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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission File Number 0-26264
TELE-COMMUNICATIONS INTERNATIONAL, INC.
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(Exact name of Registrant as specified in its charter)
State of Delaware 84-1289408
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5619 DTC Parkway
Englewood, Colorado 80111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Series A Common Stock, par value $1.00 per share
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Tele-Communications International, Inc.'s knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendments to this Form 10-K. [X]
Indicate by check mark whether Tele-Communications International, Inc. (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. [X] Yes [ ] No
The aggregate market value of the voting stock held by nonaffiliates of
Tele-Communications International, Inc., computed by reference to the last
sales price of such stock, as of the close of trading on January 31, 1997, was
$319,645,232.
The number of shares outstanding of Tele-Communications International
Inc.'s common stock (net of shares held in treasury) as of January 31, 1997, was
Series A Common Stock - 106,950,873 shares; and
Series B Common Stock - 11,700,000 shares
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TELE-COMMUNICATIONS INTERNATIONAL, INC.
1996 ANNUAL REPORT ON FORM 10-K
Table of Contents
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Page
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PART I
Item 1. Business ................................................. I-1
Item 2. Properties ............................................... I-60
Item 3. Legal Proceedings ........................................ I-60
Item 4. Submission of Matters to a Vote of Security Holders ...... I-60
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ............................ II-1
Item 6. Selected Financial Data .................................. II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................... II-5
Item 8. Financial Statements and Supplementary Data .............. II-26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................... II-26
PART III
Item 10. Directors and Executive Officers of the Registrant ....... III-1
Item 11. Executive Compensation ................................... III-4
Item 12. Security Ownership of Certain Beneficial Owners
and Management ......................................... III-13
Item 13. Certain Relationships and Related Transactions ........... III-18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K .................................... IV-1
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PART I.
ITEM 1. Business
(a) General Development of Business.
Tele-Communications International, Inc. ("TINTA", and together with its
consolidated subsidiaries, the "Company" unless the context indicates otherwise)
operates multi-channel video and telecommunication distribution networks in, and
provides diversified programming services to, selected markets outside the
United States (sometimes referred to herein as the "U.S."). The activities of
the Company are concentrated in Europe, Latin America and The Caribbean and
Asia, Australia and New Zealand, with particular focus at present on the United
Kingdom (sometimes referred to herein as the "UK"), Argentina and Japan. The
Company has ownership interests in companies operating broadband networks that,
at December 31, 1996, provided cable television service to an aggregate of
approximately 2.9 million basic subscribers and, in the United Kingdom, provided
telephone service over approximately 947,000 telephone lines. The Company also
has ownership interests in or manages 39 cable and satellite programming
services, which at December 31, 1996, were received by subscribers in various
countries outside of the U.S.
TINTA is a majority-owned subsidiary of Tele-Communications, Inc.
("TCI"). At December 31, 1996, TCI owned 83% of the aggregate issued and
outstanding common stock of TINTA and 91% of the aggregate voting interest
represented by such issued and outstanding common stock. TCI, through its
subsidiaries and affiliates (other than TINTA), is principally engaged in the
construction, acquisition, ownership, and operation of cable television systems
and the provision of satellite-delivered video entertainment, information and
home shopping programming services to various video distribution media,
principally cable television systems.
As noted above, the Company has ownership interests in companies that
operate in various foreign countries and that prepare their financial
statements in the applicable local functional currency. Merely for
convenience, the following discussion contains translations of the local
functional currency of the Company's subsidiaries and equity affiliates into
U.S. currency at the applicable rate (as published in The Wall Street Journal)
in effect on the dates specified herein or, if not so specified, on December
31, 1996. No representation is made that any of such local functional
currencies have been, could have been or could be converted into U.S. dollars
at such rates. The applicable rates at December 31, 1996 for the UK pound
sterling ("L" or "pounds") and the Japanese yen ("Y") were $1.7125 per L.1.00
and Y115.85 per $1.00, respectively. At March 13, 1997, such applicable
rates were $1.5965 per L.1.00 and Y123.37 per $1.00, respectively.
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Certain statements included in this Annual Report on Form 10-K
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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
industry results, to differ materially from any 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 continued strength of multi-
channel video and telecommunication networks and the distribution and
production of programming for multichannel video distribution; uncertainties
inherent in proposed business strategies and development plans, future
financial performance, including availability, terms and deployment of capital;
the ability of vendors to deliver required equipment, software and services;
product launches; availability of qualified personnel; changes in, or the
failure or inability to comply with, government regulation, 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 overall market acceptance of such
products and services, including acceptance of the pricing of such products and
services; and other factors. These forward-looking statements speak only as of
the date of this Annual Report on Form 10-K. 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 change in events, conditions
or circumstances on which any such statement is based.
Effective February 1, 1996, the Company acquired the rights to
distribute The Sega Channel in 20 European countries, New Zealand and Australia
and expects that Flextech p.l.c. ("Flextech"), a UK company in which the
Company held a 46.5% ownership interest and a 50.9% voting interest at December
31, 1996, will assist the Company in bringing The Sega Channel to additional
markets. The Sega Channel was the first video game channel to be distributed on
cable television systems. A subsidiary of TCI owns an interest in a joint
venture which produces and markets The Sega Channel in the United States.
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On February 7, 1996, Cordillera Comunicaciones Limitada
("Cordillera") (a 50%-owned affiliate of the Company's 80%-owned affiliate
Bresnan International Partners (Chile), L.P. ("BIP-Chile")), and Compania de
Telecomunicaciones de Chile S.A. ("CTC") (a subsidiary of the Spanish telephone
company Telefonica de Espana S.A.), entered into certain definitive agreements
(the "Chile Restructuring Agreements") that provided for, among other matters,
the contribution of all the cable subscribers within each party's cable systems
to a new Chilean company called Metropolis-Intercom S.A.
("Metropolis-Intercom"). Cordillera owns a 60% interest in Metropolis-Intercom
and CTC, Comercial Canelo S.A. and Empresa El Mercurio S.A.P. own jointly a
combined 40% interest. The Chile Restructuring Agreements also provided that
all of the cable distribution assets excluding the headends (the "Acquired
Distribution Assets") of Cordillera be sold to CTC. In June 1996, the parties
finalized the transactions contemplated by the Chile Restructuring Agreements
and the Acquired Distribution Assets were sold to CTC for cash proceeds of
approximately $120 million. Approximately $30 million of such cash proceeds (of
which $17 million was received in 1996 and $13 million was received in 1997)
was used to reduce the amounts owed by BIP Chile to TINTA pursuant to a
subordinated loan agreement. As a result of the foregoing transactions, CTC is
(i) servicing 77 analog channels and any additional channels acquired by
Metropolis-Intercom, (ii) to expand and operate the Acquired Distribution
Assets and (iii) providing technical service pursuant to a services agreement.
Under the Chile Restructuring Agreements, Cordillera, BIP Chile and the Company
have agreed not to compete with Metropolis-Intercom and not to pursue telephone
opportunities in Chile, and CTC has agreed not to compete with
Metropolis-Intercom and not to pursue cable-related opportunities in Chile
(other than through Metropolis-Intercom). The aforementioned service
agreement has a term of 30 years (with an option to renew) and the associated
payments to CTC are based on capacity utilized and other specified factors.
On February 8, 1996, the Company received net cash proceeds of
approximately $336 million from the issuance of its 4-1/2% Convertible
Subordinated Debentures (the "Debentures") due 2006 having an aggregate
principal amount of $345 million. The Debentures are convertible into shares
of Tele-Communications International, Inc. Series A Common Stock, $1 par value
per share ("Series A Common Stock") at a price of $27.30 per share of Series A
Common Stock, subject to anti-dilution adjustments. Interest on the Debentures
is payable on February 15 and August 15 of each year. The Debentures are
redeemable by TINTA, in whole or in part, at any time on or after February 15,
1999. Pending its use by TINTA, the net proceeds from the sale of the
Debentures were loaned to TCI pursuant to an unsecured promissory note.
Amounts outstanding under the promissory note ($176.5 million at December 31,
1996) bear interest at variable rates based on TCI's weighted average cost of
bank borrowings of similar maturities and principal and interest is due and
payable as mutually agreed from time to time by TCI and TINTA. The net
proceeds from the Debentures that have been expended through December 31, 1996
were used to fund capital contributions to the Company's affiliates and to fund
certain other liquidity requirements of the Company.
In February 1996, the Company and Sumitomo Corporation ("Sumitomo")
announced the formation of a joint venture to create Japan's first
multi-channel programming company. The company, which is named Jupiter
Programming Co., Ltd. ("JPC"), is owned equally (50/50) by the Company and
Sumitomo. At December 31, 1996, each of the Company and Sumitomo had made
contributions to JPC of Y850 million ($7.8 million using the applicable
exchange rates). Additionally, the Company and Sumitomo contributed their
respective 18% and 82% ownership interests in the Cable Soft Network to JPC.
The Company made an equalizing payment in the amount of Y444 million ($4.0
million using the applicable exchange rate) in connection with the
above-described contribution of the Cable Soft Network.
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During 1996, JPC launched three channels in the Japanese market. On
February 18, 1997, JPC announced its acquisition of the distribution rights for
all of Japan's premier soccer league matches (the "J-League"). These
distribution rights, which are exclusive for both cable and direct-to-home
("DTH") satellite distribution during the first year and for cable distribution
thereafter, are effective for five years and include coverage of J-League games
as well as J-League championship games. In February 1997, JPC signed an
agreement with another TINTA affiliate to create two thematic channels in
Japan. See related discussion below.
On April 10, 1996, Flextech made an initial capital contribution of
L.525,000 ($899,000) and assumed certain liabilities in connection with the
acquisition of an indirect controlling interest in the "infomercial" business
of HSN Direct International Limited ("HSN Direct") from the Home Shopping
Network, Inc., an affiliate of TCI, and certain individuals (the "HSN
Acquisition"). In connection with the HSN Acquisition, Flextech loaned $4.9
million to HSN Direct. TINTA paid $2.2 million to Flextech for 20% of
Flextech's interest in the acquired business. As a result, Flextech owns 63%
and TINTA owns 15.7% of HSN Direct.
On April 22, 1996, Flextech acquired from International Family
Entertainment, Inc. ("IFE"), an affiliate of TCI, (i) the 61% ownership
interest in Maidstone Broadcasting (formerly the International Family Channel
UK) which Flextech did not already own and (ii) a 100% ownership interest in
TVS Television Limited ("TVS"). Excluding liabilities assumed, the total
consideration paid by Flextech to acquire such ownership interests was L.31.4
million ($47.8 million using the applicable exchange rate), of which L.3.0
million ($4.5 million using the applicable exchange rate) was paid in cash and
the remaining balance was satisfied by Flextech's issuance of 5,792,008 of its
convertible non-preference shares (the "IFE Consideration Shares") to IFE. In
connection with the above-described transactions (collectively, the "IFE
Acquisitions"), TINTA granted to IFE the right to put the IFE Consideration
Shares to TINTA after June 1, 1997 if the IFE Consideration Shares had not
become convertible into Flextech ordinary shares ("Flextech Ordinary Shares")
by that date. In connection with Flextech's agreement to form joint ventures
with BBC Worldwide Limited, and to enter into certain related transactions (as
described below), the IFE Consideration Shares are to be converted into
Flextech Ordinary Shares, thereby eliminating TINTA's put obligation with
respect to the convertibility of such shares.
Effective April 29, 1996, TINTA, Liberty Media Corporation ("Liberty")
and News Corporation Limited ("News Corp.") formed a joint venture including a
number of partnerships or other entities under common ownership (the "Sports
Venture") to operate currently existing sports services in Latin America and
Australia and a variety of new sports services throughout the world, excluding
the United States, Canada and certain other defined geographic areas. News
Corp. owns a 50% interest in the Sports Venture with the remaining 50% owned by
Liberty/TINTA LLC, a limited liability company owned in equal parts by
subsidiaries of TINTA and Liberty (the "LLC"). As of December 31, 1996, TINTA
had contributed to the LLC $49.0 million in cash and its 35% equity interest in
Torneos y Competencias S.A. ("Torneos"), an Argentinean sports programming
production company, and Liberty had contributed to the LLC its interests in
Latin American and Australian sports programming services and its rights under
various television sports programming agreements. The LLC contributed the
non-cash assets contributed to it by TINTA and Liberty to the Sports Venture.
News Corp. contributed various international sports rights and certain
trademark rights in exchange for its 50% interest in the Sports Venture. TINTA
acquired its 35% ownership interest in Torneos from the selling stockholders of
Torneos (the "Torneos Stockholders") on July 28, 1995 for aggregate
consideration of $30 million (exclusive of certain contingent obligations to
pay additional consideration, which obligations were assumed by the Sports
Venture).
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TINTA may make additional cash contributions totaling $29.0 million to
the LLC to fund the operations of the Sports Venture. As part of the formation
of the Sports Venture, the LLC is entitled to receive from News Corp. 7.5% of
the outstanding stock of STAR Television Limited. Upon the delivery of such
stock to the LLC, News Corp. is entitled to receive from the LLC up to $20.0
million and rights under various Asian sports programming agreements. STAR
Television Limited operates a satellite-delivered television platform in Asia.
On April 19, 1996, TINTA, Torneos and the Torneos Stockholders entered
into an agreement (the "TINTA/Torneos Sports Agreement") whereby TINTA agreed
to make minimum periodic payments from 1996 through 2004 aggregating $235.2
million to acquire certain rights and considerations, including the
exploitation rights to all sports rights owned by Torneos with the exception of
any rights which at that time had been contractually committed to any third
party. In particular, TINTA acquired worldwide distribution rights outside of
Argentina for Clasico del Domingo and worldwide distribution rights (excluding
Buenos Aires) for Futbol de Primera and Torneos de Verano (Summer Games).
Pending the assignment of the rights under the TINTA/Torneos Sports
Agreement which fit within the geographic area and business plan of the Sports
Venture (the "Sports Venture Rights") to the Sports Venture, TINTA, News Corp.
and Liberty have agreed to pay their respective portion of any payments made
with respect to the Sports Venture Rights. Through December 31, 1996, payments
made under the TINTA/Torneos Sports Agreement totaled $9.4 million.
On October 1, 1996, Cablevision S.A. ("Cablevision"), a 51%-owned
subsidiary of the Company, acquired 99.99% of the issued and outstanding
capital stock of Oeste Cable Color S.A. ("OCC"), a cable television operator in
the west of the greater Buenos Aires metropolitan area, for a purchase price of
$112.2 million. Cash consideration of $43.7 million was paid at closing and an
additional cash payment of $22.1 million was made on December 1, 1996.
Cablevision incurred additional bank debt in order to fund such cash payments.
The remaining purchase price was satisfied by Cablevision's issuance of $46.4
million principal amount of secured negotiable promissory notes (the "OCC
Notes"). The OCC Notes will be repaid in 21 consecutive equal monthly
installments commencing on January 10, 1997 and will accrue interest at 9.25%.
The OCC Notes are secured by the pledge of 51% of the stock of OCC. At
December 31, 1996, OCC served approximately 90,000 basic subscribers.
On December 20, 1996, Jupiter Telecommunications Co., Ltd.
("Jupiter"), a 40%-owned joint venture with Sumitomo, began testing telephone
services over its cable infrastructure in its Suginami franchise (a Western
suburb of Tokyo). These telephony trials are being conducted pursuant to a
license granted by Japan's Ministry of Post and Telecommunications (the "MPT")
in October 1996 and the trials are expected to be expanded to offer full
telephone services on a commercial basis beginning in mid-1997. Commercial
applications will include local and long distance telephone calling, internet
access and data services in addition to the cable television services already
being provided. Jupiter has signed interconnect agreements with Nippon
Telephone and Telegraph ("NTT") and several other carriers which will enable
routing of its long distance and international calls.
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On December 31, 1996, pursuant to an amended and restated agreement of
limited partnership of Bresnan International Partners (Poland), L.P. ("BIP
Poland"), (i) TINTA converted the principal balance of its revolving loan to
BIP Poland ($23.8 million) to equity and made an additional equity contribution
of $10 million and (ii) BCI Poland, Inc. ("BCI Poland"), an entity in which
the Company has no ownership interest, and which, prior to December 31, 1996,
held a 20% general partnership interest in BIP Poland, contributed $18.5
million to BIP Poland thereby reducing the Company's ownership percentage from
80% to 43.95%. The amended and restated agreement of limited partnership also
provides that each partner shall earn a return of 15% per annum on the average
of such partner's Unreturned Capital (as defined). Through December 31, 1996,
the Company's Unreturned Capital in BIP Poland was $34.8 million. BIP Poland
used $25.2 million of the above-described cash contribution to fund the
December 31, 1996 acquisition of a cable television system serving areas of the
City of Warsaw, Poland.
On March 17, 1997, Flextech announced that it had reached agreements
with (i) BBC Worldwide Limited ("BBC Worldwide") to form two separate joint
ventures (the "BBC Joint Ventures") and (ii) the other shareholders of UK
Living Limited ("UKLL") and UK Gold Television Limited ("UKGL") (the producers
of UK Living and UK Gold, respectively) to acquire all of the share capital in
those two companies not already owned by Flextech and the Company. One joint
venture with BBC Worldwide (the "Principal Joint Venture") will operate and
launch a number of new subscription television channels for distribution in the
UK and Ireland. Flextech and BBC Worldwide will each have a 50% interest in
this venture. The Principal Joint Venture has committed to the launch of at
least 4 new theme channels by September 30, 1998. The other joint venture (the
"Second Joint Venture") will acquire 65% of the share capital of UKGL
(following Flextech's acquisition of the UKGL share capital, as described
above), with put and call arrangements over the remaining 35% of such share
capital. The Second Joint Venture will operate and develop UKGL, and both
Flextech and BBC Worldwide will have a 50% interest in that venture. The
creation of the BBC Joint Ventures is subject to a number of conditions,
including approval of various resolutions by the shareholders of Flextech at an
extraordinary general meeting to be held on April 15, 1997, and approval by the
UK Department of National Heritage. No assurances can be given that such
approvals will be obtained.
Flextech is also reviewing a possible investment in European Channel
Management and European Channel Broadcast, which market and own distribution
rights to the British Broadcasting Corporation's theme channels, BBC World and
BBC Prime. Pending the making of such investment, Flextech will loan these two
companies L.5 million ($9 million) on an interest free basis for four months.
If no investment is made by Flextech by the end of such four month period,
then the loan will begin to bear interest at 2% over LIBOR, compounded
quarterly.
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An affiliate of the BBC will be responsible for the scheduling,
programming and presentation of the channels to be operated by the BBC Joint
Ventures, while Flextech will be responsible for providing distribution,
air-time sales, off-air marketing and management services to the two joint
ventures. Program license agreements will be entered into by each joint
venture, under which they will be entitled to acquire licenses to broadcast
programs originated by the BBC after their initial airing. For the first five
years, BBC programming will be acquired in accordance with a pricing formula
based on current market prices, and thereafter pricing will approximate current
market prices. The license agreements will have initial terms of 15 years,
which may be extended an additional 15 years at the option of the BBC Joint
Ventures. Any such extension would require the consent of Flextech. A failure
to extend the license agreements after the first 15 year term will result in
BBC Worldwide having the right to acquire channel brands owned by the Principal
Joint Venture for fair value. In such circumstances, Flextech may
alternatively require that BBC Worldwide purchase its interest in the Principal
Joint Venture for fair value. The BBC Joint Ventures will not be limited to
BBC programming material.
Flextech has undertaken to finance the working capital requirements of
the Principal Joint Venture. This financing comprises L.22 million ($38
million) of equity financing, through the acquisition of ordinary shares of the
Principal Joint Venture, a primary credit facility of up to L.88 million ($151
million) and, subject to certain restrictions, a standby credit facility of up
to L.30 million ($51 million). Flextech has also agreed to make available to
the Second Joint Venture, if required, funding of up to L.10 million ($17
million). To support its funding obligations, Flextech has obtained a
revolving credit facility with current borrowing availability of up to L.50
million ($86 million), and with a term of up to 5 years, from a syndicate of
banks (the "Flextech Revolving Credit Facility"). Flextech is currently
negotiating to increase the borrowing availability under the Flextech Revolving
Credit Facility to L.85 million ($146 million).
Flextech will acquire the share capital of UKGL and UKLL not already
owned by it and the Company through the issuance of 34,954,713 new Flextech
Ordinary Shares to the other shareholders of those companies. Immediately
following the issuance of these shares, the Company's voting power in Flextech,
based on its ownership of Flextech Ordinary Shares, will fall below 50%. To
provide the Company with 50% of the voting power in Flextech, the Company will
receive a special voting share that will permit the Company to cast 50% of all
votes attributable to the outstanding share capital of Flextech (the "Special
Voting Share"). The Special Voting Share will terminate upon the occurrence of
the earlier of (i) the third anniversary of issuance or (ii) any transfer of
Flextech shares by the Company outside a specified affiliated group.
Flextech's outstanding convertible non-preference shares (the
"Flextech Non-Preference Shares") had been issued in connection with previous
acquisition transactions by Flextech due to the Company's requirements that it
maintain specified voting interests in Flextech. With the issuance of the
Special Voting Share the purpose for the Flextech Non-Preference Shares will
be eliminated. Accordingly, and in order to simplify the capital structure of
Flextech, upon the issuance of the Special Voting Share the Flextech
Non-Preference Shares will be converted into Flextech Ordinary Shares.
Immediately following such conversion, and the issuance of additional Flextech
Ordinary Shares in connection with the UKGL and UKLL transactions described
above, (i) the Company's interest in the equity share capital of Flextech will
decline from 46.5% to 36.1% (ii) the Company's voting interest will be 50%, and
(iii) the Company's put obligations with respect to 10,467,090 Flextech
Non-Preference Shares (including the 5,792,008 IFE Consideration Shares) will
be eliminated, insofar as such obligations are based on the convertibility of
such shares.
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The Company has undertaken to fulfill Flextech's financial obligations
to the Principal Joint Venture in the event of Flextech's default, and has
agreed not to compete with the channels of the BBC Joint Ventures. If the
Company is required to fulfill any of Flextech's financial obligations, it will
take over Flextech's equity interest in the Principal Joint Venture for L.1.00,
and the Company's loans will become senior to any loans of Flextech to the
Principal Joint Venture (except where such subordination would adversely effect
the ability of Flextech to repay amounts borrowed under the Flextech Revolving
Credit Facility). Flextech will be entitled to reacquire its interest in the
Principal Joint Venture for L.1.00 within a period of 180 days after the
Company first fulfills any of Flextech's financial obligations upon repayment
of any monies advanced by the Company and the payment of interest thereon.
Flextech may substitute a bank guarantee for the foregoing financial
undertaking of the Company.
On January 10, 1997, the Company signed an agreement to pay cash
consideration of approximately $12.7 million, and to assume certain
indebtedness, to acquire the 50% ownership interest in Caguas/Humacao Cable
Systems which the Company did not already own (the "Caguas Acquisition"). At
December 31, 1996, the indebtedness to be assumed had a principal balance of
$32.1 million. The Company's Puerto Rico subsidiary is negotiating to obtain
$100 million in bank financing, a portion of which would be used to fund the
cash portion of the purchase price and to refinance the indebtedness to be
assumed. Upon completion of the Caguas Acquisition, the Company will have
interests in companies providing cable television service to more than 100,000
subscribers in Puerto Rico. Subject to certain closing conditions, the
transaction is expected to close in April 1997. No assurances can be given that
the Caguas Acquisition will be consummated or that the bank financing will be
obtained.
On January 27, 1997, the Company announced that it was instituting a
stock repurchase program. Under the stock repurchase program, the Company may
repurchase from time to time up to 5% (approximately 5.3 million shares) of its
outstanding Series A Common Stock. As of March 13, 1997, the Company had
repurchased 220,000 shares under such program for an aggregate purchase price
of $3.2 million.
On February 24, 1997, MultiThematiques, S.A. ("MultiThematiques") (a
33.3%-owned affiliate of the Company) announced that it had signed an agreement
with JPC to create two thematic channels for cable and satellite distribution
in Japan. The first channel will be dedicated to European cinema and lifestyle
and will serve as a promotional tool for French and European movies and
television programs in Japan. The second channel will be a Japanese adaptation
of Canal Jimmy, an established channel distributed in France by
MultiThematiques. The Company has a 50% ownership interest in JPC.
On March 10, 1997, the Company announced that it had signed a
Memorandum of Understanding (the "MOU") that contemplates the Company's
purchase of additional equity interests in Cablevision such that the Company's
ownership interest in Cablevision would be increased from 51% to up to 90% (the
"Cablevision Minority Interest Purchase"). The MOU contemplates execution of
definitive agreements on March 31, 1997 and closing within 120 days thereafter.
It also provides that each party's obligations are subject to approval by
TINTA's Board of Directors, due diligence and execution of definitive
agreements. No assurance can be given that the parties will reach agreement on
the terms of such agreements, or that the Cablevision Minority Interest
Purchase will be consummated. Additionally, the purchase price contemplated by
the MOU is significant and the Company would need to arrange for financing
before the Cablevision Minority Interest Purchase could be consummated.
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(b) Financial Information about Industry Segments.
The Company, through its subsidiaries and affiliates, is engaged in
the operation of multi-channel video and telecommunication distribution
networks (the "cable business") and the distribution and production of
programming for multi-channel video distribution in various foreign countries
(the "programming business"). For financial information concerning such
business segments, see the footnotes to the Company's financial statements
included in Part II of this report.
(c) Narrative Description of Business
The Company through its subsidiaries and affiliates is an owner and
manager of entities engaged in the operation of multi-channel video
distribution, telecommunications and the distribution and production of
programming for multi-channel video distribution in various foreign markets.
The entities in which TINTA has an ownership interest operate in three major
geographic regions: Europe; Latin America and The Caribbean; and Asia,
Australia and New Zealand. The following table sets forth as of December 31,
1996 the names of each of TINTA's operating companies, TINTA's direct or
indirect equity interest (based generally on the ownership interest in capital
stock) in each such operating company and the businesses currently conducted by
each such operating company. TINTA's interests in such companies are often held
by various holding companies and its voting rights and rights to participate in
the earnings of affiliates may differ from the equity interests indicated in
the table. For a description of the ownership structures of the significant
operating companies, see the applicable discussion under "EUROPE,", "LATIN
AMERICA AND THE CARRIBEAN," AND "ASIA, AUSTRALIA AND NEW ZEALAND."
I-9
<PAGE> 12
<TABLE>
<CAPTION>
Company's Direct
Or Indirect
Country Operating Company Interest Business
------- ----------------- -------- --------
<S> <C> <C> <C>
Europe
------
United Kingdom Telewest Communications plc 26.6% Cable/Telephony
Flextech p.l.c. 46.5%(1) Programming
DMX, Inc. 18.0% Music Programming
Israel Tevel Israel International
Communications Ltd. 23.3% Cable/Programming
Ireland Princes Holdings Ltd. 25.0% Cable/MMDS
Malta Melita Cable TV Ltd. 33.2% Cable
Poland Aster City Cable Sp. z o. o. 21.5% Cable
Regionale Telewizja Kablowa
Autocom Sp. z o. o. 44.0% Cable
Katowicka Telewizja
Kablowa S.A. 34.2% Cable
Telefonia Polska Zachod Sp.
z o. o. 28.6% Telephony
France MultiThematiques, S.A. 33.3% Programming
Videopole S.A. 7.9% Cable
Latin America and The
---------------------
Caribbean
---------
Argentina Cablevision S.A. 51.0%(2) Cable
Chile Metropolis-Intercom S.A. 24.0% Cable
Dominican Republic TeleCable Nacional, CXA 49.0% Cable
Puerto Rico TCI Cablevision of Puerto
Rico, Inc. 100.0% Cable
TCI of Puerto Rico, Inc. 100.0% Cable
TCI of PR, Inc. 100.0% Cable
Caguas/Humacao Cable Systems 50.0%(3) Cable
Various The Sports Venture(4) 25.0% Programming
DTH Ventures(5) 10.0% DTH Satellite
Asia, Australia and
--------------------
New Zealand
-----------
Japan Jupiter Telecommunications
Co., Ltd. 40.0% Cable
Jupiter Programming Co.,
Ltd. 50.0% Programming
Singapore Asia Business News
(Singapore) Private 49.3% Programming
Australia Australis Media Ltd. 1.2% MMDS/DTH
Satellite
The Premium Movie Programming
Partnership 16.7%
New Zealand Sky Network Television
Limited 13.0% UHF Subscription/
Programming
</TABLE>
_______________________________
(1) At December 31, 1996, the Company's voting interest in Flextech was
50.9%. Subsequent to December 31, 1996, Flextech announced that it
had reached agreement to form the BBC Joint Ventures and enter into
certain related transactions that, if consummated, would result in,
among other things, the Company having ownership and voting interests
in Flextech of 36.1% and 50%, respectively. See "EUROPE -
Programming Operations - Flextech p.l.c. - The Flextech Investment".
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<PAGE> 13
(2) Subsequent to December 31, 1996, TINTA signed the MOU with respect to
the purchase of up to an additional 39% ownership in Cablevision. See
"General Development of Business".
(3) Subsequent to December 31, 1996, the Company announced that it had
reached an agreement to acquire the 50% ownership interest in
Cauguas/Humacao Cable Systems which the Company did not already own.
(4) Represents the joint venture, including a number of partnerships or
other entities under common ownership, formed by TINTA, Liberty and
News Corp. See discussion under "General Development of Business".
(5) Represents joint ventures for the development and operation of
direct-to-home satellite service in Latin America, North America and
various Central and South American countries. See discussion under
"LATIN AMERICA AND THE CARRIBEAN - DTH Ventures."
EUROPE
Cable Television and Telephony Operations
TELEWEST COMMUNICATIONS PLC
The Company indirectly owns 132,638,250 non-voting convertible
preference shares and 246,111,750 ordinary shares of Telewest Communications
plc ("Telewest") representing 26.6% of the aggregate convertible preference and
ordinary share capital of Telewest. Telewest is one of the largest cable
operators in the United Kingdom, as measured by franchise homes. Telewest
provides cable television and cable telephony services to 26 owned and operated
franchises over a broadband (i.e., high capacity) network which enables
Telewest to deliver a wide variety of both television and telephony service to
its customers. The network also enables Telewest to provide customers with a
wide range of interactive and integrated entertainment, telecommunications and
information services as they become available in the future.
At December 31, 1996, Telewest also had minority equity interests in
three UK cable operators, which owned and operated at that date seven
additional cable franchises (the "Telewest Affiliated Franchises") containing a
total of approximately 1.2 million homes (401,000 on an equity basis) and
approximately 84,000 businesses (29,000 on an equity basis).
I-11
<PAGE> 14
The following table presents certain information concerning the
Telewest owned and operated franchises and the Telewest Affiliated Franchises
at and for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Telewest Telewest
owned and operated Affiliated
franchises Franchises(1) Total
------------------------ ------------- -----------
<S> <C> <C> <C>
Franchise homes 3,874,000 400,000 4,274,000
Franchise businesses 261,000 29,000 290,000
CABLE TELEVISION
Homes passed 2,575,000 317,000 2,892,000
Basic subscribers 528,000 72,000 600,000
Basic penetration rate 21% 23% 21%
Average churn rate (2) 33% 29% --
Average monthly revenue per
subscriber(3) $36 $32 --
RESIDENTIAL TELEPHONY
Homes passed 2,255,000 288,000 2,543,000
Residential customers 620,000 66,000 686,000
Penetration rate 28% 23% 27%
Residential lines connected 627,000 67,000 694,000
Average churn rate (2) 20% 26% --
Average monthly revenue per
line (4) $32 $43 --
BUSINESS TELEPHONY
Business customers 21,000 2,000 23,000
Business lines connected 68,000 11,000 79,000
Average churn rate (2) 15% 25% --
Average number of lines
per customer (5) 3.2 5.5 3.4
Average monthly revenue per
line (6) $86 $113 --
</TABLE>
_________________
(1) Information presented reflects Telewest's equity
interest.
(2) Represents the number of subscribers who terminated
basic service or whose service was terminated
during the year ended December 31, 1996, divided by
the average number of basic subscribers during such
period.
(3) Represents the December 31, 1996 U.S. dollar
equivalent of the average monthly revenue per
subscriber for the year ended December 31, 1996.
Such amounts are calculated as (i) one-twelfth of
the total cable television revenue for such period,
divided by (ii) the average number of basic cable
television subscribers during such period.
(4) Represents the December 31, 1996 U.S. dollar
equivalent of the average monthly revenue per
residential line for the year ended December 31,
1996. Such amounts are calculated as (i)
one-twelfth of the total residential cable telephony
revenue for such period, divided by (ii) the
average number of residential cable telephony lines
during such period.
(5) Represents average number of business lines per
customer at December 31, 1996. Such amounts are
calculated as (i) the average number of business
cable telephony lines at such date, divided by (ii)
the average number of business cable telephony
customers at such date.
I-12
<PAGE> 15
(6) Represents the December 31, 1996 U.S. dollar
equivalent of the average monthly revenue per
business line for the year ended December 31, 1996.
Such amounts are calculated as (i) one-twelfth of
the total business cable telephony revenue for such
period, divided by (ii) the average number of
business cable telephony lines during such period.
The UK is one of only a few countries that allow cable operators to
provide both television and telephony services directly to subscribers over a
single network on a commercial basis. By allowing cable operators to offer both
television and telephone service, such companies are able to spread the costs
of their networks over two revenue sources as well as take advantage of various
efficiencies such as cross marketing. In addition, cable television and cable
telephony services are not currently subject to specific government price
control in the United Kingdom. Integrated cable/telephony operators are also
permitted to install their own telephone switches, which permit them in certain
cases to minimize fees otherwise charged by public telephone companies and to
offer a variety of value-added services without relying on public telephone
operators for implementation. In 1996, Telewest made progress in developing
home access to the Internet. The service has been extended to five of the
seven regional franchise areas.
Current UK regulatory policy is designed to promote competition in the
provision of domestic telecommunications and the development and construction
of franchised cable/telephony networks. These policies include the granting of
exclusive cable television franchises and limitations on the right of British
Telecommunications plc ("BT") and Mercury Communications Limited ("Mercury") to
use their existing telephone networks to compete with the provision of
entertainment services by cable television operators. In general, the licenses
held by BT, Mercury and similar public telephone operators ("PTOs") do not
permit them to convey broadcast services to households over their existing
systems without holding a cable television license. The UK government's
published policy, as stated in the Duopoly Review in 1991, is that the removal
of this restriction will not be reviewed until 1998 at the earliest. The
Independent Television Commission (the "ITC") has stated, however, that BT and
other PTOs may offer video-on-demand services pursuant to their existing
licenses. See "UK Regulation" below.
UK consumers presently have access to only four terrestrial broadcast
networks, fewer than many other developed markets (although a fifth terrestrial
network is expected to be available by the end of March 1997). The growth of
multi-channel television in the UK was triggered by the emergence in 1989 of
the DTH satellite service of British Sky Broadcasting Group plc ("BSkyB"). The
UK cable industry evolved more slowly due largely to various regulatory
uncertainties that existed prior to 1991 and the inherent slow rate of
mandatory underground construction of broadband cable infrastructure.
Pricing
Basic cable television service in the Telewest owned and operated
franchises is priced between L.14.99 and L.15.99 per month and consists of
approximately 50 channels and one converter box that provides cable service to
one television set. Premium services are priced between L.13.00 per month and
L.17.00 per month, depending on the service. Additional converter boxes are
available to subscribers for a monthly charge of L.4.49 per additional box.
Telewest currently seeks to provide its customers with an average monthly
savings of 10% to 15% on the cost of telephone calls compared to BT. In
September 1996, Telewest restructured its pricing policy to better encourage
residential customers to subscribe to both television and telephony services.
The policy, called Teleplus, is tiered and offers a range of options all of
which include at least basic television service plus telephone line rental for
between L.19.99 and L.42.99 per month depending on the contract.
I-13
<PAGE> 16
Construction
Construction of broadband cable networks has commenced in all of the
Telewest owned and operated franchises and construction at the remaining owned
and operated franchises is expected to commence by the end of the first quarter
of 1997. As of December 31, 1996, Telewest had completed construction of
networks passing approximately 65% of the homes in the owned and operated
franchises and invested approximately L.1.3 billion toward the construction of
such networks (including the costs of cable, ducting, network electronic
equipment and subscriber connections). Telewest expects that the remaining
construction of the networks will be substantially completed by the end of the
year 2000.
Government-issued Telecommunications Licenses authorize cable
operators to install and operate the physical network used to provide cable
television and telecommunications services. Each Telecommunications License
prescribes build obligations ("milestones") that require the licensee to
construct its network to pass a specified number of premises (which are defined
for purposes of Telecommunications Licenses as homes or businesses passed for
cable television service) by certain dates. If the milestones are not met, the
Director General of Telecommunications (the "Director General") may take
enforcement action which, if not complied with, could result in the revocation
of the Telecommunications License. The successful and timely construction of
the remaining cable networks of Telewest and the Telewest Affiliated Companies
will depend on, among other things, the ability of such companies to continue
to successfully design network routes, install cable and equipment, finance
construction, and maintain and comply with the terms (including required
milestones) of their respective Telecommunications Licenses.
Competition
The current regulatory policy of the ITC is to grant only one
broadband cable license within a franchise area. Accordingly, Telewest does
not compete for subscribers with other cable operators within its franchises.
Telewest does, however, compete with other providers of video entertainment,
including terrestrial broadcast stations, DTH satellite services, Satellite
Master Antenna Television ("SMATV") operators and video cassette rental stores.
In the future, UK cable operators may face competition from near
video-on-demand, video-on-demand and other entertainment services that may be
provided by PTOs.
The most significant competition for cable operators in the UK
multi-channel television market currently comes from providers of DTH satellite
television services and, in particular, BSkyB. DTH satellite services are
widely available in the UK and are increasing in popularity. Although the
Company believes that DTH satellite services will continue to compete with its
UK cable operating companies in the future, management believes that cable
television has a number of competitive advantages over DTH satellite systems.
These advantages include the following: (a) DTH satellite service generally
involves up-front and ongoing servicing costs (particularly for those customers
who purchase, as opposed to rent, their satellite dishes) which are
substantially greater than the up-front and ongoing servicing costs for cable
television; (b) installation of satellite dishes often requires compliance with
zoning ordinances and must be placed with a "line-of-sight" orientation toward
the transmitting satellite, which can limit or preclude placement in urban
areas; (c) DTH satellite television generally does not provide local oriented
programming or advertising; and (d) cable offers a sophisticated two way
physical link, and in the future will offer interactive and integrated
entertainment, telecommunications and information services in addition to
television programming.
I-14
<PAGE> 17
The UK Government published a White Paper on August 10, 1995
entitled "Digital Terrestrial Broadcasting" which outlined proposals for the
provision of a significant number of digital terrestrial broadcasting channels
in the UK under 3 multiplex licenses. There were two applicants for the 3
multiplex licenses and each application is for all 3 multiplexes. It is
believed that the capacity of all 3 multiplexes will provide up to 12 basic
channels and 3 premium channels. Subscribers will have to purchase the basic
package in order to purchase the premium channels. In order to subscribe to
the digital terrestrial channels, subscribers will have to purchase a digital
set top box. Each applicant has stated an intention to launch service in mid
1998. The Company cannot currently predict the competitive effect of these
proposals, although the Company believes that the limited capacity and the need
to purchase set top boxes may limit the potential competitive effect.
BT is the largest provider of business and residential telephony
services in the UK. With its fully built national network, extensive experience
in the marketing and operation of telecommunications services and considerable
financial resources, BT represents the greatest source of competition for
Telewest's UK telephony operations. In addition to BT, Telewest competes with
Mercury and other companies that have recently been granted telecommunications
licenses, including Energis Communications Limited, MFS Communications Limited
and Ionica L3 Limited. The Company believes Telewest has been able to compete
in the UK telephony market thus far primarily because it has priced its cable
telephony call charges below those of BT. BT's ability to respond to such price
competition has been restricted by its license obligation not to show undue
preference to or unduly discriminate against different classes of customers and
to offer uniform rates nationally. There can be no assurance that Telewest will
be able to continue to price its telephony services below those charged by BT
or its other telephony competitors, or that future price reductions will not
adversely impact the profitability of Telewest's telephony operations. The
Company believes Telewest has been able to attract telephony customers in the
UK partly because of Telewest's advanced network, which allows it to offer a
variety of special services (such as call waiting and call forwarding) to
business and residential customers at attractive rates. In addition, Telewest
began introducing number portability in a number of its franchises in September
1996.
Regulation
General
The operation of cable/telephony systems in the UK requires two
principal licenses: (i) a cable television license which permits the holder to
provide cable television services to a specific franchise area, and (ii) a
telecommunications license which allows the holder to construct and operate the
physical network necessary to provide cable television and telephony services.
Satellite broadcasters uplinking their services in the UK for general reception
in the UK are required to secure a non-domestic satellite service license
("NDSSL"). The ITC was established under the Broadcasting Act 1990 (the "1990
Act") as the governmental body responsible for issuing and enforcing cable
television licenses, NDSSLs and all other commercial broadcast licenses.
Telecommunications licenses are issued by the Department of Trade and Industry
("DTI") and enforced by the Office of Telecommunications ("OFTEL"). In
addition, cable/telephony operators may also be required to secure other
licenses, including those relating to the use of wireless telegraphy apparatus.
I-15
<PAGE> 18
Cable Television Licenses
General. The UK has been divided into franchise areas and each cable
television license gives the licensee the right to provide television services
within the relevant franchise area. The stated policy of the ITC is presently
that only one cable television license will be granted in respect of each
franchise area. This exclusivity is not written into the license itself and the
ITC may change its policy at any time although it has indicated that it does
not intend to do so for the foreseeable future.
The operator of a cable television franchise which covers more than
1,000 premises must hold a cable television license in the form of either (i) a
prescribed diffusion service license ("PDSL") issued under the predecessor to
the 1990 Act, or (ii) a local delivery license ("LDL") issued by the ITC under
the 1990 Act. LDLs are awarded under a competitive bidding system whereby the
license is awarded to the highest cash bidder unless the ITC determines that
"exceptional circumstances" exist which require the license to be awarded to
another party. The amount of the bid is payable over the 15-year term of the
license. In addition, the licensee must pay a fixed percentage of "qualifying
revenue" to the ITC in each year of the term of the license. The percentage of
qualifying revenue is set by the ITC and is likely to vary from franchise to
franchise. Under a PDSL, the annual fee payable by the licensee is intended
only to cover the ITC's administration costs.
License Period and Renewal. LDLs are issued for a period of 15 years
and are renewable upon application to the ITC for further periods of 15 years.
PDSLs were granted for a period of 15 years. An operator holding a PDSL can
apply to the ITC for an 8-year extension of the PDSL provided that the operator
holds a 23-year telecommunications license. Upon the expiration of the
extended PDSL, the operator will be required to apply for a new LDL for the
franchise under the competitive bidding procedures required for the issuance of
LDLs. If the operator elects not to extend the PDSL, it may apply to the ITC
(no earlier than 5 years prior to the expiration of the PDSL) to convert the
PDSL into a 15-year LDL.
Restrictions on Ownership. Certain ownership restrictions in respect of
cable television licenses are set out in the 1990 Act. The ITC is required to
ensure that such licenses are not held by "disqualified" persons, which are
defined to include persons whose objects are wholly or mainly political or
religious. There are also certain cross-media ownership restrictions in the
1996 Broadcasting Act (the "1996 Act") designed to prevent the accumulation of
interests in persons involved in other media (including local and national
newspapers) operating substantially in the same franchise area. There is a
bill being debated in Parliament which would abolish certain rules which limit
ownership of the various means of delivery of media services, and would
introduce new rules which would limit the total audience share attainable by
particular broadcasters or cable operators.
Restrictions on Transfer, Revocation. A cable license is only
transferable to a third party with the consent of the ITC. The ITC may revoke a
cable license if an operator fails to comply with the license conditions or if
the ITC considers revocation to be in the public interest. In addition, the ITC
may revoke the license if the characteristics of the licensee change (for
example, a change in control) such that the ITC would not have initially
awarded the license to such licensee.
