (a) Base Salary. During the Employment Period, the
Executive shall be paid an annual base salary ("Annual Base Salary") at a rate
equal to $900,000, payable pursuant to the Company's normal payroll practices.
(b) Benefits. During the Employment Period, the Executive shall be
entitled to participate in savings and welfare benefit plans, practices,
policies and programs of the Company that are provided generally to similarly
situated employees of the Company.
(c) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable business expenses
incurred by the Executive in accordance with the Company's policies, practices
and procedures.
(d) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the plans, policies, programs and
practices of the Company.
(e) TCI Equity Awards. Effective as of June 23, 1999, the Company
shall accelerate the vesting of the Executive's outstanding unvested stock
options and shares of restricted stock that are set forth on Exhibit B hereto
(the "Exhibit B Grants"). All remaining stock options and restricted stock
initially granted to the Executive with respect to Tele-Communications, Inc.
("TCI") or Liberty Media Corporation prior to the Effective Date, which do not
become vested pursuant to the immediately preceding sentence ("Remaining TCI
Awards"), shall continue to vest during the Employment Period pursuant to their
scheduled
-2-
<PAGE> 3
vesting terms and, if not previously vested, shall become immediately vested
upon the expiration of the Employment Period. In the event the Executive
exercises a stock option or sells a share of stock that had been restricted
stock (in each case, that was an Exhibit B Grant or Remaining TCI Award) within
60 days after the earlier of (i) the vesting of such stock option or share of
restricted stock pursuant to the terms of such award or (ii) the expiration of
the Employment Period (or any earlier vesting date under this Agreement), the
Company shall pay the Executive, with respect to each such stock option or
share, a cash payment (the "Equity Payment"), within 10 days following the
exercise of the stock option or sale of stock, equal to the excess, if any, of:
(A) with respect to Exhibit B Grants or Remaining TCI Awards denominated in
Company common stock, $57.81 over the average of the high and low price of
Company common stock on the New York Stock Exchange on the date of such exercise
or sale, as applicable, and (B) with respect to Exhibit B Grants or Remaining
TCI Awards denominated in "AT&T Liberty Tracking Shares", $26.67 over the
average of the high and low price of AT&T Liberty Tracking Shares on the New
York Stock Exchange on the date of such exercise or sale, as applicable. Each
Equity Payment shall be subject to equitable adjustment in the event of any
adjustment in the capitalization of the Company (eg., stock split, spin-off,
extraordinary dividend, reorganization or similar corporate transaction,
including any adjustments relating to the AT&T Liberty Tracking Shares) which
occurs following June 23, 1999 and prior to the date of any such exercise or
sale.
4. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. The Company shall be entitled to terminate the
Executive's employment because of the Executive's Disability during the
Employment Period. "Disability" means that (i) the Executive is unable to
perform the Executive's duties under this Agreement for a period of not less
than 180 consecutive days, as a result of physical or mental illness or injury,
and (ii) a physician selected by the Company or its insurers, and acceptable to
the Executive or the Executive's legal representative, has determined that the
Executive's incapacity is total and permanent. A termination of the Executive's
employment by the Company for Disability shall be communicated to the Executive
or the Executive's legal representative by written notice,
-3-
<PAGE> 4
and shall be effective on the 10th day after receipt of such notice by the
Executive or the Executive's legal representative (the "Disability Effective
Date").
(b) By the Company. The Company may terminate the Executive's
employment during the Employment Period for Cause or without Cause. "Cause"
shall mean illegal conduct or gross misconduct by the Executive, in either case
that is willful and results in material and demonstrable damage to the business
or reputation of the Company or any of its affiliates.
(c) By the Executive. (i) The Executive may terminate employment
for Good Reason or without Good Reason. "Good Reason" means (without, as to
subparagraphs, (A) through (D) below, the Executive's written consent):
A. the Company's assignment to the Executive of any duties
inconsistent in any material respect with the duties described
in Exhibit A of this Agreement;
B. any failure by the Company to comply with any material
provision of Section 3 of this Agreement;
C. any requirement by the Company that the Executive's services
be rendered primarily at a location or locations other than
that provided for in Section 2(c) of this Agreement;
D. any failure by the Company to comply with Section 9(c) of
this Agreement; or
E. any termination of employment by the Executive on or after
March 31, 2000 on 45 days written notice.