Restrictions on PTOs. The existing telecommunications licenses of PTOs
(other than cable operators) contain a prohibition on the licensee conveying
entertainment services in its own right over their existing national telephone
networks. The UK Government has stated in its Duopoly Review that it will not
review whether this restriction should be removed until after March 1998 (and
only then if recommended to do so by OFTEL), and that it would not allow PTOs
(other than cable operators) to provide entertainment services over their
existing national networks until 2001. The ITC has confirmed that, in its view,
BT and other national PTOs are not prevented by the restriction in their
existing telecommunications licenses from providing video-on-demand services
over their networks.
I-16
<PAGE> 19
Telecommunications Licenses
General. In 1991, the UK Government concluded as part of its Duopoly
Review that cable operators should be permitted to provide telephony services
over their systems. Under the current regulatory framework, a cable operator
must obtain a telecommunications license under the Telecommunications Act of
1984 (the "1984 Act") regardless of whether that operator intends to offer
cable telephony services. Telecommunications licenses are not exclusive and,
therefore, a cable operator is subject to competition in the provision of voice
telephony services within its franchise area. An annual fee is payable by the
operator under the license based upon the costs incurred by the Director
General in carrying out his functions under the 1984 Act.
License Period. Licenses are awarded by the Secretary of State for
Trade and Industry and are either for a period of 15 or 23 years, depending
upon the technical nature of the cable operator's system.
Restrictions on Transfer; Revocation. Telecommunications licenses are
not transferable; however, a change in control of the license holder is
generally permitted. Conditions in the license entitle the Secretary of State
to revoke the license in certain circumstances, including the breach of a
license condition (such as a failure to meet build milestones). The Director
General has powers under the 1984 Act to secure compliance with license
conditions and, subject to requirements for public consultation and the consent
of the licensee, to modify license conditions.
Build Schedule. Each telecommunications license prescribes build
milestones which require the licensee to construct its network according to a
set timetable. The milestones may be modified in the same way as any other
license condition, except that public consultation is required if a request is
sought to modify the final milestone. Failure to meet the milestones will
entitle the Director General to take action which could result in revocation of
the telecommunications license.
Interconnection. Any cable operator providing telephony services will
need to interconnect its system with that of a PTO, international telephone
company or other telephone company, as the case may be, for calls that do not
originate and terminate on the cable operator's network. All PTO licenses
contain provisions obliging the PTO to enter into interconnection agreements
with other PTOs, including cable operators, if requested to do so by the party
seeking interconnection. If the parties are unable to reach agreement as to the
financial terms of the interconnection agreement, then either party may seek a
determination of those terms from the Director General of Telecommunications.
Where there is interconnection with BT, specific regulations apply and
interconnection is in accordance with the terms of a standard form
interconnection agreement. Further, amendments have been made to BT's
telecommunications license which could require operators who interconnect with
BT to pay an "Access Deficit Contribution" ("ADC") designed to compensate BT
for the losses which it incurs as a result of providing local services
throughout the UK under certain price cap regulations to which BT is subject.
The amount of a telephony provider's ADC is calculated by reference to BT's and
such other provider's market share. Once BT's market share falls below 85%, BT
is entitled to a full contribution to its deficit from the other
interconnecting operators on any incremental loss of market share so that a
waiver will not be available. OFTEL has discretion to waive the ADC, either
fully or partially, in respect of an interconnecting operator's first 10% of
market share. Waivers will not be available after June 30, 1997, and ADCs will
cease to be payable once the price cap regulations on BT have been removed.
I-17
<PAGE> 20
In 1997, Telewest plans to begin development of a broadband
inter-franchise network to carry voice, data and video traffic between the
franchises which is expected to reduce inter-franchise connection charges.
This network is scheduled to be 75% complete by mid-1997 with final completion
planned for mid-1998.
A cable operator that provides telephony services may be required to
provide "equal access," a concept whereby local telephone systems are required
to offer customers access to each fixed link trunk system, thereby enabling the
customer to choose over which PTO's network to route its national and
international calls. OFTEL has not yet exercised its power to impose equal
access and the timing and terms of the introduction of equal access are at
present unclear.
Satellite Operations
General. Satellite broadcasting operations are licensed and regulated
in the UK by the ITC under the 1990 Act. A NDSSL must be secured by certain
categories of satellite broadcasters, including a satellite broadcaster who
transmits signals via satellite and who uplinks service from the UK for general
reception in the UK.
License Period. NDSSLs are issued by the ITC for a period of 10 years.
Upon expiration of the term, a new license must be awarded if certain criteria
are met. NDSSL holders are subject to an application fee and an annual license
fee.
Restrictions on Ownership. The ITC is under a duty to ensure that
certain "disqualified persons" (including political and religious bodies and
advertising agencies) do not hold NDSSLs. The 1990 Act also precludes a person
from holding an NDSSL if more than 5% of such person is owned by a
"disqualified person," or if such person is otherwise associated with a
"disqualified person" in any manner specified in the relevant provisions of the
1990 Act.
The 1990 Act includes provisions which prevent certain media companies
from accumulating interests in persons licensed under the 1990 Act and other
media companies. Among other things, the ITC may prohibit a person from holding
an NDSSL if such person (or certain affiliates of such person), directly or
indirectly, owns more than a 20% interest in an ITV (Channel 3) licensee, a
Channel 5 licensee or a national radio licensee. Similar provisions apply which
prohibit a person from holding an ITV (Channel 3) license, a Channel 5 license
or a national radio license if such person (or certain affiliates of such
person), directly or indirectly, owns more than a 20% interest in an NDSSL.
Although the cross-media ownership rules contained in the 1990 Act generally do
not otherwise apply to holders of NDSSLs, the Secretary of State has wide
discretion to amend the rules. The cross-media ownership restrictions contained
in the 1990 Act are currently under review by the UK Government.
Enforcement; Revocation. The ITC has authority to impose fines,
shorten the NDSSL license period or revoke the license if the licensee fails to
remedy a breach of license condition or to comply with any direction of the
ITC. The ITC may also revoke an NDSSL if the characteristics of the licensee
change (for example, a change in control) such that the ITC would not have
initially awarded the license or in order to enforce the restrictions contained
in the 1990 Act on ownership by media companies. The ITC also has wide powers
under the 1990 Act to vary license conditions.
I-18
<PAGE> 21
ITC Codes; Listed Events. Each NDSSL contains an obligation upon the
licensee to abide by the ITC Codes ("Codes") and directions issued by the ITC
from time to time. These Codes include the Programme Code, the Code of
Advertising Standards and Practice, Rules on Advertising Breaks and the Code of
Programme Sponsorship. The Codes generally apply less rigorous criteria to
NDSSLs in certain respects than to commercial terrestrial channels,
particularly in the areas of permitted advertising time and the use of
sponsorship credits. The 1990 Act also provides that the ITC should act to
ensure that certain sporting events of national interest (designated by the
Secretary of State for National Heritage as "listed events") should not be
broadcast on television on a pay-per-view basis. This provision is reflected in
all NDSSLs.
Overview of Telewest Investment
TCI, most recently through the Company and previously through other
affiliates, has had investments in the cable business in the United Kingdom
since 1986. In April 1992, U S WEST, Inc. ("U S WEST") and TCI contributed
substantially all of their respective UK cable interests to the TCI/U S WEST
Cable Communications Group (the "Telewest UK Joint Venture") in which each held
a 50% interest. By combining substantially all of their respective UK cable
interests, TCI and U S WEST sought to obtain cost and other efficiencies
inherent in a larger network, as well as to gain greater access to the capital
markets.
Telewest's predecessor ("Old Telewest") was formed in anticipation of
its initial public offering (which was effected in November 1994) to acquire
the assets of the Telewest UK Joint Venture, including interests held by
affiliates of the Company and U S WEST in entities previously held directly or
indirectly by the Telewest UK Joint Venture. Upon completion of Old Telewest's
initial public offering, TCI and US WEST each indirectly held approximately 36%
of the ordinary shares (assuming no conversion of the convertible preference
shares) and approximately 38% of the total outstanding ordinary and convertible
preference shares of Old Telewest. TCI's interest in the Telewest UK Joint
Venture was contributed to the Company by TCI in October 1994. Subsequent to
Old Telewest's initial public offering, the Company and U S WEST each
contributed all of the ownership interests in the Old Telewest ordinary shares
and the Old Telewest convertible preference shares beneficially owned by them
to TW Holdings, L.L.C., a Colorado limited liability company ("TW Holdings").
On October 3, 1995, the merger of Old Telewest and SBC CableComms (UK) ("SBCC")
was consummated whereby a new entity, Telewest, acquired all of the outstanding
share capital of Old Telewest and SBCC (the "SBCC Transaction"). The SBCC
Transaction effectively resulted in the conversion of the Company's 37.8%
indirect ownership in Old Telewest into a 26.8% indirect ownership interest in
Telewest.
The Company and U S WEST each hold an indirect 50% interest in TW
Holdings. The only assets of TW Holdings are the Telewest shares beneficially
owned by the Company and U S WEST. The operating agreement which governs the
operations of TW Holdings, as well as certain other agreements to which the
Company and U S WEST are subject, contain provisions regarding, among other
things, the voting and disposition of the Telewest shares, as set forth in more
detail below. The members in TW Holdings are entitled to elect a Board of
Managing Directors of four persons (two of whom are nominated by the TINTA
members and two of whom are nominated by the U S WEST members) who are
responsible for the management of TW Holdings. The operating agreement
contains restrictions on transfer of ownership interests in TW Holdings by the
members which are commensurate with restrictions on transfer of shares of
Telewest described below. References in the following discussion, and
elsewhere in this Form 10-K, to ownership of Telewest shares by the Company and
U S WEST include their respective pro rata portions of the Telewest shares held
by TW Holdings.
I-19
<PAGE> 22
Stockholding in Telewest; Anti-Dilution Rights
At December 31, 1996, the Company and U S WEST each beneficially owned
132,638,250 or 26.7% of the issued and outstanding non-voting Telewest
convertible preference shares and 246,111,750 or 26.5% (assuming no conversion
of the Telewest convertible preference shares) of the issued and outstanding
Telewest ordinary shares through their respective 50% interest in TW Holdings.
At December 31, 1996, SBC Communications, Inc. ("Southwestern Bell") and Cox
Communications, Inc. ("Cox"), each beneficially owned 91,997,480 or
approximately 10% (assuming no conversion of the Telewest convertible
preference shares) of the issued and outstanding Telewest ordinary shares and
115,395,104 or approximately 23% of the issued and outstanding Telewest
convertible preference shares. In accordance with the requirements of the
London Stock Exchange, the Telewest convertible preference shares are
convertible into Telewest ordinary shares on a one-for-one basis only to the
extent that, following conversion, at least 25% of the ordinary shares remain
publicly held.
Under the Companies Act of 1985 of Great Britain, if Telewest issues
new equity shares for cash, it is required to offer those shares to its
existing shareholders (including TW Holdings) on a pre-emptive pro rata basis.
The Company and U S WEST have sought to further ensure that their collective
majority interest in Telewest will not be diluted without their consent by
obtaining options ("Anti-dilution Options") from Telewest which are exercisable
upon the issuance of Telewest ordinary shares by Telewest other than for cash
at a price related to the market price for Telewest ordinary shares at the time
of the exercise of the Anti-dilution Options. The Anti-dilution Options grant
affiliates of the Company and U S WEST the right to purchase additional
Telewest ordinary shares for cash. For so long as the aggregate beneficial
ownership of Telewest ordinary shares by the Company and U S WEST exceeds 50.1%
of the issued Telewest ordinary shares prior to any issuance by Telewest of
Telewest ordinary shares for consideration other than cash, the Anti-dilution
Options are exercisable to the extent necessary to permit the Company and U S
WEST collectively to maintain 50.1% of all shareholders' voting rights in
Telewest. TW Holdings is to exercise the foregoing pre-emptive rights and
Anti-dilution Options, on behalf of the Company and U S WEST, to the extent
necessary to ensure that it owns at least 50% of the outstanding Telewest
ordinary shares.
The City Code on Takeovers and Mergers (the "City Code") regulates
various aspects of takeovers and mergers relating to UK public companies and
imposes certain conditions on acquisitions of shares by certain shareholders.
Rule 9 of the City Code ("Rule 9") provides that, except in cases when
dispensation is granted by the Panel on Takeovers and Mergers (the "Takeover
Panel"), when any person or group of persons acting in concert acquires shares
which represent 30% or more of the voting rights in a company, or when any
person or group of persons acting in concert already holding not less than 30%
and not more than 50% of the voting rights in a company acquires in any period
of 12 months additional shares representing more than 1% of such voting rights,
such person or group of persons is normally required to make a general offer to
purchase from all the shareholders all their shares in the company. Rule 9
would ordinarily apply to the exercise of rights to convert shares such as the
Telewest convertible preference shares into Telewest ordinary shares and such
exercise would ordinarily be considered to be an acquisition of such shares for
the purposes of Rule 9.
The Takeover Panel has confirmed that Rule 9 will not apply to the
conversion of the Telewest convertible preference shares or, provided that the
Company and U S WEST continue to beneficially own collectively more than 50% of
the outstanding Telewest ordinary shares, to the exercise of the Anti-dilution
Options. The foregoing will not, however, prevent Rule 9 from applying, if it
otherwise would, to future acquisitions of Telewest ordinary shares made by
TINTA and its affiliates or U S WEST and its affiliates.
I-20
<PAGE> 23
Telewest has granted the Company and its affiliates the right, subject
to certain exceptions, to require Telewest to include all or a portion of the
shares beneficially owned by the Company in any registered offering by
Telewest, and to cause Telewest, on up to two occasions, to offer all or any
portion of the Telewest ordinary shares beneficially owned by the Company in a
registered offering in the United States or the United Kingdom. Identical
registration rights have been granted to U S WEST.
Certain Agreements with Telewest
Secondment of Personnel; Technology Sharing. Affiliates of the Company
have seconded senior operating personnel to Telewest. The Company also makes
available to Telewest technology related to cable television and telephony, to
the extent requested by Telewest, at a price which is generally no less
favorable than that at which such technology is provided to non-affiliates.
Arrangements Regarding Control of Telewest
Board Representation. So long as both the Company and U S WEST each
beneficially own at least 25% of the outstanding Telewest ordinary shares, each
will be entitled to appoint two directors to the Telewest board of directors.
Each of Southwestern Bell and Cox are also entitled to appoint a director to
the Telewest board of directors for so long as it owns at least 5% of the
outstanding Telewest ordinary shares (assuming conversion of their Telewest
convertible preference shares). So long as the Company and U S WEST have the
right to appoint directors, the remainder of the Telewest board is required to
consist of the three most senior executive officers of Telewest and three
independent non-executive directors.
The Company and U S WEST have entered into various agreements,
described below, with respect to the ownership and voting of shares of Telewest
currently beneficially owned by them and the manner in which they will cause
the director designees of the Company and U S WEST to vote on matters
considered by the Telewest board of directors. The agreements continue for so
long as the Company and its affiliates and U S WEST and its affiliates own in
the aggregate 50% or more of the outstanding Telewest ordinary shares.
Voting of Shares; Director Votes. The Company and U S WEST have agreed
that on any matter requiring shareholder or board of directors approval, they
will vote their shares of Telewest stock, or cause their respective director
designees to vote (subject to such directors' fiduciary duties to Telewest and
its minority stockholders), together in such manner as may be agreed by them
or, in the absence of such agreement, in such manner as would be most likely to
continue the status quo, without materially increasing Telewest's financial
obligations or materially deviating from its approved budget and business plan.
If either the Company or U S WEST (or their respective director designees) is
precluded from voting on a matter because of a conflict of interest, the other
(or its director designees, as the case may be) may vote on such matter as it
deems appropriate. As a result of the foregoing arrangements, the Company and U
S WEST will generally be able to determine the outcome of any matter requiring
shareholder approval, including the election or removal of directors and the
creation and issuance of shares, and the Company and U S WEST will have
significant influence over decisions made by Telewest's board of directors
(including a veto right as to matters requiring a two-thirds vote of the
board). The Company and U S WEST have agreed with Telewest that, so long as
they collectively beneficially own more than 50% or individually own more than
30% of the outstanding Telewest ordinary shares, they will use their respective
best efforts to ensure that a majority of the directors of Telewest are
"independent" (within the meaning of the Listing Rules of the London Stock
Exchange) of the Company and U S WEST.
I-21
<PAGE> 24
Disposition of Telewest Stock; Standstill. The Company and U S WEST
have each agreed not to transfer any of the shares of Telewest stock
beneficially owned by them (other than to certain affiliates) without first
offering such shares to the other on the same terms as the proposed transfer.
They have each further agreed that they will not cause their respective
beneficial interests in Telewest to be reduced to 25% or less of the
outstanding Telewest ordinary shares without the consent of the other. After
November 22, 1999, however, the Company and U S WEST will each be permitted to
cause their beneficial interests to be reduced below 25% through sales in the
public market, after first offering such shares to the other on substantially
the same terms.
Southwestern Bell and Cox have agreed, subject to certain exceptions,
that for a period of four years after October 3, 1996 any sale of their shares
in Telewest in the public market will be made with the involvement of
Telewest's stockbrokers. In connection with a private disposition of their
Telewest shares after October 3, 1996, Southwestern Bell and Cox must first
offer such shares to U S WEST, TINTA and Telewest. In addition, subject to
certain exceptions, Southwestern Bell and Cox have agreed that they will not
increase their holdings of shares in Telewest through the acquisition of
additional Telewest ordinary shares, the conversion of Telewest convertible
preference shares, or otherwise.
In the event of a change of control of the Company or U S WEST,
respectively, the party not undergoing the change of control will have an
opportunity to either consent to the change or to require the other to elect to
purchase such party's beneficially owned shares of Telewest stock for a
specified price, or to sell the shares of Telewest beneficially owned by it to
the party not undergoing the change of control at the same price.
The Company and U S WEST have also agreed to certain restrictions on
the acquisition of any additional equity interests in Telewest other than
pursuant to the pre-emptive rights or Anti-dilution Options described under
"Stockholding in Telewest; Anti-Dilution Rights" above.
I-22
<PAGE> 25
Restrictions on Telewest's Business. Telewest has agreed that, subject
to certain exceptions, its business will be limited to cable television, cable
telephony and wireless telephony services in the United Kingdom and all matters
incidental thereto, including engaging in television programming in the United
Kingdom incidental to Telewest's cable television business. Any change in its
business would require the consent of the Company and U S WEST (for so long as
they collectively beneficially own in excess of 50% of the outstanding Telewest
ordinary shares) or the prior consent of Telewest's shareholders. Telewest has
also agreed (i), for so long as the Company beneficially owns 5% or more of the
outstanding Telewest ordinary shares, not to take any action that would violate
Flextech's right of first refusal with respect to offers relating to English
language cable and satellite programming in the United Kingdom and Europe
described under "The Flextech Investment - Interrelationships with Flextech -
Right of First Refusal", and (ii), for so long as U S WEST beneficially owns 5%
or more of the outstanding Telewest ordinary shares, not to engage in any
business, activity or practice that would violate certain contractual
arrangements to which U S WEST or its affiliates are a party (including an
arrangement that prohibits Telewest from engaging in wireless telephony other
than "Fixed Wireless Telephony"). In addition, Telewest has agreed not to
engage in any business outside of the UK that would violate any contractual
obligation of any subsidiary of the Company or U S WEST, respectively, that
holds (or at any time held) any Telewest ordinary shares, entered into at a
time when the beneficial ownership of Telewest ordinary shares by the Company
or U S WEST, respectively, was more than 25% of the outstanding Telewest
ordinary shares. Any restriction imposed on Telewest pursuant to the foregoing
sentence would expire when the beneficial ownership of Telewest ordinary shares
by the Company or U S WEST, respectively, decreases to 5% or less.
Restrictions on the Company's Business. The Company has agreed with
Telewest that, for so long as the Company beneficially owns more than 25% of
the outstanding Telewest ordinary shares and for a period of two years
thereafter, neither the Company, TCI nor any of TCI's controlled affiliates
will own assets comprising cable television or cable telephony systems in the
United Kingdom without Telewest's consent or without first offering Telewest
the opportunity to undertake such activity. The Company, TCI and TCI's
controlled affiliates are also prohibited from acquiring entities owning cable
television or cable telephony systems in the United Kingdom (other than
Telewest). The foregoing restrictions do not prohibit affiliates which are not
controlled affiliates of TCI from owning such assets nor do they prohibit TCI
or its affiliates (including the Company) from making additional equity
investments in any such affiliate, provided that if such affiliate becomes a
controlled affiliate of TCI at a time when it owns such assets, TCI would be
required to cause such assets to be offered for sale to Telewest. U S WEST and
its controlled affiliates are subject to similar restrictions.
I-23
<PAGE> 26
Notwithstanding the foregoing business restriction and first-offer
obligation, the Company will not be prohibited from, and the first-offer
obligation will not apply to: (a) owning or acquiring 10% or less of the
outstanding equity of any entity that engages in cable television or cable
telephony in the UK, (b) owning or acquiring any interest in an entity engaged
in (i) wireless telephony, (ii) billing, validation or call authorization
services and related or ancillary services for use by any provider of
telecommunications services or (iii) any subscriber voice or data
telecommunications transmission service that interconnects a Telewest network
with other telecommunications networks outside the licensed territory of a
Telewest network but does not compete with a Telewest network for cable
telephony customers, (c) directly or indirectly providing any subscriber voice
or data telecommunications transmission service (including, but not limited to,
wireless telephony) that operates only in part by cable links to subscribers'
premises (except in respect of the interconnection of such service to cable
links that service customers in the licensed territory of any Telewest
network), (d) owning or acquiring, directly or indirectly, an interest in any
entity that provides programming services in the UK or (e) acquiring an
interest in any entity whose annual gross revenues from cable television and
cable telephony in the UK constitute 20% or less of its total gross revenues,
provided that if the Company controls the entity, it offers Telewest an
opportunity to acquire the interest in cable television and cable telephony
assets in the UK of that entity. The business restriction and first-offer
obligations applicable to U S WEST are subject to similar exceptions.
The foregoing restrictions do not apply to the Company's existing
investments in companies that operate in the UK cable television and broadcast
industry, including the Company's interest in Flextech. None of the contractual
arrangements involving the Company, TCI or any of its affiliates and Telewest
restricts the ability of Flextech, or any company in which Flextech has an
interest, to operate in the UK cable television and telephony industry or to
expand their operations, including through acquisitions of cable businesses or
franchises.
UNITED INTERNATIONAL INVESTMENTS
The Company's ownership interest in Tevel Israel International
Communications Ltd. ("Tevel"), Princes Holdings Limited ("PHL") and Melita
Cable TV Limited ("Melita"), the operating companies that own cable systems in
Israel, Ireland and Malta, respectively, are held through United International
Investments ("UII"), a partnership between the Company and United and Phillips
Communications B.V. ("UPC"). Each of the Company and UPC have the right to
appoint one half of the members of UII's management committee with UPC
presently acting as the managing partner. In addition, under the partnership
agreement of UII, UPC and the Company have agreed for the term of the
partnership and for a period of three years thereafter not to participate in
any business that distributes television broadcast signals through cable or any
other means in any country where an operating company of UII does business
without first offering such opportunity to UII.
Tevel is a corporation formed under the laws of Israel. At December
31, 1996, the Company had a 50.0% ownership in UII with respect to UII's 46.6%
ownership interest in Tevel. Currently, UII is entitled to designate two of the
five directors of Tevel.
I-24
<PAGE> 27
PHL is a corporation formed under the laws of the Republic of Ireland.
At December 31, 1996, the Company had a 55.6% interest in UII with respect to
UII's 45.0% interest in PHL. A subsidiary of UII has the right to designate
four of the eight directors of PHL. Certain extraordinary actions require the
approval of such UII subsidiary and the other shareholder of PHL and at any
time after June 1998, either such UII subsidiary or the other shareholder of
PHL may require PHL to effect an initial public offering if one shareholder is
unable to sell its interest in PHL as a private company. At December 31, 1996,
PHL owned approximately 99%, 100% and 100%, respectively, of Cork
Communications Limited, Westward Horizon Limited and Independent Wireless Cable
Limited.
Melita is a limited liability company formed under the laws of Malta.
At December 31, 1996, the Company had a 43.8% interest in UII with respect to
UII's 75.7% interest in Melita. All of the interests in Melita are pledged as
security for Melita's obligations in connection with its debt financing. UII
has the right to designate six of the nine directors of Melita.
Certain statistical information concerning Teval, PHL and Melita as of
and for the year ended December 31, 1996 is set forth below:
<TABLE>
<CAPTION>
Israel- Ireland- Malta-
Tevel PHL Melita
--------- --------- -------
<S> <C> <C> <C>
Homes in service area 344,000 452,000 155,000
Homes passed 334,000 341,000 145,000
Basic subscribers 232,000 121,000 52,000
Basic penetration
percentage 69% 35% 36%
Average churn rate(1) 14% 14% 36%
Average monthly
revenue per
subscriber(2) $35 $23 $18
Exchange Rates at
December 31,1996(3) .3081 1.6576 2.7701
- --------------------
</TABLE>
(1) Represents the number of subscribers who terminated basic service or
whose service was terminated during the year ended December 31, 1996,
divided by the average number of basic subscribers during such period.
(2) Represents the December 31, 1996 U.S. dollar equivalent of the average
monthly revenue per subscriber for the year ended December 31, 1996.
Such amounts are calculated as (i) one-twelfth of the total cable
television revenue for such period, divided by (ii) the average number
of basic cable television subscribers during such period. Amounts are
translated using the exchange rate in effect on December 31, 1996.
(3) Represents U.S. dollars per local currency unit.
I-25
<PAGE> 28
BRESNAN INTERNATIONAL PARTNERS (POLAND), L.P.
In September 1994, the Company entered the Polish cable market when it
acquired an indirect interest in Aster City Cable Sp. z o. o. ("Aster City").
Aster City is a joint venture between BIP Poland and local Polish investors. The
Company's interest in Aster City is held through its 43.95% interest in BIP
Poland, which in turn owned a 49% interest in Aster City at December 31, 1996.
At December 31, 1996, Aster City operated cable systems serving approximately
176,000 cable and antenna subscribers, primarily in the City of Warsaw. Aster
City is currently rebuilding its cable network in order to permit it to offer
its customers enhanced cable and, subject to regulatory approval, telephony
services.
In December 1996, BIP Poland reached agreement with the local Polish
investors to acquire the remaining 51% ownership interest in Aster City not
already owned by BIP Poland. The terms require BIP Poland to pay the Polish
investors approximately $25.0 million in 1997. Subsequent to this transaction,
BIP Poland will own 100% of Aster City.
In December 1995 BIP Poland acquired a 77.9% economic interest in
Katowicka Telewizja Kablowa S.A. ("KTK"), a cable television operator in
Katowice, Poland serving 14,000 cable and antenna subscribers, with unbuilt
cooperative agreements covering approximately 15,000 additional subscribers.
At December 31, 1996, the entire $1.2 million agreed upon investment has been
advanced as an equity contribution to KTK to fund the construction of unbuilt
cooperatives.
In July 1995, BIP Poland paid $6.0 million to acquire a 100% ownership
interest in Regionala Telewizja Kablowa Autocom Sp. z o. o. ("RTK Autocom"), a
cable television operator serving the city of Krakow, Poland. At December 31,
1996 this system served approximately 35,000 cable and antenna subscribers.
On December 31, 1996, BIP Poland acquired the cable television system
serving areas of the City of Warsaw, Poland from Porion Sp Zo. o. for a cash
purchase price of $25.2 million. This acquisition was completed through a
purchase by Warszawskie Sieci Kablowe Sp Zo. o ("Warsaw Cable Network") of 100%
of the stock of Przedsiebiorstwo Rozwoju Handlui TeleKomunikacji Sp Zo. o
("PRHT"), the owner of the acquired cable television network. BIP Poland has a
direct and indirect 100% ownership interest in Warsaw Cable Network. At
December 31, 1996 the PRHT cable television system served 58,000 subscribers.
I-26
<PAGE> 29
Certain statistical information concerning Aster City, RTK Autokom,
KTK and PRHT as of and for the year ended December 31, 1996 is set forth below:
<TABLE>
<CAPTION>
RTK
Aster City Autokom KTK PRHT
---------- ------- --- ----
<S> <C> <C> <C> <C>
Homes in service area 700,000 242,000 19,000 (4)
Homes passed 364,000 74,000 14,000 80,000
Basic subscribers 176,000 35,000 14,000 58,000
Basic penetration
percentage 48% 47% 100% 73%
Average churn rate(1) 2% 9% 6% (4)
Average monthly
revenue per
subscriber(2) $ 5 $ 4 $ 6 (4)
Exchange Rates at
December 31,1996(3) .3481 .3481 .3481 .3481
</TABLE>
___________________________
(1) Represents the number of subscribers who terminated basic service or
whose service was terminated during the year ended December 31, 1996,
divided by the average number of basic subscribers during such period.
(2) Represents the December 31, 1996 U.S. dollar equivalent of the average
monthly revenue per subscriber for the year ended December 31, 1996.
Such amounts are calculated as (i) one-twelfth of the total cable
television revenue for such period, divided by (ii) the average number
of basic cable television subscribers during such period. Amounts are
translated using the exchange rate in effect on December 31, 1996.
(3) Represents U.S. dollars per local currency unit.
(4) Not available or not meaningful.
In addition to its interests in Aster City, KTK, RTK Autocom and PRHT,
BIP Poland also held, at December 31, 1996, a 65% interest in Telefonia Polska
Zachod Sp. z o. o. ("TPZ"), a joint venture between BIP Poland and a local
Polish partner. In March 1995, TPZ was granted a telephone license for the
Gorzow Wielkopolski province which has a population of approximately 520,000.
In Gorzow Wielkopolski, TPZ has secured a head-end building and finalized
negotiations for a telephony switch and has constructed 34 kilometers of
network. TPZ has entered into an interconnect agreement with Telekomunikacja
Polska S.A. ("TPSA"), Poland's state-owned telephony company, and expects to
begin providing telephony services during 1997. In June 1995, TPZ was granted
a second telephone license for the Szczecin province (exclusive of the city of
Szczecin) which has a population of approximately 600,000. In Szczecin, TPZ
has acquired a head-end site and is in negotiations with TPSA for an
interconnect agreement. TPZ expects to begin providing telephony services in
Szczecin during 1997.
On December 31, 1996, pursuant to an amended and restated agreement of
limited partnership of BIP Poland, (i) TINTA converted the principal balance of
its revolving loan to BIP Poland ($23.8 million) to equity and made an
additional equity contribution of $10.0 million and (ii) BCI Poland contributed
$18.5 million to BIP Poland thereby reducing the Company's ownership percentage
from 80% to 43.95%. The amended and restated agreement of limited partnership
also provides that each partner shall earn a return of 15% per annum on the
average of such partner's Unreturned Capital (as defined). Through December
31, 1996, the Company's Unreturned Capital in BIP Poland was $34.8 million.
I-27
<PAGE> 30
Cash distributions from the partnership are first made to the partners
in accordance with the preferred return of 15% on the Unreturned Capital of the
respective partners accruing from the date of the capital funding (in the case
of TINTA's revolving loan that was converted to equity from the date amounts
were loaned to the partnership) and second to the partners in accordance with
any remaining Unreturned Capital. Thereafter, distributions are made in
proportion to the partners' respective ownership percentages. Most significant
transactions require the approval of each partner for such period of time as
such partner has at least a 20% ownership interest.
Programming Operations
FLEXTECH P.L.C.
The Company has been actively involved in the development of cable and
satellite programming in the UK since 1988 and has created an integrated
programming enterprise through the operations of Flextech, a 46.5%-owned
subsidiary at December 31, 1996. Through its subsidiaries and affiliates,
Flextech creates, packages and markets entertainment and information
programming for distribution on cable television and DTH satellite systems
throughout the UK and, to a lesser extent, parts of continental Europe. By
acquiring interests in and establishing alliances among providers of a variety
of entertainment programming, Flextech has been able to achieve significant
economies of scale and establish itself as a major low-cost provider of
television programming. Flextech also owns interests in a production and
distribution company and a terrestrial broadcast network.
Flextech's management and consultancy services are operated through
its subsidiary, Flextech Television Limited ("FTV"). FTV currently provides
management services to companies operating eight programming services in
Europe, of which the Company has indirect ownership interests in five. FTV
generally provides programmers with technical assistance and a core management
team, whose roles include, among others, the coordination of advertising sales,
the negotiation of affiliation agreements, the marketing of the channels to
existing and potential subscribers, the coordination of program schedules, the
management of the programming budget, and the provision of managerial and
technical expertise. For its management and consultancy services, Flextech
receives a management fee and, in some cases, a percentage of the programming
company's gross revenues. Flextech's management contracts have terms generally
spanning a period of up to 10 years.
I-28
<PAGE> 31
The following table sets forth the name and a description of each
programming service in which Flextech had an interest or to which it provided
management services as of December 31, 1996:
<TABLE>
<CAPTION>
Flextech
Ownership Interest/
Channel Management Services Description
------- ------------------- -----------
<S> <C> <C>
Bravo 100%/Management General entertainment
control targeted to male audiences
TCC (The Children's 100%/Management Children's programming,
Channel) control including dramas, comedies,
documentaries, teen soaps
and animations
Challenge TV 100%/Management Family entertainment and
control game shows
HSN Direct 63%/Management control (1) Home shopping and infomercials
Playboy TV 51%/Management Adult entertainment
control
Sell-A-Vision 50%/No day-to-day Home shopping and
management role(2) infomercials
KinderNet Channel 31%/No day-to-day Children's programming
management role targeted to Dutch audiences
UK Living 31%/No day-to-day Talk shows, game shows,
management role(3) dramas, soap operas, mini-
series and music
UK Gold 25%/No day-to-day General entertainment from
management role(3) BBC and Thames Television
archives
European Business News 30%/Affiliate relations Financial news
and advertising sales
The Discovery Channel Manages day-to-day Documentaries relating to
Europe operations(4) travel, adventure, nature,
history and technology
TLC (The Learning Channel) Manages day-to-day Documentaries and
operations(4) educational series
The Parliamentary Channel Manages day-to-day Live proceedings of British
operations(5) Parliament
</TABLE>
I-29
<PAGE> 32
(1) Flextech owns a 63% interest, and TINTA owns a 15.7% interest in HSN
Direct. A subsidiary of TCI has an indirect equity interest in Home
Shopping Network, Inc., another partner in HSN Direct.
(2) Pursuant to an agreement that expires on January 31, 1999, Flextech
provides transponder capacity in exchange for 50% of the defined net
profits of Sell-A-Vision.
(3) Subsequent to December 31, 1996, Flextech announced that it had
reached agreement to, among other things, (i) acquire of all the share
capital of UKLL and UKGL that Flextech and the Company did not already
own, and (ii) contribute 65% of the acquired ownership interest in UKGL
to a 50%-owned joint venture. See "The Flextech Investment."
(4) A subsidiary of TCI has a 49% interest in Discovery Communications,
Inc., the owner of The Discovery Channel Europe and TLC.
(5) The Company owns an indirect 26.6% interest in Telewest, which
owns a 16.7% interest in The Parliamentary Channel.
Bravo is targeted at 16-to 34-year olds and offers programs such as
"the New Twilight Zone", "The Maxx" and "Family Dog". Bravo broadcasts from
8:00 p.m. to 6:00 a.m., seven days a week. As of December 31, 1996, this
service was being distributed in the UK via cable as a basic service to 5.1
million subscribers and by satellite to dish owners in the United Kingdom as
part of Sky MultiChannels Package ("MultiChannels").
The Children's Channel, marketed as "TCC," is targeted at the 4- to
9-year-old age group and includes live shows, animation, dramas and educational
programming. Initially launched in 1984, TCC is currently aired 11 hours a day
(6:00 a.m. to 5:00 p.m.), seven days a week, and at December 31, 1996, was
being distributed by cable operators as a basic service to 7.0 million
subscribers in the UK and by satellite to dish owners in the United Kingdom as
part of MultiChannels. It is also distributed by cable operators in Ireland,
Scandinavia and the Benelux countries of Europe, and is included in
"MultiChoice," a pay television package offered by Payco (a joint venture
between Richemont and the South African pay-television service, M-Net) to DTH
customers in parts of continental Europe. TCC has supplied programs to
broadcasters in over 30 countries, and its service is available in English with
Dutch, Swedish, Danish and Norwegian subtitles (and partly Dutch audio).
Challenge TV is targeted at 15- to 45-year-olds and is carried on the
same transponder as TCC. Initially launched in September 1993 as "The Family
Channel", Challenge TV currently begins broadcasting at 5:00 p.m. daily, when
TCC goes off the air, and its programming ends at 5:00 a.m. Challenge TV
offers a mix of game shows and interactive competitions in addition to general
family entertainment. At December 31, 1996, Challenge TV was distributed
exclusively in the United Kingdom by cable operators as a basic service to 4.6
million subscribers and by satellite to dish owners in the United Kingdom as
part of MultiChannels.
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HSN Direct was formerly the infomercial division of Home Shopping
Network, Inc. ("HSN") and holds worldwide infomercial rights including the
United States. HSN Direct already has a joint venture with Sumitomo in Japan
for the exploitation of the infomercial and home shopping market in Japan.
Infomercials are generally 25 minutes in length and feature a movie celebrity
promoting a product line. Production costs are relatively inexpensive
(generally under $100,000 for a 25-minute show) and segments can be dubbed into
any language. Products generally sell for between $19.95 and $250.00. HSN
Direct is currently aired for 7 hours each weekday (2:00 am to 9:00 am) in the
UK. In the U.S., media time is purchased per individual infomercial.
Playboy TV was launched on November 1, 1995 and is distributed in the
United Kingdom and the Benelux countries by cable operators and DTH satellite
service providers. The channel is currently aired from 11:30 p.m. to 4:00 a.m.,
four days a week and midnight to 4:00 a.m. three days a week. At December 31,
1996, Playboy TV was distributed to approximately 33,000 subscribers. Flextech
owns a 51% interest in Playboy TV UK/Benelux Limited, the owner of Playboy TV.
The remaining interests are held by Playboy Entertainment Group, Inc. ("PEG")
(19%) and BSkyB Investment Limited (30%). Playboy TV has the exclusive rights
in the UK and Benelux countries to PEG's programming. Flextech provides the
service with management and technical support.
Sell-A-Vision is a home shopping, infomercial channel broadcast in
four languages (English, Dutch, French and German). A typical infomercial
consists of a 25-minute show featuring a movie celebrity promoting a product
line. Production costs are relatively inexpensive (generally under $50,000 for
a 25-minute show), and products sell for between $10 and $300. Initially
launched in June 1993, Sell-a-Vision is currently aired for five hours each
weekday (5:00 a.m. to 10:00 a.m.) and for seven hours each weekend day (5:00
a.m. to 12:00 noon). Sell-a-Vision is a non-encrypted service available to all
homes capable of receiving satellite signals within the Astra 1a satellite
footprint (which includes most of Europe and Scandinavia). Pursuant to an
agreement that expires on January 31, 1999, Flextech provides transponder
capacity in exchange for 50% of the defined net profits of Sell-A-Vision.
KinderNet Channel is a Dutch children's programming service similar in
genre to TCC. The channel is currently aired for 4 hours each weekday (7:00
a.m. to 11:00 a.m.) and for 5 hours a day on the weekends (7:00 a.m. to noon).
At December 31, 1996, KinderNet Channel was received by approximately 5.6
million homes in Holland. Flextech's ownership interest is held through its
33.34% interest in Preview Investments BV ("Preview"), which owns 93.28% of
KinderNet Channel and 100% of Holland Visions BV, a Dutch company that provides
television and post-production editing services in Holland. Pursuant to a
shareholder's agreement with Infinity Investments BV ("Infinity"), the owner of
the remaining 66.66% interest in Preview, Flextech has the right to require
Infinity to sell to Flextech, and Infinity has the right to require Flextech to
purchase, at any time between June 1, 2000 and December 31, 2000 (subject to
the approval of Flextech's shareholders of the exercise of either such right if
such approval is required under the Listing Rules of the London Stock Exchange
at the time of exercise), Infinity's entire interest in Preview at a price
equal to a multiple of the average of Preview's consolidated profit (before
interest and taxes) for the fiscal years ended May 31, 1998, 1999 and 2000,
subject to a maximum purchase price of 100 million Netherlands guilders
("NGL")($57.4 million) and a minimum purchase price of NGL 50 million ($28.7
million).
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UKLL produces and distributes "UK Living," which primarily targets
women aged 25 to 54 years old. Its programming consists of talk shows on
topical issues, health, cooking and homemaking, dramas, soap operas and mini-
series. UK Living's non-original content is a mix of U.S. programming and
programming from the libraries of the BBC and Thames Television plc ("Thames
TV"). UK Living was initially launched in September 1993, and currently airs 18
hours a day, between 6:00 a.m. and 12:00 midnight, seven days a week. As of
December 31, 1996, UK Living was distributed exclusively in the United Kingdom
by cable operators as a basic service to 5.1 million subscribers and by
satellite to dish owners in the United Kingdom as part of MultiChannels.
Flextech currently holds a 31.3% economic and 35.4% voting interest in UKLL.
The other shareholders of UKLL are Cox Programming (which currently holds a
43.7% economic and 49.6% voting interest) and Thames TV (which currently holds
a 25% economic and 15% voting interest). UKLL has a board of directors on
which each shareholder has one representative. As described in greater detail
below, Flextech has reached agreements with the shareholders of UKLL to acquire
all of the shares of UKLL not already owned by Flextech and the Company.
UKGL produces and distributes "UK Gold," which primarily airs reruns
of "the best of" the BBC and Thames TV libraries (which include over 130,000
hours of programming). Initially launched in November 1992, UK Gold is
currently broadcast 19 hours each day, between 7:00 a.m. and 2:00 a.m. As of
December 31, 1996, UK Gold was distributed exclusively in the United Kingdom by
cable operators as a basic service to 5.1 million subscribers and by satellite
to dish owners in the United Kingdom and Ireland as part of MultiChannels.
Flextech currently holds a 25% economic and 27% voting interest in UKGL. The
other shareholders in UKGL are BBC Enterprises Investments Limited (which
currently holds a 20% economic and voting interest), Thames TV (which currently
holds a 20% economic and 15% voting interest) and Cox Programming (which
currently holds a 35% economic and 38% voting interest). UKGL has a board of
directors on which each shareholder has one representative. As described in
greater detail below, Flextech has reached agreements with the shareholders of
UKGL to acquire all of the shares of UKGL not already owned by Flextech and the
Company. As part of the formation of the BBC Joint Ventures, the Second Joint
Venture will acquire 65% of the share capital of UKGL (after Flextech's
acquisition of all of the share capital), with put and call arrangements over
the remaining 35% of such share capital.
European Business News ("EBN") is based in London and is a financial
news network covering UK and European financial news and corporate
developments. The service also covers personal finance and an array of business
and consumer issues. Initially launched in February 1995, EBN is now a 24-hour
service aired seven days a week. Dow Jones International Inc. is a 70%
shareholder of the service, and manages the news and programming aspects of the
channel. Flextech owns the remaining 30% and is responsible for affiliate
distribution and advertising sales. At December 31, 1996, EBN was distributed
to approximately 6.0 million cable subscribers and is available to all homes
capable of receiving satellite signals within the Eutelsat and Astra 1C
satellite footprint (which includes the UK and parts of Europe, North Africa
and the Middle East). EBN's sister channel in Asia is Asia Business News, a
Singapore-based regional satellite network which provides business and
financial news.
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The Discovery Channel Europe presents documentary and factual
programming covering five main genres: adventure, travel, history, nature and
technology. Initially launched in April 1989, it currently broadcasts eight
hours a day (4:00 p.m. to midnight), seven days a week, in English and is also
available with Danish, Dutch, Finnish, Norwegian, Swedish, Polish and Hungarian
subtitles. At December 31, 1996, The Discovery Channel Europe was being
distributed by cable operators in the United Kingdom as a basic service to 13.4
million subscribers, and also to subscribers in Scandinavia, the Benelux
countries and parts of Eastern Europe, and by satellite to dish owners in the
United Kingdom as part of MultiChannels. The channel is also available as part
of the "Multichoice" pay television package offered to DTH satellite customers
in certain parts of Europe.
TLC or "The Learning Channel" is an educational and entertainment
channel with three categories of programming: family, hobbies and science. At
December 31, 1996, it was distributed exclusively in the UK by cable operators
as a basic service to 5.1 million subscribers and by satellite to dish owners
in the United Kingdom as part of MultiChannels. Initially launched in March
1992, it airs seven hours a day, from 9:00 a.m. to 4:00 p.m., seven days a
week.
The Parliamentary Channel broadcasts a mixture of live and recorded
coverage of proceedings in The House of Commons and The House of Lords. There
is no commentary, only captions identifying the speakers and the political
parties they represent. The Parliamentary Channel is a non-profit venture
jointly owned by eight major cable operators, including Telewest. The service
was initially launched in January 1992, and, at December 31, 1996, was being
distributed exclusively in the UK by cable operators as a basic service to 1.7
million subscribers.
Other Flextech Interests
STV. On September 28, 1995, Flextech exchanged its 20% ownership
interest in HTV Group plc ("HTV") and L.28.0 million ($44.2 at the applicable
exchange rate) in cash for 12,065,143 or 20% of the issued and outstanding
shares of Scottish Television plc ("STV"), a publicly-traded company in the UK
and the Channel 3 terrestrial broadcast licensee for central Scotland. During
the fourth quarter of 1996, STV disposed of its investment in HTV. STV's
broadcast signal reaches approximately 1.5 million homes in the UK. Pursuant to
the terms of its investment, Flextech is entitled to appoint two directors to
STV's board of directors for so long as it owns more than 15% of STV's
outstanding ordinary shares and TINTA, TCI and/or certain of their affiliates
(the "TINTA Group") own at least 25% of the outstanding capital stock of
Flextech. Flextech will be entitled to appoint one director to STV's board if
its ownership interest in STV falls below 15% but exceeds 10%, or if Flextech's
ownership exceeds 15% but the TINTA Group's ownership interest in Flextech
falls below 25%. Flextech also obtained certain preemptive rights with respect
to new issuances of shares of STV and agreed to certain restrictions on its
ability to dispose of and acquire additional shares of STV.
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Flextech's interest in STV increases the Company's interests in
terrestrial broadcasting and provides it with access to programming through
Scottish Television Enterprises ("STE"), STV's programming subsidiary. In
connection with the acquisition of its interest in STV, Flextech acquired the
license rights to over 125 hours of drama and documentary features from STV's
program library. Flextech also entered into a production output agreement under
which Flextech has agreed to commission television programs from STE over a two
year period, subject to agreement on budgets and other items for each program.
HIT. Flextech owns a 23.4% interest in HIT Entertainment plc ("HIT")
an independent distributor and packager of television programming worldwide.
Specializing in animation, family drama and natural history, HIT has
long-standing relationships with program producers and broadcasters.
Programming is distributed by HIT to over 120 countries. Among its programs,
HIT has the rights to distribute in the United Kingdom the "Barney the
Dinosaur" children's series and the "Dennis and Gnasher." The Company
anticipates that HIT's extensive library (over 1,000 hours of programming as of
December 31, 1996) will provide a valuable source of programming for Flextech's
owned and managed thematic channels.
Hallmark Entertainment. Flextech has commitments to acquire distribution
and exhibition rights for a variety of programming under license agreements
with Hallmark Entertainment, Inc. ("Hallmark Entertainment"), a subsidiary of
Hallmark Cards Incorporated ("Hallmark"). The rights are limited to the United
Kingdom and certain other European markets and have a term for a period of ten
years once the license period commences. Through December 31, 1996,
programming with an aggregate contractual value of L.19.8 million ($33.9
million) had been delivered to Flextech under such agreements. It is estimated
that Flextech's remaining commitments to acquire programming will be L.10.5
million ($18.0 million). Hallmark Entertainment has provided Flextech a
guarantee that it will recover at least L.14.6 million ($25.0 million) from the
exploitation of such rights.
The Flextech Investment
TCI, through various subsidiaries including United Artists European
Holdings Limited ("UAEH"), has had programming investments in the United
Kingdom and continental Europe since 1988. In February 1994, TCI consolidated
its UK and European programming investments when TCI merged those investments
into Flextech. In connection with such merger, UAEH acquired 60.4% of the
outstanding Flextech Ordinary Shares, and Flextech acquired, among other
things, UAEH's 100% interest in Bravo Ltd., 24.6% interest in Starstream
Limited ("Starstream") (Flextech at the time held an additional 50.3% of
Starstream), 25% interest in UKGL, and 31.3% interest in UKLL, as well as FTV's
management or consultancy contracts or arrangements with Bravo, TCC, The
Discovery Channel Europe, TLC, Country Music Television Europe, The
Parliamentary Channel, European Business News and the predecessor of Challenge
TV. Starstream owns and operates TCC. Under the terms of the merger
agreement, UAEH also loaned Flextech L.10.0 million ($17.1 million), and
purchased variable rate convertible unsecured loan stock of Flextech ("VRCUL
Stock") for L.9.4 million ($16.1 million). In October 1994, TCI's interest in
UAEH (and thereby in Flextech) was contributed to the Company by TCI.
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On June 5, 1995, Flextech completed the issuance of new Flextech
Ordinary Shares and Flextech Non-Preference Shares pursuant to agreements with
Hallmark and U S WEST (the "Hallmark Subscription" and "U S WEST Subscription",
respectively). The Hallmark Subscription and the U S WEST Subscription are
collectively referred to herein as the "Flextech Transactions". At the time of
such sales, the Hallmark Subscription and the U S WEST Subscription represented
9.99% and 9.01%, respectively, of Flextech's equity share capital assuming
conversion of the Flextech Non-Preference Shares. Under the terms of the
Hallmark Subscription, HC Crown Corp. ("Crown"), a subsidiary of Hallmark,
purchased 9,322,763 Flextech Ordinary Shares and 2,337,541 Flextech
Non-Preference Shares for L.48.4 million ($77.2 using the applicable exchange
rate). Under the terms of the U S WEST Subscription, U S WEST (UK), a
subsidiary of U S WEST, purchased 8,181,392 Flextech Ordinary Shares and
2,337,541 Flextech Non-Preference Shares in exchange for securities of Thomson
Directories Limited (the "TDL Securities"). Prior to the July 8, 1996
repurchase of the TDL Securities by U S WEST (UK), Flextech had pledged the TDL
Securities to Citibank N.A. as security for a limited recourse loan in the
amount of L.43.7 million ($69.7 using the applicable exchange rate) (the
"Flextech Bank Facility"). Flextech used the sales proceeds from such July 8,
1996 repurchase to repay in full amounts borrowed under the Flextech Bank
Facility. As a result of the Flextech Transactions, the Company's ownership
interest in Flextech's issued and outstanding share capital decreased from
60.4% to 48.8%. As discussed below, the Flextech Non-Preference Shares will be
converted into Flextech Ordinary Shares in connection with the closing of the
BBC Joint Ventures and the issuance to the Company of the Special Voting Share.
On April 22, 1996, Flextech acquired from IFE (i) the 61% ownership
interest in Maidstone Broadcasting, which Flextech did not already own and (ii)
a 100% ownership interest in TVS. Excluding liabilities assumed, the total
consideration paid by Flextech to acquire such ownership interests was L.31.0
million ($47.8 million using the applicable exchange rate), of which L.3.0
million ($4.5 million using the applicable exchange rate) was paid in cash and
the remaining balance was satisfied by Flextech's issuance of 5,792,008
Flextech Non-Preference Shares. As a result of the IFE Acquisitions, the
Company's ownership interest in Flextech's issued and outstanding share capital
decreased from 48.8% to 46.5%. As discussed below, the Flextech Non-Preference
Shares will be converted into Flextech Ordinary Shares in connection with the
closing of the BBC Joint Ventures and the issuance to the Company of the
Special Voting Share.
In January 1997, the Company reduced its voting interest in Flextech
from 50.9% to 50% by issuing to a nominee an irrevocable proxy to vote 960,850
of the Flextech Ordinary Shares owned by the Company at any shareholder meeting
to be held through December 31, 1997. Following the completion of the BBC Joint
Ventures and the issuance of the Special Voting Share to the Company as
discussed below, the Company's voting power in Flextech will be equal to 50% of
all votes that may be cast at a meeting of Flextech's shareholders.
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On March 17, 1997, Flextech announced that it had reached agreement
with BBC Worldwide to form two separate joint ventures, and that it would
acquire all of the shares of UKGL and UKLL that Flextech and the Company did
not already own. The Principal Joint Venture will operate and launch a number
of new subscription television channels for distribution in the UK and Ireland.
Flextech and BBC Worldwide will each have a 50% interest in the venture. The
Principal Joint Venture has committed to the launch of at least 4 new theme
channels by September 30, 1998. The Second Joint Venture will acquire 65% of
the share capital of UKGL (following Flextech's acquisition of the UKGL share
capital, as described below), with put and call arrangements over the remaining
35% of such share capital. The Second Joint Venture will operate and develop
UKGL, and both Flextech and BBC Worldwide will have a 50% interest in that
venture. The creation of the BBC Joint Ventures is subject to a number of
conditions, including approval of various resolutions by the shareholders of
Flextech at an extraordinary general meeting to be held on April 15, 1997, and
approval by the UK Department of National Heritage. No assurances can be given
that such approvals will be obtained.
An affiliate of the BBC will be responsible for the scheduling,
programming and presentation of the channels to be operated by the BBC Joint
Ventures, while Flextech will be responsible for providing distribution,
air-time sales, off-air marketing and management services to the two joint
ventures. Program license agreements will be entered into by each joint
venture, under which they will be entitled to acquire licenses to broadcast
programs originated by the BBC after their initial airing. For the first five
years, BBC programming will be acquired in accordance with a pricing formula
based on current market prices, and thereafter pricing will approximate current
market prices. The license agreements will have initial terms of 15 years,
which may be extended an additional 15 years at the option of the BBC Joint
Ventures. Any such extension would require the consent of Flextech. A failure
to extend the license agreements after the first 15 year term will result in
BBC Worldwide having the right to acquire any channel brands owned by the
Principal Joint Venture for fair value. In such circumstances, Flextech may
alternatively require that BBC Worldwide purchase its interest in the Principal
Joint Venture for fair value. The BBC Joint Ventures will not be limited to
BBC programming material.
Flextech has undertaken to finance the working capital requirements of
the Principal Joint Venture. This financing comprises L.22 million ($38
million) of equity financing, through the acquisition of ordinary shares of the
Principal Joint Venture, a primary credit facility of up to L.88 million ($151
million) and, subject to certain restrictions, a standby credit facility of up
to L.30 million ($51 million). Flextech has also agreed to make available to
the Second Joint Venture, if required, funding of up to L.10 million ($17
million). To support its funding obligations, Flextech has obtained the
Flextech Revolving Credit Facility, with current borrowing availability of up
to L.50 million ($86 million), and with a term of up to 5 years, from a
syndicate of banks. Flextech is currently negotiating to increase the
borrowing availability under the Flextech Revolving Credit Facility to L.85
million ($146 million).
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<PAGE> 39
Flextech will acquire the share capital of UKGL and UKLL not already
owned by it and the Company through the issuance of new Flextech Ordinary
Shares. Flextech will acquire the 75% of UKGL (and L.12.5 million ($21.4
million) of loan stock) and the 68.75% of UKLL (and L.13.7 million ($23.5
million) of loan stock) that it does not already own through the issuance of
34,954,713 new Flextech Ordinary Shares. One of the current shareholders of
UKLL will retain L.5.2 million ($8.9 million) of loan stock, which is to be
repaid in two equal installments on December 31, 1997 and 1998. Immediately
following the issuance of the new Flextech Ordinary Shares to the former
shareholders of UKGL and UKLL, the Company's voting power will fall below 50%.
To increase the Company's voting power to 50%, the Company will receive the
Special Voting Share, which will permit the Company to cast 50% of all votes
attributable to the outstanding share capital of Flextech. The Special Voting
Share will terminate upon the occurrence of the earlier of (i) the third
anniversary of issuance or (ii) any transfer of Flextech shares by the Company
outside a specified affiliated group.
Upon approval of the transaction by its shareholders and following the
acquisition of the entire share capital of UKGL, Flextech is to exchange
approximately 40% of the ordinary shares of UKGL for variable rate redeemable
unsecured loan stock of the Second Joint Venture and approximately 25% of the
UKGL ordinary shares for redeemable preference shares of the Second Joint
Venture. Flextech and the Second Joint Venture will also enter into call and
put option arrangements with respect to the shares of UKGL retained by Flextech
(the "Retained Shares"). Under the call arrangement, the Second Joint Venture
may acquire the Retained Shares, with the consent of Flextech (which may be
withheld in its sole discretion), following the second anniversary of the
initial transfer of shares of UKGL by Flextech and the Company to the Second
Joint Venture (the "Initial Transfer"). The purchase price would be L.52.5
million ($89.9 million), which may be issued in loan stock of the Second Joint
Venture. If the call is not exercised then, under the put arrangement, on or
after the fifth anniversary of the Initial Transfer, Flextech may require that
the Second Joint Venture acquire the Retained Shares for the greater of (i)
L.66.2 million ($113.4 million) and (ii) the fair value of such shares, which
may be issued in loan stock
The Company has undertaken to fulfill Flextech's financial obligations
to the Principal Joint Venture in the event of Flextech's default, and has
agreed not to compete with the channels of the BBC Joint Ventures. If the
Company is required to fulfill any of Flextech's financial obligations, it will
take over Flextech's equity interest in the Principal Joint Venture for L.1.00,
and the Company's loans will become senior to any loans of Flextech to the
Principal Joint Venture (except to the extent such subordination would
adversely effect Flextech's ability to repay amounts borrowed under the
Flextech Revolving Credit Facility). Flextech will be entitled to reacquire its
interest in the Principal Joint Venture within a period of 180 days after the
Company first fulfills any of Flextech's financial obligations, upon repayment
of any monies advanced by the Company and the payment of interest thereon at
TINTA's marginal cost of funds plus 2% per annum. Flextech may substitute a bank
guarantee for the foregoing financial undertaking of the Company.
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<PAGE> 40
Stockholding in Flextech; Preemptive Rights
At December 31, 1996, the Company owned 56,340,598 Flextech Ordinary
Shares representing 46.5% of the issued and outstanding Flextech share capital
and 50.9% of the aggregate voting interests attributable to such Flextech share
capital, and L.9.4 million ($16.1 million) of VRCUL Stock. The VRCUL Stock
bears interest at the rate of 1/2% below a bank's base rate and is repayable on
January 31, 1999, or earlier at Flextech's option. Each share of VRCUL Stock is
convertible at the option of the holder into Flextech Ordinary Shares at the
rate of L.3 per share ($5.14 per share), at any time during the 180 day period
commencing on September 23, 1997. In connection with the formation of the BBC
Joint Ventures, the Company has agreed with Flextech that if it is unable to
increase the borrowing availability under the Flextech Revolving Credit
Facility from L.50 million to at least L.70 million ($86 million to $120
million), then the Company will agree to defer repayment of the VRCUL Stock,
subject to an extension of the period over which the VRCUL Stock is
convertible. The foregoing modifications would take effect at such time as
repayment of the VRCUL Stock is deferred.
Following the acquisition by Flextech of the shares in UKGL and UKLL
not already owned by it or the Company for Flextech Ordinary Shares and the
conversion of all outstanding Flextech Non-Preference Shares into Flextech
Ordinary Shares, the Company's interest in the equity share capital of Flextech
will decline from 46.5% to 36.1%. To permit the Company to cast at least 50%
of all votes cast by shareholders of Flextech, the Company will receive the
Special Voting Share. The Special Voting Share will not participate in
dividends or distributions, and will receive only its nominal value (10 pence)
upon any liquidation of Flextech.
Under the City Code, which is designed to ensure fair and equal
treatment of all shareholders in relation to takeovers of English public
companies such as Flextech, it must be a condition of any offer for the voting
equity share capital which, if accepted in full, would result in the offeror
holding shares carrying over 50% of the voting rights of the offeree company,
that the offer not become or be declared unconditional as to acceptances until
the offeror has acquired or agreed to acquire (pursuant to the offer or
otherwise) shares carrying over 50% of the voting rights attributable to both
the equity share capital and equity share capital and non-equity share capital
combined. The Special Voting Share will not count as having voting rights for
this purpose. Also, the Special Voting Share will not carry any right to vote
in respect of certain resolutions proposed at a general meeting of Flextech to
approve certain actions which require approval under the City Code during the
course of such an offer, or while one might be imminent.
Except with the approval of the Panel on Takeovers and Mergers (the
body responsible for the administration of the City Code) any person who holds
not less than 30%, but not more than 50%, of the voting rights of a company
which is subject to the City Code (or persons acting in concert with that
person) may not in any period of 12 months acquire additional shares carrying
more than 1% of the voting rights of that company without extending offers to
the holder of any class of equity share capital in the company and also to the
holder of any class of non-voting equity share capital in which such person (or
persons acting in concert with him) hold shares. The Special Voting Share will
not be taken into account in determining the Company's percentage voting rights
of Flextech for this purpose.
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Certain Agreements
Tag-Along Right. In connection with the Hallmark Subscription, the U S
WEST Subscription, and the IFE Acquisitions, the Company entered into separate
agreements with Crown, U S WEST (UK), and IFE, which provide for, among other
things, the pro rata right of Crown, U S WEST (UK) and IFE to participate in any
sale by the Company of 10% or more of its then existing shareholdings in
Flextech, at the same per share price as that being received by the Company.
Certain Purchase Rights. The Flextech Non-Preference Shares held by
Crown and U S WEST (UK) are convertible at the option of the holder into
Flextech Ordinary Shares on a one-for-one basis at any time after the Company
ceases to own at least 50.01% of the voting power associated with Flextech's
then outstanding ordinary share capital. If the Flextech Non-Preference Shares
do not become convertible by June 1, 1997, Crown and/or U S WEST (UK) can
require the Company at any time to purchase all of their Flextech Non-Preference
Shares for a price equal to the then current market price per share of the
Flextech Ordinary Shares. In connection with the closing of the BBC Joint
Ventures and the issuance to the Company of the Special Voting Share, all of
such Flextech Non-Preference Shares are to be converted into Flextech Ordinary
Shares, thereby eliminating the foregoing put obligation with respect to the
convertibility of such shares.
In connection with the IFE Acquisitions, TINTA granted to IFE the
right to put the IFE Consideration Shares to TINTA after June 1, 1997 if the
IFE Consideration Shares have not become convertible into Flextech Ordinary
Shares by that date. The put price per IFE Consideration Share is the greater
of (i) L.3.64 ($6.23) or (ii) the market value of a Flextech Ordinary Share at
the time of the exercise of the put option. TINTA has the option to satisfy
this put option price in cash or in shares of Series A Common Stock. In
connection with the closing of the BBC Joint Ventures and the issuance to the
Company of the Special Voting Share, all of the IFE Consideration Shares are to
be converted into Flextech Ordinary Shares, thereby eliminating TINTA's put
obligation with respect to the convertibility of such shares.
If at any time (x) the aggregate of the amount of (i) Flextech
securities held by the Company, (ii) Crown's and U S WEST (UK)'s interest in
Flextech acquired under the Hallmark Subscription and the U S WEST Subscription,
respectively, and (iii) Flextech Securities acquired by IFE pursuant to the IFE
Acquisitions exceeds 75% of Flextech's issued and outstanding share capital, or
(y) subject to certain exceptions, the Flextech Ordinary Shares cease to be
admitted to trading on the Unlisted Securities Market of the London Stock
Exchange (or to be fully listed, following their admission to the Official List
of the London Stock Exchange) as a result of the exercise by the Company of any
of its rights as a Flextech shareholder, the Company shall be obligated to offer
to purchase from Crown, U S WEST (UK) and IFE any Flextech Ordinary Shares or
Flextech Non-Preference Shares held by them and which were originally acquired
under the Hallmark Subscription, the U S WEST Subscription or the IFE
Acquisitions, as applicable. Under such circumstances, the offer price for such
shares shall be the higher of (i) the then current market price for the Flextech
Ordinary Shares and (ii) the highest price paid to any third party by the
Company for any Flextech Ordinary Shares or Flextech Non-Preference Shares
during the preceding twelve month period. In the event the Company is required
to purchase any Flextech Non-Preference Shares or Flextech Ordinary Shares, as
described above, it may elect, subject to certain limited exceptions, to pay the
purchase price thereof in cash or in shares of Series A Common Stock, or in
certain securities of TCI.
Under Flextech's Articles of Association, if the Company becomes
obligated to purchase any of the Flextech Non-Preference Shares and fails to
complete such purchase within 12 months from the date such purchase is required
to be completed, such Flextech Non-Preference Shares shall become convertible
into Flextech Ordinary Shares whether or not the Company ceases to own at least
50.01% of the voting power associated with Flextech's then outstanding ordinary
share capital.
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<PAGE> 42
Interrelationships with Flextech
Board Representation. The Company currently has three appointees on
Flextech's 12-member board of directors. To ensure that the Company continues
to have appropriate representation on Flextech's board of directors, Flextech's
Articles of Association were amended to provide that for so long as the Company
and its subsidiaries hold more than 50% of the voting power associated with the
outstanding share capital of Flextech, (i) the Company will be entitled to
appoint up to three directors, and one of such directors must sit on each
committee of the board, and (ii) no resolution of Flextech's board of directors
which appoints a managing director, chief executive, or director of finance or
similar position may be validly passed without the approval of at least one of
the directors appointed by the Company. If the ownership of the Company and its
subsidiaries in Flextech declines to between 25% and 50% of its outstanding
share capital, then the Company will be entitled to appoint up to two
directors. Upon Flextech's acquisition of the interests in UKGL and UKLL that
it does not already own, the formation of the BBC Joint Ventures and the
Company's receipt of the Special Voting Share, the Articles of Association of
Flextech will be amended to provide that (i) the Company will continue to have
the right to have three appointees on the Flextech board of directors, and
enjoy the foregoing rights, for so long as it owns the Special Voting Share and
(ii) the Company will have the right to appoint one director for so long as it
holds between 5% and 25% of the outstanding ordinary share capital of Flextech.
The directors appointed by the Company are not allowed, by Flextech's Articles
of Association and the Listing Rules of the London Stock Exchange, to
constitute a majority of the members of Flextech's board of directors.
In connection with the Hallmark Subscription and the U S WEST
Subscription, Flextech's Articles of Association were further amended to
provide each of Hallmark and U S WEST with the right to appoint one director of
Flextech for so long as they, or their respective affiliates, hold 5% or more
of the outstanding share capital of Flextech.
Financial Support of BBC Joint Venture Financing. If Flextech defaults
in its funding obligation to the Principal Joint Venture and fails to cure
within 42 days after receipt of notice from BBC Worldwide, BBC Worldwide is
entitled, within the following 90 days, to require that the Company assume all
of Flextech's funding obligations to the Principal Joint Venture (the "Standby
Commitment"). Flextech's funding obligations to the Principal Joint Venture
consist of (i) the purchase of L.22 million ($38 million) of ordinary shares in
the Principal Joint Venture, (ii) a primary credit facility of L.88 million
($151 million) and, subject to certain restrictions, a standby credit facility
of L.30 million ($51 million). Borrowings under the primary and standby credit
facility would be represented by shares of loan stock of the Principal Joint
Venture, bearing interest at 2% above LIBOR, which interest would be capitalized
quarterly.
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<PAGE> 43
If BBC Worldwide requires the Company to perform Flextech's funding
obligations pursuant to the Standby Commitment, then the Company will acquire
Flextech's entire equity interest in the Principal Joint Venture for L.1.00,
and will replace Flextech's directors on the board of the Principal Joint
Venture with representatives of the Company. Flextech will pay commitment and
standby fees to the Company for its undertaking under the Standby Commitment.
If Flextech repays to the Company all loans it makes to the Principal Joint
Venture (plus interest at TINTA's marginal cost of funds plus 2% per annum)
within 180 days after the Company first becomes obligated to perform Flextech's
financial obligations, it may reacquire its interest in the Principal Joint
Venture for L.1.00. The Company may also, within the same period, require
Flextech to reacquire its interest on the same terms. The Standby Commitment
will terminate on the earliest of (i) the date on which Flextech has met all of
its required financial obligations to the Principal Joint Venture under the
primary and standby credit facilities, or (ii) the date on which Flextech
delivers a bank guarantee of all of its funding obligations to the Principal
Joint Venture.
Non-Compete with BBC Joint Venture. The Company has undertaken that
neither it, nor any company that it controls will own more than a 20% equity
interest in any entity that competes with any of the channels operated by the
Principal Joint Venture. For this purpose and under certain circumstances, the
Company's interest in an entity is to be aggregated with that of TCI and any
company that TCI controls. This non-compete is co-extensive with the Company's
obligations under its Standby Commitment, and may be earlier terminated at such
time as the Company no longer owns more than 10% of the ordinary shares of
Flextech.
Right of First Refusal. UAEH has agreed that so long as it
beneficially owns 30% or more of the outstanding voting stock of Flextech,
Flextech will have a right of first refusal with respect to all offers made to
UAEH relating to English language cable and satellite programming in the United
Kingdom and Europe. The right of first refusal is subject to the consent of the
supplier of any such programming offered to UAEH and of any other parties that
may have interests therein, and to Flextech being able to fund the purchase of
such programming out of its own resources.
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<PAGE> 44
MULTITHEMATIQUES S.A.
On December 13, 1995, TINTA invested in MultiThematiques, a newly
formed European programming company, with two French media companies, Canal +
S.A. ("Canal +") and General d'Images S.A. ("GDI"). MultiThematiques was
formed to create and develop thematic programming for French and other
continental European audiences. TINTA expects that programming developed by
MultiThematiques will also be used to support the Company's distribution
interests in other regions, particularly Japan and Latin America.
Canal + and GDI contributed to MultiThematiques their combined equity
interests in four French thematic channels and Canal + has also contributed its
equity interest in a classic movie channel distributed in Spain. In addition to
TINTA's initial investment of $123.1 million French francs ("FF") ($24.7
million at the applicable exchange rate), TINTA also contributed to
MultiThematiques FF 105.0 ($20.2 million) and FF 100.0 million ($19.3 million)
on December 13, 1996 and February 13, 1997, respectively, and has agreed to
contribute an additional FF 164.0 million ($31.6 million) no later than
December 13, 1997. In order to manage the Company's foreign currency exchange
risk with respect to its December 13, 1997 contribution obligation, the Company
has entered into a foreign currency option contract that allows the Company to
purchase FF 164.0 million at a price of FF 5.5367 per U.S. dollar through
December 13, 1997. TINTA's cash contributions have been used by
MultiThematiques to (i) support the operations of its existing programming
services and to expand their distribution to new European markets, (ii) launch
additional thematic channels in Europe, (iii) adapt selected programming
formats for use in other markets in which the Company has interests in
distribution systems, and (iv) support the costs of transferring its channels
to a digital format capable of being delivered by DTH services. Each of TINTA,
Canal + and GDI own a one-third interest in MultiThematiques.
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<PAGE> 45
The following table sets forth the name and a description of each
programming service in which MultiThematiques had an interest as of December
31, 1996:
<TABLE>
<CAPTION>
MultiThematique
Ownership Interest/
Channel Management Services Description
------- ------------------- -----------
<S> <C> <C>
Planete 70%/Management control French documentary channel.
Canal Jimmy 85%/Management control Lifestyle and entertainment
channel targeted at young male
audiences.
Cine Cinemas 60%/Management control Channel featuring recent movies.
Cine Cinefil 60%/Management control Channel featuring classic movies.
Cine Classics 50%/Management control Channel featuring classic movies
in Spanish language versions.
Seasons 100%/Management control Channel featuring hunting, fishing
and similar pursuits.
</TABLE>
The MultiThematiques channels are distributed throughout France by
cable television operators and DTH satellite providers. MultiThematiques has
also secured carriage on three additional DTH satellite platforms in Spain,
Italy and Scandinavia, as well as on the German DF1 digital DTH satellite
service beginning in 1997.
Each of TINTA, Canal + and GDI has equal representation on
MultiThematiques' board of directors. TINTA's President and Chief Operating
Officer is currently serving a two-year term as MultiThematiques' chairman of
the board. Thereafter, each of Canal +, GDI and TINTA will (in successive
order) have the right to designate a new chairman every two years. Each of
TINTA, Canal + and GDI, for so long as its respective ownership interest in
MultiThematiques equals or exceeds 25%, has the right to veto certain specified
corporate action including the adoption of a budget.
Each of TINTA, Canal + and GDI has agreed not to dispose of any shares
in MultiThematiques prior to November 21, 1999. Thereafter, each shareholder
may sell all (but not less than all) of its shares to a third party subject to
a pro rata right of first refusal by the non-selling shareholders. In the event
that any two shareholders propose to sell their shares of MultiThematiques or
jointly receive an offer to purchase such shares, the other shareholder shall
have the right to participate in such sale by selling its shares to the
prospective buyer on the same terms.
In connection with the formation of MultiThematiques, Com Dev Images,
S.A. ("Com Dev"), a minority shareholder in Planete and Cine Cinema, was
granted certain rights with respect to future transactions involving
MultiThematiques. Specifically, in the event of a public offering of shares of
MultiThematiques occurring prior to December 13, 2003, Com Dev shall have the
right to exchange its shares in Planete and Cine Cinema for shares of
MultiThematiques at an agreed upon exchange rate.
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<PAGE> 46
LATIN AMERICA AND THE CARIBBEAN
Cable Television Operations
CABLEVISION S.A.
On April 25, 1995, the Company acquired a 51% equity interest in
Cablevision and obtained a two-year option to acquire up to an additional 29%
of Cablevision. See "Terms of Cablevision Investment" below.
Cablevision, one of the largest cable television operators in
Argentina based on the number of basic subscribers, began offering cable
television service to subscribers in Buenos Aires in 1981, and operates
primarily in the Federal District of Buenos Aires and greater Buenos Aires
metropolitan area. Its systems in and around Buenos Aires are divided into six
districts: Federal District, San Isidro, Vicente Lopez, Avellaneda, Quilmes and
Berazategui. The Buenos Aires Districts are located in densely populated areas,
which results in relatively low construction costs per home passed. On October
1, 1996, Cablevision acquired 99.99% of the issued and outstanding capital
stock of OCC. At December 31, 1996, OCC served approximately 90,000 basic
subscribers in the west of the greater Buenos Aires metropolitan area. At
December 31, 1996, Cablevision's approximately 4,500 miles of cable plant
passed an aggregate of 1,534,000 homes (an average of 341 homes per mile).
The following table presents certain information concerning the
operations of Cablevision as of and for the year ended December 31, 1996:
<TABLE>
<S> <C>
Homes passed 1,534,000
Basic subscribers 578,000
Basic penetration rate 38%
Average churn rate (1) 17%
Average monthly revenue per subscriber (2) $33
- -----------
</TABLE>
(1) Represents the number of subscribers who terminated basic service or
whose service was terminated during the year ended December 31, 1996,
divided by the average number of basic subscribers during such period.
(2) Represents the average monthly revenue per subscriber for the year
ended December 31, 1996. Such amounts are calculated as (i)
one-twelfth of the total cable television revenue for such period,
divided by (ii) the average number of basic cable television
subscribers during such period.
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<PAGE> 47
Construction
During the year ended December 31, 1996, Cablevision constructed 256
miles of cable network at a cost of approximately $6 million. Cablevision has
historically paid, and in the near term is expected to continue to pay, for new
construction with a combination of bank financing and internally-generated cash
flow. New construction by Cablevision is expected to consist of the
installation of fiber backbone and high capacity coaxial cable which will
permit the delivery of voice telephony services. Cablevision has already
upgraded a portion of its network in the commercial center of downtown Buenos
Aires and has entered into several agreements to transmit data over fiber optic
lines. In February 1995, Buenos Aires adopted a municipal ordinance that
regulates the installation of cable in certain areas of Buenos Aires. The
ordinance, which is subject to issuance of implementing regulations, requires
that cable operators install their cable in specified areas of Buenos Aires
either underground or on poles in specified locations. The ordinance, which
requires that existing cable networks be brought into compliance in stages over
a seven-year period, is not expected to have a materially adverse effect on
Cablevision's results of operations or financial condition.
Pricing
As of December 31, 1996, Cablevision's cable television service was
typically priced between $15.00 and $34.50 per month and consisted of 65
channels of programming. Cablevision does not generally receive additional fees
for premium services, and an encryption device is only installed for reception
of two adult channels and a weekly soccer game.
Government Regulation
Cable television and broadcast companies in Argentina are required to
obtain a non-exclusive broadcast license from the Comite Federal de
Radiodifusion ("COMFER"). COMFER has broad regulatory authority over
broadcasting in Argentina, including suitability of content. Broadcast
licenses, which are granted solely to Argentine companies, are required in
order for a programmer to broadcast its channels and in order for a cable
operator to carry programming over its cable network. A license is granted for
a 15-year term and the licensee has the right to a 10-year extension at the end
of the initial term. Cablevision's broadcast licenses have remaining terms of
11 to 22 years (inclusive of the 10-year extension period). Licenses may be
revoked for breach of regulations pertaining to broadcast licenses, or if such
revocation would be in the "public interest." There is no regulation of cable
subscription rates in Argentina.
In November 1990, the Argentine telephone system was privatized and
two companies, Telefonica de Argentina S.A. ("Telefonica") and Telecom
Argentina STET-France Telecom S.A. ("Telecom"), were granted exclusive licenses
to provide local and long distance telephony service. The exclusivity of these
licenses is scheduled to expire in 1997, but may be extended for an additional
three-year period if the licensees have met certain mandatory standards for the
expansion of their telephone networks and improvements in quality of service.
No assurance can be given, however, that cable operators in Argentina will be
permitted to offer telephony services in 1997, in 2000 or at any other time in
the future. During the period their licenses are exclusive, Telefonica and
Telecom are not permitted to provide cable television on a commercial basis
over their networks. The Argentine Commission Nacional de Telecomunicaciones
(the "CNT") has authorized Telefonica and Telecom to lease their network to
cable operators under certain conditions. The Argentine courts have determined,
essentially, that the telephone companies must use their networks solely for
the purpose of telephony and not for the purpose of direct competition with
cable operators.
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<PAGE> 48
In October 1994, a bilateral treaty between Argentina and the United
States concerning the reciprocal encouragement and protection of investments
took effect. Under this treaty, there is no limitation on the amount a United
States company may acquire of an Argentine company, including one that holds
broadcast licenses issued by COMFER. However, all investments in Argentine
broadcasting and cable companies must receive prior approval from COMFER.
Competition
The multi-channel television industry in Argentina is extremely
competitive. Since the Argentine government does not grant exclusive broadcast
licenses to cable operators, Cablevision competes, in certain areas of Buenos
Aires, with at least one other cable operator. Cablevision believes that
competition is primarily based on price, program offerings, customer
satisfaction and quality of the system network. Cablevision decreased its rates
in 1996 in response to such increased competition and management believes that
Cablevision is competitive in each of these areas. Other cable operators with
networks in the Buenos Aires franchises include Video Cable Comunicacion, S.A.
(which is 50% owned by U.S. cable operator Continental Cablevision, Inc.), and
Multicanal S.A.
If and when the Company provides telephony over its broadband network,
it will compete with the existing public telephone companies, Telefonica and
Telecom, and possibly other cable operators. It is anticipated that competition
for telephony customers will be primarily based on price and quality of the
system network. The President of Argentina has promulgated regulations
governing interconnection with Argenetina's telephone systems. Many of those
regulations are currently being challenged in the courts.
Two personal communications systems ("PCS") licenses for the Buenos
Aires market will be put up for bid in the second quarter of 1997. Cablevision
is currently exploring ways in which it might participate in the PCS line of
business.
Until recently, the Argentine congress was considering new legislation
relating to, among other things, limitations on foreign ownership of media
companies (which limitations would not apply to U.S. companies or U.S.
citizens) and certain restrictions preventing basic telephony licensees from
owning interests in radio and television broadcasting. Passage of such
legislation has not progressed and the Ministry of Economy has requested that a
new draft be prepared under more deregulated guidelines, although it is
anticipated that certain limitations may be imposed on basic telephony
licensees' ability to enter the broadcasting business.
Terms of Cablevision Investment
On April 25, 1995, the Company acquired its 51% interest in
Cablevision from Cablevision's stockholders (the "Cablevision Shareholders")
for an adjusted purchase price of approximately $282.0 million (before assumed
liabilities), of which approximately $195.2 million (which includes an earlier
deposit of $20 million) was paid in cash and the remainder was paid through the
issuance of notes payable to the Cablevision Shareholders (the "Cablevision
Notes"). Of the $195.2 million cash portion of the adjusted purchase price,
$155.2 million was borrowed pursuant to a credit facility with TCI. During the
third quarter of 1995, TINTA used a portion of the cash proceeds from TINTA's
July 18, 1995 initial public offering to repay the $155.2 million principal
amount that was borrowed pursuant to such credit facility.
The Cablevision Notes, which are denominated in U.S. dollars and
secured by a pledge of the Company's Cablevision capital stock, bore interest
at 10% until May 1, 1996, when interest began to accrue at a bank's prime rate
plus 1%, and are payable in 20 equal monthly installments of principal, plus
accrued interest thereon, through March 31, 1997.
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<PAGE> 49
The Company has also acquired an option, exercisable at any time on or
before April 25, 1997, to acquire up to an additional 29% of the capital stock
of Cablevision from the Cablevision Shareholders. The exercise price of the
option is to be determined on a per equivalent basic subscriber basis (which is
the same basis as that on which the purchase price for the Company's initial
51% of Cablevision was determined) at the time of exercise, except as described
below. For purposes of determining the exercise price, the number of equivalent
basic subscribers is calculated by multiplying the revenue received from
subscribers in Argentine pesos for the month prior to the exercise of the
option by the average applicable exchange rate for converting such revenue into
U.S. dollars, and then dividing the product by $29.75. The exchange rate used
in this calculation is the average of the free market exchange rates for the
period six months before and six months after the option exercise date. The
Company believes that this affords the Company certain protection against a
devaluation of the local currency and against recessionary decreases in amounts
billed to subscribers.
On March 10, 1997, the Company announced that it had signed the MOU
with respect to the Cablevision Minority Interest Purchase, which contemplates
that the Company would purchase additional equity interests in Cablevision
such that the Company's ownership interest in Cablevision would be increased
from 51% to up to 90%. The MOU contemplates execution of definitive agreements
on March 31, 1997 and closing within 120 days thereafter. It also provides that
each party's obligations are subject to approval by TINTA's Board of Directors,
due diligence and execution of definitive agreements. No assurance can be given
that the parties will reach agreement on the terms of such agreements, or that
the Cablevision Minority Interest Purchase will be consummated. Additionally,
the purchase price contemplated by the MOU is significant and the Company would
need to arrange for financing before the Cablevision Minority Interest Purchase
could be consummated.
The Company has the right to appoint a majority of Cablevision's eight
directors, the balance being appointed by the Cablevision Shareholders. All
matters are decided by the vote of a simple majority.
The Cablevision Shareholders also own a programming company that
produces television programs which are broadcast over the air (Channel 2) and
on 20 channels on Cablevision's cable systems. Some of these channels are also
carried by other cable operators in Buenos Aires. The Company has executed
programming supply agreements with the Cablevision Shareholders for the
carriage of channels distributed by this programming company for the two-year
period ending in April 1997. The Company also has the right of first refusal to
purchase all or part of the programming company.
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<PAGE> 50
METROPOLIS - INTERCOM S.A. AND CORDILLERA
The Company owns an indirect 40% interest in Cordillera through its
80% interest in BIP Chile, a limited partnership between a subsidiary of the
Company and BCI Chile, L.P., the managing partner of BIP Chile and an entity in
which the Company has no ownership interest. BIP Chile and Cristalerias de
Chile ("Cristalerias"), a large, publicly traded Chilean company with
significant media interests, each indirectly own a 50% interest in Cordillera.
With certain exceptions, the partners of Cordillera have agreed not to compete
in the territory of Cordillera. Each of BIP Chile and Cristalerias have the
right to designate one half of the managers of Cordillera. All actions by such
managers require the consent of representatives of each partner of Cordillera.
Under the BIP Chile partnership agreement, certain transactions require the
approval of both partners and cash distributions are first made to the Company
to reduce the outstanding principal amount under any loans extended by the
Company to BIP Chile. At December 31, 1996, $61.8 million principal amount was
outstanding under a term loan which is due and payable on December 31, 2004.
Interest accrues on the outstanding principal amount at the rate of 12% per
annum and is payable semi-annually. To the extent any amount of interest is not
paid currently, such unpaid amount is added to the outstanding principal amount
and compounded quarterly. Repayment of amounts outstanding under the term loan
is required before any distributions may be made to the partners of BIP Chile.
In addition, at December 31, 1996 the Company was obligated to make additional
equity contributions to BIP Chile of approximately $5.5 million.
The Company has an indirect 24% interest in Metropolis-Intercom through
its indirect 40% interest in Cordillera. Metropolis-Intercom was one of
Chile's largest cable operators based on the number of basic subscribers served
by Metropolis-Intercom at December 31, 1996. Metropolis-Intercom operates cable
systems in six of the most densely populated cities within Chile, including
Santiago (the capital of Chile), Vina del Mar and Temuco. Metropolis-Intercom
provided cable television service to approximately 217,000 basic subscribers at
December 31, 1996. The Board of Directors of Metropolis-Intercom consists of
ten members, six of which are designated by Cordillera. All material matters
require the affirmative vote of the representatives of both CTC and Cordillera.
As discussed under "General Development of Business," Cordillera, sold
all of its cable distribution assets (excluding headends) to CTC, and
Metropolis-Intercom simultaneously entered into a long-term lease agreement
with CTC for use of the cable plant. At December 31, 1996, the leased network
covered approximately 5,000 miles and passed an aggregate of approximately
900,000 homes (an average of 180 homes per mile). The present cable plant is
composed of fiber and coaxial cable.
The leased network currently has an average capacity of 67 channels,
and an average of 60 activated channels of programming are offered. At December
31, 1996, the U.S. dollar equivalent of Metropolis-Intercom's monthly cable
subscription fees averaged $26.45 per subscriber. Newer constructed portions of
the cable plant, as well as the entire plant following the system rebuild, will
be able to offer 77 analog channels of programming as well as new
telecommunications services as they become available in the future.
Only non-exclusive franchises are granted in Chile. As a consequence,
competition in the more populated regions of Chile is intense. A portion of
Metropolis-Intercom's customer base are passed by at least one other cable
operator, in addition to the local telephone company. Telephone companies in
Chile are permitted to offer cable television services over their own networks
or the networks of cable operators that they acquire.
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<PAGE> 51
PUERTO RICO ENTITIES
The Company, owns and operates cable television franchises in Puerto
Rico (the "Puerto Rico Franchises") serving the communities of Luquillo,
Arecibo and Florida. The Luquillo franchise was constructed using both coaxial
and fiber optic cable. The Arecibo and Florida systems were originally
constructed exclusively with coaxial cable. However, in 1996 construction of a
fiber optic network was completed thereby reducing the number of headends and
improving the technical quality and operation of the systems. At December 31,
1996, the Puerto Rico Franchises passed an aggregate of approximately 159,000
homes and served approximately 72,000 basic subscribers. At December 31, 1996,
the Luquillo and Arecibo franchises offered a basic package consisting of 22
channels at a cost of $13.32 per month, an expanded package which included an
additional 27 channels offered at a cost of $13.63 per month and six additional
premium services offered at prices ranging from $1.50 to $9.40 per channel per
month. At December 31, 1996, the Florida system offered a basic package
consisting of 46 channels at a cost of $25.38 per month and seven premium
channels offered at prices ranging from $1.50 to $9.40 per channel per month.
At December 31, 1996, the Company's interests in the Puerto Rico
Franchises were held by three of its wholly-owned subsidiaries. Subsequent to
December 31, 1996, such subsidiaries were merged together into one surviving
entity (the "Puerto Rico Subsidiary").