An isolated, insubstantial and inadvertent failure or action by the Company
that is not taken in bad faith and is remedied by the Company promptly after
receipt of notice thereof from the Executive shall not be a basis for Good
Reason. A termination of employment by the Executive for Good Reason shall be
effectuated by giving the Company written notice ("Notice of
-4-
<PAGE> 5
Termination for Good Reason") of the termination, setting forth in reasonable
detail the specific conduct of the Company that constitutes Good Reason and the
specific provision(s) of this Agreement upon which the Executive is relying. A
termination of employment by the Executive for Good Reason shall be effective
(unless disputed by the Company) on the fifth business day (except as otherwise
provided in Section 4(c)(E)) following the date when the Notice of Termination
for Good Reason is received by the Company, unless the notice sets forth a
later date (which date shall in no event (except as otherwise provided in
Section 4(c)(E)) be later than 30 days after the notice is received by the
Company).
(d) Date of Termination. The "Date of Termination" means the date
of the Executive's death, the Disability Effective Date, the date on which the
termination of the Executive's employment by the Company or by the Executive
for Good Reason is effective, or the last day the Executive provides services
under this Agreement, in the case of the Executive's termination of employment
without Good Reason, as the case may be.
5. Obligations of the Company upon Termination. Following the
Executive's Date of Termination, the Company shall have the obligations to the
Executive set forth in this Section 5, and shall have no further obligations
under this Agreement, other than, if applicable, any obligations to reimburse
expenses due to the Executive under Section 3(c) or to make an Equity Payment
to the Executive under Section 3(e).
(a) Other Than for Cause; Death or Disability; Good Reason. If,
during the Employment Period, the Company terminates the Executive's
employment, other than for Cause, or the Executive's employment is terminated
because of death or Disability, or the Executive terminates employment for Good
Reason, the Company shall make the payments and provide the benefits set forth
in (i) and (ii) below. In addition, if the Executive's employment is terminated
by the Company other than for Cause or Disability, or by the Executive for Good
Reason, the Company shall provide the Executive with reasonable outplacement
services. The payments and benefits provided pursuant to this Section 5(a) are
intended as liquidated damages for a termination of the Executive's employment
by the Company other than for Cause, or for the actions of the Company leading
to a termination of the Executive's employment by the Executive for Good
Reason, or for the Executive's
-5-
<PAGE> 6
termination of employment as a result of death or Disability, and shall be the
sole and exclusive remedy therefor.
(i) The Company shall pay the Executive the amounts set forth below
in a lump sum in cash within 30 days following the Date of Termination:
The sum of (1) the Executive's Annual Base Salary through the Date
of Termination, (2) the value of the Executive's accrued, but
unused, vacation days, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1) and (2) shall
be hereinafter referred to as the "Accrued Obligations") and (3) an
amount equal to five times Executive's Annual Base Salary (the
"Supplemental Payment").
(ii) All unvested Remaining TCI Awards shall become immediately
vested. In the event of the Executive's death or Disability, the payments
under this Section 5(a) may be made to the Executive's estate or legal
representatives, if applicable.
(b) Cause; Other than for Good Reason. If, during the Employment
Period, the Executive's employment is terminated by the Company for Cause or
the Executive voluntarily terminates employment other than for Good Reason, the
Company shall pay the Executive the Accrued Obligations in a lump sum in cash
within 30 days following the Date of Termination and, notwithstanding anything
in this Agreement to the contrary, the Company shall have no obligation to make
the Supplemental Payment, and the Remaining TCI Awards that are not vested as
of the Date of Termination shall be forfeited immediately.
6. Full Settlement. The Company's obligation to make the payments
provided for in, and otherwise to perform its obligations under, this Agreement
shall not be affected by any set-off, counterclaim, recoupment, defense or
other claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
-6-
<PAGE> 7
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced, regardless of whether the Executive obtains other employment.
7. Confidential Information; Noncompetition; Nonsolicitation. (a) The
Executive shall hold in a fiduciary capacity for the benefit of the Company all
secret or confidential information, knowledge or data relating to the Company
and its respective businesses that the Executive obtains during the Executive's
employment by the Company (before and after the Effective Date) and that is not
public knowledge (other than as a result of the Executive's violation of this
Section 7(a)) ("Confidential Information"). The Executive shall not
communicate, divulge or disseminate Confidential Information at any time
during or after the Executive's employment with the Company, except with the
prior written consent of the Company or as otherwise required by law or legal
process.
(b) During the Noncompetition Period (as defined below), the
Executive shall not, without the prior written consent of the Executive Vice
President-Human Resources of the Company or the Executive Vice President,
Merger and Joint-Venture Integration of the Company, directly or indirectly, as
principal or agent, or in any other capacity, own, manage, operate, participate
in or be employed by or otherwise be interested in, or connected in any manner
with, any person, firm, corporation or other enterprise which directly competes
in a material respect with the telecommunications or cable businesses
(including broadband and internet services) of the Company as it is conducted
while the Executive is employed by the Company. Nothing herein contained shall
be construed as denying the Executive the right to own securities of any such
corporation which is listed on a national securities exchange or quoted in the
NASDAQ System to the extent of an aggregate of 5% of the amount of such
securities outstanding. For purposes of this Section 7(b), the "Noncompetition
Period" means the period during which the Executive is employed by the Company
pursuant to this Agreement and 24 months after the first to occur (i) the
Executive's Date of Termination or (ii) the end of the Employment Period.