The Company also owns an indirect 50% general partnership interest in
Caguas/Humacao Cable Systems ("Caguas/Humacao"), a joint venture with Joslin
Communications Corp. ("JCC"). At December 31, 1996, Caguas/Humacao held
franchises (the "CH Franchises") serving 14 towns throughout Puerto Rico. The
cable networks serving these franchises contain both coaxial and fiber optic
cable. At December 31, 1996, the CH Franchises passed an aggregate of
approximately 96,000 homes and served approximately 29,000 basic subscribers.
At December 31, 1996, the CH Franchises provided 36 channels on a basic service
tier and 15 channels on an expanded basic tier, for which subscribers were
charged a monthly fee of $22.45 and an additional $8.95, respectively. At
December 31, 1996, customers could subscribe to any of six premium channels
offered at prices ranging from between $4.95 to $12.50 per channel per month.
Discount packages of multiple premium services were also offered to
subscribers.
Each of the Company and JCC has the right to appoint 2 of the 4
members of the partnership's management committee. The approval of the
management committee is required for certain extraordinary transactions, such
as the sale of all or substantially all of the assets of the partnership. Under
the partnership agreement, each partner has agreed not to compete with
Caguas/Humacao in the areas covered by the CH Franchises.
On January 10, 1997, the Company signed an agreement to pay cash
consideration of approximately $12.7 million, and to assume certain
indebtedness, to acquire the 50% ownership interest in Caguas/Humacao not
already owned by the Company. At December 31, 1996, the indebtedness to be
assumed had a principal balance of $32.1 million. The Puerto Rico Subsidiary is
negotiating to obtain $100 million in bank financing, a portion of which would
be used to fund the cash portion of the purchase price and to refinance the
indebtedness to be assumed. Subject to certain closing conditions, the Caguas
Acquisition is expected to close in April 1997. No assurances can be given that
the Caguas Acquisition will be consummated or that the bank financing will be
obtained.
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<PAGE> 52
TELECABLE NACIONAL, CXA
The Company acquired a 49% interest in TeleCable Nacional, CXA
("TeleCable Nacional") in March 1984. TeleCable Nacional is the largest cable
operator in the Dominican Republic based on the number of its basic subscribers
at December 31, 1996. The cable systems operated by TeleCable Nacional pass
approximately 65,000 homes and, at December 31, 1996, had approximately 32,000
basic subscribers, primarily in the Santo Domingo area. No significant
construction or rebuild activity in TeleCable Nacional's franchise areas is
presently planned. At December 31 1996, subscribers were provided with 41
channels at a cost of approximately $23 per month. No premium services were
offered.
TeleCable Nacional has received a license to provide telephony
services in the Dominican Republic. No determination has been made, as of the
date hereof, as to whether TeleCable Nacional will offer telephony services
over its cable systems. The delivery of such services would require certain
upgrades to TeleCable Nacional's cable network.
The Company has the right to appoint one half of the members of the
Board of Directors and one half of the officers of TeleCable Nacional. The 51%
of TeleCable Nacional not owned by the Company is owned by six local partners.
Under a shareholders agreement, the affirmative vote of 75% of the members of
the Board of Directors is required to take any action requiring the approval of
the Board.
DTH VENTURES
The Company, along with News Corp., Organizacoes Globo ("Globo") and
Grupo Televisa S.A. ("Televisa") intend to form strategic partnerships for the
development and operation of a direct-to-home satellite service for Latin
America, Mexico, and various Central and South American countries
(collectively, the "DTH Ventures"). The Company anticipates that it will own a
10% interest in the DTH Ventures. Globo is Brazil's largest media company with
interests in broadcasting, entertainment programming, cable distribution and
publishing. Televisa, based in Mexico, is the largest media conglomerate in the
Spanish speaking world with interests in numerous businesses, including
international programming, broadcast and cable distribution, music recording
and feature film production. The DTH Ventures launched (i) a Brazilian
platform, NetSat, in October 1996 providing 40 digital satellite channels
throughout Brazil and (ii) a Mexican platform, Innova, in December 1996
providing 64 digital satellite channels throughout Mexico. The final platform,
Multi-Country, will be launched in 1997 and will provide DTH satellite services
to various Central and South American countries. Through December 31, 1996,
TINTA had contributed $17.9 million to the DTH Ventures. It is anticipated
that TINTA could be required to make cash contributions totaling $46.1 million
over the next three years in connection with the DTH Ventures.
I-50
<PAGE> 53
THE SPORTS VENTURE
Effective April 29, 1996, TINTA, Liberty and News Corp. formed the
Sports Venture including a number of partnerships or other entities under
common ownership to operate currently existing sports services in Latin America
and Australia and a variety of new sports services throughout the world,
excluding the United States, Canada and other defined geographic areas. News
Corp. owns a 50% interest in the Sports Venture with the remaining 50% owned by
the LLC, a limited liability company owned in equal parts by subsidiaries of
TINTA and Liberty. The Company contributed $49.0 million in cash and its 35%
interest in Torneos to the LLC. The LLC contributed the non-cash assets
contributed to it by TINTA and Liberty to the Sports Venture.
TINTA may make additional cash contributions totaling $29.0 million to
the LLC to fund the operations of the Sports Venture. As part of the formation
of the Sports Venture, the LLC is entitled to receive from News Corp. 7.5% of
the outstanding stock of STAR Television Limited. Upon the delivery of such
stock to the LLC, News Corp. is entitled to receive from the LLC up to $20.0
million and rights under various Asian sports programming agreements. STAR
Television Limited operates a satellite-delivered television platform in Asia
On April 19, 1996, TINTA, Torneos and the Torneos Stockholders entered
into an agreement (the "TINTA/Torneos Sports Agreement") whereby TINTA agreed
to make minimum periodic payments from 1996 through 2004 aggregating $235.2
million to acquire certain rights and considerations, including the
exploitation rights to all sports rights owned by Torneos with the exception of
any rights which at that time had been contractually committed to any third
party. In particular, TINTA acquired worldwide distribution rights outside of
Argentina for Clasico del Domingo and worldwide distribution rights (excluding
Buenos Aires) for Futbol de Primera and Torneos de Verano (Summer Games).
Pending the assignment of the Sports Venture Rights to the Sports
Venture, TINTA, News Corp. and Liberty have paid their respective portion of any
payments made with respect to the Sports Venture Rights. Through December 31,
1996, payments made under the TINTA/Torneos Sports Agreement totaled $9.4
million.
ASIA, AUSTRALIA AND NEW ZEALAND
Cable Television and Telephony Operations
JUPITER TELECOMMUNICATIONS CO., LTD.
Management believes that the Japanese market offers opportunities to
adapt elements of the strategy, which has been implemented by TINTA through its
subsidiaries and affiliates in the UK, of building an integrated group of (i)
broadband cable networks capable of delivering both cable television services
and cable telephony and (ii) thematic cable and satellite channels,
specifically targeted at Japanese cable subscribers, supported by a
multi-channel programming management company.
I-51
<PAGE> 54
In Japan, the Company and Sumitomo have formed Jupiter. Sumitomo is
one of the largest globally-diversified Japanese trading companies with trading
relationships throughout Asia, with interests in 31 Japanese cable television
systems. Sumitomo also holds a 50% interest in JPC, another joint venture with
the Company. Although the Company holds a 40% interest and Sumitomo holds the
remaining 60% interest in Jupiter and Sumitomo has a disproportionate number of
members on Jupiter's board of directors, Jupiter is effectively managed as a
50/50 joint venture.
The Company and Sumitomo formed Jupiter as Japan's first multi-system
operator ("MSO") of cable television systems. Prior to Jupiter, cable
television franchises in Japan (including those in which Sumitomo has an
interest) had been managed on a stand-alone basis, with ownership generally
held by many local investors holding minority interests. Until early 1994
Japanese policy was such that it was not possible to establish a Japanese MSO
operating structure to generate the kind of financial and economic efficiencies
that are available to MSO cable operators in other markets. This restriction
on the formation of MSOs has now been removed. See "Government Regulation"
below.
Under Jupiter's original business plan, personnel seconded by the
Company to Jupiter are working with Sumitomo's secondees and local Japanese
managers of Jupiter's cable systems to: (i) assemble and train Jupiter's
management team in MSO management and operational practices, (ii) develop a
business plan to (a) reflect the implementation of the MSO management
structure, (b) determine the likely costs and revenues associated with the
provision of cable telephony and (c) arrive at targeted cable penetration
levels and (iii) plan and implement a strategy to increase the number of
Jupiter's operating systems through a combination of acquisitions and the
development of new systems in areas for which franchises are granted to
Jupiter. New system acquisitions and franchises will be focused on areas that
are contiguous to Jupiter's existing cable systems or which include significant
clusters of homes.
As of December 31, 1996 the Company had contributed Y7.4 billion
($71.3 million at the applicable exchange rates) and Sumitomo had contributed
Y11.1 billion ($106.9 million using the applicable exchange rates) to
Jupiter.
As a result of a number of developments which management believes are
favorable to Jupiter, the Company and Sumitomo are in the process of revising
the original business plan to increase the rate at which Jupiter would acquire
additional franchises and develop its network. In addition, Jupiter's Suginami
franchise has been granted a license to provide telephony services and is in
the process of conducting telephony trials in Suginami. The Company
anticipates expanding the trials to offer telephony services on a commercial
basis in 1997. Management of the Company estimates that under the revised
business plan, Jupiter will require additional funding over the commitments of
TINTA and Sumitomo provided for in Jupiter's initial business plan, which
additional funding may be significant. If Jupiter's business plan is so
accelerated, the Company anticipates that the additional funding will be
obtained through a combination of capital contributions by TINTA and Sumitomo,
on a pro rata basis, and, to the extent available on acceptable terms, debt
financing by Jupiter or its subsidiaries and affiliates. Any material change
to the business plan previously agreed to by the Company and Sumitomo
(including any changes to their funding commitments) is subject to the approval
of their respective boards of directors. No assurance can be given that
Jupiter's revised business plan will be approved or implemented as currently
proposed, or at all.
I-52
<PAGE> 55
Current Jupiter Franchises
As of December 31, 1996, Jupiter had ownership interests in 20
companies that own franchises clustered in three main areas: Tokyo, Osaka and
Kyushu. At December 31, 1996, Jupiter operated and managed 18 of the 20
companies. Of the 20 total companies, Jupiter acquired 10 of the companies
from Sumitomo covering approximately 1,547,000 franchise homes, approximately
1,136,000 homes passed, and approximately 118,000 cable subscribers. These
companies operate franchises in Suginami, Koganei/Kokubungi, Nerima, Fuchu,
Chigasaki, Yokosuka, Tsuchiura, Urawa, Osaka and Kita-Kyushu.
Remaining franchises were either granted from the MPT or acquired from
third parties. These remaining franchises cover approximately 1,556,000
franchise homes, approximately 173,000 homes passed, and approximately 16,000
cable subscribers and include Takasaki, Kisarazu City, Katsushika, Hokusettsu,
Takarazuka/Kawanishi, Kawachi, Rinkuu, Wakayama, and Fukuoka.
The following table presents certain information, as of and for the
year ended December 31, 1996, concerning Jupiter's major clusters.
<TABLE>
<CAPTION>
Tokyo Osaka Kyushu
Cluster Cluster Cluster Totals
------- ------- ------- ------
<S> <C> <C> <C> <C>
Franchise homes 1,346,000 1,136,000 621,000 3,103,000
Homes passed 931,000 158,000 220,000 1,309,000
Basic subscribers 101,000 13,000 20,000 134,000
Basic penetration rate 11% 8% 9% 10%
Average churn rate(1) 10% 8% 10% 10%
Average monthly revenue per
subscriber(2) $ 47 $ 45 $ 42 $ 46
- ------------------
</TABLE>
(1) Represents the number of subscribers who terminated basic service or
whose service was terminated during the year ended December 31, 1996,
divided by the average number of basic subscribers during such period.
(2) Represents the December 31, 1996 U.S. dollar equivalent of the average
monthly revenue per subscriber for the year ended December 31, 1996.
Such amounts are calculated as (i) one-twelfth of the total cable
television revenue for such period, divided by (ii) the average number
of basic cable television subscribers during such period. Amounts are
translated using the exchange rate in effect on December 31, 1996.
Telephony
Jupiter's Suginami franchise received a telephony license from the MPT
in October 1996. The license permits offering business and residential
telephony immediately. On December 20, 1996, Jupiter began testing telephone
services over its cable infrastructure in the Suginami franchise. These
telephony trials are expected to be expanded to offer full telephone services
on a commercial basis beginning in mid-1997. Commercial applications may
include local and long distance telephone calling, Internet access, and data
services in addition to the cable television services already being provided.
Jupiter has signed 32 separate interconnect agreements with NTT and several
other carriers which will enable routing of its long distance and international
calls.
I-53
<PAGE> 56
Pricing
At December 31, 1996, Jupiter's basic cable television service was
typically priced between Y3,000 and Y3,600 per month ($25.90 and $31.08,
respectively), for basic service and Y1,800 to Y2,500 per premium channel
($15.54 and $21.58 respectively), and generally consisted of a basic package of
31 to 34 channels and a premium package that offered an additional 4 channels.
Jupiter has launched a marketing campaign targeted at multiple dwelling unit
customers whereby customers can receive basic service plus one premium channel
and one additional outlet for Y4,800 per month.
Construction
The cable plant of each of Jupiter's cable systems, other than the
Suginami system, consists primarily of coaxial cable. The Suginami system was
constructed with a fiber optic backbone or "trunk," with the local distribution
portion, or final "drop" to the home, consisting of coaxial cable. The
architecture of the Suginami system has been designed to be state-of-the-art,
with the specific goal of being telephone-capable, and its design and
construction was managed by the Company, prior to its investment in Jupiter,
under a design-and-build contract with Sumitomo.
To the extent economically feasible, Jupiter intends to expand its
cable networks, and rebuild its existing cable systems, with the same network
architecture as that which currently exists in its Suginami system. This system
design and plant would permit Jupiter to deliver 77 analog channels of
programming, including premium and pay-per-view channels, cable telephony
services and a wide range of interactive and integrated entertainment,
telecommunications and information services as they become available in the
future. These new services may include video games, near video-on-demand,
video-on-demand and on-line interactive services.
Government Regulation
Cable television franchise licenses are granted by the MPT. The MPT
generally grants exclusive franchise licenses, however, it has the authority to
issue non-exclusive licenses. Franchise licenses are generally indefinite in
duration, and no royalties are payable to the Japanese government.
Cable companies may apply for a "Type 1 Carrier" License, which
permits carriage of telephony services on a commercial basis over their cable
networks. Applications must be submitted to and approved by the MPT.
The Japanese government does not regulate the amount of foreign
programming that may be shown on Japanese television. Foreign ownership of
broadcast and DBS program services is restricted, while ownership of
cable-exclusive program services is not.
In December 1993, Japan allowed foreign ownership of up to a maximum
of 33-1/3% (up from 20%) of a Japanese company that provides direct cable
television services. This has permitted the creation of MSO operating platforms
involving foreign MSOs and local Japanese partners. The same foreign ownership
restriction is applicable to companies that provide telephony services. Jupiter
is therefore currently able to operate only those systems in which its
ownership is structured in a manner that complies with applicable foreign
ownership regulations. In 1996, the Japanese government informally relaxed the
ownership provisions related to Japanese cable television companies and
announced its intention of more fully deregulating foreign ownership of those
companies which also offer telephony services.
I-54
<PAGE> 57
Terms of Jupiter Investment
Pursuant to a shareholders agreement, each of the Company and Sumitomo
have the right to appoint one director for every 15% of the total shareholdings
of Jupiter they own. Accordingly, of the initial six-member board of directors,
four members were designated by Sumitomo and the remaining two were designated
by the Company. The Company and Sumitomo have agreed to amend their
shareholders agreement to expand the Jupiter board of directors to a maximum of
nine persons with the Company and Sumitomo having a right to designate three
and six directors, respectively. For as long as the Company and Sumitomo each
own directly or indirectly not less than 30% of the shares of Jupiter, certain
extraordinary actions require the unanimous consent of all of the directors
designated by Sumitomo and all of the directors designated by the Company. In
accordance with the shareholders agreement, and subject to certain exceptions,
neither Sumitomo nor the Company may transfer its shares prior to March 31,
2000. After March 31, 2000, Sumitomo or the Company may only transfer shares to
a publicly-quoted third party transferee after first giving the other the
opportunity to acquire such shares.
Each of Sumitomo, TCI and the Company have agreed that Jupiter will be
their primary vehicle for investment or participation in any cable television
or telephony business in Japan. If any of Sumitomo, TCI or the Company decides
to invest or otherwise participate in any cable television or telephony
business in Japan to the extent of 10% or more of the equity of such business,
it is obligated to first offer such opportunity to Jupiter.
SKY NETWORK TELEVISION
The Company has a 13% indirect interest in Sky Network Television New
Zealand Ltd. ("Sky Network"), which provides a multi-channel pay television
service to homes in New Zealand. Sky Network's programming consists of five
services: Sky HBO Movies, Sky Sports, Sky News, Channel Orange and The
Discovery Channel. (TCI has an indirect 49% interest in The Discovery Channel.)
Each of the services, with the exception of The Discovery Channel, is created
by Sky Network in its post-production facilities in Auckland, New Zealand.
Distribution of Sky Network's pay television service is through encrypted UHF
broadcast frequencies requiring an antenna and set-top box for reception. The
channels are available to over 830,000 of a potential market of 1,180,000 homes
in New Zealand. As of December 31, 1996, approximately 260,000 homes in New
Zealand subscribed to Sky Network's programming. The Company has seconded a
senior executive to Sky Network in the position of Chief Operating Officer to
provide expertise in operational management.
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<PAGE> 58
The Company's 13% indirect interest in Sky Network is held through the
Company's 25.5% interest in HKP Partners of New Zealand, a New Zealand general
partnership formed to acquire and invest in multi-channel television systems,
equipment and businesses in New Zealand ("HKP"). The other partners of HKP
include Ameritech International, Inc. (24.5%), Time Warner Entertainment
Company, L.P. (25.5%) and Bell Atlantic International, Inc. (24.5%). HKP has a
management committee in which decisions are made with the affirmative vote of
the representatives of partners that collectively own interests greater than
74% of HKP, except that certain extraordinary transactions, such as the sale of
the partnership's assets, require the unanimous vote of the management
committee. Transfers of partnership interests are subject to a right of first
refusal in favor of the non-transferring partners. The Company has agreed, with
limited exceptions, not to transfer its interest in HKP without the prior
written consent of banks which have made available to Sky Network an $80
million credit facility. Each partner has agreed that during the term of the
partnership agreement (which terminates on April 30, 2041, unless earlier
terminated by the affirmative vote of three of the four original partners) and
for a period of three years thereafter, such partner shall not invest directly
or indirectly in any business involved in the provision of video entertainment
pay television subscription services in New Zealand. In addition, each partner
of HKP and each of their respective parent companies has agreed, for so long as
it owns a direct or indirect interest in Sky Network, not to be involved,
directly or indirectly, in any other pay television or broadcasting in New
Zealand.
I-56
<PAGE> 59
Programming Operations
JUPITER PROGRAMMING CO., LTD.
In February 1996, the Company and Sumitomo announced the formation of
JPC, Japan's first multi-channel programming company. JPC is owned equally
(50/50) by the Company and Sumitomo. At December 31, 1996, each of the Company
and Sumitomo had made aggregate contributions to JPC of Y850 million ($7.8
million using the applicable exchange rates). Additionally, the Company and
Sumitomo contributed their respective 18% and 82% ownership interests in the
Cable Soft Network to JPC. The Company made an equalizing payment in the
amount of Y444 million ($4.0 million using the applicable exchange rate) in
connection with the above-described contribution of the Cable Soft Network.
The following table sets forth the name and a description of each
programming service in which JPC had an interest as of December 31, 1996:
<TABLE>
<CAPTION>
JPC
Ownership Interest/
Channel Management Services Description
------- ------------------- -----------
<S> <C> <C>
Cable Soft Network 100%/Management control General entertainment featuring
American, European and Asian
movies
Golf Network 70%/Management control American and Japanese golf
tournaments coverage with
exclusive PGA coverage
Shop Channel 70%/Management control (1) Home shopping (live and in
Japanese)
Discovery Japan 50%/Management control (2) Japanese version of Discovery
Channel
</TABLE>
(1) A subsidiary of TCI has an indirect equity interest in HSN another
owner in Shop Channel.
(2) A subsidiary of TCI has a 49% interest in Discovery Communications,
Inc., another owner in Discovery Japan.
Cable Soft Network was originally launched in 1989 and is a general
entertainment channel featuring American, European and Asia movies.
Golf Network was launched on October 1, 1996 and carries exclusive
coverage of the Professional Golf Association, including the major North
American golf tournaments, as well as most of the Japanese tournaments. Golf
Network is produced in Japanese, runs 24 hours a day and is carried on all of
the major distribution networks in Japan including Jupiter's cable television
systems, other cable television systems and the "PerfectTV" digital DTH
satellite platform.
I-57
<PAGE> 60
Shop Channel was launched on November 1, 1996 and is Japan's first
home shopping channel to broadcast live and include on-air conversations with
viewers. Shop Channel is carried on all of the major distribution networks in
Japan including Jupiter's cable television systems, other cable television
systems and the PerfecTV digital DTH satellite platform.
Discovery Japan was soft-launched on November 13, 1996 and will be
fully launched in 1997. Discovery Japan replicates the format and concept of
the Discovery Channel in a version tailored to meet the needs and interest of
Japanese viewers. Discovery Japan is carried on all of the major distribution
networks in Japan including Jupiter's cable television systems, other cable
television systems and the PerfecTV digital DTH satellite platform.
In addition to the above channels, JPC expects to launch at least four
new channels in 1997 and on February 18, 1997 JPC announced its acquisition of
the distribution rights for the J-League. These distribution rights, which are
exclusive for both cable and DTH satellite distribution during the first year
and exclusive for cable distribution thereafter, are effective for five years
and include coverage of J-League games as well as J-League championship games.
ASIA BUSINESS NEWS (SINGAPORE) PRIVATE
The Company initially acquired its interest in Asia Business News
(Singapore) Private ("ABN") in February, 1993 and at December 31, 1996, held
49.3% of ABN's outstanding equity. The other major shareholder in ABN is Dow
Jones Broadcasting (Asia), Inc. (49.3%). ABN began broadcasting from Singapore
on November 1, 1993. The first dedicated financial business news channel to
launch in Asia, ABN is targeted at affluent business people across the Asian
region, for many of whom English is a common language in business. ABN, whose
presenters are all from the Asian region, broadcasts primarily in English but
also features a daily half-hour of original Mandarin-language programming.
A prominent feature of ABN's program schedule is a digitized Silicon
Graphics three-dimensional display of stock data from key markets around the
Asian region, continuously updated in real time. ABN also provides hourly news
updates and in-depth feature coverage of business developments and financial
news throughout the Asian region. ABN incorporates coverage from Dow Jones TV
in New York and from its London-based sister channel, European Business News.
See "EUROPE-Programming Operations - Flextech p.l.c."
As of December 31, 1996, ABN's programming was available to
approximately 53 million homes across Indonesia, the Philippines, Thailand,
Malaysia, China, Hong Kong, Singapore, Taiwan, and India. The Mandarin segment
is aired in the United States on the International Channel (in which an
affiliate of TCI has an interest) and, in February 1997, ABN secured carriage
in Japan on the PerfecTV digital DTH satellite service.
THE PREMIUM MOVIE PARTNERSHIP
The Premium Movie Partnership ("PMP") is a partnership formed on
November 19, 1994 to provide two movie programming services for the Australian
market. One of the services, Showtime, features current movies and made-for-
television movies and the other service, Encore, features movies and
made-for-television movies from the 1960s to the present day.
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<PAGE> 61
Although these services carry the same name as the services in the
U.S., their programming is unique. Encore Australia Management, Inc., an
indirect 90%-owned subsidiary of TCI, has entered into an agreement with PMP to
provide management advisory services through 1996 with respect to its two
movie services, Encore and Showtime.
The partners of PMP include the Company, Australis Movies Pty Limited
(a subsidiary of Australis Media Limited) and four movie studios (affiliates of
Fox Broadcasting, Sony, Paramount and Universal). Each partner in PMP
(including the Company) holds an approximate 16.7% interest in the partnership.
The studio partners have agreed to provide movie product to PMP. In return, the
Company and Mr. H.F. Lenfest (President, Chief Executive Officer and a major
shareholder of the company that is a principal shareholder of Australis Media
Limited) have provided financial guarantees, jointly and severally, in the
amount of approximately $58 million to the movie studios for the payment of
studio license fees. Pursuant to the terms of the guarantees with such studios,
Australis Media Limited ("Australis"), is required to deliver letters of
credit, reasonably satisfactory to the studios, in an amount aggregating $33.5
million. To the extent that Australis is able to provide acceptable credit to
the studios, the guarantee liability of the Company and Mr. Lenfest will be
reduced on a dollar for dollar basis. To date, the studios have not accepted
any letters of credit which have been provided to the studios by Australis and
the Company believes it is doubtful that the studios will accept any letters of
credit which may be submitted by Australis in the future. Although the Company
has not had to perform under such guarantee to date, the Company cannot be
certain that it will not be required to perform under such guarantee in the
future.
Each of the partners' maximum mandatory capital commitment to PMP
(including the Company's) is approximately $3.3 million. Through December 31,
1996, the Company had funded approximately $2.1 million of its capital
commitment. PMP's movie channels were launched on March 3, 1995 and served
approximately 97,000 subscribers as of December 31, 1996.
General
Legislative, administrative and/or judicial action may change all or
portions of the foregoing statements relating to competition and regulation.
The Company has not expended material amounts during the last three
fiscal years on research and development activities.
BSkyB accounted for 9%, 9% and 21% of the Company's revenue during the
years ended December 31, 1996, 1995 and 1994, respectively. There is no other
single customer or affiliated group of customers to whom sales are made in an
amount which exceeds 10% of the Company's revenue.
Compliance with federal, state and local provisions which have been
enacted or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.
As of December 31, 1996, TINTA had 60 employees and TINTA's
consolidated subsidiaries had an aggregate of approximately 1,900 employees.
None of the TINTA's employees are covered by collective bargaining agreements.
The Company believes that its relations with its employees are good. Pursuant
to a services agreement, certain of TCI's personnel provide administrative and
operational services to the Company.
I-59
<PAGE> 62
(d) Financial Information about Foreign and Domestic Operations
and Export Sales
The Company, through its subsidiaries and affiliates, is engaged in
the cable and programming businesses in various geographic regions as described
under "Narrative Description of Business" above. For financial information
concerning such geographic segments, see the footnotes to the Company's
financial statements included in Part II of this report.
Item 2. Properties
With the exception of its corporate offices in Englewood, Colorado
(which it leases from TCI) and London, TINTA does not own or lease any real or
personal property other than through its interests in its operating
subsidiaries and affiliates. TINTA's operating companies and affiliates own or
lease the fixed assets necessary for the operation of their respective
businesses, including office space, transponder space, headends, cable
television and telecommunications distribution equipment (including fiber-optic
and coaxial cables), telecommunications switches and customer equipment
(including converter boxes).
TINTA believes that all of the Company's facilities are adequate for
its current and anticipated needs.
Item 3. Legal Proceedings
Neither TINTA nor any of its consolidated subsidiaries is a party to
any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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<PAGE> 63
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
On July 13, 1995, shares of Tele-Communications International, Inc.'s
Series A Common Stock, $1 par value per share ("Series A Common Stock")
commenced trading on the Nasdaq National Market tier of the Nasdaq Stock Market
under the symbol "TINTA." The following table sets forth the range of high and
low sale prices in United States dollars of shares of Series A Common Stock for
the periods indicated as furnished by Nasdaq. The prices have been rounded up
to the nearest eighth, and do not include retail markups, markdowns, or
commissions.
<TABLE>
<CAPTION>
High Low
---- ---
1995:
-----
<S> <C> <C>
Third quarter
(beginning July 13, 1995) 19-3/4 14-3/4
Fourth quarter 26-1/4 18-1/8
1996:
-----
First quarter 24-3/4 19-1/2
Second quarter 22-1/4 16-1/2
Third quarter 18-1/8 15
Fourth quarter 16-3/4 12-1/2
</TABLE>
As of January 31, 1997, there were 58 holders of the Series A Common
Stock (which amounts do not include the number of shareholders whose shares are
held of record by brokerage houses but include each brokerage house as one
shareholder). All of Tele-Communications International, Inc.'s Series B Common
Stock, $1 par value per share ("Series B Common Stock"), is owned by
Tele-Communications, Inc. and is not publicly traded.
On April 30, 1996, Tele-Communications International, Inc. ("TINTA")
issued 473,373 shares of Series A Common Stock to Canal + S.A. for an aggregate
cash purchase price of $10.0 million. The issuance was made in reliance on the
exemption from registration afforded by Regulation S promulgated under the
Securities Act of 1933.
In connection with TINTA's acquisition on July 28, 1995 of a 35%
ownership interest in Torneos y Competencias S.A. ("Torneos"), TINTA issued
687,500 shares of Series A Common Stock (valued at $11.0 million based upon a
price per share of $16) to the selling stockholders of Torneos. The issuance
was made in reliance on the exemption from registration afforded by Regulation
D promulgated under the Securities Act of 1933.
TINTA has not paid cash dividends on its Series A Common Stock and has no
present intention of so doing. Payment of cash dividends, if any, in the future
will be determined by the board of directors in light of the Company's earnings,
financial condition and other relevant considerations.
II-1
<PAGE> 64
Item 6. Selected Financial Data.
During the fourth quarter of 1994 and the first quarter of 1995,
Tele-Communications, Inc. ("TCI") contributed its indirect ownership interests
in substantially all of its international cable and telephony assets and
certain of its international programming assets to TINTA (the "Contributions").
For purposes of this discussion, except to the extent the context otherwise
requires, the term the "Company" refers to (i) such contributed ownership
interests before the date of the Contributions and (ii) TINTA and its direct
and indirect subsidiaries and affiliates on and after the date that the
Contributions were completed.
The following table presents selected information relating to the
financial condition and results of operations of the Company for the past five
years. Such financial information should be read in conjunction with the
financial statements of the Company, included elsewhere herein.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------
1996(1) 1995(2) 1994(3) 1993 1992
------- ------- ------- ---- ----
(amounts in thousands)
Summary Balance Sheet Data:
- ---------------------------
<S> <C> <C> <C> <C> <C>
Cash, receivables and prepaid
expenses $ 148,126 188,640 38,810 11,506 19,777
Investment in Telewest(4) 488,495 550,216 454,614 229,130 140,943
Investment in other affiliates
accounted for under the equity
method, and related receivables
421,853 354,133 128,700 46,111 46,348
Property and equipment, net
of accumulated depreciation 202,527 112,989 47,737 39,515 35,989
Franchise costs and other
assets, net of amortization 728,300 644,733 103,378 53,856 52,872
---------- --------- ------- ------- -------
Total assets $1,989,301 1,850,711 773,239 380,118 295,929
========== ========= ======= ======= =======
Payables, accruals and other
liabilities $ 128,338 72,284 16,503 10,338 3,911
Debt 511,128 192,718 15,842 -- --
MultiThematiques Obligation(5)
47,902 65,876 -- -- --
Deferred income tax liability 193,748 186,126 -- 4,034 11,793
---------- --------- ------- ------- -------
Total liabilities 881,116 517,004 32,345 14,372 15,704
Minority interests in equity of
subsidiaries 142,187 122,358 24,451 51 49
Equity 965,998 1,211,349 716,443 365,695 280,176
---------- --------- ------- ------- -------
Total liabilities and equity $1,989,301 1,850,711 773,239 380,118 295,929
========== ========= ======= ======= =======
</TABLE>
II-2
<PAGE> 65
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------------------------
1996(1) 1995(2) 1994(3) 1993 1992
------- ------- ------- ------- -------
(amounts in thousands, except per share amounts)
Summary Statement of
- --------------------
Operations Data:
----------------
<S> <C> <C> <C> <C> <C>
Revenue $ 314,560 190,533 43,982 20,616 25,314
Operating, selling, general and
administrative expenses (279,170) (165,388) (62,196) (26,943) (29,182)
Depreciation and amortization (58,747) (36,360) (8,590) (7,375) (6,257)
--------- -------- ------ ------- -------
Operating loss (23,357) (11,215) (26,804) (13,702) (10,125)
Share of losses of Telewest(4) (109,357) (70,274) (42,520) (29,750) (25,722)
Share of losses of other
affiliates (70,054) (53,674) (35,571) (42,010) (28,038)
Interest expense (35,153) (20,870) (651) -- --
Gain on issuance of stock by
Telewest(6) 258 164,900 161,481 -- --
Gain on disposition of assets 12,284 51,139 -- -- 13,006
Other, net 49,348 1,737 10,285 2,186 7,949
--------- ------ ------ ------- -------
Earnings (loss) before income
taxes (176,031) 61,743 66,220 (83,276) (42,930)
Income tax benefit (expense) 45,611 (31,702) (32,534) 20,101 12,579
--------- ------ ------ ------- -------
Net earnings (loss) $(130,420) 30,041 33,686 (63,175) (30,351)
========= ====== ====== ======= =======
Net earnings (loss) per common share:
Pro forma (7) .28 .35
=== ===
Historical $ (1.10)
=========
</TABLE>
II-3
<PAGE> 66
(1) The summary balance sheet data as of December 31, 1996 and the
summary statement of operations for the year ended December 31, 1996
reflect the effects of (i) Flextech p.l.c.'s acquisition in April
1996 of a controlling interest in HSN Direct International Limited
("HSN Direct"), a 100% interest in TVS Television Limited ("TVS") and
the 61% interest in Maidstone Broadcasting ("Maidstone"), which
Flextech p.l.c. did not already own and (ii) Cablevision S.A.'s
acquisition in October 1996 of 99.99% of Oeste Cable Color S.A.
("OCC").
(2) The summary balance sheet data as of December 31, 1995 and the
summary statement of operations data for the year ended December 31,
1995 reflect the effects of the Company's April 25, 1995 acquisition
of a 51% ownership interest in Cablevision S.A. and certain
affiliated companies.
(3) The summary balance sheet data as of December 31, 1994 and the
summary statement of operations data for the year ended December 31,
1994, reflect the effects of the February 2, 1994 combination of
certain of the Company's UK programming assets with Flextech p.l.c
(the "Flextech Combination").
(4) From December 18, 1991 through November 22, 1994, the Company and
certain affiliates of U S WEST, Inc. (the "U S WEST Affiliates") each
held a 50% ownership interest in the TCI/U S WEST Cable
Communications Group (the "Telewest UK Joint Venture"). In connection
with the November 1994 initial public offering (the "Old Telewest
IPO") of the predecessor of Telewest Communications plc ("Old
Telewest"), the Company and the U S WEST Affiliates contributed their
respective interests in the Telewest UK Joint Venture to Old
Telewest. On October 3, 1995, Old Telewest consummated a business
combination (the "SBCC Transaction") with SBC CableComms (UK)
("SBCC") pursuant to which a new entity, Telewest Communications plc
("Telewest"), acquired all of the outstanding share capital of Old
Telewest and SBCC. At December 31, 1996, the Company's indirect
ownership interest in Telewest was 26.6%, as compared to its earlier
37.8% and 50% ownership interests in Old Telewest and the Telewest UK
Joint Venture, respectively. All references herein to "Telewest"
include Telewest and its predecessor entities (Old Telewest and the
Telewest UK Joint Venture) unless the context indicates otherwise.
(5) Represents the estimated net present value of TINTA's obligation to
contribute an additional 264 million French francs ($50.9 million) to
Multi-Thematiques S.A.
(6) In connection with the dilution of the Company's ownership interest
in Telewest that occurred in 1996, 1995 and 1994, the Company
recognized non-cash gains of $258,000, $164.9 million and $161.5
million (before deducting the related tax expense of $90,000, $57.7
million and $56.5 million, respectively). The 1995 gain was
recognized in connection with the SBCC Transaction, and the 1994 gain
was recognized in connection with the Old Telewest IPO.
II-4
<PAGE> 67
(7) On July 18, 1995, TINTA completed its initial public offering (the
"IPO"), in which 20,000,000 shares of Series A Common Stock were sold
to the public for net proceeds of approximately $301.3 million. In
connection with the IPO, TINTA amended and restated its Certificate
of Incorporation on July 12, 1995 to, among other things, (i)
increase its authorized capital stock and (ii) divide its common
stock into two series. At the same time, TINTA effected a
reclassification (the "Reclassification") pursuant to which the 1,000
shares of TINTA common stock held by TCI were reclassified and
changed into 85,800,000 shares of Series A Common Stock and
11,700,000 shares of Series B Common Stock (together with the Series
A Common Stock, the "Common Stock"). The pro forma earnings (loss)
per common share calculations give effect to the Reclassification as
if it had occurred on January 1, 1994, and accordingly, assume 106.8
million and 97.5 million weighted average shares of Common Stock were
outstanding during the years ended December 31, 1995 and 1994,
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
General
The Company reported net earnings (losses) of $(130.4 million), $30.0
million and $33.7 million during the years ended December 31, 1996, 1995 and
1994, respectively. Without the recognition of certain non-operating gains
aggregating $12.5 million, $216.0 million and $161.5 million during 1996, 1995
and 1994, respectively, the Company would have incurred net losses of $142.9
million, $95.9 million and $71.3 million, respectively. Such losses are due, in
part, to the relatively high level of depreciation and amortization that is
common to growth oriented companies operating within the capital intensive
cable industry. Any improvements in the Company's results of operations are
largely dependent upon the ability of the Company's operating subsidiaries and
affiliates to increase their respective subscriber bases. There can be no
assurance that any such subscriber base increases will occur.
A significant portion of the Company's operations are conducted through
corporations and partnerships in which the Company holds a 20%-50% ownership
interest. As the Company generally accounts for such ownership interests using
the equity method of accounting, the financial condition and results of
operations of such entities are not reflected on a consolidated basis within
the Company's financial statements.
During the period from January 1, 1994 through December 31, 1996, the
most significant entities that were reflected in the Company's financial
statements on a consolidated basis were engaged in (i) the operations of
multi-channel video and telecommunication distribution networks (the "cable"
business) in Puerto Rico (the "Consolidated Puerto Rico Entities") and in
Buenos Aires, Argentina (since the April 25, 1995 acquisition of a 51%
ownership interest in Cablevision S.A. and certain affiliated companies
("Cablevision")) and in the United Kingdom (sometimes referred to herein as the
"UK")(from February 2, 1994 through October 17, 1995); and (ii) the
distribution and production of programming for multi-channel video distribution
(the "programming" business) in the UK and other parts of Europe through the
Company's subsidiary, Flextech p.l.c. Subsequent to December 31, 1996, the
three Consolidated Puerto Rico Entities were merged together into one surviving
entity (the "Puerto Rico Subsidiary").
II-5
<PAGE> 68
The Company's ownership interest in the issued and outstanding share
capital of Flextech p.l.c. (together with its consolidated subsidiaries,
"Flextech") was 60.4% from February 1994 through May 1995, 48.8% from June 1995
through March 1996, and 46.5% from April 1996 through December 31, 1996. The
Company's voting interest in Flextech was 60.4% through May 1995 and 50.9% from
June 1995 through December 31, 1996.
In January 1997, the Company reduced its voting interest in Flextech
from 50.9% to 50% by issuing to a nominee an irrevocable proxy to vote 960,850
of the ordinary shares of Flextech (the "Flextech Ordinary Shares") owned by
the Company at any shareholder meeting to be held through December 31, 1997. As
discussed below, Flextech announced in March 1997 that it had reached agreement
with BBC Worldwide Limited to form two separate joint ventures (the "BBC Joint
Ventures"), and that it would enter into certain related transactions. If
consummated such transactions would result in, among other things, a reduction
of TINTA's ownership interest in Flextech to 36.1% and the maintenance of
TINTA's voting interest at 50%. As a result of the decrease in the Company's
voting power in Flextech to 50%, the Company, effective January 1, 1997, will
cease to consolidate Flextech and will begin to account for Flextech using the
equity method of accounting. See related discussion below.
On March 17, 1997, Flextech announced that it had reached agreements with
(i) BBC Worldwide Limited ("BBC Worldwide") to form the two separate BBC Joint
Ventures and (ii) the other shareholders of UK Living Limited ("UKLL") and UK
Gold Television Limited ("UKGL") (the producers of UK Living and UK Gold,
respectively) to acquire all of the share capital in those two companies not
already owned by Flextech and the Company. One joint venture with BBC Worldwide
(the "Principal Joint Venture") will operate and launch a number of new
subscription television channels for distribution in the UK and Ireland.
Flextech and BBC Worldwide will each have a 50% interest in this venture. The
Principal Joint Venture has committed to the launch of at least 4 new theme
channels by September 30, 1998. The other joint venture (the "Second Joint
Venture") will acquire 65% of the share capital of UKGL (following Flextech's
acquisition of the UKGL share capital as mentioned above), with put and call
arrangements over the remaining 35% of such share capital. The Second Joint
Venture will operate and develop UKGL, and both Flextech and BBC Worldwide will
have a 50% interest in that venture. The creation of the BBC Joint Ventures is
subject to a number of conditions, including approval of various resolutions by
the shareholders of Flextech at an extraordinary general meeting to be held on
April 15, 1997, and approval by the UK Department of National Heritage. No
assurances can be given that such approvals will be obtained.
Flextech is also reviewing a possible investment in European Channel
Management and European Channel Broadcast, which market and own distribution
rights to the British Broadcasting Corporation's theme channels, BBC World and
BBC Prime. Pending the making of such investment, Flextech will loan these two
companies of 5 million UK pounds sterling ("L") ($9 million) on an interest free
basis for four months. If no investment is made by Flextech by the end of such
four month period, then the loan will begin to bear interest at 2% over LIBOR,
compounded quarterly.
II-6
<PAGE> 69
As described below, Flextech has undertaken to finance the working
capital requirements of the Principal Joint Venture. Flextech has also agreed to
make available to the Second Joint Venture, if required, funding of up to L10
million ($17 million). To support its funding obligations, Flextech has obtained
a revolving credit facility with current borrowing availability of up to L.50
million ($86 million), and with a term of up to 5 years, from a syndicate of
banks (the "Flextech Revolving Credit Facility"). Flextech is currently
negotiating to increase the borrowing availability under the Flextech Revolving
Credit Facility to L.85 million ($146 million).
Flextech will acquire the share capital of UKGL and UKLL not already
owned by it and the Company through the issuance of new Flextech Ordinary
Shares. Flextech will acquire the 75% of UKGL (and L.12.5 million ($21.4
million) of loan stock) and the 68.75% of UKLL (and L.13.7 million ($23.5
million) of loan stock) that it does not already own through the issuance of
34,954,713 new Flextech Ordinary Shares. One of the current shareholders of UKLL
will retain L.5.2 million ($8.9 million) of loan stock, which is to be repaid in
two equal installments on December 31, 1997 and 1998. Immediately following the
issuance of the new Flextech Ordinary Shares to the former shareholders of UKGL
and UKLL, the Company's voting power will fall below 50%. To increase the
Company's voting power to 50%, the Company will receive a special voting share,
which will permit the Company to cast 50% of all votes attributable to the
outstanding share capital of Flextech (the "Special Voting Share"). The Special
Voting Share will terminate upon the occurrence of the earlier of (i) the third
anniversary of issuance or (ii) any transfer of Flextech shares by the Company
outside a specified affiliated group.
Flextech's outstanding convertible non-preference shares (the "Flextech
Non-Preference Shares") had been issued in connection with previous acquisition
transactions by Flextech due to the Company's requirement that it maintain
specified voting interests in Flextech. With the issuance of the Special Voting
Share, the purpose for the Flextech Non-Preference Shares will be eliminated.
Accordingly, and in order to simplify the capital structure of Flextech, upon
the issuance of the Special Voting Share, the Flextech Non-Preference Shares
will be converted into Flextech Ordinary Shares. Immediately following such
conversion, and the issuance of additional Flextech Ordinary Shares in
connection with the UKGL and UKLL transactions described above, (i) the
Company's interest in the equity share capital of Flextech will decline from
46.5% to 36.1% (ii) the Company's voting interest will be 50%, and (iii) the
Company's put obligations with respect to 10,467,090 Flextech Non-Preference
Shares will be eliminated, insofar as such obligations are based on the
convertibility of such shares. See "Liquidity and Capital Resources."
II-7
<PAGE> 70
If Flextech defaults in its funding obligation to the Principal Joint
Venture and fails to cure within 42 days after receipt of notice from BBC
Worldwide, BBC Worldwide is entitled, within the following 90 days, to require
that the Company assume all of Flextech's funding obligations to the Principal
Joint Venture (the "Standby Commitment"). Flextech's funding obligations to the
Principal Joint Venture consist of (i) the purchase of L.22 million ($38
million) of ordinary shares in the Principal Joint Venture, (ii) a primary
credit facility of L.88 million ($151 million) and, subject to certain
restrictions, a standby credit facility of L.30 million ($51 million).
Borrowings under the primary and standby credit facility would be represented
by shares of loan stock of the Principal Joint Venture, bearing interest at 2%
above LIBOR, which interest would be capitalized quarterly.
If BBC Worldwide requires the Company to perform Flextech's funding
obligations pursuant to the Standby Commitment, then the Company will acquire
Flextech's entire equity interest in the Principal Joint Venture for L.1.00,
and will replace Flextech's directors on the board of the Principal Joint
Venture with representatives of the Company. Flextech will pay commitment and
standby fees to the Company for its undertaking under the Standby Commitment.
If Flextech repays to the Company all loans it makes to the Principal Joint
Venture (plus interest at TINTA's marginal cost of funds plus 2% per annum)
within 180 days after the Company first becomes obligated to perform Flextech's
financial obligations, it may, reacquire its interest in the Principal Joint
Venture for L.1.00. The Company may also, within the same period, require
Flextech to reacquire its interest on the same terms. The Standby Commitment
will terminate on the earliest of (i) the date on which Flextech has met all of
its required financial obligations to the Principal Joint Venture under the
primary and standby credit facilities, or (ii) the date on which Flextech
delivers a bank guarantee of all of its funding obligations to the Principal
Joint Venture.
At December 31, 1996, Flextech's most significant consolidated
subsidiaries were comprised of its 100% ownership interests in Bravo Classic
Movies Limited ("Bravo Ltd."), Starstream Limited ("Starstream"), Flextech
Television Limited ("FTV"), Maidstone and TVS (acquired by Flextech in April
1996), its 63% interest in HSN Direct (acquired by Flextech in April 1996) and
its 51% ownership interest in Playboy TV UK/Benelux Limited (commenced
operations in November 1995). Flextech maintained a 74.9% ownership interest in
Starstream through May 1995, and since June 1995, Flextech has maintained a
100% ownership interest in Starstream. Prior to the April 1996 transaction in
which Flextech increased its ownership interest in Maidstone from 39% to 100%,
Flextech accounted for its investment in Maidstone using the equity method of
accounting. Bravo Ltd. owns "Bravo", a provider of entertainment targeted to
male audiences. Starstream owns "TCC" (formerly marketed as "The Children's
Channel"), a provider of children's programming. FTV provides management
services to various entities engaged in the programming business. Playboy TV
UK/Benelux ("PBTV") owns "Playboy TV," a provider of adult entertainment.
Maidstone owns "Challenge TV", (formerly marketed as "The Family Channel"), a
provider of game shows and family entertainment. TVS owns Maidstone Studios
Limited, a production facility. HSN Direct is engaged in the domestic and
foreign "infomercial" business.
II-8
<PAGE> 71
On April 25, 1995, the Company acquired a 51% ownership interest in
Cablevision (the "Cablevision Acquisition"). In accordance with the purchase
method of accounting, Cablevision has been included in the Company's financial
statements since the April 25, 1995 acquisition date. At December 31, 1996,
Cablevision owned cable television systems serving approximately 578,000 basic
subscribers. The following table sets forth summary information with respect to
Cablevision's results of operations (as adjusted for the effects of purchase
accounting) for the indicated periods (amounts in thousands):
<TABLE>
<CAPTION>
April 25, 1995
Year ended through
December 31, 1996(1) December 31, 1995
------------------------- ------------------------
<S> <C> <C> <C> <C>
Revenue $ 189,548 100 % $ 118,864 100 %
Operating costs and expenses
before depreciation and
amortization (114,139) (60)% (69,258) (58)%
--------- -- -------- --
Operating income before depreciation and
amortization(2) 75,409 40 % 49,606 42 %
Depreciation and amortization (41,429) (22)% (25,060) (21)%
--------- -- --------- --
Operating income $ 33,980 18 % $ 24,546 21 %
========= == ======== ==
</TABLE>
- --------------
(1) On October 1, 1996, Cablevision acquired 99.9% of the issued and
outstanding stock of OCC (the "OCC Acquisition"). In accordance with
the purchase method of accounting OCC has been included in
Cablevision's financial statements since the October 1, 1996
acquisition date. The following table sets forth summary information
with respect to OCC's results of operations (as adjusted for the
effects of purchase accounting) from October 1, 1996 through December
31, 1996 (amounts in thousands):
<TABLE>
<S> <C>
Revenue $ 8,146
Operating costs and expenses
before depreciation
and amortization (4,494)
-------
Operating Cash Flow 3,652
Depreciation and amortization (2,176)
-------
Operating income $ 1,476
=======
</TABLE>
(2) Operating income before depreciation and amortization ("Operating Cash
Flow") is a commonly used measure of value and borrowing capacity
within the cable and programming industries. Operating Cash Flow is not
intended to be a substitute for a measure of performance in accordance
with generally accepted accounting principles and should not be relied
upon as such.
On March 10, 1997, the Company announced that it had signed a
Memorandum of Understanding that contemplates the Company's purchase of
additional equity interests in Cablevision such that the Company's ownership
interests in Cablevision would be increased from 51% to up to 90%. For
additional information, see "Liquidity and Capital Resources" below.
II-9
<PAGE> 72
On April 22, 1996, Flextech acquired from International Family
Entertainment, Inc. ("IFE") (i) the 61% ownership interest in Maidstone, which
Flextech did not already own and (ii) a 100% ownership interest in TVS. On
April 10, 1996, Flextech acquired an indirect controlling interest in the
"infomercial" business of HSN Direct. For a more detailed description of these
transactions, see note 5 to the accompanying financial statements. Maidstone,
TVS and HSN Direct have been included in the Company's financial statements
since their respective dates of acquisition. Flextech's 51%-owned subsidiary,
PBTV, commenced operations in November 1995 with the launch of Playboy TV. The
following table sets forth summary information with respect to the results of
operations for Maidstone, TVS and HSN Direct (as adjusted for the effects of
purchase accounting) from the respective acquisition dates through December 31,
1996 and for PBTV from January 1, 1996 through December 31, 1996 (amounts in
thousands):
<TABLE>
<S> <C>
Revenue $ 49,941
Operating costs and expenses before
depreciation and amortization (61,968)
Depreciation and amortization (6,640)
--------
Operating loss $(18,667)
========
</TABLE>
Each of TINTA's operating subsidiaries and affiliates operates in a
distinct environment that is generally characterized by rapidly changing
competitive, regulatory, technological, political, economic and other external
factors. These factors are generally outside TINTA's control and TINTA is
unable to predict what effect, if any, such factors might have on the
respective financial condition and results of operations of its operating
subsidiaries and affiliates.
The Company is also exposed to unfavorable and potentially volatile
fluctuations of the United States (sometimes referred to herein as the "U.S.")
dollar (the functional currency of TINTA) against the UK pound sterling, the
Japanese yen ("Y"), the Argentine peso and various other foreign currencies that
are the functional currencies of TINTA's operating subsidiaries and affiliates.
Since the enactment of a convertibility plan in April 1991, the Argentine
government has maintained an exchange rate of one Argentine peso to one U.S.
dollar. No assurance can be given that such an exchange rate will be maintained
in future periods.
II-10
<PAGE> 73
Because TINTA's functional currency is the U.S. dollar, any increase
(decrease) in the value of the U.S. dollar against any foreign currency in
which the Company has funding commitments effectively reduces (increases) the
U.S. dollar equivalent of such funding commitments. At the same time, any
increase (decrease) in the value of the U.S. dollar against any foreign
currency that is the functional currency of an operating subsidiary or
affiliate of TINTA will cause the Company to experience unrealized foreign
currency translation losses (gains) with respect to amounts already invested in
such foreign currencies.
TINTA and its operating subsidiaries and affiliates are also exposed to
foreign currency risk to the extent that they enter into transactions
denominated in currencies other than their respective functional currencies. In
this regard, the Company has experienced realized and unrealized currency gains
and losses with respect to (i) the UK pound sterling denominated loans made by
an indirect subsidiary of TINTA to Flextech and (ii) the Company's French franc
denominated obligation to make capital contributions to MultiThematiques S.A.
("MultiThematiques") (the "MultiThematiques Obligation"). In addition, Telewest
has experienced realized and unrealized foreign currency transaction gains and
losses with respect to certain U.S. dollar denominated senior debentures that
were issued in connection with the SBCC Transaction.
Because TINTA generally views its foreign operating subsidiaries and
affiliates as long-term investments, the Company generally does not attempt to
hedge existing investments in its foreign affiliates and subsidiaries. With
respect to funding commitments that are denominated in currencies other than
the U.S. dollar, the Company historically has sought to reduce its exposure to
short-term (generally no more than 90 days) movements in the applicable
exchange rates once the timing and amount of such funding commitments become
fixed. Although the Company monitors foreign currency exchange rates with the
objective of mitigating its exposure to unfavorable fluctuations in such rates,
the Company believes that, given the nature of its business, it is not possible
or practical to eliminate the Company's exposure to unfavorable fluctuations in
foreign currency exchange rates.
II-11
<PAGE> 74
Summary of Operations
Revenue
Cable revenue increased $77.7 million or 55% during the year ended
December 31, 1996, as compared to the corresponding prior year period. Such
increase is primarily attributable to the effect of the Cablevision Acquisition
and the OCC Acquisition. In addition, an 8% increase in Cablevision's average
number of basic subscribers (exclusive of the effect of acquisitions) more than
offset a 2% decrease in Cablevision's rates resulting from promotional packages
offered in response to increasing competition. See related discussion below. A
$5.5 million or 25% increase in the revenue of the Consolidated Puerto Rico
Entities also contributed to the increase in cable revenue. Such increase in
the revenue of the Consolidated Puerto Rico Entities is due to (i) a 10%
increase in rates, (ii) a 3% increase in the number of basic subscribers and
(iii) a $750,000 increase in advertising revenue resulting primarily from
political advertisements surrounding local elections.
Cable revenue increased $123.5 million or 649% during the year ended
December 31, 1995, as compared to the corresponding prior year period. The
effect of the Cablevision Acquisition, as described above, accounted for $118.9
million of such increase. The remaining increase is primarily attributable to a
$4.0 million or 22% increase in the revenue of the Consolidated Puerto Rico
Entities, as the Consolidated Puerto Rico Entities experienced a 25% increase
in basic subscribers from December 31, 1994 to December 31, 1995. Such basic
subscriber increase is primarily attributable to management's efforts to reduce
the number of unauthorized connections to the cable television systems of the
Consolidated Puerto Rico Entities.
The areas serviced by Cablevision are also serviced by other cable
providers. During the second quarter of 1996 one of these cable providers began
offering cable services at rates substantially below that charged by
Cablevision. Although Cablevision has offered promotional packages in response
to such competition, the Company cannot otherwise predict the impact such
competition will have on Cablevision's result of operations.
Programming revenue increased $46.4 million or 97% during the year
ended December 31, 1996, as compared to the corresponding prior year period. A
significant portion of such increase is attributable to the inclusion of
Maidstone, HSN Direct, PBTV and TVS in the Company's results of operations.
Additionally, 29% and 14% increases in the revenue generated by Bravo Ltd. and
Starstream, respectively, contributed to such increase. Substantially all of
the increase in Bravo Ltd.'s revenue is attributable to a 19% gain in the
viewership of Bravo and to an increase in the revenue per viewer of Bravo. The
higher revenue per viewer of Bravo is primarily attributable to a price
increase in April 1996 and to increased advertising revenue. The increase in
Starstream's revenue is primarily attributable to an increase in the average
price received for TCC. In connection with Flextech's August 1995 acquisition
of an ownership interest in a programming service that has a target audience in
Holland similar to that of TCC, it was agreed that, effective January 1, 1996,
TCC would discontinue providing service to approximately 850,000 viewers in
Holland. The January 1, 1996 loss of such viewers in Holland largely offset the
viewership gains that TCC experienced outside of Holland through December 31,
1996.
II-12
<PAGE> 75
Programming revenue increased $23.1 million or 93% during the year
ended December 31, 1995, as compared to the corresponding prior year period.
The majority of such increase is attributable to 92% and 64% increases in the
revenue generated by Bravo Ltd. and Starstream, respectively. A significant
portion of the 1995 increase in Starstream's revenue is attributable to the
inclusion of Starstream's revenue for the full 12 month period in 1995, as
compared to a ten month period in 1994. The remaining 1995 increase in
Starstream's revenue and substantially all of the 1995 increase in Bravo Ltd's
revenue are attributable to gains in the viewership and the revenue per viewer
of Bravo and TCC. The higher revenue per viewer of Bravo and TCC is primarily
attributable to price increases in April 1995 and July 1994, and to increased
advertising revenue. From December 31, 1994 to December 31, 1995, the
viewership of Bravo and TCC increased 20% and 17%, respectively. A $5.5 million
increase in Flextech's management fee revenue also contributed to the 1995
increase in programming revenue. Such increased management fee revenue includes
(i) $2.3 million attributable to an agreement that was initiated in mid-1995
and terminated in mid-1996 and (ii) $1.3 million attributable to a fee received
by Flextech upon the termination of the Country Music Television Europe
marketing and affiliate services agreement.
During the years ended December 31, 1996, 1995 and 1994, 30%, 36% and
37%, respectively, of the Company's programming revenue and 9%, 9% and 21%,
respectively, of the Company's total revenue was derived from British Sky
Broadcasting Group plc.
As previously described under "General" above, the Company, effective
January 1, 1997, will cease to consolidate Flextech and will begin to account
for Flextech using the equity method of accounting. During the years ended
December 31, 1996, 1995 and 1994, revenue attributable to Flextech of $94.4
million, $48.0 million and $24.9 million, respectively, was included in the
Company's statements of operations.
Operating Costs and Expenses
Cable operating costs and expenses increased $43.6 million or 48%
during the year ended December 31, 1996, as compared to the corresponding prior
year period. Such increase is primarily attributable to the effect of the
Cablevision Acquisition and the OCC Acquisition, and an increase in
Cablevision's programming costs. Such increased programming costs are
attributable to a higher number of subscribers and an increase in rates in
connection with the renewal of certain programming agreements, as further
described below. A $2.7 million or 16% increase in the operating costs and
expenses of the Consolidated Puerto Rico Entities accounted for the remaining
increase in cable operating costs and expenses.
Cable operating costs and expenses increased $75.6 million or 512%
during the year ended December 31, 1995, as compared to the corresponding prior
year period. The effect of the Cablevision Acquisition, as described above,
accounted for $69.3 million of such increase. A $4.7 million or 40% increase in
the operating costs and expenses of the Consolidated Puerto Rico Entities also
contributed to the 1995 increase in the Company's cable operating costs and
expenses. Such increase includes (i) a $1.4 million increase in contract labor
that is primarily attributable to the aforementioned management efforts to
reduce the number of unauthorized connections and (ii) a $730,000 increase in
property taxes (of which approximately $430,000 relates to tax years prior to
1995).
Cablevision and the Consolidated Puerto Rico Entities purchase
programming under contracts that expire at various dates in the future. No
assurance can be given that future contracts will contain terms as favorable as
those contained in the existing programming contracts of Cablevision and the
Consolidated Puerto Rico Entities.
II-13
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Programming operating costs and expenses increased $63.8 million or
103% during the year ended December 31, 1996, as compared to the corresponding
prior year period. Such increase is attributable to (i) the inclusion of
Maidstone, HSN Direct, PBTV and TVS in the Company's 1996 results of
operations, as described under "General" above, (ii) higher programming costs
and (iii) increased general and administrative expenses which are primarily the
result of stock compensation expense of $5.1 million in 1996. Increases in
programming costs are attributable to (i) the amortization of the cost of
programming rights acquired by Flextech in 1995 and 1996 pursuant to agreements
with Hallmark Entertainment, Inc. ("Hallmark Entertainment") and (ii) the
acquisition of higher quality programming for Bravo and TCC as part of
Flextech's efforts to increase the viewership of such services. For information
concerning Flextech's commitments pursuant to its programming rights
agreements, see "Liquidity and Capital Resources" below.
Programming operating costs and expenses increased $22.8 million or 58%
during the year ended December 31, 1995, as compared to the corresponding prior
year period. The majority of such increase is attributable to the higher
transponder, marketing, programming and other operating costs and expenses of
Bravo Ltd. and Starstream. The higher programming and marketing costs generally
are attributable to Flextech's efforts to increase the viewership of Bravo and
TCC. A significant portion of the 1995 Starstream increase is attributable to
the inclusion of Starstream's operating costs and expenses for the full 12
month period in 1995, as compared to a ten month period in 1994. Costs incurred
by Flextech's 51%-owned subsidiary in connection with the November 1995 launch
of Playboy TV, and an increase in Flextech's general and administrative costs
also contributed to the 1995 increase.
During 1996, the Company revised its estimate of future revenue to be
earned from certain programming rights. As a result of such revisions, the
Company has recorded an adjustment of $8.7 million to reduce the carrying value
of the affected programming rights.
As described under "General" above, the Company, effective January 1,
1997, will cease to consolidate Flextech and will begin to account for Flextech
using the equity method of accounting. During the years ended December 31,
1996, 1995 and 1994, programming operating costs and expenses (including any
programming rights provisions) attributable to Flextech of $131.2 million,
$62.0 million and $39.3 million, respectively, were included in the Company's
statements of operations.
TINTA incurred corporate, general and administrative expenses of $10.6
million, $13.0 million and $8.2 million during the years ended December 31,
1996, 1995 and 1994, respectively, of which $1.2 million, $4.4 million and $8.2
million, respectively, were allocated from TCI. General and administrative
allocations from TCI are generally based upon the estimated cost of the
services provided to the Company. Estimated changes in (i) TINTA's stock
compensation liability and (ii) TINTA's share of TCI's stock compensation
liability are also reflected in general and administrative expenses. Such
estimated increases (decreases) aggregated $(3.2 million), $4.0 million and
$(231,000), during the years ended December 31, 1996, 1995 and 1994,
respectively, of which $(1.8 million), $2.5 million and $(231,000),
respectively, were allocated from TCI. Such estimated amounts are subject to
future adjustment based upon market value and, ultimately, upon the final
determination of the market value of the stock appreciation rights at the time
they are exercised.
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The $22.4 million or 62% and $27.8 million or 323% increases in
depreciation and amortization expense during the years ended December 31, 1996
and 1995, respectively, are the result of increases in the Company's assets
that are subject to depreciation and amortization. The increases in such assets
were primarily attributable to acquisitions, as described above, and capital
expenditures.
Other Income and Expense
Telewest, which is currently constructing broadband cable television
and telephony networks in the UK, has incurred losses since its inception. It
is expected that the current construction requirements of Telewest will be
substantially complete by the end of the year 2000. The Company's indirect
ownership interest in Telewest decreased from 50% to 37.8% in November 1994,
from 37.8% to 26.8% in October 1995 and from 26.8% to 26.6% during 1996.
Despite such decreased ownership interests, the Company's share of Telewest's
net losses increased $39.1 million or 56% and $27.8 million or 65% during 1996
and 1995, respectively. In general, such increases are attributable to Telewest
incurring higher amounts of interest expense, depreciation and amortization.
Such higher amounts include certain effects of the SBCC Transaction. In
connection with the SBCC Transaction, Telewest received net cash proceeds of
$1.2 billion upon the issuance of U.S. dollar denominated senior debentures
having a principal amount at maturity of $1.8 billion (the "Telewest
Debentures"). In light of the issuance of the Telewest Debentures and
Telewest's use of purchase accounting to account for the SBCC Transaction,
Telewest's interest expense, depreciation and amortization were significantly
higher during the fourth quarter of 1995 and the year ended December 31, 1996
(and will be significantly higher in future periods) as compared to the amounts
incurred by Old Telewest prior to the consummation of the SBCC Transaction. In
addition, changes in the exchange rate used to translate the Telewest
Debentures into UK pounds sterling and the adjustment of a foreign currency
option contract to market value caused Telewest to experience unrealized
foreign currency transaction gains (losses) of $1.7 million and $(23.0 million)
during 1996 and 1995, respectively. It is anticipated that Telewest will
continue to experience realized and unrealized foreign currency transaction
gains and losses throughout the term of the Telewest Debentures, which mature
in 2006 and 2007, if not redeemed earlier.
The Company's share of the losses of affiliates other than Telewest
(the "Other Affiliates") increased $16.4 million or 31% and $18.1 million or
51% during the years ended December 31, 1996 and 1995, as compared to the
corresponding prior year periods. The majority of the 1996 increase is
attributable to (i) increased losses of certain of its affiliates in 1996 and
(ii) the Company's share of losses of affiliates that were acquired in 1996 and
late 1995. The majority of the 1995 increase is attributable to the Company's
share of losses of affiliates that were acquired in 1995 or late 1994. For
additional information concerning the Other Affiliates, see note 8 to the
accompanying financial statements.
II-15
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Interest income increased $15.3 million or 170% and $7.9 million or
698% during the years ended December 31, 1996 and 1995, respectively. The 1996
increase is primarily attributable to interest income earned on amounts loaned
to TCI. As further described below, such loans were funded with the net
proceeds received upon the February 9, 1996 issuance of TINTA's 4-1/2%
Convertible Subordinated Debentures (the "Debentures"). The 1995 increase is
attributable to the increase in cash and cash equivalents that resulted from
the IPO. See "Liquidity and Capital Resources" below.
Interest expense increased $14.3 million or 68% and $20.2 million or
3,106% during the years ended December 31, 1996 and 1995, respectively, as a
result of an increase in the outstanding debt balance. The 1996 increase is
primarily attributable to the issuance of the Debentures. The 1995 increase is
primarily attributable to debt incurred in connection with the Cablevision
Acquisition and borrowings incurred by Flextech in 1995 in connection with
Flextech's acquisition of convertible redeemable preferred shares of Thomson
Directories Limited. See "Liquidity and Capital Resources."
In connection with the dilution of the Company's ownership interest in
Telewest that occurred in connection with the October 1995 SBCC Transaction and
the November 1994 Old Telewest IPO, the Company recognized non-cash gains of
$164.9 million and $161.5 million (before deducting the related tax expense of
$57.7 million and $56.5 million, respectively) during the years ended December
31, 1995 and 1994, respectively. During 1996, the Company also recognized a
non-cash gain of $258,000 in connection with the issuance of stock by Telewest.
Such gains represent the differences, at the respective transaction dates,
between the Company's recorded cost for its ownership interest in Telewest and
the Company's proportionate share of Telewest's net assets. No assurance can be
given that any such gains will be recognized in the future.
The Company recognized net gains upon the disposition of assets of
$12.3 million and $51.1 million during 1996 and 1995, respectively. The 1996
gain is primarily attributable to the dissolution of the TeleWest Europe Group,
an entity in which TINTA held a 50% ownership interest. The 1995 gain is
attributable to the sale of the cable television subsidiaries of IVS Cable
Holdings Limited ("IVS"), a subsidiary of Flextech. For additional information,
see "Liquidity and Capital Resources" below.
The minority interests' share of net losses (earnings) was $22.8
million, $(4.0 million) and $10.3 million during the years ended December 31,
1996, 1995, and 1994, respectively. Such minority interests are attributable to
Flextech since none of Cablevision's $65.0 million of net liabilities at the
April 25, 1995 acquisition date and none of Cablevision's post-acquisition
operating results have been allocated to Cablevision's 49% minority interest
because (i) the Cablevision minority interest has no obligation to provide any
funding to Cablevision and (ii) the minority interest continued to have a
negative historical cost basis in Cablevision's net assets at December 31,
1996. To the extent that Cablevision's post- acquisition net earnings
(exclusive of the effects of purchase accounting) cause the minority interest's
historical cost basis in Cablevision's net assets to become positive, the
Company would begin to allocate 49% of such net earnings to the minority
interest. If the minority interest's historical cost basis had been positive
during the periods ended December 31, 1996 and 1995, the Company would have
allocated $15.9 million and $11.7 million, respectively, of Cablevision's net
earnings (exclusive of the effects of purchase accounting) to the minority
interest. For information concerning a Memorandum of Understanding that
contemplates an increase in the Company's ownership interest in Cablevision to
up to 90%, see "Liquidity and Capital Resources" below.
II-16
<PAGE> 79
The Company recognized realized and unrealized foreign currency
transaction gains (losses) of $7.1 million, $(2.5) million and $1.4 million
during the years ended December 31, 1996, 1995, and 1994, respectively. The
1996 amount includes (i) a $3.6 million unrealized gain with respect to the
remeasurement into the U.S. dollar of the French franc denominated
MultiThematiques Obligation and (ii) a $3.6 million unrealized gain with
respect to the remeasurement into the U.S. dollar of the UK pound denominated
intercompany debt owed by Flextech to an indirect subsidiary of TINTA.
During 1996, holding losses on certain available-for-sale securities
were determined to be other than temporary. Accordingly, the Company recognized
a $6.6 million loss during 1996 in connection with the write-off of such
securities.
The $2.5 million of other expenses during the year ended December 31,
1994 is primarily attributable to a reserve recorded by Flextech against a
receivable from an entity that Flextech disposed of prior to the Flextech
Combination.
Income Taxes
The Company's income tax benefit (expense) was $45.6 million, $(31.7
million) and $(32.5 million) during the years ended December 31, 1996, 1995 and
1994, respectively. The effective tax rates associated with such benefits
(expenses) were 25.9%, (51)% and (49)%, respectively. A tax sharing agreement
(the "Tax Sharing Agreement") among TINTA, TCI and certain other subsidiaries
of TCI was implemented effective July 1, 1995. The Tax Sharing Agreement
formalizes certain elements of a pre-existing tax sharing arrangement and
contains additional provisions regarding the allocations of certain
consolidated income tax attributes and the settlement procedures with respect
to the intercompany allocation of current tax attributes. For additional
information, see note 12 to the accompanying financial statements of the
Company.
Liquidity and Capital Resources
On July 18, 1995, TINTA completed the IPO in which 20,000,000 shares of
TINTA's Series A Common Stock were sold to the public for net proceeds of
approximately $301.3 million. Prior to the IPO, the Company had relied upon
capital contributions from TCI and, to a lesser extent, borrowing availability
under a credit facility between TCI and TINTA (the "TCI Credit Facility") in
order to meet most of the Company's liquidity requirements with respect to its
investing and operating activities. Since the IPO, TCI has not made, and it is
anticipated will not in the future make, further capital contributions to the
Company.
II-17
<PAGE> 80
The Company's operating activities provided (used) cash of $26.2
million, $8.4 million and $(79.0 million) during the years ended December 31,
1996, 1995 and 1994, respectively. The 1996 amount includes cash used in
Flextech's operating activities of $46.5 million. As discussed under "General"
above, effective January 1, 1997, Flextech's cash flows will no longer be
included in the Company's consolidated statements of cash flows. Although the
operating activities of Cablevision (which became a 51% owned subsidiary of
TINTA on April 25, 1995) and the Consolidated Puerto Rico Entities historically
have generated positive cash flow, the Company believes that the remaining
consolidated operating activities of TINTA will continue to produce net cash
flow deficits for the foreseeable future. Furthermore, because the Company's
assets consist primarily of ownership interests in foreign subsidiaries and
affiliates, the repatriation of any cash provided by such subsidiaries' and
affiliates' operating activities in the form of dividends, loans or other
payments is subject to, among other things, exchange rate fluctuations, tax
laws and other economic considerations, as well as applicable statutory and
contractual restrictions. Moreover, the cash balances of the Company's foreign
subsidiaries are generally intended to be applied towards the respective
liquidity requirements of such foreign subsidiaries, and, other than in
connection with the repayment of certain principal and interest owed to TINTA
by Flextech, it is not presently anticipated that any significant portion of
such cash balances will be distributed or otherwise made available to TINTA.
Accordingly, there can be no assurance that the Company will have access to any
cash generated by its foreign operating subsidiaries and affiliates. In this
regard, $40.9 million of the Company's cash balances were held by foreign
subsidiaries at December 31, 1996.
Cash used by the Company's investing activities aggregated $198.0
million, $368.0 million and $247.1 million during the years ended December 31,
1996, 1995 and 1994, respectively. The 1996 and 1995 amounts include cash used
by the Company of $62.2 million and $170.3 million to pay a portion of the
purchase price for the OCC Acquisition and the Cablevision Acquisition,
respectively. In addition, the 1996, 1995 and 1994 amounts include $166.1
million, $174.0 million and $218.9 million, respectively, of cash used by the
Company to fund investments in, and loans to, affiliates. Cash provided by
Flextech's investing activities aggregated $67.3 million during 1996. As
described under "General" above, effective January 1, 1997, Flextech's cash
flows will no longer be included in the Company's consolidated statements of
cash flows.
The Company expects that it will continue to have significant cash
requirements with respect to its investing activities. In this regard the
Company, as of December 31, 1996, is contractually obligated to make loans or
capital contributions to its affiliates as follows:
<TABLE>
<CAPTION>
Commitment U.S. dollar
amount at equivalent at
December 31, December 31,
Affiliate Currency 1996 1996
--------- -------- ------------ -----------
amounts in thousands
<S> <C> <C> <C> <C>
Affiliates of Flextech (1) UK pounds sterling L. 3,581 $ 6,132
Bresnan International Partners
(Chile), L.P.
("BIP Chile") (2) U.S. dollar $ 5,500 5,500
Other Various 6,357
----------
$ 17,989
==========
</TABLE>
II-18
<PAGE> 81
(1) Represents 100% of Flextech's aggregate unfunded obligations to provide
debt and equity financing to certain of its affiliates. As described
under "General" above, the Company, effective January 1, 1997, will
cease to consolidate Flextech and will begin to account for Flextech
using the equity method of accounting. Accordingly, in future periods,
contractual commitments of Flextech and its affiliates will no longer
be included in the Company's consolidated contractual commitments.
(2) Represents the Company's aggregate unfunded obligations to provide
equity financing to BIP Chile.
The 47.9 million U.S. dollar equivalent of the estimated net present
value of the additional capital contributions that TINTA is required to make to
MultiThematiques through December 1997 has not been reflected in the foregoing
table since such amount has been reflected as a liability in the Company's
December 31, 1996 consolidated balance sheet. See related discussion below.
As of December 31, 1996, the Company had satisfied substantially all of
its contractual funding requirements with respect to Jupiter Telecommunications
Co., Ltd. ("Jupiter"). As a result of a number of developments which management
believes are favorable to Jupiter, the Company and Sumitomo Corporation
("Sumitomo") are in the process of revising the original business plan to
increase the rate at which Jupiter would acquire additional franchises and
develop its network. Management of the Company estimates that if Jupiter's
business plan is accelerated in the manner currently under discussion, Jupiter
will require additional funding, which additional funding may be significant.
If Jupiter's business plan is so accelerated, the Company anticipates that the
additional funding will be obtained through a combination of capital
contributions by the Company and Sumitomo, on a pro rata basis, and, to the
extent available on acceptable terms, debt financing by Jupiter or its
subsidiaries and affiliates. During the years ended December 31, 1996 and 1995,
the Company made capital contributions to Jupiter aggregating Yen5.1 billion
($47.6 million) and Yen2.3 billion ($23.7 million), respectively.
On November 20, 1995, TINTA announced its intention to form strategic
partnerships with News Corp., Organizacoes Globo and Grupo Televisa S.A. for
the development and operation of a direct-to-home satellite service for Latin
America, Mexico, and various Central and South American countries
(collectively, the "DTH Ventures"). Through December 31, 1996, TINTA had
contributed $17.9 million to the DTH Ventures. It is anticipated that TINTA
could be required to make cash contributions totaling $46.1 million over the
next three years in connection with the DTH Ventures.
II-19
<PAGE> 82
Effective April 29, 1996, TINTA, Liberty Media Corporation ("Liberty")
(a subsidiary of TCI) and News Corporation Limited ("News Corp.") formed a
joint venture including a number of partnerships or other entities under common
ownership (the "Sports Venture") to operate currently existing sports services
in Latin America and Australia and a variety of new sports services throughout
the world, excluding the United States, Canada and certain other defined
geographic areas. News Corp. owns a 50% interest in the Sports Venture with the
remaining 50% owned by Liberty/TINTA LLC, a limited liability company owned in
equal parts by subsidiaries of TINTA and Liberty (the "LLC"). As of December
31, 1996, TINTA had contributed to the LLC $49.0 million in cash and its 35%
equity interest in Torneos, an Argentinean sports programming production
company, and Liberty had contributed to the LLC its interests in Latin American
and Australian sports programming services and its rights under various
television sports programming agreements. The LLC contributed the non-cash
assets contributed to it by TINTA and Liberty to the Sports Venture. News Corp.
contributed various international sports rights and certain trademark rights in
exchange for its 50% interest in the Sports Venture. TINTA acquired its 35%
ownership interest in Torneos from the selling stockholders of Torneos (the
"Torneos Stockholders") on July 28, 1995 for aggregate consideration of $30
million (exclusive of certain contingent obligations to pay additional
consideration, which obligations were assumed by the Sports Venture).
TINTA may make additional cash contributions totaling $29.0 million to
the LLC to fund the operations of the Sports Venture. As part of the formation
of the Sports Venture, the LLC is entitled to receive from News Corp. 7.5% of
the outstanding stock of STAR Television Limited. Upon the delivery of such
stock to the LLC, which delivery is expected to occur in 1997, News Corp. is
entitled to receive from the LLC up to $20.0 million and rights under various
Asian sports programming agreements. STAR Television Limited operates a
satellite-delivered television platform in Asia.
On April 19, 1996, TINTA, Torneos and the Torneos Stockholders entered
into an agreement (the "TINTA/Torneos Sports Agreement") whereby TINTA agreed
to make minimum periodic payments from 1996 through 2004 aggregating $235.2
million to acquire certain rights and considerations, including the
exploitation rights to all sports rights owned by Torneos with the exception of
any rights which at that time had been contractually committed to any third
party. In particular, TINTA acquired worldwide distribution rights outside of
Argentina for Clasico del Domingo and worldwide distribution rights (excluding
Buenos Aires) for Futbol de Primera and Torneos de Verano (Summer Games).
Pending the assignment of the rights under the TINTA/Torneos Sports
Agreement which fit within the geographic area and business plan of the Sports
Venture (the "Sports Venture Rights") to the Sports Venture, TINTA, News Corp.
and Liberty have paid their respective portion of any payments made with respect
to the Sports Venture Rights. Through December 31, 1996, payments made under the
TINTA/Torneos Sports Agreement totaled $9.4 million.
The Company believes that its actual future cash requirements,
including cash requirements in connection with the funding of capital
expenditures and operating activities of its affiliates, will exceed the
amounts that the Company currently is contractually obligated to fund. The
Company is not able to more precisely predict the timing or amount of the
future funding requirements of its affiliates because such future cash
requirements are dependent upon a variety of factors.
II-20
<PAGE> 83
Although Telewest has required significant amounts of capital in order
to fund its construction program and operating losses, the Company has not
provided any funding to Telewest since 1994. The Company has no present
intention to make any significant additional capital contributions or loans to
Telewest in order to assist Telewest in meeting its existing liquidity
requirements.
The Company and/or other subsidiaries of TCI have guaranteed notes
payable and other obligations of certain of the Company's affiliates (the
"Guaranteed Obligations"). At December 31, 1996, the U.S. dollar equivalent of
the amounts borrowed pursuant to the Guaranteed Obligations was $39.3 million.
Certain of the Guaranteed Obligations allow for additional borrowings in future
periods. The Company also has guaranteed the obligation of an affiliate (The
Premium Movie Partnership) to pay fees for the license to exhibit certain films
through the year 2000. If the Company were to fail to fulfill its obligations
under the guarantees, the beneficiaries have the right to demand an aggregate
payment of approximately $58 million. Although the Company has not had to
perform under such guarantee to date, the Company cannot be certain that it
will not be required to perform under such guarantee in the future.
Additionally, agreements relating to the Company's investment in
certain affiliates contain (i) buy-sell and other exit arrangements whereby
the Company could be required to purchase another investor's ownership interest
and (ii) performance guarantees whereby the Company and/or other subsidiaries
of TCI have guaranteed the performance of the Company's subsidiary that
directly holds the related investment. In connection with the IPO, TINTA agreed
to indemnify TCI for any loss, claim or liability that TCI may incur by reason
of any guarantees made by TCI of financial, contractual or debt obligations for
the benefit of the Company.
Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general partnership
could be liable, depending upon the applicable partnership law, for all debts
of that partnership to the extent liabilities of that partnership were to
exceed its assets.
During the year ended December 31, 1996, Cablevision, Flextech and the
Consolidated Puerto Rico Entities accounted for $38.5 million, $6.7 million and
$10.1 million, respectively, of the Company's aggregate capital expenditures of
$55.3 million. As described under "General" above, effective January 1, 1997,
the capital expenditures and other cash flows of Flextech will no longer be
included in the Company's consolidated statements of cash flows. Although the
Company expects that its future capital expenditure requirements with respect
to Cablevision and the Puerto Rico Subsidiary will equal or exceed historical
levels, the Company currently believes that the internally generated funds and
other sources of liquidity of Cablevision and the Puerto Rico Subsidiary
generally will be sufficient to satisfy the foreseeable capital expenditure
requirements of such entities. In this regard, the Company's Puerto Rico
Subsidiary is negotiating to obtain $100 million in bank financing, a portion
of which would be used to fund a proposed acquisition in Puerto Rico, as
described under "Liquidity and Capital Resources." There is no assurance that
such bank financing will be obtained.
On June 5, 1995, Flextech completed the sale of 17,504,155 newly issued
Flextech Ordinary Shares and 4,675,082 newly issued Flextech Non-Preference
Shares at a per share price of L.4.15 ($7.11) to subsidiaries of Hallmark Cards
Incorporated ("Hallmark") (the "Hallmark Subscription")and U S WEST Inc. ("U S
WEST") (the "U S WEST Subscription"). The Hallmark Subscription and the U S
WEST Subscription are collectively referred to herein as the "Flextech
Transactions."
II-21
<PAGE> 84
In connection with US WEST Subscription, Flextech received 340,000
convertible redeemable preferred shares of Thomson Directories Limited (the
"TDL Securities") and Flextech borrowed L.43.7 million ($69.7 million using the
applicable exchange rate) pursuant to a bank credit facility (the "Flextech
Bank Credit Facility"). During the third quarter of 1996, the U S WEST
subsidiary purchased the TDL Securities and Flextech used the resulting
proceeds to repay in full all amounts borrowed pursuant to the Flextech Bank
Credit Facility.
On April 22, 1996, Flextech acquired from IFE (i) the 61% ownership
interest in Maidstone which Flextech did not already own and (ii) a 100%
ownership interest in TVS (the "IFE Acquisitions"). Excluding liabilities
assumed, the total consideration paid by Flextech to acquire such ownership
interests was L.31.4 million ($47.8 million using the applicable exchange
rate), of which L.3.0 million ($4.5 million using the applicable exchange rate)
was paid in cash and the remaining balance was satisfied by Flextech's issuance
of 5,792,008 Flextech Non-Preference Shares (the "IFE Consideration Shares").
As a result of the IFE Acquisitions, the Company's ownership interest in
Flextech's issued and outstanding share capital decreased from 48.8% to 46.5%.
As described under "General" above, in connection with the closing of the BBC
Joint Ventures and the issuance to the Company of the Special Voting Share, all
of the IFE Consideration Shares are to be converted into Flextech Ordinary
Shares.
Certain of the agreements underlying the Flextech Transactions and the
IFE Acquisitions required the Company to repurchase an aggregate of 10,467,090
Flextech Non-Preference Shares at fair value (or in the case of the IFE
Consideration Shares, at the greater of fair value or L.3.64 ($6.23 per share)
if such shares have not become convertible into Flextech Ordinary Shares by
June 1, 1997. In connection with the closing of the BBC Joint Venture and the
issuance to the Company of the Special Voting Share, as described under
"General" above, all of the Flextech Non-Preference Shares are to be converted
into Flextech Ordinary Shares, thereby eliminating TINTA's put obligations with
respect to such shares, insofar as such obligations are based on the
convertibilty of such shares.
If at any time (x) the aggregate of the amount of (i) Flextech
securities held by the Company, (ii) the Hallmark and U S WEST subsidiaries'
interests in Flextech acquired under the Hallmark Subscription and the U S WEST
Subscription, respectively, and (iii) Flextech securities acquired by IFE
pursuant to the IFE Acquisitions exceeds 75% of Flextech's issued and
outstanding share capital, or (y) subject to certain exceptions, the Flextech
Ordinary Shares cease to be admitted to trading on the Official List of the
London Stock Exchange as a result of the exercise by the Company of any of its
rights as a Flextech shareholder, the Company shall be obligated to offer to
purchase from the Hallmark and U S WEST subsidiaries, and IFE any Flextech
Ordinary Shares or Flextech Non-Preference Shares held by them and which were
originally acquired pursuant to the Hallmark Subscription, the U S WEST
Subscription, or the IFE Acquisitions, as applicable. Under such circumstances,
the offer price for such shares shall be the higher of (i) the then current
market price for the Flextech Ordinary Shares and (ii) the highest price paid to
any third party by the Company for any Flextech Ordinary Shares or Flextech
Non-Preference Shares during the preceding 12 month period. In the event the
Company is required to purchase any Flextech Non-Preference Shares or Flextech
Ordinary Shares, as described above, it may elect, subject to certain limited
exceptions, to pay the purchase price thereof in cash or in shares of Series A
Common Stock, or in certain securities of TCI.
II-22
<PAGE> 85
Flextech has commitments to acquire distribution and exhibition rights
for a variety of programming under license agreements with Hallmark
Entertainment. The rights are limited to the United Kingdom and certain other
European markets and have a term for a period of ten years once the license
period commences. Through December 31, 1996, programming with an aggregate
contractual value of L.19.8 million ($33.9 million) had been delivered to
Flextech under such agreements. It is estimated that Flextech's remaining
commitments to acquire programming will be L.10.5 million ($18.0 million).
Hallmark Entertainment has provided Flextech a guarantee that it will recover
at least L.14.6 million ($25.0 million) from the exploitation of such rights.
Flextech also has agreed to purchase certain programming from Scottish
Television plc ("STV") during the next two years. At December 31, 1996,
Flextech's aggregate remaining obligations under such STV programming
agreements are expected to range from L.1.4 million ($2.4 million) to L.6.5
million ($11.1 million).
The Company's operating lease commitments include significant amounts
related to Flextech's transponder lease agreements. Most of the payments under
such agreements are required to be made in European Currency Units.
On August 9, 1995, Flextech paid 16.0 million Netherlands guilders
(approximately $10.3 million using the applicable exchange rate) to acquire a
33.3% ownership interest in Preview Investments B.V. ("Preview"). In connection
with this transaction, Flextech and Infinity Investments B.V. ("Infinity"), the
owner of the remaining 66.7% interest in Preview, have entered into certain
agreements whereby Flextech has the right to require Infinity to sell, and
Infinity has the right to require Flextech to purchase, the 66.7% Preview
interest currently owned by Infinity. Such rights are first exercisable on June
1, 2000. For additional information, see note 14 to the accompanying financial
statements of the Company.
As described under "General" above, Flextech's programming and
transponder lease commitments, and its contingent obligation with respect to
Preview and other matters, will not be included in the Company's disclosure of
its consolidated commitments and contingencies upon the January 1, 1997
deconsolidation of Flextech.