(c) During the Noncompetition Period, the Executive shall not
solicit any business of the type engaged in by the Company from any clients,
customers, former clients or customers, or prospects of the Company who were
solicited directly by the Executive when
-7-
<PAGE> 8
the Executive was an employee of the Company or with respect to which the
Executive supervised, directly or indirectly, in whole or in part, the
solicitation activities related to any such persons when the Executive was an
employee of the Company.
(d) During the Noncompetition Period, the Executive shall not
solicit any business of the type engaged in by the Company from any person
whatsoever if such solicitation involves a product of the Company which the
Board deems, in its reasonable judgment, to be proprietary to the Company and
otherwise non-public.
(e) During the Noncompetition Period, the Executive shall not
induce or solicit any employee of the Company to terminate his or her
employment.
(f) The provisions of Sections 7(b), (c), (d) and (e) shall remain
in full force and effect until the expiration of the Noncompetition Period
notwithstanding the earlier termination of the Executive's employment hereunder.
In the event of a breach of the Executive's covenants under this Section 7, it
is understood and agreed that the Company shall be entitled to injunctive
relief, as well as any other legal remedies. For purposes of Section 7, the
"Company" shall include all entities controlling, controlled by or under common
control with the Company ("affiliates").
8. Dispute Resolution. At the option of the Executive or the Company,
any dispute, controversy, or question arising under, out of or relating to this
Agreement or the breach thereof, other than that for injunctive relief to this
Agreement or the breach thereof, other than that for injunctive relief under
Section 7(f), shall be referred for decision by arbitration in the State of
Colorado by a neutral arbitrator selected by the parties hereto. The proceeding
shall be governed by the Rules of the American Arbitration Association then in
effect or such rules last in effect (in the event such Association is no longer
in existence). If the parties are unable to agree upon such a neutral
arbitrator within 30 days after either party has given the other written notice
of the desire to submit the dispute, controversy or question for decision as
aforesaid, then either party may apply to the American Arbitration Association
for an appointment of a neutral arbitrator, or if such Association is not then
in existence or does not act in the matter within 30 days of application,
either party may apply to the
-8-
<PAGE> 9
Presiding Judge of the District Court of any county in Colorado for an
appointment of a neutral arbitrator to hear the parties and settle the dispute,
controversy or question, and such Judge is hereby authorized to make such
appointment. In the event that either party exercises the right to submit a
dispute arising hereunder to arbitration, the decision of the neutral
arbitrator shall be final, conclusive and biding on all interested persons and
no action at law or equity shall be instituted or, if instituted, further
prosecuted by either party other than to enforce the award of the neutral
arbitrator. The award of the neutral arbitrator may be entered in any court
that has jurisdiction. In the event that the Executive is successful in
pursuing any material claim(s) or dispute(s) arising out of this Agreement, the
Company shall pay the Executive's attorney and expenses of any Arbitrator in
connection with such claims or disputes. In any other case, the Executive and
the Company shall each bear all their own costs and attorneys fees, except the
Company shall in all events pay the costs of any arbitrator appointed
hereunder.
9. Successors. (a) This Agreement is personal to the Executive and,
without the prior written consent of the Company, shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company shall require any successors (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of its business and/or assets expressly to assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would have been required to perform it if no such succession had taken
place. Except as specifically provided, herein, as used in this Agreement,
"Company" shall mean both the Company as defined above and any such successor
that assumes and agrees to perform this Agreement, by operation of law or
otherwise.
-9-
<PAGE> 10
10. Miscellaneous. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: The most recent address on file
for the Executive at the Company.
If to the Company:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, NJ 07920
Attention: Executive Vice President,
Human Resources and Executive
Vice President, Merger and Joint
Venture Integration of the Company
or to such other address as either party furnishes to the other in writing in
accordance with this Section 10(b). Notices and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall remain valid and
enforceable and continue in full force and effect to the fullest extent
consistent with law.