On October 17, 1995, IVS completed the sale of a group of cable
television subsidiaries to an unaffiliated third party for aggregate cash
proceeds of L.62.6 million ($98.9 million using the applicable exchange rate)
(the "IVS Subsidiary Sale"). Flextech, which, at the time, indirectly owned
91.7% of IVS, received L.59.3 million ($93.7 million using the applicable
exchange rate) of the cash proceeds from the IVS Subsidiary Sale. In connection
with the IVS Subsidiary Sale, Flextech paid L.3.3 million $(5.7 million) (the
majority of which was not paid until 1996) to acquire the 9.3% minority
interest in IVS.
On December 13, 1995, TINTA invested in MultiThematiques, a newly
formed European programming company, with two French media companies, CANAL +
S.A. ("Canal +") and General d'Images S.A. ("GDI"). Canal + and GDI have
contributed to MultiThematiques their combined equity interests in four French
thematic channels and Canal + has also contributed its equity interest in a
Spanish classic movie channel. The Company contributed 123.1 million French
Francs ("FF") ($24.7 million at the applicable exchange rate), FF105.0 million
($20.2 million) and FF100.00 million ($19.3 million) to MultiThematiques in
December 1995, December 1996 and February 1997, respectively. The Company is
obligated to contribute an additional FF164.0 million ($31.6 million) no later
than December 13, 1997. In order to manage the Company's foreign exchange
currency risk with respect to its December 13, 1997 contribution obligation,
the Company entered into a foreign currency option contract that allows the
Company to purchase FF 164.0 million at a price of FF 5.5367 per U.S. dollar
through December 13, 1997. Each of TINTA, Canal + and GDI own a one-third
interest in MultiThematiques.
II-23
<PAGE> 86
On February 7, 1996, Cordillera Comunicaciones Limitada ("Cordillera")
(a 50%-owned affiliate of the Company's 80% owned affiliate, BIP Chile), and
Compania de Telecomunicaciones de Chile S.A. ("CTC") (a subsidiary of the
Spanish telephone company Telefonica de Espana S.A.), entered into certain
definitive agreements (the "Chile Restructuring Agreements") that provided for,
among other matters, the contribution of all the cable subscribers within each
party's cable systems to a new Chilean company called Metropolis- Intercom S.A.
("Metropolis-Intercom"). Cordillera owns a 60% interest in Metropolis-Intercom
and CTC, Comercial Canelo S.A. and Empresa El Mercurio S.A.P. own jointly a
combined 40% interest. The Chile Restructuring Agreements also provided that
all of the cable distribution assets excluding the headends (the "Acquired
Distribution Assets") of Cordillera be sold to CTC. In June 1996, the parties
finalized the transactions contemplated by the Chile Restructuring Agreements
and the Acquired Distribution Assets were sold to CTC for cash proceeds of
approximately $120 million. Approximately $30 million of such cash proceeds (of
which $17 million was received in 1996 and $13 million was received in 1997)
was used to reduce the amounts owed by BIP Chile to TINTA pursuant to a
subordinated loan agreement.
On February 8, 1996, the Company received net cash proceeds of
approximately $336 million from the issuance of the Debentures. The Debentures
are due in 2006 and have an aggregate principal amount of $345.0 million. The
Debentures are convertible into shares of Series A Common Stock at a price of
$27.30 per share of Series A Common Stock, subject to anti-dilution
adjustments. Interest on the Debentures is payable on February 15 and August 15
of each year. The Debentures are redeemable by TINTA in whole or in part, at
any time on or after February 15, 1999. Pending its use by TINTA, the net
proceeds from the sale of the Debentures were loaned to TCI pursuant to an
unsecured promissory note. Amounts outstanding under the promissory note (the
"TCI Note Receivable")($176.5 million at December 31, 1996) bear interest at
variable rates based on TCI's weighted average cost of bank borrowings of
similar maturities and principal and interest are due and payable as mutually
agreed from time to time by TCI and TINTA. The net proceeds from the Debentures
that have been expended through December 31, 1996 were used to fund capital
contributions to the Company's affiliates and to fund certain other liquidity
requirements of TINTA.
II-24
<PAGE> 87
On October 1, 1996 Cablevision acquired 99.99% of the issued and outstanding
capital stock of OCC for a purchase price of $112.2 million. Cash
consideration of $43.7 million was paid at closing and an additional cash
payment of $22.1 million was paid on December 1, 1996. Cablevision incurred
additional bank debt in order to fund such cash payments. The remaining
purchase price was satisfied by Cablevision's issuance of $46.4 million
principal amount of secured negotiable promissory notes (the "OCC Notes"). The
OCC Notes will be repaid by Cablevision in 21 consecutive equal monthly
installments commencing on January 10, 1997 and accrue interest at 9.25%. The
OCC Notes are secured by the pledge of 51% of the stock of OCC.
On December 31, 1996, pursuant to an amended and restated agreement of
limited partnership of Bresnan International Partners (Poland), L.P. ("BIP
Poland"), (i) TINTA converted the principal balance of its revolving loan to
BIP Poland ($23.8 million) to equity and made an additional contribution of $10
million and (ii) BCI Poland, Inc., an entity in which the Company has no
ownership interest, and which, prior to December 31, 1996, held a 20% general
partnership interest in BIP Poland, contributed $18.5 million to BIP Poland,
thereby reducing TINTA's ownership percentage from 80% to 43.95%. The amended
and restated agreement of limited partnership also provides that each partner
shall earn a return of 15% per annum on the average of such partner's
Unreturned Capital (as defined). Through December 31, 1996, the Company's
Unreturned Capital in BIP Poland was $34.8 million. BIP Poland used $25.2
million of the above-described cash contributions to fund the December 31, 1996
acquisition of a cable television system serving areas of the city of Warsaw,
Poland.
On January 10, 1997, the Company signed an agreement to pay cash
consideration of approximately $12.7 million, and to assume certain
indebtedness, to acquire the 50% ownership interest in Caguas/Humacao Cable
Systems which the Company did not already own (the "Caguas Acquisition"). At
December 31, 1996, the indebtedness to be assumed had a principal balance of
$32.1 million. The Puerto Rico Subsidiary is negotiating to obtain $100 million
in bank financing, a portion of which would be used to fund the cash portion of
the purchase price and to refinance the indebtedness to be assumed. Subject to
certain closing conditions, the transaction is expected to close in April 1997.
No assurances can be given that the transaction will be consummated or that the
bank financing will be obtained.
On January 27, 1997, the Company announced that it was instituting a
stock repurchase program. Under the stock repurchase program, the Company may
repurchase from time to time up to 5% (approximately 5.3 million shares) of its
outstanding Series A Common Stock. As of March 13, 1997, the Company had
repurchased 220,000 shares under such program for an aggregate purchase price
of $3.2 million.
On March 10, 1997, the Company announced that it had signed a
Memorandum of Understanding (the "MOU") that contemplates the Company's
purchase of additional equity interests in Cablevision such that the Company's
ownership interest in Cablevision would be increased from 51% to up to 90% (the
"Cablevision Minority Interest Purchase"). The MOU contemplates execution of
definitive agreements on March 31, 1997 and closing within 120 days thereafter.
It also provides that each party's obligations are subject to approval by
TINTA's Board of Directors, due diligence and execution of definitive
agreements. No assurance can be given that the parties will reach agreement on
the terms of such agreements, or that the Cablevision Minority Interest
Purchase will be consummated. Additionally, the purchase price contemplated by
the MOU is significant and the Company would need to arrange for financing
before the Cablevision Minority Interest Purchase could be consummated.
As described under "General" above, the Company has significant
contingent obligations with respect to the Standby Commitment provided by the
Company to the Principal Joint Venture in March 1997. For additional
information concerning the effects of the formation of the BBC Joint Ventures
and related transactions on the liquidity and capital resources of the Company
and Flextech, see "General" above.
II-25
<PAGE> 88
In addition to the amount owed to the Company pursuant to the TCI Note
Receivable, TINTA's sources of liquidity include its cash and cash equivalent
balances, as described below, and the $200 million of borrowing availability
pursuant to the TCIC Credit Facility. Any amounts borrowed under the TCIC Credit
Facility would bear interest at 13% and would be due and payable on April 25,
2000. At December 31, 1996, no borrowings were outstanding pursuant to the TCIC
Credit Facility.
At December 31, 1996, $40.9 million of the Company's $44.2 million of
cash and cash equivalents were held by its subsidiaries. Exclusive of amounts
held by its subsidiaries, TINTA held cash and cash equivalents of $3.3 million
at December 31, 1996. TINTA believes that such cash and cash equivalents, the
remaining net cash proceeds from the sale of the Debentures (which remaining
net cash proceeds have been loaned to TCI as described above), borrowing
availability pursuant to the TCI Credit Facility and any funds generated by the
operating or financing activities of TINTA's operating subsidiaries and
affiliates will be sufficient for the next year to (i) fund the Company's
existing capital contribution and lending commitments to its affiliates and
(ii) fund the Company's working capital, debt service and capital expenditure
requirements. Although TINTA's ability to obtain dividends or advances from
certain of its operating subsidiaries and affiliates is limited, TINTA's
liquidity requirements with respect to its operating subsidiaries and
affiliates are reduced to the extent that such operating subsidiaries and
affiliates are able to generate funds through their respective operating or
financing activities. To the extent that the Company consummates the
Cablevision Minority Interest Purchase or seeks to make other significant
acquisitions or is required to meet significant future liquidity requirements
in addition to those described above, the Company anticipates that it will need
to obtain additional debt or equity financing. Other events could occur
involving TINTA, including required payments under certain share repurchase,
guarantee and indemnification agreements, that could require TINTA to obtain
significant additional funds. No assurance can be given, however, that TINTA or
its subsidiaries or affiliates will be able to obtain additional financing on
terms acceptable to them, or at all.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company are filed under this item
beginning on page II-27. All financial statement schedules are omitted as they
are not required or are not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
II-26
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tele-Communications International, Inc.:
We have audited the accompanying balance sheets of Tele-Communications
International, Inc. (the "Company," as defined in note 1) as of December 31,
1996 and 1995, and the related statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 14, 1997
II-27
<PAGE> 90
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- --------
amounts in thousands
<S> <C> <C>
Assets
- ------
Cash and cash equivalents (note 4) $ 44,192 133,109
Trade and other receivables, net 38,185 19,066
Film inventory and other prepaid expenses 65,749 36,465
Investment in Telewest Communications plc
("Telewest")(note 7) 488,495 550,216
Investments in other affiliates, accounted for
under the equity method, and related
receivables (note 8) 421,853 354,133
Other investments (note 9) 20,873 83,839
Property and equipment, at cost:
Land 277 277
Distribution systems 216,172 118,705
Support equipment and buildings 51,111 29,321
---------- ---------
267,560 148,303
Less accumulated depreciation 65,033 35,314
---------- ---------
202,527 112,989
---------- ---------
Franchise costs and other intangible assets (note 5) 755,914 583,862
Less accumulated amortization 61,576 29,030
---------- ---------
694,338 554,832
---------- ---------
Deferred financing costs and other assets, net of
amortization 13,089 6,062
---------- ---------
$1,989,301 1,850,711
========== =========
</TABLE>
(continued)
II-28
<PAGE> 91
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Consolidated Balance Sheets, continued
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------------- ------------
amounts in thousands
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Accounts payable $ 35,467 25,010
Accrued liabilities 75,173 40,774
Debt (note 10) 511,128 192,718
MultiThematiques Obligation (note 8) 47,902 65,876
Deferred income tax liability (note 12) 193,748 186,126
Other liabilities 17,698 6,500
----------- ---------
Total liabilities 881,116 517,004
----------- ---------
Minority interests in equity of subsidiaries 142,187 122,358
----------- ---------
Stockholders' Equity (note 11):
Preferred Stock, $.01 par value
Authorized 10,000,000 shares; none issued -- --
Series A Common Stock, $1 par value Authorized 300,000,000 shares;
issued 106,960,873 shares and 106,487,500 shares in
1996 and 1995, respectively 106,961 106,488
Series B Common Stock, $1 par value
Authorized 12,000,000 shares; issued
11,700,000 shares in 1996 and 1995 11,700 11,700
Additional paid-in capital 1,186,788 1,177,271
Accumulated deficit (205,456) (75,036)
Cumulative foreign currency translation
adjustment, net of taxes 26,146 (8,550)
Unrealized holding losses for available-
for-sale securities, net of taxes -- (152)
----------- ---------
1,126,139 1,211,721
Due from Tele-Communications, Inc.
("TCI") (notes 1 and 13) (160,141) (372)
----------- ---------
Total stockholders' equity 965,998 1,211,349
----------- ---------
Commitments and contingencies
(notes 8, 13, 14 and 17)
$ 1,989,301 1,850,711
=========== =========
</TABLE>
See accompanying notes to financial statements.
II-29
<PAGE> 92
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
amounts in thousands
<S> <C> <C> <C>
Revenue:
Cable $ 220,163 142,494 19,033
Programming 94,397 48,039 24,949
--------- --------- ------
314,560 190,533 43,982
--------- --------- ------
Operating costs and expenses:
Cable (note 13) 133,991 90,367 14,770
Programming 125,844 62,030 39,260
Programming rights provision 8,706 -- --
General and administrative:
Allocated from TCI (notes 11 and 13) 1,160 4,374 8,166
Other 9,469 8,617 --
Depreciation 24,649 15,315 6,009
Amortization 34,098 21,045 2,581
--------- --------- ------
337,917 201,748 70,786
--------- --------- ------
Operating loss (23,357) (11,215) (26,804)
Other income (expense):
Share of losses of Telewest (note 7) (109,357) (70,274) (42,520)
Share of losses of other affiliates (note 8) (70,054) (53,674) (35,571)
Interest income:
TCI (note 13) 14,044 -- --
Other 10,241 8,989 1,127
Interest expense:
TCI (note 13) (1,408) (4,259) --
Other (33,745) (16,611) (651)
Gain on issuance of stock by Telewest (note 7) 258 164,900 161,481
Gain on disposition of assets, net
(notes 6 and 8) 12,284 51,139 --
Minority interests' share of losses (earnings) 22,847 (4,000) 10,279
Foreign currency transaction gains (losses) 7,101 (2,480) 1,389
Recognized holding loss for available-for-sale
securities (note 9) (6,575) -- --
Other, net (notes 8 and 13) 1,690 (772) (2,510)
--------- --------- ------
(152,674) 72,958 93,024
--------- --------- ------
Earnings (loss) before income taxes (176,031) 61,743 66,220
Income tax benefit (expense) (note 12) 45,611 (31,702) (32,534)
--------- --------- ------
Net earnings (loss) $(130,420) $ 30,041 33,686
========= ========= ======
Net earnings (loss) per common share (note 3):
Historical $ (1.10) -- --
========= ========= ======
Pro forma $ -- .28 .35
========= ========= ======
</TABLE>
See accompanying notes to financial statements.
II-30
<PAGE> 93
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional
Preferred Common Stock paid-in Combined Accumulated
Stock Series A Series B capital equity deficit
----- -------- ------- ------- ------ -------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ -- -- -- -- 516,782 (137,583)
Contributions -- -- -- -- 307,211 --
Net earnings -- -- -- -- -- 33,686
Foreign currency translation adjustment -- -- -- -- -- --
---------- -------- ------- -------- --------- --------
Balance at December 31, 1994 -- -- -- -- 823,993 (103,897)
Contributions -- -- -- 53,298 42,380 --
Net earnings -- -- -- -- -- 30,041
Foreign currency translation adjustment -- -- -- -- -- --
Unrealized holding losses for
available-for-sale securities -- -- -- -- -- --
Adjustment to reflect completion
of Contributions (see note 1) -- 85,800 11,700 768,873 (866,373) --
Adjustment to reflect implementation
of tax sharing agreement (see note 12) -- -- -- 12,545 -- --
Adjustment in connection with the
issuance of ordinary shares by
Flextech p.l.c. (note 5) -- -- -- 50,900 -- --
Issuance of Series A Common Stock
in July 18, 1995 initial public
offering
(see note 1) -- 20,000 -- 281,343 -- --
Issuance of Series A Common Stock
as partial consideration for investment -- 688 -- 10,312 -- --
Adjustment to reflect elimination of
reporting delay with respect to
Flextech p.l.c. (note 2) -- -- -- -- -- (1,180)
Change in due from TCI -- -- -- -- -- --
---------- -------- ------- -------- --------- --------
Balance at December 31, 1995 -- 106,488 11,700 1,177,271 -- (75,036)
Net loss -- -- -- -- -- (130,420)
Issuance of common stock -- 473 -- 9,517 -- --
Foreign currency translation adjustment -- -- -- -- -- --
Change in unrealized holding loss for
available-for-sale securities -- -- -- -- -- --
Change in due from TCI (note 13) -- -- -- -- -- --
---------- -------- ------- --------- --------- --------
Balance at December 31, 1996 $ -- 106,961 11,700 1,186,788 -- (205,456)
========== ======== ======= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign losses for
currency available-
translation for-sale Total
adjustment, securities, Due from Stockholders'
net of taxes net of taxes TCI Equity
<S> <C> <C> <C> <C>
Balance at January 1, 1994 (13,504) -- -- 365,695
Contributions -- -- -- 307,211
Net earnings -- -- -- 33,686
Foreign currency translation adjustment 9,851 -- -- 9,851
--------- ------- ------- ---------
Balance at December 31, 1994 (3,653) -- -- 716,443
Contributions -- -- -- 95,678
Net earnings -- -- -- 30,041
Foreign currency translation adjustment (4,897) -- -- (4,897)
Unrealized holding losses for
available-for-sale securities -- (152) -- (152)
Adjustment to reflect completion
of Contributions (see note 1) -- -- -- --
Adjustment to reflect implementation
of tax sharing agreement (see note 12) -- -- -- 12,545
Adjustment in connection with the
issuance of ordinary shares by
Flextech, (note 5) -- -- -- 50,900
Issuance of Series A Common Stock
in July 18, 1995 initial public
offering (see note 1) -- -- -- 301,343
Issuance of Series A Common Stock
as partial consideration for investment -- -- -- 11,000
Adjustment to reflect elimination of
reporting delay with respect to
Flextech p.l.c. (note 2) -- -- -- (1,180)
Change in due from TCI -- -- (372) (372)
--------- ------- ------- ---------
Balance at December 31, 1995 (8,550) (152) (372) 1,211,349
Net loss -- -- -- (130,420)
Issuance of common stock -- -- -- 9,990
Foreign currency translation adjustment 34,696 -- -- 34,696
Change in unrealized holding loss for
available-for-sale securities -- 152 -- 152
Change in due from TCI (note 13) -- -- (159,769) (159,769)
--------- ------- ------- ----------
Balance at December 31, 1996 26,146 -- (160,141) 965,998
========= ======= ======== ==========
</TABLE>
See accompanying notes to financial statements.
II-31
<PAGE> 94
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
amounts in thousands
(see note 4)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $(130,420) 30,041 33,686
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 58,747 36,360 8,590
Programming rights provision 8,706 -- --
Share of losses of Telewest 109,357 70,274 42,520
Share of losses of other affiliates 70,054 53,674 35,571
Gain on issuance of stock by Telewest (258) (164,900) (161,481)
Gain on disposition of assets (12,284) (51,139) --
Recognized holding loss for
available-for-sale securities 6,575 -- --
Minority interests' share of earnings (losses) (22,847) 4,000 (10,279)
Unrealized foreign currency transaction losses (gains) (6,287) 1,761 (1,389)
Accretion of discount on MultiThematiques
Obligation 5,751 271 --
Deferred income tax expense (benefit) (48,444) 31,084 (9,533)
Intercompany current federal income tax
benefit (10,187) (4,881) --
Changes in operating assets and liabilities, net of the
effect of acquisitions:
Change in receivables (4,497) 210 (7,185)
Change in film inventory and other prepaid expenses (12,168) (32,064) (2,319)
Change in payables and accruals 14,448 35,397 (7,138)
Net cash used in Flextech p.l.c.'s operating activities
during one-month period ended September 30, 1995
(note 2) -- (1,726) --
--------- ----- -------
Net cash provided by (used in) operating
activities $ 26,246 8,362 (78,957)
--------- ----- -------
</TABLE>
(continued)
II-32
<PAGE> 95
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Statements of Cash Flows, continued
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ----------- ------------
amounts in thousands
(see note 4)
<S> <C> <C> <C>
Cash flows from investing activities:
Investments in and loans to affiliates and others $(166,067) (173,971) (218,905)
Cash paid for acquisitions, net (62,177) (170,309) --
Payment of deposit on pending acquisition -- -- (20,000)
Capital expended for property and equipment (55,285) (57,914) (8,020)
Cash paid to purchase minority interests (4,636) (24,735) --
Proceeds from repayment of loans by affiliates and others 20,342 5,502 --
Proceeds from dispositions of assets 72,099 98,895 --
Other, net (2,296) 5,239 (147)
Net cash used in Flextech p.l.c.'s investing activities
during one-month period
ended September 30, 1995 (note 2) -- (50,729) --
--------- --------- -----
Net cash used in investing activities (198,020) (368,022) (247,072)
--------- --------- -----
Cash flows from financing activities:
Issuance of debentures 345,000 -- --
Loan to TCI (336,375) -- --
Repayments received on loan to TCI 159,874 -- --
Net proceeds from initial public offering -- 301,343 --
Borrowings of debt 179,353 314,696 12,715
Repayments of debt (277,763) (301,325) (9,282)
Net proceeds from issuance of common stock 9,990 -- --
Cash proceeds from issuance of shares by
Flextech plc -- 74,779 --
Payment of deferred financing costs (9,524) (2,105) --
Other changes in due from TCI 3,554 (1,598) --
Contributions from parent -- 95,678 307,211
Contributions from minority interest owners 4,822 -- 16,162
Net cash provided by Flextech p.l.c.'s financing
activities during one-month period ended
September 30, 1995 (note 2) -- 8,707 --
--------- --------- -----
Net cash provided by financing
activities 78,931 490,175 326,806
--------- --------- -----
Effect of exchange rate changes on cash 3,926 (3,142) 224
--------- --------- -----
Net increase (decrease) in cash and cash
equivalents (88,917) 127,373 1,001
Cash and cash equivalents:
Beginning of year 133,109 5,736 4,735
--------- --------- -----
End of year $ 44,192 $ 133,109 5,736
========= ========= =====
</TABLE>
See accompanying notes to financial statements.
II-33
<PAGE> 96
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
December 31, 1996, 1995 and 1994
(1) Basis of Presentation
Tele-Communications International, Inc. ("TINTA"), a majority-owned
subsidiary of TCI, operates multi-channel video and telecommunications
distribution networks in, and provides diversified programming
services to, selected markets outside the United States.
During the fourth quarter of 1994 and the first quarter of 1995, TCI
contributed its indirect ownership interests in substantially all of
its international cable and telephony assets and certain of its
international programming assets to TINTA (the "Contributions"). For
purposes of this discussion, except to the extent the context
otherwise requires, the term the "Company" refers to (i) such
contributed ownership interests before the February 28, 1995
completion date of the Contributions and (ii) TINTA and its direct and
indirect subsidiaries and affiliates on and after such completion
date. Unless the context indicates otherwise, references to "TCI"
herein are to TCI and its consolidated subsidiaries (other than the
Company).
On July 18, 1995, TINTA completed its initial public offering (the
"IPO"), in which 20,000,000 shares of Series A Common Stock, $1 par
value per share ("Series A Common Stock") were sold to the public for
aggregate cash consideration of $320.0 million, before deducting
related expenses (approximately $18.7 million). The shares of TINTA's
common stock owned by TCI at December 31, 1996 represented
approximately 83% of the aggregate issued and outstanding common stock
of TINTA and 91% of the aggregate voting interest represented by such
issued and outstanding stock.
In connection with the IPO, TINTA amended and restated its Certificate
of Incorporation on July 12, 1995 to, among other things, (i) increase
its authorized capital stock and (ii) divide its common stock into two
series. At the same time, TINTA effected a reclassification pursuant
to which the 1,000 shares of common stock held by TCI were
reclassified and changed into 85,800,000 shares of Series A Common
Stock and 11,700,000 shares of Series B Common Stock, $1 par value per
share ("Series B Common Stock"). See note 11.
(continued)
II-34
<PAGE> 97
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The most significant entities that are reflected in the Company's
financial statements on a consolidated basis for the periods presented
herein are engaged in (i) the multi-channel video and
telecommunications distribution business (the "cable" business) in
Puerto Rico (the "Consolidated Puerto Rico Entities") and in Buenos
Aires, Argentina (since the April 25, 1995 acquisition of a 51%
ownership interest in Cablevision S.A. and certain affiliated
companies, ("Cablevision ") as further described in note 5) and (ii)
the distribution and production of programming for multi-channel video
distribution systems (the "programming" business) in the United
Kingdom ("UK") and other parts of Europe through the Company's
subsidiary, Flextech p.l.c. See related discussion below and note 17.
The Company's ownership interest in the issued and outstanding share
capital of Flextech p.l.c. (together with its consolidated
subsidiaries, "Flextech") was 60.4% through May 1995, 48.8% from June
1995 through March 1996, and 46.5% from April 1996 through December
31, 1996. The Company's voting interest in Flextech was 60.4% through
May 1995 and 50.9% from June 1995 through December 31, 1996.
In January 1997, the Company reduced its voting interest in Flextech
to 50% by issuing to a nominee an irrevocable proxy to vote 960,850
Flextech ordinary shares ("Flextech Ordinary Shares") at any
shareholder meeting to be held through December 31, 1997. In March
1997, Flextech announced that it had reached agreement with BBC
Worldwide Limited to form two separate joint ventures (the "BBC Joint
Ventures") and that it would enter into certain related transactions.
If consummated, such transactions would result in, among other things,
a reduction of TINTA's ownership interest in Flextech to 36.1% and the
maintenance of TINTA's voting interest in Flextech at 50%. In light of
the Company's decreased voting interest in Flextech, the Company,
effective January 1, 1997, will cease to consolidate Flextech and will
begin to account for Flextech using the equity method of accounting.
See notes 5 and 17.
(continued)
II-35
<PAGE> 98
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
At December 31, 1996, Flextech's most significant consolidated
subsidiaries were comprised of its 100% ownership interests in Bravo
Classic Movies Limited ("Bravo Ltd."), Starstream Limited
("Starstream"), Flextech Television Limited ("FTV"), Maidstone
Broadcasting (formerly the International Family Channel UK)
("Maidstone") and TVS Television Limited ("TVS") (acquired by Flextech
in April 1996), and its 63% interest in HSN Direct International
Limited (acquired by Flextech in April 1996) and its 51% ownership
interest in Playboy TV UK/Benelux Limited (commenced operations in
November 1995). Flextech maintained a 74.9% ownership interest in
Starstream through May 1995, and since June 1995, Flextech has
maintained a 100% ownership interest in Starstream. Prior to the April
1996 transaction in which Flextech increased its ownership interest in
Maidstone from 39% to 100%, Flextech accounted for its investment in
Maidstone using the equity method of accounting. Bravo Ltd. owns
"Bravo", a provider of entertainment targeted to male audiences.
Starstream owns "TCC" (formerly marketed as "The Children's Channel"),
a provider of children's programming. FTV provides management services
to various entities engaged in the programming business. Playboy TV
UK/Benelux owns "Playboy TV," a provider of adult entertainment.
Maidstone owns "Challenge TV" (formerly marketed as "The Family
Channel"), a provider of game shows and family entertainment. TVS owns
Maidstone Studios Limited, a production facility. HSN Direct
International Limited ("HSN Direct") is engaged in the domestic and
foreign "infomercial" business. See note 5.
Subsequent to December 31 ,1996, the Company's three Consolidated
Puerto Rico Entities were merged together into one surviving entity
(the "Puerto Rico Subsidiary"). See note 17.
Due to timing considerations, Cablevision and Flextech were included
in the Company's financial statements on a one-month time delay
through the third quarter of 1995. The Company eliminated such time
delay from its December 31, 1995 financial statements. See note 2.
(continued)
II-36
<PAGE> 99
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
As further described in note 13, the accompanying statements of
operations separately present certain allocated corporate expenses of
TCI. Although such allocated corporate expenses are not necessarily
indicative of the costs that would have been incurred by the Company
on a stand-alone basis, management believes the allocated amounts are
reasonable.
(2) Elimination of Reporting Delay
Through the third quarter of 1995, the Company included Cablevision
and Flextech in its financial statements on a one-month time delay.
The Company eliminated such time delay from its December 31, 1995
financial statements. As a result, the Company's combined statement of
operations for the year ended December 31, 1995 includes (i)
Cablevision's results of operations for the period commencing on the
April 25, 1995 acquisition date through December 31, 1995 and (ii)
Flextech's results of operations for the period commencing December 1,
1994 through December 31, 1995 (exclusive of the one-month period
ended September 30, 1995). The Company's combined statement of cash
flows for the year ended December 31, 1995 includes the cash flows of
Cablevision and Flextech for the same periods except that Flextech's
cash flows for the one-month period ended September 30, 1995 are
included therein on a summarized basis. Similarly, the Company's
December 31, 1995 consolidated balance sheet includes the financial
position of each of Cablevision and Flextech at December 31, 1995. In
connection with the elimination of the above-described reporting
delays, the Company charged Flextech's net loss for the one-month
ended September 30, 1995 directly to the Company's accumulated deficit
so that the Company's combined statement of operations for the year
ended December 31, 1995 would not include more than 12 months of
Flextech's operating results. Summarized operating results of Flextech
(as adjusted to reflect the Company's historical cost basis in
Flextech) for the one-month ended September 30, 1995 are as follows
(amounts in thousands):
<TABLE>
<S> <C>
Revenue $ 4,502
=======
Operating loss $(2,488)
=======
Net loss $(1,180)
=======
</TABLE>
(3) Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Receivables
Receivables are reflected net of an allowance for doubtful accounts.
Such allowance at December 31, 1996 and 1995 was not material.
(continued)
II-37
<PAGE> 100
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Investments
For those investments in affiliates in which the Company's voting
interest is 20% to 50%, the equity method of accounting is generally
used. Under this method, the investment, originally recorded at cost,
is adjusted to recognize the Company's share of the net earnings or
losses of the affiliates as they occur rather than as dividends or
other distributions are received. The Company's share of net earnings
or losses of affiliates includes the amortization of purchase
adjustments.
Investments in debt securities and marketable equity securities in
which the Company's voting interest is less than 20% are classified as
available-for-sale and are carried at fair value. Any unrealized
holding gains and losses (net of the related deferred income tax
effect) are carried as a separate component of equity. Any unrealized
holding losses which are deemed to be other than temporary are charged
to operations. Other investments in which the Company's ownership
interest is less than 20% are generally carried at cost.
Changes in the Company's proportionate share of the underlying equity
of a subsidiary or equity method investee, which result from the
issuance of additional equity by such subsidiary or equity method
investee, are generally recognized as gains or losses in the Company's
statements of operations. See notes 5 and 7.
Film Inventory
Film inventory includes exhibition and other exploitation rights
acquired under license agreements or through production and output
agreements. Such rights, along with the related obligation, are
recorded at the face amount of the contract at the time the
programming becomes available.
Film inventory is carried at the lower of unamortized cost or net
realizable value. Exhibition rights are amortized on a straight-line
basis over the available runs in the contract period. Other
exploitation rights are amortized based on the percentage that current
year revenues bear to estimated future revenues on a
program-by-program basis. Estimates of future revenues are
periodically reviewed by management and revised when warranted by
changing conditions, such as changes in the distribution marketplace
or changes in the expected usage of a program.
Long-Lived Assets
(a) Property and Equipment
Property and equipment is stated at cost, including acquisition
costs allocated to tangible assets acquired. Construction and
initial subscriber installation costs, including interest during
construction, material, labor and applicable overhead, are
capitalized. Interest capitalized during 1996, 1995 and 1994 was
not material.
(continued)
II-38
<PAGE> 101
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 20 years for distribution systems (3 to 5
years for converters and in-home wiring and 10 to 20 years for the
remaining components of the distribution system) and 3 to 40 years
for support equipment and buildings (3 to 5 years for support
equipment and 10 to 40 years for buildings and improvements).
Repairs and maintenance are charged to operations, and additions
are capitalized. At the time of ordinary retirements, sales or
other dispositions of property, the original cost and cost of
removal of such property are charged to accumulated depreciation,
and salvage, if any, is credited thereto. Gains and losses are
only recognized in connection with sales of properties in their
entirety.
(b) Franchise Costs and Other Intangible Assets
Franchise costs and other intangible assets generally include the
difference between the cost of acquiring cable, telephony and
programming companies and amounts allocated to their tangible
assets. Such amounts are amortized on a straight-line basis over
their useful lives (10 to 40 years).
In March of 1995, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of ("Statement No. 121"), effective for fiscal
years beginning after December 15, 1995. Statement No. 121 requires
impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted Statement No. 121 effective January
1, 1996. Such adoption did not have a significant effect on the
financial position or results of operations of the Company. In
accordance with Statement No. 121, the Company periodically reviews
the carrying amount of its long-lived assets, franchise costs and
certain other assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. The
Company considers historical and expected future net operating losses
to be its primary indicators of potential impairment. Assets are
grouped and evaluated for impairment at the lowest level for which
there are identifiable cash flows that are largely independent of the
cash flows of other groups of assets ("Assets"). The Company deems
Assets to be impaired if the Company is unable to recover the carrying
value of its Assets over their expected remaining useful life through
a forecast of undiscounted future operating cash flows directly
related to the Assets. If Assets are deemed to be impaired, the loss
is measured as the amount by which the carrying amount of the Assets
exceeds their fair values. The Company generally measures fair value
by considering sales prices for similar assets or by discounting
estimated future cash flows. Considerable management judgment is
necessary to estimate discounted future cash flows. Accordingly,
actual results could vary significantly from such estimates.
(continued)
II-39
<PAGE> 102
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Foreign Currency Translation
The functional currency of TINTA is the United States ("U.S.") dollar.
The functional currency of the Company's foreign operations generally
is the applicable local currency for each foreign subsidiary and
equity method investee. In this regard, the functional currency of
Cablevision, Flextech and the Consolidated Puerto Rico Entities is the
Argentine peso, the UK pound sterling ("L." or "pounds") and the U.S.
dollar, respectively. All amounts presented herein with respect to
Cablevision are stated in U.S. dollars because the Argentine
government has maintained an exchange rate of one U.S. dollar to one
Argentine peso since April of 1991. However, no assurance can be given
that the Argentine government will maintain such an exchange rate in
future periods. Assets and liabilities of foreign subsidiaries and
equity investees are translated at the spot rate in effect at the
applicable reporting date, and the combined statements of operations
and the Company's share of the results of operations of its equity
affiliates are translated at the average exchange rates in effect
during the applicable period. The resulting unrealized cumulative
translation adjustment, net of applicable income taxes, is recorded as
a separate component of equity.
Transactions denominated in currencies other than the functional
currency are recorded based on exchange rates at the time such
transactions arise. Subsequent changes in exchange rates result in
transaction gains and losses which are reflected in the statements of
operations as unrealized (based on the applicable period end
translation) or realized upon settlement of the transactions.
Cash flows from the Company's consolidated foreign subsidiaries are
calculated in their functional currencies. The effect of exchange rate
changes on cash balances held in foreign currencies is reported as a
separate line item in the accompanying statements of cash flows.
Unless otherwise indicated, convenience translations of foreign
currencies into U.S. dollars are calculated using the applicable spot
rate at December 31, 1996, as published in The Wall Street Journal.
Foreign Currency Derivatives
From time to time, the Company uses certain derivative financial
instruments to manage its foreign currency risks. Amounts receivable
or payable pursuant to derivative financial instruments that qualify
as hedges of existing assets, liabilities and firm commitments are
deferred and reflected as an adjustment of the carrying amount of the
hedged item. Market value changes in all other derivative financial
instruments are recognized currently in the combined statements of
operations. At December 31, 1996 and 1995, the Company had no material
deferred hedging gains or losses.
II-40
<PAGE> 103
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Acquisition, Transaction and Development Costs
The Company capitalizes direct and incremental costs incurred relative
to potential investments. If an investment is made, these costs are
either reimbursed to the Company by the affiliated company or
capitalized as part of the cost basis of the Company's investment. If
the potential investment is abandoned, these costs are expensed in the
period of abandonment.
Revenue Recognition
Cable and programming revenue is recognized in the period that
services are delivered. Cable installation revenue is recognized in
the period the related services are provided to the extent of direct
selling costs. Any remaining amount is deferred and recognized over
the estimated average period that subscribers are expected to remain
connected to the cable television system.
Earnings (Loss) Per Common Share
As described in note 1, TINTA changed its historical capital structure
in connection with the IPO. The pro forma net earnings per share
amounts set forth in the accompanying combined statements of
operations for the years ended December 31, 1995 and 1994 was computed
using historical earnings and a weighted average share number that
reflects pro forma common shares outstanding of (i) 97,500,000 for the
1994 period and (ii) 97,500,000 for the 1995 period ended on the July
18 closing date of the IPO and actual weighted average shares
outstanding for the remainder of the 1995 period. Accordingly, the
calculation of the pro forma net earnings per share assumes weighted
average shares outstanding of 106.8 million and 97.5 million during
the years ended December 31, 1995 and 1994, respectively. The weighted
average number of common shares used to compute the historical net
loss per share for the year ended December 31, 1996 was 118.5 million.
Common stock equivalents were not included in the weighted average
common shares outstanding because their inclusion would be
anti-dilutive.
(continued)
II-41
<PAGE> 104
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("Statement No. 123") was issued by the FASB
in October 1995. Statement No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans as well
as transactions in which an entity issues its equity instruments to
acquire goods or services from non-employees. As allowed by Statement
No. 123, the Company continues to account for stock-based employee
compensation pursuant to Accounting Principles Board Opinion No. 25.
For the year ending December 31, 1996 the Company estimates that
compensation expense would not be materially different under Statement
No. 123.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities 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.
Reclassification
Certain amounts have been reclassified for comparability with the 1996
presentation.
(continued)
II-42
<PAGE> 105
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(4) Supplemental Disclosures to Statements of Cash Flows
The Company's cash and cash equivalents are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
December 31,
------------
Denomination 1996 1995
------------ ---- ----
<S> <C> <C> <C>
TINTA U.S. dollars $ 3,341 46,065
Subsidiaries:
Flextech UK pounds 38,233 85,163
Cablevision Argentine pesos 2,618 1,837
Consolidated Puerto Rico Entities
U.S. dollars -- 44
------- -------
$44,192 133,109
======= =======
</TABLE>
The cash and cash equivalents balances of Flextech and Cablevision are
available to be applied toward the respective liquidity requirements
of Flextech and Cablevision, and, with the exception of the repayment
of certain principal and interest owed to TINTA by Flextech, it is not
anticipated that any significant portion of such cash balances will be
distributed or otherwise made available to TINTA.
Cash paid for interest was $20.4 million, $17.1 million and $376,000
for years ended December 31, 1996, 1995 and 1994, respectively. Cash
paid for income taxes was $12.5 million during the year ended December
31, 1996 and was not material during the years ended December 31, 1995
and 1994.
The net cash paid by the Company for acquisitions is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Recorded value of assets acquired $ 229,656 542,638 92,536
Issuance of notes payable (51,727) (86,755) --
Liabilities assumed (including deferred income
tax liabilities of $36.6 million and $174.7
million in 1996 and 1995, respectively) (72,529) (285,574) (33,857)
Historical cost of contributed net assets -- -- (40,017)
Increase in minority interests in equity of
subsidiaries due to issuance of shares by
Flextech (43,223) -- --
Minority interest in equity of
acquired entity -- -- (18,662)
--------- ------- -------
Cash paid for acquisitions $ 62,177 170,309 --
========= ======= ========
</TABLE>
For a description of certain non-cash transactions, see notes 5, 8, 12 and 13.
(continued)
II-43
<PAGE> 106
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(5) Acquisitions
(a) OCC Acquisition
On October 1, 1996, Cablevision acquired 99.99% of the issued and
outstanding capital stock of Oeste Cable Color S.A. ("OCC"), a
cable television operation in the west of the greater Buenos Aires
metropolitan area, for a purchase price of $112.2 million (the
"OCC Acquisition"). Cash consideration of $43.7 million was paid
at closing and an additional cash payment of $22.1 million was
paid on December 1, 1996. Cablevision incurred additional bank
debt in order to fund such cash payments. The remaining purchase
price was satisfied by Cablevision's issuance of $46.4 million
principal amount of secured negotiable promissory notes (the "OCC
Notes"). The OCC Notes will be repaid in 21 consecutive equal
monthly installments commencing on January 10, 1997 and will
accrue interest at 9.25%. The OCC Notes are secured by the pledge
of 51% of the stock of OCC.
(b) IFE Acquisitions
On April 22, 1996, Flextech acquired from International Family
Entertainment, Inc. ("IFE") (i) the 61% ownership interest in
Maidstone, which Flextech did not already own and (ii) a 100%
ownership interest in TVS. Excluding liabilities assumed, the
total consideration paid by Flextech to acquire such ownership
interests was L.31.4 million ($47.8 million using the applicable
exchange rate), of which L.3.0 million ($4.5 million using the
applicable exchange rate) was paid in cash and the remaining
balance was satisfied by Flextech's issuance of 5,792,008
convertible non-preference shares (the "IFE Consideration
Shares"). In connection with the above-described transactions
(collectively, the "IFE Acquisitions"), TINTA granted to IFE the
right to put the IFE Consideration Shares to TINTA after June 1,
1997 if the IFE Consideration Shares have not become convertible
into Flextech ordinary shares ("Flextech Ordinary Shares") by that
date. The put price per IFE Consideration Share is the greater of
(i) L.3.64 ($6.23) or (ii) the market value of a Flextech Ordinary
Share at the time of the exercise of the put option. TINTA has the
option to satisfy the put option price in cash or in shares of
Series A Common Stock. As a result of the IFE Acquisitions, the
Company's ownership interest in Flextech's issued and outstanding
share capital decreased from 48.8% to 46.5%. Due primarily to the
Company's contingent purchase obligations under the
above-described put option, the Company recognized no gain in
connection with the dilution of the Company's ownership interest
in Flextech that resulted from the issuance of the IFE
Consideration Shares. Accordingly, the full value ascribed to the
IFE Consideration Shares has been reflected as an increase to
"Minority interests in equity of subsidiaries" as set forth in the
accompanying December 31, 1996 consolidated balance sheet. In
connection with the BBC Joint Ventures and certain related
transactions, all of the IFE Consideration Shares are to be
converted into Flextech Ordinary Shares thereby eliminating
TINTA's put obligation with respect to such shares. See note 17.
(continued)
II-44
<PAGE> 107
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(c) HSN Acquisition
On April 10, 1996, Flextech made an initial capital contribution
of L.525,000 ($899,000) and assumed certain liabilities in
connection with the acquisition of an indirect controlling
interest in the "infomercial" business of HSN Direct from the Home
Shopping Network, Inc., an affiliate of TCI, and certain
individuals (the "HSN Acquisition"). In connection with the HSN
Acquisition, Flextech loaned $4.9 million to HSN Direct. TINTA
paid $2.2 million to Flextech for 20% of Flextech's interest in
the acquired business. As a result, Flextech owns 63% and TINTA
owns 15.7% of HSN Direct.
(d) Cablevision Acquisition
On April 25, 1995, the Company acquired a 51% ownership interest
in Cablevision for an adjusted purchase price of $282.0 million,
before liabilities assumed (the "Cablevision Acquisition"). The
purchase price was paid with cash consideration of $195.2 million
(including a previously paid $20 million deposit) and the
Company's issuance of $86.8 million principal amount of secured
negotiable promissory notes payable (the "Cablevision Notes") to
the selling shareholders. See note 10. The Company has an option
during the two-year period ended April 25, 1997 to increase its
ownership interest in Cablevision to up to 80.0% at a cost per
subscriber similar to the initial purchase price, adjusted however
for certain fluctuations in applicable foreign currency exchange
rates. On March 10, 1997, the Company announced that it had signed
a Memorandum of Understanding that contemplates the Company's
purchase of additional equity interests in Cablevision such that
the Company's ownership interest in Cablevision would be increased
from 51% to up to 90%. See note 17.
In connection with the Cablevision Acquisition, the Company (i)
assumed Cablevision's liabilities on April 25, 1995 (approximately
$118.6 million), (ii) borrowed $155.2 million from TCI pursuant to
a $200.0 million revolving credit facility between the Company and
TCI (the "TCI Credit Facility"), and (iii) received a $23.5
million capital contribution from TCI. During the third quarter of
1995, the Company used a portion of the proceeds from the IPO to
repay the $155.2 million principal amount that was borrowed
pursuant to the TCI Credit Facility.
(continued)
II-45
<PAGE> 108
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
In accordance with the purchase method of accounting, the purchase
price has been allocated using the estimated fair values of the
net assets acquired and Cablevision has been included in the
Company's financial statements since the April 25, 1995
acquisition date. None of Cablevision's $65.0 million of net
liabilities at the April 25, 1995 acquisition date, and none of
Cablevision's post-acquisition operating results have been
allocated to Cablevision's 49% minority interest because (i) the
minority interest has no obligation to provide any funding to
Cablevision and (ii) the minority interest continued to have a
negative historical cost basis in Cablevision's net assets at
December 31, 1996. To the extent that Cablevision's post-
acquisition net earnings (exclusive of the effects of purchase
accounting) cause the minority interest's historical cost basis in
Cablevision's net assets to become positive, the Company would
begin to allocate 49% of such net earnings to the minority
interest. If the minority interest's historical cost basis had
been positive for the periods ended December 31, 1996 and 1995,
the Company would have allocated $15.9 million and $11.7 million,
respectively, of Cablevision's net earnings (exclusive of the
effects of purchase accounting) to the minority interest.
(e) Flextech Acquisition
On February 2, 1994, the Company contributed its 100% ownership
interests in Flextech Television Limited ("FTV") (formerly known
as United Artists Entertainment (Programming) Limited) and Bravo
Ltd., together with its equity method investments in UK Gold
Television Limited ("UKGL"), UK Living Limited ("UKLL") and
Starstream (collectively, the "International UK Programming
Assets") to Flextech in exchange for 52,356,707 or 60.4% of
Flextech's issued and outstanding ordinary shares (the "Flextech
Combination"). See note 1.
In connection with the Flextech Combination, an indirect
subsidiary of TINTA (the "TINTA Subsidiary") made loans
aggregating L.10.0 million ($15.1 million using the applicable
exchange rate) to Flextech, and purchased L.9.4 million ($14.2
million using the applicable exchange rate) of certain unsecured
convertible debt of Flextech (the "Flextech Convertible Debt").
The Flextech Convertible Debt, which bears interest at variable
rates, may be converted into Flextech ordinary shares ("Flextech
Ordinary Shares") at the rate of L.3.00 ($5.14) per Flextech
Ordinary Share for a period of 180 days commencing in September
1997. During the first five months of 1995, the TINTA Subsidiary
loaned an additional L.13.8 million ($23.6 million) to Flextech.
Such additional amount was repaid by Flextech in August 1995 with
proceeds received pursuant to certain June 1995 share issuances
(see below). Except for the foreign currency effects described
below, all of the Company's loans to and investments in Flextech
eliminate in consolidation.
In connection with the above-described intercompany loans to
Flextech, the Company recognized realized and unrealized foreign
currency transaction gains (losses) aggregating $3.6 million,
$(1.6 million) and $1.1 million during the years ended December
31, 1996, 1995 and 1994, respectively.
(continued)
II-46
<PAGE> 109
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The 52,356,707 Flextech Ordinary Shares acquired by the Company at
the time of the Flextech Combination were recorded at the
Company's aggregate historical cost basis in the International UK
Programming Assets ($40.0 million). The excess of the resulting
aggregate cost over the Company's proportionate share of
Flextech's equity was allocated to Flextech's assets and
liabilities based upon their estimated fair values.
On June 5, 1995, Flextech completed the sale of newly issued
Flextech Ordinary Shares and newly issued convertible non-
preference shares ("Flextech Non-Preference Shares") to
subsidiaries of Hallmark Cards Incorporated ("Hallmark") (the
"Hallmark Subscription") and U S WEST, Inc. ("U S WEST") (the "U S
WEST Subscription"). The Flextech Non-Preference Shares are
convertible at the option of the holder into Flextech Ordinary
Shares on a one-for-one basis at any time after the Company ceases
to own at least 50.01% of the voting power associated with
Flextech's then outstanding ordinary share capital. The Hallmark
Subscription and the U S WEST Subscription are collectively
referred to herein as the "Flextech Transactions."
Under the terms of the Hallmark Subscription, HC Crown Corp.
("Crown"), a subsidiary of Hallmark, purchased 9,322,763 Flextech
Ordinary Shares and 2,337,541 Flextech Non-Preference Shares in
exchange for L.48.4 million ($77.2 million using the applicable
exchange rate) in cash. In connection with the U S WEST
Subscription, (i) U S WEST (UK), a subsidiary of U S WEST,
purchased 8,181,392 Flextech Ordinary Shares and 2,337,541
Flextech Non-Preference Shares in exchange for 340,000 convertible
redeemable preferred shares of Thomson Directories Limited (the
"TDL Securities") and (ii) Flextech borrowed L.43.7 million ($69.7
million using the applicable exchange rate) pursuant to a bank
credit facility (the "Flextech Bank Facility"). See notes 9 and
10. In connection with the Flextech Transactions, the Company
recorded a $50.9 million increase to "Additional paid-in capital"
and a $93.2 million increase to "Minority interests in equity of
subsidiaries." No gain was recognized due primarily to the
existence of TINTA's contingent obligations to purchase Flextech
Non-Preference Shares and/or Flextech Ordinary Shares from U S
WEST (UK) and Crown. See notes 14 and 17.
In June 1995, Flextech paid L.9.8 million ($15.3 million using the
applicable exchange rate) to acquire the 25.1% minority interest
in Starstream not already owned by Flextech. Such payment has been
recorded as an intangible asset due to the fact that the minority
interests' cost basis in Starstream had previously been reduced to
zero. Such intangible asset is being amortized over an estimated
useful life of twenty years. In connection with the aforementioned
acquisition of the 25.1% minority interest, Flextech also paid
L.5.3 million ($8.5 million using the applicable exchange rate) to
purchase Starstream's unsecured promissory notes.
(continued)
II-47
<PAGE> 110
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The Company owned, at December 31, 1996, 56,340,598 Flextech
Ordinary Shares representing 46.5% of the issued and outstanding
Flextech share capital and 50.9% of the aggregate voting interests
attributable to such Flextech share capital. As described in note
1, the Company, effective January 1, 1997, will cease to
consolidate Flextech and will begin to account for Flextech using
the equity method of accounting. For additional information
concerning the effects of certain subsequent events on the
Company's ownership and voting interests in Flextech, see note 17.
Based upon the L.6.775 ($11.60) per share closing price of the
Flextech Ordinary Shares on the London Stock Exchange, the
Flextech Ordinary Shares owned by the Company had an aggregate
market value of L.381.8 million ($653.8 million) at December 31,
1996.
Unaudited pro forma summarized operating results of the Company
assuming the OCC Acquisition, IFE Acquisitions, HSN Acquisition and the
Cablevision Acquisition had been, in each case, consummated on January
1, 1995, are as follows (amounts in thousands):
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------------
1996 1995
------------ -------------
<S> <C> <C>
Revenue $ 344,133 299,932
========= =======
Net earnings (loss) $(134,991) 13,871
========= =======
Pro forma net earnings (loss)
per common share $ (1.14) .13
========= =======
</TABLE>
The foregoing unaudited pro forma information is based upon historical
results of operations and is not necessarily indicative of the results
that would have been obtained had the OCC Acquisition, IFE
Acquisitions, HSN Acquisition and the Cablevision Acquisition actually
occurred on January 1, 1995.
(continued)
II-48
<PAGE> 111
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(6) Dispositions
On October 17, 1995, IVS Cable Holdings Limited ("IVS"), a consolidated
subsidiary of Flextech, completed the sale of a group of cable
television subsidiaries to an unaffiliated third party for aggregate
cash proceeds of L.62.6 million ($98.9 million using the applicable
exchange rate) (the "IVS Subsidiary Sale"). Following the IVS
Subsidiary Sale, IVS's only remaining cable television asset consisted
of its 59.2% ownership interest in Jersey Cable Limited ("Jersey"),
which owns the cable television franchise for the area of Jersey,
Channel Islands. Flextech, which, at the time, indirectly owned 91.7%
of IVS, received L.59.3 million ($93.7 million using the applicable
exchange rate) of the cash proceeds from the IVS Subsidiary Sale. In
connection with the IVS Subsidiary Sale, (i) Flextech paid L.3.3
million ($5.7 million) (the majority of which was not paid until 1996)
to acquire the remaining minority interest in IVS that was not already
owned by Flextech (the "IVS Minority Interest Buyout"), (ii) IVS
received cash and notes receivable aggregating L.663,000 ($1.1 million)
as consideration for the sale of Flextech's ownership interest in
Jersey to the former minority interest owners of IVS (the "Jersey
Sale"), and (iii) IVS received L.643,000 ($1.1 million) in repayment of
Jersey's intercompany payable to IVS. Flextech's aggregate $1.7 million
loss (before deducting the minority interests' share) on the Jersey
Sale and the IVS Minority Interest Buyout was reflected as a reduction
of the $52.8 million non-operating gain (before deducting the minority
interests' share) that was recognized by the Company during the fourth
quarter of 1995 in connection with the IVS Subsidiary Sale.
(7) Investment in Telewest
From December 18, 1991 through November 22, 1994, the Company and
certain affiliates of U S WEST, Inc. (the "U S WEST Affiliates") each
held a 50% ownership interest in the TCI/U S WEST Cable Communications
Group (the "Telewest UK Joint Venture").
On November 22, 1994, the Company and the U S WEST UK Affiliates each
entered into a series of transactions that resulted in the conversion
of their respective 50% ownership interests in the Telewest UK Joint
Venture into 302,250,000 ordinary shares and 76,500,000 convertible
preference shares of Telewest's predecessor ("Old Telewest") (the "Old
Telewest Exchange"). In connection with the Old Telewest Exchange, the
Company and the U S WEST Affiliates entered into an agreement to vote
their shares together in such a manner as may be mutually agreed, or in
the absence of such agreement, to vote their shares together in such a
manner that would be most likely to continue the status quo, without
materially increasing Old Telewest's financial obligations, or
materially deviating from its approved business plan.
(continued)
II-49
<PAGE> 112
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Following the completion of the Old Telewest Exchange, Old Telewest
conducted an initial public offering on November 30, 1994 in which it
sold 243,740,000 ordinary shares for aggregate net proceeds of
approximately L.401.3 million ($627.8 million using the applicable
exchange rate) (the "Old Telewest IPO"). Upon completion of the Old
Telewest Exchange and the Old Telewest IPO, TCI and the U S WEST
Affiliates each indirectly held approximately 36% of the ordinary
shares (assuming no conversion of the convertible preference shares)
and approximately 38% of the total outstanding ordinary and convertible
preference shares of Old Telewest. As a result of the Old Telewest IPO,
and the associated dilution of the Company's ownership interest in Old
Telewest, the Company recognized a $161.5 million non-cash gain (before
deducting the related tax expense of $56.5 million) during the fourth
quarter of 1994.
During the second quarter of 1995, the Old Telewest shares owned by the
Company and the U S WEST Affiliates were contributed to TW Holdings,
L.L.C. ("TW Holdings"), an entity in which the Company and the U S WEST
Affiliates each hold an indirect 50% ownership interest.
On October 3, 1995, the merger of Old Telewest and SBC CableComms (UK)
("SBCC") was consummated whereby a new entity, Telewest (formerly
Telewest plc), acquired all of the outstanding share capital of Old
Telewest and SBCC (the "SBCC Transaction"). The SBCC Transaction
effectively resulted in the conversion of the Company's 37.8% indirect
ownership interest in Old Telewest into a 26.8% indirect ownership
interest in Telewest. In connection with the SBCC Transaction, all of
the issued and outstanding Old Telewest ordinary shares and convertible
preference shares were exchanged for 735,968,440 Telewest ordinary
shares and 265,276,500 Telewest convertible preference shares.
Additionally, all of the issued and outstanding ordinary shares of SBCC
were exchanged for 183,994,960 Telewest ordinary shares and 230,790,208
Telewest convertible preference shares. As a result of the SBCC
Transaction, and the associated dilution of the Company's ownership
interest in Telewest, the Company recognized a non-cash gain of $164.9
million (before deducting estimated deferred income taxes of $57.7
million) during the fourth quarter of 1995. In connection with the SBCC
Transaction, Telewest received $1.2 billion of net cash proceeds from
the issuance of U.S. dollar denominated senior debentures having an
aggregate principal amount of $1.8 billion at maturity (the "Telewest
Debentures"). As a result of Telewest's issuance of the Telewest
Debentures, changes in the exchange rate used to translate the U.S.
dollar into the UK pound sterling will cause Telewest to experience
realized and unrealized foreign currency transaction gains and losses
throughout the term of the Telewest Debentures, which mature in 2006
and 2007, if not redeemed earlier. During the year ended December 31,
1996 and the period in 1995 following the issuance of the Telewest
Debentures, Telewest experienced unrealized foreign currency
transaction gains (losses) of $1.7 million and $(23.0 million)
respectively, with respect to the Telewest Debentures.
(continued)
II-50
<PAGE> 113
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
At December 31, 1996, the Company indirectly owned through TW Holdings,
132,638,250 or 26.7% of Telewest's convertible preference shares,
246,111,750 or 26.5% (assuming no conversion of the Telewest
convertible preference shares) of Telewest's ordinary shares, and 26.6%
of Telewest's aggregate convertible preference and ordinary share
capital. The rights and privileges of Telewest's convertible preference
shares are similar to those of the Telewest ordinary shares except that
the Telewest convertible preference shares may only be voted upon
resolutions involving the winding up of Telewest or resolutions
involving any modification of the rights or privileges of the Telewest
convertible preference shares. In accordance with the requirements of
the London Stock Exchange, the Telewest convertible preference shares
are convertible into Telewest ordinary shares on a one-for-one basis
only to the extent that, following conversion, at least 25% of the
Telewest ordinary shares remain publicly held. In connection with the
formation of TW Holdings, the Company and the U S WEST Affiliates
entered into certain agreements which contain provisions regarding,
among other matters, the voting and disposition of the Telewest
ordinary and convertible preference shares, which shares represent the
only assets of TW Holdings.
On December 31, 1996, the reported closing price on the London Stock
Exchange of the Telewest ordinary shares was L.1.24 per share ($2.12
per share).
Unless the context indicates otherwise, references herein to "Telewest"
include Telewest and its predecessor entities (Old Telewest and the
Telewest UK Joint Venture).
(continued)
II-51
<PAGE> 114
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The functional currency of Telewest is the UK pound sterling. The
average exchange rate used to translate the Company's share of
Telewest's operating results from UK pounds to U.S. dollars was 1.5718
to 1, 1.5799 to 1 and 1.5393 to 1 during the years ended December 31,
1996, 1995 and 1994, respectively. The spot rate used to translate the
Company's share of Telewest's net assets from UK pounds to U.S. dollars
was 1.7125 to 1 and 1.5530 to 1 at December 31, 1996 and 1995,
respectively.
Summarized financial information for Telewest is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
---- ----
<S> <C> <C>
Consolidated Financial Position
Cash and receivables, net $ 241,117 797,618
Investments 162,816 157,426
Property and equipment, net 2,478,030 1,652,094
Franchise costs and other assets, net 956,910 948,797
---------- ---------
Total assets $3,838,873 3,555,935
========== =========
Debt $1,505,713 1,277,465
Other liabilities 499,635 224,242
Shareholders' equity 1,833,525 2,054,228
---------- ---------
Total liabilities and equity $3,838,873 3,555,935
========== =========
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Consolidated Operations
Revenue $ 455,923 228,744 110,871
Operating, selling, general and administrative
expenses (454,458) (264,014) (139,504)
Depreciation and amortization (245,566) (107,233) (49,484)
--------- -------- -------
Operating loss (244,101) (142,503) (78,117)
Interest expense (164,757) (42,101) (15,499)
Interest income 26,163 24,718 3,527
Share of losses of affiliates (25,076) (20,186) (13,032)
Foreign exchange gain (loss) 1,670 (23,029) (32)
Other, net (including realized loss on interest rate swap
of $13,601 in 1995 and extraordinary gain of $11,217 in
1994) 242 (14,184) 13,797
--------- -------- -------
Net loss $(405,859) (217,285) (89,356)
========= ======== =======
</TABLE>
(continued)
II-52
<PAGE> 115
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(8) Investments in Other Affiliates
The Company's affiliates other than Telewest (the "Other Affiliates")
generally are engaged in the cable and/or programming businesses in
various foreign countries. Most of the Other Affiliates have incurred
net losses since their respective inception dates. As such,
substantially all of the Other Affiliates are dependent upon external
sources of financing and capital contributions in order to meet their
respective liquidity requirements.
In this regard, the Company is obligated to make further loans to or
investments in certain of the Other Affiliates. At December 31, 1996,
the aggregate U.S. dollar equivalent of the unfunded portion of such
commitments was $18.0 million, of which $6.1 million represented
commitments of Flextech.
The Company and/or other subsidiaries of TCI have guaranteed notes
payable and other obligations of certain of the Other Affiliates (the
"Guaranteed Obligations"). At December 31, 1996, the U.S. dollar
equivalent of the amounts borrowed pursuant to the Guaranteed
Obligations aggregated $39.3 million. Certain of the Guaranteed
Obligations allow for additional borrowings in future periods. See note
13.
Certain of the Other Affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership could be liable, depending upon the applicable partnership
law, for all debts of that partnership to the extent liabilities of
that partnership were to exceed its assets.
Agreements governing the Company's investment in certain of the Other
Affiliates contain (i) buy-sell and other exit arrangements whereby the
Company could be required to purchase another investor's ownership
interest and (ii) performance guarantees whereby the Company and/or
other subsidiaries of TCI have guaranteed the performance of the
Company's subsidiary that directly holds the related investment. See
note 13.
(continued)
II-53
<PAGE> 116
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The following table reflects the Company's carrying value (including
receivables) and share of earnings (losses) of the Other Affiliates
(amounts in thousands):
<TABLE>
<CAPTION>
Carrying value Share of earnings (losses)
------------------------- ----------------------------------------
December 31, Years ended December 31,
------------------------- ----------------------------------------
1996 1995 1996 1995 1994
---------- ---------- --------- ----- ----
<S> <C> <C> <C> <C> <C>
Flextech Affiliates (a) $129,563 123,156 (2,726) (13,510) (13,067)
MultiThematiques S.A
("MultiThematiques") (b) 84,007 89,705 (3,176) (282) --
Liberty/TINTA LLC (c) 63,227 29,118 (14,895) (950) --
Jupiter Telecommunications
Co., Ltd. ("Jupiter") (d) 47,251 16,268 (14,415) (7,137) --
Bresnan International Partners
(Chile), L.P. ("BIP Chile") (e) 34,408 59,286 (5,395) (5,939) (758)
Bresnan International Partners
(Poland), L.P. ("BIP Poland") (f) 27,951 16,739 (4,185) (1,270) --
United International Investments
("UII") (g) 25,598 26,293 660 (2,798) (2,110)
Asia Business News (Singapore) PTE
Ltd. ("ABN") (h) 9,556 10,472 (9,427) (7,054) (4,109)
DMX, Inc. ("DMX ") (i) -- 6,981 (7,188) (11,478) (3,097)
Telewest Europe Group ("Telewest
Europe") (j) -- (16,800) -- 1,643 (1,564)
Other 292 (7,085) (9,307) (4,899) (10,866)
-------- -------- -------- -------- --------
$421,853 354,133 (70,054) (53,674) (35,571)
======== ======== ======== ======== ========
</TABLE>
(a) Flextech Affiliates
At December 31, 1996, the "Flextech Affiliates" were comprised of
European Business News Partners (30%-owned by Flextech), HIT
Entertainment plc (23%-owned by Flextech), Preview Investments B.V.
("Preview") (33%-owned by Flextech), Scottish Television plc
("STV") (20%-owned by Flextech), UK Gold Television Limited
("UKGL")(25%-owned by Flextech) and UK Living Television Limited
("UKLL") (31%-owned by Flextech). In April 1996, Flextech acquired
the 61% interest in Maidstone, which Flextech did not already own.
See note 5. Prior to such acquisition, the "Flextech Affiliates"
also included Flextech's 39% interest in Maidstone. The functional
currency of Preview is the Netherlands guilder. The functional
currency of all other Flextech Affiliates is the UK pound sterling.
In connection with the formation of the BBC Joint Ventures,
Flextech has reached agreements with the shareholders of UKGL and
UKLL to acquire all of the equity share capital (75% and 68.75%,
respectively) that Flextech does not already own. Additionally, the
Company, effective January 1, 1997, will cease to consolidate
Flextech and will begin to account for Flextech using the equity
method of accounting. See note 17.
(continued)
II-54
<PAGE> 117
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
On August 9, 1995, Flextech acquired a 33.3% indirect interest in
Preview, a Dutch company whose principal assets consist of its
93.3% interest in KinderNet C.V. and its 100% interest in Holland
Visions B.V. KinderNet C.V. is the owner of the KinderNet Channel,
a Dutch children's cable television service. Holland Visions B.V.
provides television post-production and editing services in
Holland.
The purchase price for the 33.3% interest in Preview was
approximately 16.0 million Netherlands guilders ("NGL") ($10.3
million using the applicable exchange rate).
Flextech has also entered into a shareholders' agreement with
Infinity Investments B.V. ("Infinity"), the owner of the remaining
66.7% interest in Preview, pursuant to which Flextech will have the
right to require Infinity to sell to Flextech (the "Call Option"),
and Infinity will have the right to require Flextech to purchase
(the "Put Option"), Infinity's entire interest in Preview at a
price equal to a multiple of the average of Preview's consolidated
profit (before interest and taxes) for the fiscal years ended May
31, 1998, 1999 and 2000, subject to a maximum purchase price of NGL
100.0 million ($57.4 million) and a minimum purchase price of NGL
50.0 million ($28.7 million). The Call Option and the Put Option
are exercisable at any time between June 1, 2000 and December 31,
2000, subject to the approval of Flextech's shareholders, if such
approval is required under the Listing Rules of the London Stock
Exchange at the time of exercise. If the Put Option is exercised
and Flextech's shareholders do not give such approval, Flextech has
agreed to pay NGL 5.0 million ($2.9 million) to Infinity, though in
this case, the last date for exercise of the Call Option will be
extended to December 31, 2002, and such payment will be treated as
a L.2.0 million ($3.4 million) payment on account of the purchase
price payable upon exercise of the Call Option.
On September 28, 1995, Flextech exchanged its 20% ownership
interest in HTV Group p.l.c.("HTV") and L.28.0 million ($44.2
million using the applicable exchange rate) in cash for 12,065,143
or 20% of the issued and outstanding ordinary shares of STV (the
"STV Transaction"). During the fourth quarter of 1996, STV disposed
of its investment in HTV. STV holds the Channel 3 broadcasting
license for Central Scotland and operates a network production and
programming distribution business. The Company recorded its 20%
investment in STV at the aggregate historical cost basis of the
assets transferred to STV. Accordingly, the Company recognized no
gain or loss in connection with the STV Transaction. In connection
with the STV Transaction, Flextech has agreed to certain
restrictions regarding its ability to dispose of or acquire STV
ordinary shares during the twenty month period ending May 29, 1997.
Flextech also has agreed to purchase certain programming from STV
during the next two years. Flextech's aggregate obligations under
such agreements are expected to range from L.1.4 million ($2.4
million) to L.6.5 million ($11.1 million).
(continued)
II-55
<PAGE> 118
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Interest income on loans to the Flextech Affiliates is generally
recognized by Flextech only if collection of the underlying
principal amount is deemed to be assured. During the years ended
December 31, 1996, 1995 and 1994, Flextech recognized interest
income of $1.5 million, $3.4 million and none, respectively, on
loans made to the Flextech Affiliates. Such amount includes the
U.S. dollar equivalent of a L.1.8 million ($3.1 million) cash
payment from UKGL for interest earned during 1995 and prior
periods. In light of the receipt of such cash payment and
Flextech's assessment of the recoverability of Flextech's aggregate
investment in UKGL (including all amounts loaned by Flextech to
UKGL), Flextech re-evaluated its interest income recognition policy
with respect to UKGL. Accordingly, effective July 1995, Flextech
began recognizing interest income from UKGL as it is earned, rather
than as it is received.
The aggregate excess cost over Flextech's proportionate share of
the net assets of the Flextech Affiliates is being amortized over
estimated useful lives ranging from 10 to 20 years. At December 31,
1996, such aggregate excess cost was approximately $61 million.
(b) MultiThematiques
On December 13, 1995, TINTA invested in MultiThematiques, a newly
formed European programming company that is one-third-owned by each
of the Company and two French media companies, CANAL + S.A. ("Canal
+") and Generale d'Images S.A. ("GDI"). On December 13, 1995, (i)
TINTA contributed to MultiThematiques 123.1 million French francs
("FF") ($24.7 million at the applicable exchange rate), (ii) Canal
+ and GDI contributed to MultiThematiques a combined 70% interest
in Planete (a French documentary channel), a combined 85% interest
in Canal Jimmy (a lifestyle and entertainment channel targeted at
young male audiences) and a combined 60% interest in each of two
movie services, Cine Cinema (featuring recent movies) and Cine
Cinefil (featuring classic movies), and (iii) Canal + contributed
to MultiThematiques a 50% ownership interest in Cine Classics, a
start-up classic movie service in Spain. In addition, TINTA
contributed FF105.0 million ($20.2 million) and FF100.0 million
($19.3 million) on December 13, 1996 and February 13, 1997,
respectively, to MultiThematiques. TINTA also has agreed to
contribute FF 164.0 million ($31.6 million) no later than December
13, 1997. In order to manage the Company's foreign currency
exchange risk with respect to its December 13, 1997 contribution
obligation, the Company entered into a forward currency option
contract that allows the Company to purchase FF 164.0 million at a
price of FF 5.5367 per U.S. dollar through December 31, 1997.
(continued)
II-56
<PAGE> 119
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Whereas Canal + and GDI were not required to make additional
contributions on a pro rata basis, TINTA's obligation to make the
above-described additional FF 369.1 million ($71.1 million) was
viewed as additional consideration to be paid by TINTA to acquire
its one-third interest in MultiThematiques. Accordingly, the U.S.
dollar equivalent of the estimated net present value (using a
discount rate of 10%) of the remaining future contributions at
December 31, 1996 and 1995 has been reflected as a liability (the
"MultiThematiques Obligation") in the accompanying consolidated
balance sheets. As the MultiThematiques Obligation is denominated
in French francs, the Company will experience realized and
unrealized foreign currency transaction gains and losses with
respect to the MultiThematiques Obligation. During the year ended
December 31, 1996 and from December 13, 1995 through December 31,
1995, the Company experienced realized and unrealized foreign
currency transaction gains (losses) with respect to the
MultiThematiques Obligation of $3.3 million and $(968,000),
respectively. The $58.6 million excess of the Company's investment
in MultiThematiques over the Company's proportionate share of
MultiThematiques' net assets is being amortized over an estimated
useful life of twenty years. The majority of such excess was
created in connection with the recognition of the MultiThematiques
Obligation.
TINTA, Canal + and GDI have each agreed not to dispose of any
shares in MultiThematiques prior to November 21, 1999. Thereafter,
each shareholder may sell all (but not less than all) of its shares
to a third party subject to a pro rata right of first refusal by
the non-selling shareholders. In the event that any two
shareholders propose to sell their shares of MultiThematiques or
jointly receive an offer to purchase such shares, the other
shareholder has the right to participate in such sale by selling
its shares to the prospective buyer on the same terms.
(continued)
II-57
<PAGE> 120
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(c) Liberty/TINTA LLC
Effective April 29, 1996, TINTA, Liberty Media Corporation
("Liberty") and News Corporation Limited ("News Corp.") formed a
joint venture including a number of partnerships or other entities
under common ownership, (the "Sports Venture"), to operate
currently existing sports services in Latin America and Australia
and a variety of new sports services throughout the world,
excluding the United States, Canada and certain other defined
geographic areas. News Corp. owns a 50% interest in the Sports
Venture with the remaining 50% owned by Liberty/TINTA LLC, a
limited liability company owned in equal parts by subsidiaries of
TINTA and Liberty (the "LLC"). As of December 31, 1996, TINTA had
contributed to the LLC $49.0 million in cash and its 35% equity
interest in Torneos y Competencias S.A. ("Torneos"), an Argentinean
sports programming production company, and Liberty had contributed
to the LLC its interests in Latin American and Australian Sports
programming services and its rights under various television sports
programming agreements. The LLC contributed the non-cash assets
contributed to it by TINTA and Liberty to the Sports Venture. News
Corp. contributed various international sports rights and certain
trademark rights in exchange for its 50% interest in the Sports
Venture. TINTA acquired its 35% ownership interest in Torneos from
the selling stockholders of Torneos (the "Torneos Stockholders") on
July 28, 1995 for aggregate consideration of $30 million (exclusive
of certain contingent obligations to pay additional consideration,
which obligations were assumed by the Sports Venture). The carrying
value and the Company's share of earnings (losses) of Torneos prior
to its contribution to the LLC have been included with the LLC in
the above table.
TINTA may make additional cash contributions totaling $29.0 million
to the LLC to fund the operations of the Sports Venture. As part of
the formation of the Sports Venture, the LLC is entitled to receive
from News Corp. 7.5% of the outstanding stock of STAR Television
Limited. Upon the delivery of such stock to the LLC, News Corp. is
entitled to receive from the LLC up to $20.0 million and rights
under various Asian sports programming agreements. STAR Television
Limited operates a satellite- delivered television platform in
Asia.
On April 19, 1996, TINTA, Torneos and the Torneos Stockholders
entered into an agreement (the "TINTA/Torneos Sports Agreement")
whereby TINTA agreed to make minimum periodic payments from 1996
through 2004 aggregating $235.2 million to acquire certain rights
and considerations, including the exploitation rights to all sports
rights owned by Torneos with the exception of any rights which at
that time had been contractually committed to any third party. In
particular, TINTA acquired worldwide distribution rights outside of
Argentina for Clasico del Domingo and worldwide distribution rights
(excluding Buenos Aires) for Futbol de Primera and Torneos de
Verano (Summer Games).
(continued)
II-58
<PAGE> 121
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Pending the assignment of the rights under the TINTA/Torneos Sports
Agreement which fit within the geographic area and business plan of
the Sports Venture (the "Sports Venture Rights") to the Sports
Venture, TINTA, News Corp. and Liberty have paid their respective
portion of any payments made with respect to the Sports Venture
Rights. Through December 31, 1996, payments made under the
TINTA/Torneos Sports Agreement totaled $9.4 million.
The $33.0 million excess of the Company's aggregate historical cost
basis in the LLC over the Company's 50% proportionate share of the
LLC's net assets is being amortized over an estimated useful life
of 20 years.
(d) Jupiter
On January 18, 1995, the Company and Sumitomo Corporation
("Sumitomo"), a company incorporated in Japan, formed Jupiter for
the purpose of owning and operating cable television and telephony
businesses in Japan and other parts of Asia. The Company and
Sumitomo own 40% and 60%, respectively of Jupiter. The functional
currency of Jupiter is the Japanese yen ("Yen").
Through December 31, 1996, the Company had made aggregate
contributions to Jupiter of Yen7.4 billion ($71.3 million at the
applicable exchange rates). The Company, at December 31, 1996, was
obligated to pay Yen200 million ($1.7 million) to Sumitomo by March
31, 1997. As a result of a number of recent developments which
management believes are favorable to Jupiter, the Company and
Sumitomo are in the process of revising the original business plan
to increase the rate at which Jupiter would acquire additional
franchises and develop its network. Management of the Company
estimates that if Jupiter's business plan is accelerated in the
manner currently under discussion, Jupiter will require additional
funding, which additional funding may be significant. If Jupiter's
business plan is so accelerated, the Company anticipates that the
additional funding will be obtained through a combination of
capital contributions by TINTA and Sumitomo, on a pro rata basis,
and, to the extent available on acceptable terms, debt financing by
Jupiter.
The Company has entered into an option agreement whereby the
Company is entitled to sell Yen 1.6 billion in exchange for $17.5
million through April 4, 2002. The option is treated as a hedge of
the Company's foreign currency risk with respect to its existing
investment in Jupiter.
(continued)
II-59
<PAGE> 122
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(e) BIP Chile
The Company owns general and limited partnership interests in BIP
Chile of 0.5% and 79.5%, respectively. BCI Chile, Inc. ("BCI
Chile"), an entity in which the Company has no ownership interest,
owns a 20% general partnership interest in BIP Chile. BCI Chile is
the managing partner of BIP Chile. On December 31, 1994, BIP Chile
and a wholly-owned subsidiary of Cristalerias de Chile S.A.
("Cristalerias"), a Chilean company, formed Cordillera
Comunicaciones Limitada ("Cordillera"), a Chilean limited
partnership. Each of BIP Chile and Cristalerias have an indirect
50% ownership interest in Cordillera. Due to the veto powers of BCI
Chile, the Company accounts for its investment in BIP Chile using
the equity method of accounting. The functional currency of BIP
Chile is the U.S. dollar, while the functional currency of
Cordillera is the Chilean peso.
During the period in 1994 that followed BIP Chile's June 20, 1994
formation, BIP Chile acquired ownership interests in six cable
television systems located in Chile (the "Chilean Systems"). On
December 31, 1994, the Chilean Systems were contributed to
Cordillera at their historical cost. BIP Chile's net losses during
1994 include BIP Chile's share of the losses of each of the Chilean
Systems from the date that BIP Chile's ownership interest in each
such system was acquired through the December 31, 1994 contribution
date.
(continued)
II-60
<PAGE> 123
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
On February 7, 1996, Cordillera and Compania de Telecomunicaciones de
Chile S.A. ("CTC") (a subsidiary of the Spanish telephone company
Telefonica de Espana S.A.), entered into certain definitive agreements
(the "Chile Restructuring Agreements") that provided for, among other
matters, the contribution of all the cable subscribers within each
party's cable systems to a new Chilean company called
Metropolis-Intercom S.A. ("Metropolis-Intercom"). Cordillera owns a 60%
interest in Metropolis-Intercom and CTC, Comercial Canelo S.A. and
Empresa El Mercurio S.A.P. own jointly a combined 40% interest. The
Chile Restructuring Agreements also provided that all of the cable
distribution assets excluding the headends (the "Acquired Distribution
Assets") of Cordillera be sold to CTC. In June 1996, the parties
finalized the transactions contemplated by the Chile Restructuring
Agreements and the Acquired Distribution Assets were sold to CTC for
cash proceeds of approximately $120 million. Approximately $30 million
of such cash proceeds (of which $17 million was received in 1996 and
$13 million was received in 1997) was used to reduce the amounts owed
by BIP Chile to TINTA pursuant to a subordinated loan agreement, as
described below. As a result of the foregoing transactions, CTC is (i)
servicing 77 analog channels and any additional channels acquired by
Metropolis-Intercom, (ii) to expand and operate the Acquired
Distribution Assets and (iii) providing technical service pursuant to a
services agreement. Under the Chile Restructuring Agreements,
Cordillera, BIP Chile and the Company have agreed not to compete with
Metropolis-Intercom and not to pursue telephone opportunities in Chile,
and CTC has agreed not to compete with Metropolis-Intercom and not to
pursue cable-related opportunities in Chile (other than through
Metropolis-Intercom). The aforementioned service agreement has a term
of 30 years (with an option to renew) and the associated payments to
CTC are based on capacity utilized and other specified factors.
The Company has loaned funds to BIP Chile pursuant to a 12%
subordinated credit note (the "Chile Subordinated Credit Note") due
December 31, 2004. The outstanding principal pursuant to the Chile
Subordinated Credit Note of $61.8 million and $62.6 million was
included in the Company's investment in BIP Chile at December 31, 1996
and 1995, respectively. As of December 31, 1996, the Company was
obligated to make additional equity contributions to BIP Chile of
approximately $5.5 million.
As there is no obligation on the part of BCI Chile to proportionately
fund losses in excess of its investment, the Company recognizes 100% of
BIP Chile's net losses to the extent that such losses are in excess of
BCI Chile's investment in BIP Chile. Interest income on the Chile
Subordinated Credit Note is eliminated against the corresponding
interest expense that is included in the Company's share of BIP Chile's
net losses.
(continued)
II-61
<PAGE> 124
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(f) BIP Poland
As of December 31, 1996, the Company has general and limited
partnership interests in BIP Poland of 0.5% and 43.45%, respectively.
Prior to December 31, 1996, the Company had general and limited
partnership interests in BIP Poland of 0.5% and 79.5%, respectively.
BCI Poland, Inc. ("BCI Poland"), an entity in which the Company has no
ownership interest, has a 20% general partnership interest in BIP
Poland. BCI Poland is the managing general partner of BIP Poland. Due
to the veto powers of BCI Poland, the Company accounts for its interest
in BIP Poland using the equity method of accounting. Through its
acquired operating subsidiaries and affiliates, BIP Poland is engaged
in the cable business in Poland. The functional currency of BIP Poland
is the U.S. dollar, while the functional currency of BIP Poland's
operating subsidiaries and affiliates is the Polish zloty.
The Company loaned funds to BIP Poland pursuant to a 12% subordinated
credit note (the "Poland Subordinated Credit Note") due on December 31,
2004. On December 31, 1996, pursuant to an amended and restated
agreement of limited partnership of BIP Poland, (i) TINTA converted the
principal balance of the Poland Subordinated Credit Note ($23.8
million) to equity and made an additional equity contribution of $10
million and (ii) BCI Poland contributed $18.5 million to BIP Poland,
thereby reducing TINTA's ownership percentage from 80% to 43.95%. The
amended and restated agreement of limited partnership also provides
that each partner shall earn a return of 15% per annum on the average
of such partner's Unreturned Capital (as defined). Through December 31
,1996, the Company's Unreturned Capital in BIP Poland was $34.8
million.
Outstanding amounts due pursuant to the Poland Subordinated Credit Note
of $17.1 million were included in the Company's investment in BIP
Poland at December 31, 1995. Prior to the December 31, 1996 conversion
of the Poland Subordinated Credit Note to equity, interest income on
such note was eliminated against the corresponding interest expense
that was included in the Company's share of BIP Poland's net losses.
(g) UII
UII is a general partnership that was formed by TCI and United and
Philips Communications B.V. ("UPC") to acquire TCI's interest in Tevel
Israel International Communications Ltd. ("Tevel"), an Israeli
multi-channel television company, and UPC's interests in Melita Cable
TV Limited ("Melita"), a cable television system operator in the
republic of Malta. In addition, UII has an ownership interest in
Princes Holding Limited ("PHL") a multi-channel television concern in
Ireland. The functional currency of Melita, Tevel and PHL are the
applicable local currencies in Malta (lira), Israel (shekel) and
Ireland (punt), respectively.
(continued)
II-62
<PAGE> 125
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
At December 31, 1996, UII owned approximately 75.7%, 46.6% and 45.0% of
Melita, Tevel and PHL, respectively. Through UII, the Company owned
43.8%, 50.0% and 55.6% of the foregoing Melita, Tevel and PHL ownership
interests.
(h) ABN
ABN produces and distributes business and financial news programming in
certain markets located within the Asian region. The functional
currency of ABN is the Singapore dollar ("S$"). At December 31, 1996
and 1995, the Company owned 49.25% of ABN's outstanding ordinary
shares. The Company acquired 19.75% of it's interest in ABN during the
third quarter of 1995 for aggregate cash consideration of S$5.2 million
($4.1 million at the applicable exchange rates). In connection
therewith, the Company paid an additional S$5.3 million ($3.8 million
at the applicable exchange rate) to acquire a pro rata share of the
subordinated loans (as described below) previously made to ABN by such
selling shareholders.
The Company and ABN's other shareholders made subordinated loans (the
"ABN Subordinated Loans") denominated in Singapore dollars to ABN in
proportion to their respective ownership interests. Effective December
31, 1995, all amounts outstanding under such ABN Subordinated Loans
were converted to equity.
(i) DMX
Prior to May 1996, the Company owned 49% of the outstanding stock of
DMX Europe N.V. ("DMX Europe"). DMX owned the remaining 51% interest in
DMX Europe. TCI-Euromusic, Inc. ("TCI-E"), an indirect wholly-owned
subsidiary of TINTA, was formed to hold the Company's ownership
interest in DMX Europe. In May 1996, TCI-E merged with and into DMX,
with DMX as the surviving corporation ("the DMX Merger"). In effecting
the DMX Merger, the Company exchanged all of its shares of TCI-E common
stock for 10,841,624 shares or 18% of the then issued and outstanding
DMX common stock. Including shares of DMX common stock owned by the
Company, TCI owned approximately 45% of the issued and outstanding DMX
common stock at December 31, 1996. In consideration of TCI's overall
percentage interest in DMX, the Company accounts for DMX using the
equity method. The Company's share of losses of DMX for the year ended
December 31, 1996 exceeded the Company's carrying value of DMX. The
Company recorded its share of losses for the year ended December 31,
1996 only to the extent of its carrying value of DMX as the Company has
no obligation to provide any additional funding to DMX. At December 31,
1996, the market value of the Company's interest in DMX common stock
was $11.2 million ($1.031 per share).
(continued)
II-63
<PAGE> 126
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
On February 6, 1997, TCI, DMX and TCI Music, Inc. ("TCI Music"), a
wholly-owned subsidiary of TCI, entered into an Agreement and Plan of
Merger (the "TCI Music Merger Agreement"). Pursuant to the TCI Music
Merger Agreement, DMX will become a wholly- owned subsidiary of TCI
Music and each share of DMX common stock will be converted into the
right to receive (i) one-half share of TCI Music Series A Common Stock
and (ii) one right (a "Right") with respect to each whole share of TCI
Music Series A Common Stock (the "Merger"). Each right will entitle the
holder to require TCI to purchase from such holder one share of TCI
Music Series A Common Stock for $4.00 per share (the equivalent of
$2.00 per share of DMX common stock) payable at the election of TCI, in
cash, a number of shares of Tele-Communications, Inc. Series A TCI
Group Common Stock, having an equivalent value, or a combination
thereof, if during the one-year period beginning on the effective date
of the Merger, the price of TCI Music Series A Common Stock does not
equal or exceed $4.00 per share for a period of at least 20 consecutive
trading days. If the transactions contemplated by the TCI Music Merger
Agreement and the transactions contemplated by a related "Contribution
Agreement" had occurred on December 31, 1996, TINTA would have owned
5,420,812 Rights and 5,420,812 shares of TCI Music Series A Common
Stock, representing 3.5% of TCI Music's issued and outstanding common
stock and less than 1% of the voting interests attributable to such
issued and outstanding common stock. Subject to DMX shareholder and
regulatory approvals and to certain other conditions, the transactions
contemplated by the TCI Music Merger Agreement and the Contribution
Agreement are expected to occur during the second or third quarter of
1997. However, no assurance can be given that such transactions will
occur.
(j) TeleWest Europe
U S WEST Cable Europe, Inc. ("U S WEST Europe"), an indirect
wholly-owned subsidiary of U S WEST, and the Company each owned 50% of
TeleWest Europe. TeleWest Europe owned a 91.7% paid-in interest in
United Communications International ("UCI"). UCI is a general
partnership between TeleWest Europe and UPC.
(continued)
II-64
<PAGE> 127
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
During the first quarter of 1996, the Company received a $4.1 million
payment in satisfaction of the Company's receivable that had been
included in the Company's negative investment in TeleWest Europe. Such
payment has been included in "Other, net" in the accompanying
consolidated statement of operations for the year ended December 31,
1996.
During the first quarter of 1996, the Company and U S WEST Europe
agreed to initiate a course of action designed to result in the
liquidation and dissolution of TeleWest Europe. In light of the
partners' agreement to pursue the liquidation and dissolution of
TeleWest Europe, the Company, effective January 1, 1996 discontinued
accounting for TeleWest Europe using the equity method, and began
accounting for TeleWest Europe as an investment held for disposition.
On September 27, 1996, TeleWest Europe sold to UPC its interest in UCI
for an aggregate purchase price of $30 million. During the fourth
quarter of 1996, the Company received a cash distribution of $2.6
million and recognized a gain of $13.0 million in connection with the
dissolution of TeleWest Europe.