-10-
<PAGE> 11
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(f) Except as to (i) the "Special Continuees benefit program letter"
to the Executive, dated March 8, 1999, as clarified by TCI's letter to the
Executive dated June 23, 1999, and (ii) the Tax Protection Agreement between the
Executive and TCI, dated as of March 1, 1999, attached hereto as Exhibits C and
D, respectively, the Executive and the Company acknowledge that this Agreement
supersedes any other agreement between them or between TCI and the Executive
and/or any Company or TCI plan or practice (or plan or practice of Liberty Media
Corporation) concerning the subject matter hereof, including TCI's Severance Pay
Plan or any other severance policy of TCI, the Company or any of their
affiliates (collectively, the "Severance Plans"). The Executive hereby
irrevocably waives any rights to severance benefits under the Severance Plans or
to acceleration of equity awards under the Severance Plans or any equity award
plan of TCI, Liberty Media Corporation or the Company except as may be provided
in this Agreement.
(g) The Executive shall be covered under the indemnification
policies of the Company applicable to similarly situated officers of the
Company.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, and said counterparts shall constitute but
one and the same instrument.
- 11 -
<PAGE> 12
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and the Company has caused this Agreement to be executed in its name on
its behalf, all as of the day and year first above written.
/s/ STEPHEN M. BRETT
----------------------------
Stephen M. Brett
AT&T CORP.
By: /s/ [ILLEGIBLE]
------------------------
-12-
<PAGE> 13
EXHIBIT A
Position. The Executive shall be the Senior Executive Vice President of
Strategic Development of TCI, and the Executive shall report directly and
exclusively to the Chief Executive Officer of TCI.
Duties. The Executive shall devote his full business efforts to strategic
development, and other business and affairs, of TCI and the Company's cable,
broadband and internet services business unit.
SCHEDULE B
STEPHEN BRETT
The following stock options will be accelerated upon the Effective Date as
defined herein:
November 17, 1994, grant (AT&T) (formerly TCOMA)
August 4, 1995, grant (AT&T) (formerly TCOMA)
August 4, 1995, grant (Liberty Media) (formerly TCIVA)
July 23, 1997, grant (Liberty Media) (formerly TCIVA)
November 17, 1994, grant (Liberty Media) (formerly LBTYA)
August 4, 1995, grant (Liberty Media) (formerly LBTYA)
July 23, 1997, grant (Liberty Media) (formerly LBTYA)
The following restricted stock grants will be accelerated upon the Effective
Date as defined herein:
None.
GRANTS NOT ACCELERATED
STEPHEN BRETT
The following stock options will not be accelerated upon the Effective Date.
July 23, 1997, grant (AT&T) (formerly TCOMA)
July 23, 1997, grant (Liberty Media) (formerly LBTYA)
November 17, 1994, grant (Liberty Media) (formerly TCIVA)
The following restricted stock grants will not be accelerated upon the Effective
Date.
December 31, 1995, grant (AT&T) (formerly TCOMA)
June 23, 1998, grant (AT&T) (formerly TCOMA)
December 13, 1995, grant (Liberty Media) (formerly TCIVA)
September 3, 1998, grant (AT&T) (formerly TCOMA)
December 13, 1995, grant (Liberty Media) (formerly LBTYA)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TELE-COMMUNICATIONS, INC.'S QUARTERLY REPORT ON FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS. THE SUMMARY FINANCIAL INFORMATION FOR
THE TWO MONTH PERIOD ENDED FEBRUARY 28, 1999 IS FOR OLD TCI PRIOR TO THE AT&T
MERGER. THE SUMMARY FINANCIAL INFORMATION FOR THE SEVEN MONTH PERIOD ENDED
SEPTEMBER 30, 1999 IS FOR NEW TCI SUBSEQUENT TO THE AT&T MERGER.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 2-MOS 7-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 MAR-01-1999
<PERIOD-END> FEB-28-1999 SEP-30-1999
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 478
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 7,361
<DEPRECIATION> 0 492
<TOTAL-ASSETS> 0 91,161
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 9,449
0 0
0 0
<COMMON> 0 52,544
<OTHER-SE> 0 (4,006)
<TOTAL-LIABILITY-AND-EQUITY> 0 91,161
<SALES> 0 0
<TOTAL-REVENUES> 1,145 3,344
<CGS> 0 0
<TOTAL-COSTS> 467 1,345
<OTHER-EXPENSES> 277 1,143
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 161 558
<INCOME-PRETAX> (157) (2,999)
<INCOME-TAX> 119 (589)
<INCOME-CONTINUING> (276) (2,410)
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<NET-INCOME> (281) (2,410)
<EPS-BASIC> (.42)<F1> 0
<EPS-DILUTED> (.43)<F1> 0
<FN>
<F1>PRIMARY AND DILUTED EARNINGS PER SHARE REPRESENT EARNINGS PER SHARE OF TCI
GROUP STOCK.
</FN>
</TABLE>