Other
Jupiter Programming Co., Ltd.
In February 1996, the Company and Sumitomo formed a joint venture to create
Japan's first multi-channel programming company. The new company, Jupiter
Programming Co., Ltd. ("JPC"), is owned equally (50/50) by the Company and
Sumitomo. As of December 31, 1996, the Company has made contributions to JPC of
Yen850 million ($7.8 million using the applicable exchange rate). Additionally,
the Company and Sumitomo contributed their respective 18% and 82% ownership
interests in the Cable Soft Network to JPC. The Company made an equalizing
payment in the amount of Yen444 million ($4.0 million using the applicable
exchange rate) in connection with the above- described contribution of the
Cable Soft Network.
(continued)
II-65
<PAGE> 128
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Summarized financial information of the Other Affiliates by geographic region
for the periods in which they were owned by the Company are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------
Latin America
Asia and and The
Europe Australia Caribbean Total
------ --------- --------- -----
<S> <C> <C> <C> <C>
Combined Financial Position
Cash and receivables, net $278,352 83,672 30,590 392,614
Investments 57,750 49,325 72,908 179,983
Property and equipment, net 101,612 158,924 13,019 273,555
Intangible and other assets, net 293,061 118,083 6,413 417,557
-------- -------- ------- ---------
Total assets $730,775 410,004 122,930 1,263,709
======== ======== ======= =========
Debt $162,814 171,248 99,496 433,558
Other liabilities 200,069 107,653 7,807 315,529
Owners' equity 367,892 131,103 15,627 514,622
-------- -------- ------- ---------
Total liabilities and equity $730,775 410,004 122,930 1,263,709
======== ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------
Latin America
Asia and and The
Europe Australia Caribbean Total
------ --------- --------- -----
<S> <C> <C> <C> <C>
Combined Financial Position
Cash and receivables, net $211,257 22,692 17,495 251,444
Investments 49,278 37,398 63,461 150,137
Property and equipment, net 200,132 126,109 14,672 340,913
Intangible and other assets, net 134,624 30,365 34,735 199,724
-------- ------- ------- -------
Total assets $595,291 216,564 130,363 942,218
======== ======= ======= =======
Debt $176,188 87,828 140,778 404,794
Other liabilities 146,482 78,643 17,297 242,422
Owners' equity (deficit) 272,621 50,093 (27,712) 295,002
-------- ------- ------- -------
Total liabilities and equity $595,291 216,564 130,363 942,218
======== ======= ======= =======
</TABLE>
(continued)
II-66
<PAGE> 129
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
<TABLE>
<CAPTION>
Year ended December 31, 1996
----------------------------------------------------
Latin America
Asia and and The
Europe Australia Caribbean Total
------ --------- --------- -----
<S> <C> <C> <C> <C>
Combined Operations
Revenue $ 418,874 165,925 24,262 609,061
Operating, selling, general and
administrative expenses (437,048) (190,836) (16,882) (644,766)
Depreciation and amortization (18,330) (32,365) (3,411) (54,106)
--------- ------- ------- --------
Operating income (loss) (36,504) (57,276) 3,969 (89,811)
Interest expense, net (7,623) (11,885) (11,199) (30,707)
Other, net 25,706 (86) (31,866) (6,246)
--------- ------- ------- --------
Net loss $ (18,421) (69,247) (39,096) (126,764)
========= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1995
----------------------------------------------------
Latin America
Asia and and The
Europe Australia Caribbean Total
------ --------- --------- -----
<S> <C> <C> <C> <C>
Combined Operations
-------------------
Revenue $ 333,487 84,445 28,911 446,843
Operating, selling, general and
administrative expenses (347,204) (90,817) (22,369) (460,390)
Depreciation and amortization (19,851) (26,861) (3,617) (50,329)
--------- ------- ------- --------
Operating income (loss) (33,568) (33,233) 2,925 (63,876)
Interest expense, net (20,966) (9,065) (11,148) (41,179)
Other, net 995 (1,672) (4,426) (5,103)
--------- ------- ------- --------
Net loss $ (53,539) (43,970) (12,649) (110,158)
========= ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31, 1994
----------------------------------------------------
Latin America
Asia and and The
Europe Australia Caribbean Total
------ --------- --------- -----
<S> <C> <C> <C> <C>
Combined Operations
-------------------
Revenue $ 233,723 46,475 21,612 301,810
Operating, selling, general and
administrative expenses (233,443) (70,622) (15,226) (319,291)
Depreciation and amortization (35,269) (3,521) (6,759) (45,549)
--------- ------- ------- --------
Operating loss (34,989) (27,668) (373) (63,030)
Interest expense, net (15,971) (4,909) (3,939) (24,819)
Other, net (3,122) (19) 5,874 2,733
--------- ------- ------- --------
Net income (loss) $ (54,082) (32,596) 1,562 (85,116)
========= ======= ======= ========
</TABLE>
(continued)
II-67
<PAGE> 130
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(9) Other Investments
The components of other investments are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
DTH Ventures (a) $17,945 --
TDL Securities (b) -- 67,794
Other 2,928 16,045
------- ------
$20,873 83,839
======= ======
</TABLE>
(a) DTH Ventures
On November 20, 1995, TINTA announced its intention to form strategic
partnerships with News Corp., Organizacoes Globo and Grupo Televisa
S.A. for the development and operation of a direct-to-home satellite
service for Latin America, Mexico, and various Central and South
American countries (collectively, the "DTH Ventures"). Through December
31, 1996, TINTA had contributed $17.9 million to the DTH Ventures. It
is anticipated that TINTA could be required to make cash contributions
totaling $46.1 million over the next three years in connection with the
DTH Ventures.
(b) TDL Securities
The TDL Securities were acquired by Flextech in connection with the U S
WEST Subscription. Flextech's rights to require U S WEST (UK) to
repurchase the TDL Securities under a put/call agreement were pledged
as security for the Flextech Bank Facility. On July 8, 1996, US WEST
(UK) purchased the TDL Securities at a price per share of L.128.39
($219.87). See notes 5 and 10.
During 1996, holding losses on certain available-for-sale securities were
determined to be other than temporary. Accordingly, the Company recognized a
$6.6 million loss during 1996 with respect to such securities.
(continued)
II-68
<PAGE> 131
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(10) Debt
The components of debt are as follows (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995
------------ --------------
<S> <C> <C>
TINTA:
-----
Debentures (a) $ 345,000 --
Cablevision Notes(b) 13,013 65,066
------------- --------------
358,013 65,066
------------- --------------
Subsidiaries:
------------
Flextech
Flextech Bank Facility(c) -- 67,794
Other 1,000 --
------------- --------------
1,000 67,794
------------- --------------
Cablevision
Bank loans(d) 104,556 58,166
OCC Notes (e) 46,418 --
Other 1,141 1,692
------------- --------------
152,115 59,858
------------- --------------
$ 511,128 192,718
============= ==============
</TABLE>
(a) On February 8, 1996, TINTA received net cash proceeds of approximately
$336 million from the issuance of 4-1/2% Convertible Subordinated
Debentures (the "Debentures") due 2006 having an aggregate principal
amount of $345 million. The Debentures are convertible into shares of
Series A Common Stock at a price of $27.30 per share of Series A Common
Stock, subject to anti- dilution adjustments. Interest on the
Debentures is payable on February 15 and August 15 of each year,
commencing August 15, 1996. The Debentures may be redeemable by TINTA
in whole or in part, at any time on or after February 15, 1999. Pending
its use by TINTA, the net proceeds from the sale of the Debentures were
loaned to TCI pursuant to an unsecured promissory note (the "TCI Note
Receivable"). See note 13.
(b) The Cablevision Notes are secured by the Company's pledge of the stock
representing its 51% interest in Cablevision. The Cablevision Notes
bore interest at 10% until May 1, 1996, when interest began to accrue
at a bank's prime rate plus 1% (9.25% at December 31, 1996). The
Cablevision Notes are scheduled to be repaid in three equal monthly
installments through March 31, 1997. See note 5.
(c) Flextech entered into the Flextech Bank Facility in connection with the
U S WEST Subscription. Borrowings pursuant to the Flextech Bank
Facility were secured by Flextech's rights under a put/call agreement,
which, among other matters, provided that Flextech had the right to
require U S WEST (UK) to repurchase the TDL Securities. On July 18,
1996, U S WEST (UK) purchased the TDL Securities. Flextech used the
sales proceeds from such purchase to repay in full amounts borrowed
under the Flextech Bank Facility. See notes 5 and 9. (continued)
II-69
<PAGE> 132
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(d) Cablevision's bank debt, which is denominated in U.S. dollars, bears
interest at fixed rates. Including value added tax, the weighted
average interest rate of Cablevision's bank debt at December 31, 1996
was 7.81%.
(e) In connection with the OCC Acquisition, Cablevision issued $46.4
million principal amount of secured negotiable promissory notes. The
OCC Notes will be repaid in 21 consecutive equal monthly installments
commencing on January 10, 1997 and will accrue interest at 9.25%. The
OCC Notes are secured by the pledge of 51% of the stock of OCC. See
note 5.
The U.S. dollar equivalent of the annual maturities of the Company's debt
for each of the next five years are as follows (amounts in thousands):
<TABLE>
<S> <C>
1997........................... $145,735
1998........................... 20,393
1999........................... --
2000........................... --
2001........................... --
</TABLE>
With the exception of the Debentures, which had a fair value of $259.6
million at December 31, 1996, the Company believes that the fair value
and the carrying value of the Company's debt were approximately equal at
December 31, 1996.
(11) Stockholders' Equity
Common Stock
The Series A Common Stock has one vote per share and the Series B Common
Stock has ten votes per share. Each share of Series B Common Stock is
convertible, at the option of the holder, into one share of Series A
Common Stock.
(continued)
II-70
<PAGE> 133
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Employee Benefit Plans
Employees of TINTA are eligible to participate in TCI's Employee Stock
Purchase Plan (the "TCI ESPP"). The TCI ESPP provides eligible employees
an opportunity to invest in TCI and to create a retirement fund. Terms of
the TCI ESPP provide for eligible employees to contribute up to 10% of
their compensation to a trust for investment in TCI common stock. TCI, by
annual resolution of the TCI Board of Directors, contributes up to 100%
of the amount contributed by employees. TINTA's share of the
contributions to the TCI ESPP was not material during the three years
ended December 31, 1996, 1995 and 1994.
Preferred Stock
TINTA is authorized to issue 10,000,000 shares of Preferred Stock. The
Preferred Stock may be issued from time to time as determined by the
Board of Directors, without stockholder approval. Such Preferred Stock
may be issued in such series and with such designations, preferences,
conversion or other rights, voting powers, qualifications, limitations,
or restrictions as shall be stated or expressed in a resolution or
resolutions providing for the issue of such series adopted by the Board
of Directors. The Board of Directors has not authorized the issuance of
any shares of Preferred Stock and TINTA has no current plans for the
issuance of any shares of Preferred Stock.
Stock Options
TINTA adopted a stock option plan for the Company's directors (the
"Director Plan") on April 11, 1996. The Director Plan provides for grants
to be made of options to purchase a maximum of 1,000,000 shares of Series
A Common Stock. Under the Director Plan, each of the Company's five
directors who were not employees of the Company or any subsidiary of the
Company as of April 11, 1996 was granted an option to purchase 50,000
shares of Series A Common Stock at an exercise price of $16 per share.
The options vest evenly over a five year period. Subsequent to the grant
date, one of the directors waived his right to receive such option.
TINTA has also adopted the Tele-Communications International, Inc. 1995
Stock Incentive Plan (the "1995 Plan"). The 1995 Plan provides for awards
to be made in respect of a maximum of 3,000,000 shares of Series A Common
Stock (subject to certain anti-dilution adjustments). Awards may be made
as grants of stock options, stock appreciation rights, restricted shares,
units or any combination thereof.
On December 13, 1995, stock options in tandem with stock appreciation
rights to purchase 1,302,000 shares of Series A Common Stock at a
purchase price of $16 per share were granted (the "December 1995 Grant")
pursuant to the 1995 Plan. Of such grant, 1,252,000 options in tandem
with stock appreciation rights were granted to employees of TINTA.
Additionally, on December 13, 1995 TCI granted to one of its officers
50,000 options in tandem with stock appreciation rights to acquire Series
A Common Stock owned by it. Such options vest evenly over five years with
such vesting period beginning August 4, 1995, first became exercisable
August 4, 1996 and expire on August 4, 2005.
(continued)
II-71
<PAGE> 134
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
On December 13, 1995, 40,000 restricted shares of Series A Common Stock
were awarded to certain officers and directors of TINTA. Such restricted
shares vest as to 50% in December 1999 and as to the remaining 50% in
December 2000.
During the three year period ended December 31, 1996, certain key
employees of TINTA held stock options with tandem stock appreciation
rights with respect to certain common stock of TCI (the "TCI Options and
SARS"). Estimates of the compensation expense relating to the December
1995 Grant and the TCI Options and SARS have been included in "Operating
costs and expenses-General and administrative" in the accompanying
statements of operations, but are subject to future adjustment based upon
the market value of the underlying TINTA and TCI common stock,
respectively and ultimately on the final determination of market value
when the rights are exercised. The estimated compensation adjustment with
respect to the TCI Options and SARS resulted in increases to TINTA's
share of TCI's stock compensation liability of $(1.8 million), $2.5
million and $(231,000) for the years ended December 31, 1996, 1995 and
1994, respectively. The estimated compensation adjustment with respect to
the December 1995 Grant resulted in increases (decreases) to TINTA's
stock compensation liability of $(1.4 million) and $1.5 million during
the years ended December 31, 1996 and 1995, respectively. See note 13.
Other
At December 31, 1996, there were 1,592,000 shares of Series A Common
Stock reserved for issuance pursuant to restricted stock awards and
exercise privileges related to stock options. In addition, one share of
Series A Common Stock is reserved for each share of outstanding Series B
Common Stock. On February 9, 1996, TINTA issued the Debentures, which are
convertible into 12,637,363 shares of Series A Common Stock. See notes 1
and 10.
(12) Income Taxes
TINTA and its 80%-or-more-owned domestic subsidiaries (the "TINTA Tax
Group") are included in the consolidated federal and state income tax
returns of TCI. The Company's income taxes include those items in the
consolidated calculation applicable to the TINTA Tax Group ("intercompany
tax allocation") and any income taxes of TINTA's consolidated foreign or
domestic subsidiaries that are excluded from the consolidated federal and
state income tax returns of TCI. Intercompany tax allocation represents
an apportionment of tax expense or benefit (other than deferred taxes)
among subsidiaries of TCI in relation to their respective amounts of
taxable earnings or losses. The payable arising from the intercompany tax
allocation was recorded as an increase in equity through June 30, 1995.
Beginning with the July 1, 1995 implementation of the tax sharing
agreement among TINTA, TCI and certain other subsidiaries of TCI (the
"Tax Sharing Agreement"), the intercompany tax allocation has been
included as a component of "Due from TCI," as reflected in the
accompanying consolidated balance sheets. See note 13.
(continued)
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<PAGE> 135
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
As described above, the Tax Sharing Agreement was implemented effective July 1,
1995. The Tax Sharing Agreement formalizes certain of the elements of a
pre-existing tax sharing arrangement and contains additional provisions
regarding the allocation of certain consolidated income tax attributes and the
settlement procedures with respect to the intercompany allocation of current
tax attributes. The Tax Sharing Agreement encompasses U.S. federal, state,
local and foreign tax consequences and relies upon the U.S. Internal Revenue
Code of 1986 as amended, and any applicable state, local and foreign tax law
and related regulations. Beginning on the July 1, 1995 effective date, TINTA is
responsible to TCI for its share of current consolidated income tax
liabilities. TCI is responsible to TINTA to the extent that the TINTA Tax
Group's income tax attributes generated after the effective date are utilized
by TCI to reduce its consolidated income tax liabilities. Accordingly, all tax
attributes generated by TINTA Tax Group's operations after the effective date
including, but not limited to, net operating losses, tax credits, deferred
intercompany gains, and the tax bases of assets are inventoried and tracked for
the entities comprising the TINTA Tax Group. In connection with the
implementation of the Tax Sharing Agreement, TINTA recorded a decrease to its
deferred income tax liability and an increase to its additional paid-in capital
of $12.5 million. See note 13.
Income tax benefit (expense) attributable to the Company's pre-tax earnings
(loss) for the years ended December 31, 1996, 1995 and 1994 consists of
(amounts in thousands):
<TABLE>
<CAPTION>
Current Deferred Total
-------- -------- --------
<S> <C> <C> <C>
December 31, 1996:
Intercompany tax allocation $ 10,187 -- 10,187
Federal -- 56,359 56,359
State and local (783) 26 (757)
Foreign (12,237) (7,941) (20,178)
-------- -------- --------
$ (2,833) 48,444 45,611
======== ======== ========
December 31, 1995:
Intercompany tax allocation $ 8,462 -- 8,462
Federal -- (16,391) (16,391)
State and local -- (34) (34)
Foreign (9,080) (14,659) (23,739)
-------- -------- --------
$ (618) (31,084) (31,702)
======== -------- ========
December 31, 1994:
Intercompany tax allocation $(42,067) -- (42,067)
Federal -- 8,613 8,613
State and local -- 920 920
Foreign -- -- --
-------- -------- --------
$(42,067) 9,533 (32,534)
======== ======== ========
</TABLE>
(continued)
II-73
<PAGE> 136
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Income tax benefit (expense) attributable to the Company's pre-tax earnings
(loss) differs from the amounts computed by applying the U.S. federal income
tax rate of 35%, as a result of the following (amounts in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit
(expense) $ 61,611 (21,610) (23,177)
Effect of foreign tax rate differential on earnings of
foreign subsidiary 1,051 4,516 --
Minority interest in earnings
of consolidated subsidiaries -- (4,264) --
Increase in valuation allowance
for deferred tax assets resulting
from foreign tax loss carryforwards (12,575) (7,935) (5,197)
Adjustment to deferred tax assets and liabilities for
enacted change in foreign income tax rate (952) -- --
Amortization not deductible for tax purposes (774) (537) (18)
Other, net (2,750) (1,872) (4,142)
-------- -------- --------
$ 45,611 (31,702) (32,534)
======== ======== ========
</TABLE>
(continued)
II-74
<PAGE> 137
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996
and 1995 are presented below (amounts in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 62,053 53,559
Less-valuation allowance (51,311) (42,154)
Investment tax credit carryforwards 696 696
Less-valuation allowance (410) (410)
Investments in affiliates, due principally
to losses of affiliates recognized for
financial statement purposes in excess of
losses recognized for tax purposes 49,150 6
Foreign currency translation adjustments included in equity
but not recognized for income tax purposes
-- 2,637
Future deductible amounts, principally
due to accruals not currently deductible 1,370 2,862
-------- --------
Net deferred tax assets 61,548 17,196
-------- --------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation (32,768) (23,237)
Franchise costs, not deductible for income tax purposes (189,852) (163,311)
Foreign currency translation adjustments included in equity
but not recognized for income tax purposes
(13,328) --
Unrecognized gain on sale of assets (14,128) (12,812)
Other (5,220) (3,962)
-------- --------
Total gross deferred tax liabilities (255,296) (203,322)
-------- --------
Net deferred tax liability $(193,748) (186,126)
========= ========
</TABLE>
At December 31, 1996, the Company had federal net operating loss carryforwards
for income tax purposes aggregating approximately $30.7 million which, if not
utilized to reduce taxable income in future periods, will begin to expire at
various dates beginning in the year 2004.
(continued)
II-75
<PAGE> 138
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The Company has net operating loss carryforwards of approximately
$130.1 million available in certain foreign tax jurisdictions. These
foreign net operating loss carryforwards may be utilized to reduce
taxable income in the applicable foreign tax jurisdictions
indefinitely.
In addition, the Company has net operating loss carryforwards of
approximately $14.4 million available in the Puerto Rico tax
jurisdiction. If unused, these net operating loss carryforwards expire
at various dates over the next 7 years.
(13) Related Party Transactions
Prior to April 25, 1995 (when TINTA borrowed $155.2 million under the
TCI Credit Facility to provide funding for the Cablevision Acquisition,
as described in note 5), the effects of transactions between the
Company and TCI were reflected in equity. From April 25, 1995 through
the July 18, 1995 closing date of the IPO (see note 1), (i) cash
advances from TCI that were used to fund the Company's existing
contractual commitments to make capital contributions and loans to its
affiliates were accounted for as adjustments of the outstanding
borrowings under the TCI Credit Facility and (ii) the net effect of all
remaining transactions between the Company and TCI were accounted for
as a capital contribution from TCI. Following the July 18, 1995 IPO,
the effects of all transactions between the Company and TCI have been
reflected as intercompany payables or receivables to be settled (i) in
the case of certain non-cash income tax and stock compensation
allocations (the "Non-Cash Intercompany Account"), at some future date
(as described below), (ii) in the case of amounts outstanding pursuant
to the TCI Note Receivable (see note 10), as mutually agreed from time
to time by TCI and TINTA, (iii) in the case of a note payable (the
"TCIC Note Payable") to TCI Communications, Inc. ("TCIC"), a subsidiary
of TCI, in accordance with the applicable repayment terms as described
below, and (iv) in the case of all other intercompany transactions,
within thirty days following notification (the "Cash Intercompany
Account"). Any amounts within the Cash Intercompany Account that remain
outstanding after such thirty-day period generally are treated as
adjustments of the outstanding borrowings pursuant to the TCI Credit
Facility. The components of "Due from (to) TCI" are as follows (amounts
in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
TCI Note Receivable (a) $ 176,501 --
TCIC Note Payable (b) (23,262) --
TCI Credit Facility (c) -- --
Non-Cash Intercompany Account (d) 14,955 2,990
Cash Intercompany Account (8,053) (2,618)
------------ ------------
$ 160,141 372
============ ============
</TABLE>
(continued)
II-76
<PAGE> 139
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(a) Amounts outstanding under the TCI Note Receivable bear interest at
variable rates based on TCI's weighted average cost of bank borrowings
of similar maturities (6.25% at December 31, 1996). Principal and
interest is due and payable as mutually agreed from time to time by TCI
and TINTA. During the year ended December 31, 1996, interest income
related to the TCI Note Receivable aggregated $14.0 million.
(b) During 1996, TCIC transferred, subject to regulatory approval, certain
distribution equipment to a subsidiary of TINTA in exchange for a
L.14,950,000 ($23.3 million using the applicable exchange rate)
principal amount promissory note. The TCIC Note Payable bears interest
at 7% compounded semi-annually. During the year ended December 31,
1996, the U.S. dollar equivalent of interest expense incurred with
respect to the TCIC Note Payable was $658,000. The distribution
equipment was subsequently leased back to TCIC over a 5 year term with
semi-annual payments of L.998,000 ($1.7 million), plus expenses. TINTA
can require TCIC to repurchase the equipment at the end of the lease
term at an amount equal to the greater of (i) fair market value or (ii)
an amount that when combined with the rental payments received
(excluding executory costs) during the lease term, and discounted using
an interest rate of 7%, would not exceed 89% of the fair market value
of the equipment at the inception of the lease. During the year ended
December 31, 1996, the U.S. dollar equivalent of the lease revenue
under the above-described lease agreement aggregated $1.4 million.
(c) The TCI Credit Facility is a subordinated unsecured revolving credit
facility that provides for loans from TCI to the Company in an
aggregate outstanding principal amount of up to $200 million. From
the April 25, 1995 closing date of the Cablevision Acquisition through
the July 18, 1995 closing date of the IPO, TINTA used borrowings
pursuant to the TCI Credit Facility to provide a portion of the funding
for the Cablevision Acquisition and to fund the Company's existing
contractual commitments to make capital contributions and loans to its
affiliates. Subsequent to TINTA's July 18, 1995 receipt of the IPO
proceeds, TINTA used $184.6 million of such cash proceeds to repay the
principal and interest owed to TCI at July 18, 1995 pursuant to the TCI
Credit Facility. See notes 1 and 5.
II-77
<PAGE> 140
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Borrowings under the TCI Credit Facility, together with all accrued
interest thereon, will be payable in full on April 25, 2000. Prior to
April 25, 2000, borrowings repaid by TINTA under the TCI Credit
Facility will be available for reborrowing, subject to certain
conditions to borrowing. Borrowings under the TCI Credit Facility bear
interest at 13% per annum. If at any time TCI shall beneficially own
capital stock of TINTA representing less than a majority in voting
power of the outstanding shares of TINTA capital stock entitled to vote
for the election of directors, TCI may terminate its obligation to make
further loans under the TCI Credit Facility upon two business days
prior notice to TINTA. The principal of and interest on all outstanding
loans shall become due and payable on the first anniversary of the
receipt by TINTA of such notice. Upon the closing of the IPO, the
Company paid a $2 million commitment fee to TCI. Additionally, the TCI
Credit Facility requires an annual credit facility fee in an amount
equal to 3/8% of the unused borrowing availability under such facility.
Such credit facility fees aggregated $750,000 and $279,000 during the
years ended December 31, 1996 and 1995, respectively.
(d) At December 31, 1996, the Non-Cash Intercompany Account was comprised
of $135,000 due to TCI with respect to TINTA's share of TCI's
compensation liability arising from certain stock appreciation rights
and stock options (the "TCI Compensation Liability") and $15.1 million
due from TCI with respect to the allocation of current intercompany
income tax benefits pursuant to the Tax Sharing Agreement (the "TCI Tax
Receivable"). The TCI Compensation Liability, which represents TINTA's
share of TCI's stock compensation expense for periods subsequent to
July 18, 1995 (the date that the IPO was consummated), will be settled
in cash only to the extent that TCI is required to make cash payments
to satisfy the TCI Compensation Liability. The TCI Tax Receivable,
which represents TINTA's current intercompany income tax benefit for
periods subsequent to July 1, 1995 (the date that the Tax Sharing
Agreement was implemented), will be settled in cash only upon the
deconsolidation of TINTA for purposes of TCI's federal income tax
returns. See note 12. As described in note 11, changes in the TCI
Compensation Liability have been included in "Operating costs and
expenses - General and administrative" in the accompanying statements
of operations.
Other Related Party Transactions
TCI allocates its corporate expenses to its business units based upon estimated
cost of general and administrative services provided to the respective
divisions. The amounts allocated to the Company for the years ended December
31, 1996, 1995 and 1994 aggregated $2.9 million, $1.9 million and $8.4 million,
respectively. Following the completion of the IPO, such allocations were made
pursuant to a services agreement between TCI and TINTA.
(continued)
II-78
<PAGE> 141
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
The Consolidated Puerto Rico Entities purchase programming services from a
subsidiary of TCI. The charges, which approximate such TCI subsidiary's cost
and are based on the aggregate number of subscribers served by the Consolidated
Puerto Rico Entities, aggregated $4.3 million, $3.4 million and $2.6 million
during the years ended December 31, 1996, 1995 and 1994, respectively. Through
December 31, 1995, the Consolidated Puerto Rico Entities also had management
arrangements with certain subsidiaries of TCI whereby such subsidiaries'
management provided administrative services. As compensation for these
services, the Consolidated Puerto Rico Entities paid a monthly fee calculated
on a per-subscriber basis. Charges for such services were $680,000 and $676,000
during the years ended December 31, 1995 and 1994, respectively. The
above-described programming and management fee charges are included in
"Operating costs and expenses - Cable" in the accompanying statements of
operations.
Cablevision purchases programming services from certain affiliates. The related
charges generally are based upon the number of Cablevision's subscribers that
receive the respective services. During the year ended December 31, 1996 and
the period from April 25, 1995 through December 31, 1995, such charges
aggregated $13.0 million and $9.4 million, respectively. Additionally, certain
of Cablevision's general and administrative functions are provided by
affiliates. The related charges, which generally are based upon the respective
affiliate's cost of providing such functions, aggregated $3.9 million and $2.9
million during the year ended December 31, 1996 and the period from April 25,
1995 through December 31, 1995, respectively. Cablevision also has a management
arrangement with TINTA and Cablevision's 49%-minority-interest-owner, whereby
Cablevision pays a dividend of 1% of revenue to TINTA and Cablevision's
49%-minority-interest-owner for management services provided to Cablevision.
During the year ended December 31, 1996, dividends paid to TINTA and the
49%-minority-interest-owner for such management fees aggregated $966,000 and
$929,000, respectively. TINTA's dividend for such management fee has been
eliminated in consolidation. The 49%-minority-interest-owner's dividend for
such management fee is included in "Other, net" in the accompanying statements
of operations.
As further described in notes 8 and 14, certain subsidiaries of TCI have
provided guarantees and other credit enhancements on the Company's behalf. In
this respect, the Company has entered into an indemnification agreement with
TCI whereby the Company will indemnify TCI for any loss, claim or liability
that TCI may incur by reason of certain guarantees and credit enhancements made
by TCI on the Company's behalf.
(continued)
II-79
<PAGE> 142
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(14) Commitments and Contingencies
Prior to the IPO, the Company relied upon capital contributions from
TCI and, to a lesser extent, borrowing availability under the TCIC
Credit Facility (see note 13), in order to meet most of its liquidity
requirements. Following the IPO, TCI has not and, it is anticipated,
will not make further capital contributions to the Company in the
future. Notwithstanding the cash proceeds received by the Company in
connection with the IPO and the sale of the Debentures, the Company
believes that it will continue to be dependent upon financing from TCI
and/or external sources in order to meet its liquidity requirements.
There is no assurance that any such sources of financing will be
available on terms acceptable to the Company.
The Company has guaranteed the obligation of an affiliate (The Premium
Movie Partnership) to pay fees for the license to exhibit certain films
through 2000. Although the aggregate amount of The Premium Movie
Partnership's license fee obligations is not currently estimable, the
Company believes that the aggregate payments pursuant to such
obligations could be significant. If the Company were to fail to
fulfill its obligations under the guarantee, the beneficiaries have the
right to demand an aggregate payment from the Company of approximately
$58 million. In connection with this guarantee, the Company has agreed
to maintain a defined net worth (cash equivalents plus the fair value
of securities listed on an exchange less liabilities) of at least
$150.0 million. If the Company's net worth (as defined) were to fall
below $150.0 million, TCI has agreed to subordinate any intercompany
amounts owed by the Company to TCI to the Company's obligation pursuant
to this guarantee. Although the Company has not had to perform under
such guarantee to date, the Company cannot be certain that it will not
be required to perform under such guarantee in the future.
For information concerning the Company's commitments and contingent
liabilities with respect to certain affiliates, see note 8.
Certain of the agreements underlying the Flextech Transactions and the
IFE Acquisitions require the Company to repurchase an aggregate of
10,467,090 Flextech Non-Preference Shares at fair value (or in the case
of the IFE Consideration Shares, at the greater of fair value or L.3.64
($6.23) per share) if such shares have not become convertible into
Flextech Ordinary Shares by June 1, 1997. In connection with the
closing of the BBC Joint Ventures and certain related transactions,
such Flextech Non-Preference Shares are to be converted into Flextech
Ordinary Shares, thereby eliminating TINTA's put obligations with
respect to such shares, insofar as such obligations realate to the
convertibility of such shares. See notes 5 and 17.
(continued)
II-80
<PAGE> 143
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
If at any time (x) the aggregate of the amount of (i) Flextech
securities held by the Company (ii) Crown's and U S WEST (UK)'s interest
in Flextech acquired under the Hallmark Subscription and the U S WEST
Subscription, respectively, and (iii) Flextech securities acquired by
IFE pursuant to the IFE Acquisitions exceeds 75% of Flextech's issued
and outstanding share capital, or (y) subject to certain exceptions, the
Flextech Ordinary Shares cease to be admitted to trading on the Official
List of the London Stock Exchange as a result of the exercise by the
Company of any of its rights as a Flextech shareholder, the Company
shall be obligated to offer to purchase from Crown, U S WEST (UK), and
IFE any Flextech Ordinary Shares or Flextech Non-Preference Shares held
by them and which were originally acquired pursuant to the Hallmark
Subscription, the U S WEST Subscription, or the IFE Acquisitions, as
applicable. Under such circumstances, the offer price for such shares
shall be the higher of (i) the then current market price for the
Flextech Ordinary Shares and (ii) the highest price paid to any third
party by the Company for any Flextech Ordinary Shares or Flextech
Non-Preference Shares during the preceding 12 month period. In the event
the Company is required to purchase any Flextech Non-Preference Shares
or Flextech Ordinary Shares, it may elect, subject to certain limited
exceptions, to pay the purchase price thereof in cash or in shares of
Series A Common Stock, or in certain securities of TCI.
In light of certain change of control provisions contained in the
articles of association of UKGL and UKLL, TCI has agreed to maintain an
indirect voting interest of at least 50.01% in a wholly-owned
subsidiary of Flextech so long as Flextech continues to hold its
ownership interests in UKGL and UKLL. Under Flextech's Articles of
Association, if TINTA becomes obligated to purchase any of the Flextech
Non-Preference Shares (as described above) and fails to complete such
purchase within 12 months from the date such purchase is required to be
completed, such Flextech Non-Preference Shares shall become convertible
into Flextech Ordinary Shares whether or not the Company ceases to own
at least 50.01% of the voting interest attributable to Flextech's then
outstanding ordinary share capital. See note 17.
The Company leases business offices, has entered into pole rental and
transponder lease agreements, and uses certain equipment under lease
arrangements. Rental costs under such arrangements amounted to $22.4
million, $17.5 million and $15.6 million for the years ended December
31, 1996, 1995 and 1994, respectively.
A summary of future minimum lease payments under noncancellable
operating leases as of December 31, 1996 follows (amounts in
thousands):
<TABLE>
<S> <C>
Years ending December 31:
1997 $25,483
1998 20,133
1999 15,136
2000 5,737
2001 3,704
</TABLE>
(continued)
II-81
<PAGE> 144
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
It is expected that in the normal course of business, leases that expire
generally will be renewed or replaced by leases on other properties; thus, it
is anticipated that future minimum lease commitments will not be less than the
amount shown for 1996. Most of the Company's operating lease commitments relate
to Flextech's transponder lease agreements that require payment in European
Currency Units.
Flextech has commitments to acquire distribution and exhibition rights for a
variety of programming under license agreements with Hallmark Entertainment
Inc. ("Hallmark Entertainment"). The rights are limited to the United Kingdom
and certain other European markets and have a term for a period of ten years
once the license period commences. Through December 31, 1996, programming with
an aggregate contractual value of L.19.8 million ($33.9 million) had been
delivered to Flextech under such agreements. It is estimated that Flextech's
remaining commitments to acquire programming will be L.10.5 million ($18.0
million). Hallmark Entertainment has provided Flextech a guarantee that it will
recover at least L.14.6 million ($25.0 million) from the exploitation of such
rights. Flextech also agreed to purchase certain programming from STV during
the next two years. Flextech's aggregate remaining obligations at December 31,
1996 under such STV programming agreements were expected to range from L.1.4
million ($2.4 million) to L.6.5 million ($11.1 million).
In connection with Flextech's August 1995 acquisition of a 33.3% ownership
interest in Preview, Flextech entered into a shareholders' agreement with
Infinity, pursuant to which Flextech and Infinity assumed certain Call Options
and Put Options. See note 8.
In 1996, Flextech implemented a long-term incentive plan which operates in a
form similar to stock appreciation rights. Only certain key executives of
Flextech participate in this plan. During the year ended December 31, 1996,
Flextech recorded compensation expense of L.2.1 million ($3.2 million using the
applicable exchange rate) with respect to the long-term incentive plan.
Flextech has granted to certain employees under its 1992 and 1995 stock option
schemes, options to purchase approximately (i) 535,000 Flextech Ordinary Shares
at a per share price of L.3.24 ($5.55), (ii) 445,000 Flextech Ordinary Shares
at a price per share of L.5.03 ($8.61), (iii) 150,000 Flextech Ordinary Shares
at a per share price of L.3.775 ($6.46) and (iv) 15,000 Flextech Ordinary
Shares at a price per share of L.5.06 ($8.66) (the "Flextech Milestone
Options"). The Flextech Milestone Options are exercisable during various
periods from 1997 to 2006, only if certain performance conditions are
satisfied. During the year ended December 31, 1996, Flextech incurred
compensation expense with respect to the Flextech Milestone Options of L.1.2
million ($1.9 million using the applicable exchange rate).
(continued)
II-82
<PAGE> 145
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
In July 1995, Flextech shareholders approved the adoption of a sharesave scheme
(the "Sharesave Scheme") that, under certain circumstances, could cause
Flextech to record compensation expense. At December 31, 1996, approximately
200,000 Flextech Ordinary Shares had been granted to employees under the
Sharesave Scheme. Compensation expense with respect to the Sharesave Scheme was
not material for the years ended December 31, 1996 and 1995.
Flextech's programming and transponder lease commitments, and its contingent
obligations with respect to Preview, stock compensation and other matters will
not be included in the Company's disclosure of its consolidated commitments and
contingencies upon the January 1, 1997 deconsolidation of Flextech. See notes 1
and 17.
As described in note 17, the Company will have significant contingent
obligations with respect to certain credit enhancements that will be provided
by the Company upon the closing of the BBC Joint Ventures and related
transactions.
(continued)
II-83
<PAGE> 146
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(15) Segment Data
The Company is engaged in the cable and programming businesses in
various foreign countries. Selected information regarding the Company's
activities in the cable and programming businesses and its activities
in various geographic regions are set forth in the following tables. In
all cases, the identifiable assets of the industry or geographic
segment include the carrying value of the Company's equity method
investees (amounts in thousands).
<TABLE>
<CAPTION>
Industry Segments
-----------------------------
Cable Programming Corporate Total
------------- ----------- --------- -----
Year ended December 31, 1996:
-----------------------------
<S> <C> <C> <C> <C>
Revenue $ 220,163 94,397 -- 314,560
============= ============ ========== ==========
Operating income (loss) $ 36,831 (49,559) (10,629) (23,357)
============= ============ ========== ==========
Depreciation and amortization $ 49,459 9,288 -- 58,747
============= ============ ========== ==========
Capital expenditures, including
acquisitions $ 91,487 25,975 -- 117,462
============= ============ ========== ==========
Identifiable assets $ 1,458,119 515,913 15,269 1,989,301
============= ============ ========== ==========
Year ended December 31, 1995:
-----------------------------
Revenue $ 142,494 48,039 -- 190,533
============= ============ ========== ==========
Operating income (loss) $ 20,744 (18,968) (12,991) (11,215)
============= ============ ========== ==========
Depreciation and amortization $ 31,390 4,970 -- 36,360
============= ============ ========== ==========
Capital expenditures, including
acquisitions $ 222,514 5,709 -- 228,223
============= ============ ========== ==========
Identifiable assets $ 1,276,756 540,590 46,065 1,863,411
============= ============ ========== ==========
Year ended December 31, 1994:
-----------------------------
Revenue $ 19,033 24,949 -- 43,982
============= ============ ========== ==========
Operating loss $ (2,382) (16,256) (8,166) (26,804)
============= ============ ========== ==========
Depreciation and amortization $ 6,645 1,945 -- 8,590
============= ============ ========== ==========
Capital expenditures, including
acquisitions $ 5,115 2,905 -- 8,020
============= ============ ========== ==========
Identifiable assets $ 610,740 159,735 2,764 773,239
============= ============ ========== ==========
</TABLE>
(continued)
II-84
<PAGE> 147
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
<TABLE>
<CAPTION>
Geographic Segments
-----------------------------------------
Latin
America Asia,
and Australia
The and New
Caribbean Europe Zealand Corporate Total
--------- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
-----------------------------
Revenue $ 215,543 99,017 -- -- 314,560
============= ============ ========== ============= ===============
Operating income (loss) $ 32,963 (45,691) -- (10,629) (23,357)
============= ============ ========== ============ ==============
Depreciation and amortization $ 48,336 10,411 -- -- 58,747
============= ============ ========== ============= ===============
Capital expenditures, including
acquisitions $ 91,487 25,975 -- -- 117,462
============= ============ ========== ============= ===============
Identifiable assets $ 915,776 994,834 63,422 15,269 1,989,301
============= ============ ========== ============= ===============
Year ended December 31, 1995:
-----------------------------
Revenue $ 141,129 49,404 -- -- 190,533
============= ============ ========== ============= ===============
Operating income (loss) $ 23,678 (21,902) -- (12,991) (11,215)
============= =========== ========== ============ ==============
Depreciation and amortization $ 31,390 4,970 -- -- 36,360
============= ============ ========== ============= ===============
Capital expenditures, including
acquisitions $ 199,492 28,731 -- -- 228,223
============= ============ ========== ============= ===============
Identifiable assets $ 720,695 1,058,061 35,417 49,238 1,863,411
============= ============ ========== ============= ===============
Year ended December 31, 1994:
-----------------------------
Revenue $ 18,251 25,731 -- -- 43,982
============= ============ ========== ============= ===============
Operating loss $ (116) (18,522) -- (8,166) (26,804)
============ =========== ========== ============ ==============
Depreciation and amortization $ 6,064 2,526 -- -- 8,590
============= ============ ========== ============= ===============
Capital expenditures, including
acquisitions $ 3,726 4,294 -- -- 8,020
============= ============ ========== ============= ===============
Identifiable assets $ 132,208 627,785 10,482 2,764 773,239
============= ============ ========== ============= ===============
</TABLE>
During the year ended December 31, 1996, 1995 and 1994, the Company derived
30%, 36% and 37%, respectively of its programming revenue and 9%, 9% and 21%,
respectively of its total revenue from one customer.
(continued)
II-85
<PAGE> 148
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(16) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
1996: Quarter Quarter Quarter Quarter
- ----- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $ 62,624 74,010 83,239 94,687
======== ====== ====== ======
Operating income (loss) $ 4,696 (10,408) (3,734) (13,911)
======== ======= ======= ======
Net loss $(26,411) (44,177) (31,269) (28,563)
======== ======= ======= ======
Historical net loss per common share $ (.22) (.37) (.26) (.25)
======== ======= ======= ======
1995:
- -----
Revenue $ 15,217 45,792 62,085 67,439
======== ====== ====== ======
Operating loss $ (5,604) (1,120) (307) (4,184)
======== ====== ==== ======
Net earnings (loss) $(14,764) (31,544) (18,257) 94,606
======== ======= ======= ======
Pro forma net earnings
(loss) per common share $ (.15) (.32) (.16) .80
======== ======= ======= ======
</TABLE>
The net earnings during the fourth quarter of 1995 are attributable to
non-operating gains recognized in connection with the IVS Subsidiary
Sale and the SBCC Transaction. See notes 6 and 7.
(continued)
II-86
<PAGE> 149
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
(17) Subsequent Events (Unaudited)
Caguas Acquisition
On January 10, 1997, the Company signed an agreement to pay cash
consideration of approximately $12.7 million, and to assume certain
indebtedness, to acquire the 50% ownership interest in Caguas/Humacao
Cable Systems which the Company did not already own (the "Caguas
Acquisition"). At December 31, 1996, the indebtedness to be assumed had
a principal balance of $32.1 million. The Puerto Rico Subsidiary is
negotiating to obtain $100 million in bank financing, a portion of which
would be used to fund the cash portion of the purchase price and to
refinance the indebtedness to be assumed. Subject to certain closing
conditions, the Caguas Acquisition is expected to close in April 1997.
No assurances can be given that the transaction will be consummated or
that the bank financing will be obtained.
Stock Repurchase Program
On January 27, 1997, the Company announced that it was instituting a
stock repurchase program. Under the stock repurchase program, the
Company may repurchase from time to time up to 5% (approximately 5.3
million shares) of its outstanding Series A Common Stock. As of March
13, 1997, the Company had repurchased 220,000 shares under such program
for an aggregate purchase price of $3.2 million.
Cablevision Minority Interest Purchase
On March 10, 1997, the Company announced that it had signed a
Memorandum of Understanding (the "MOU") that contemplates the Company's
purchase of additional equity interests in Cablevision such that the
Company's ownership interest in Cablevision would be increased from 51%
to up to 90% (the "Cablevision Minority Interest Purchase"). The MOU
contemplates execution of definitive agreements on March 31, 1997 and
closing within 120 days thereafter. It also provides that each party's
obligations are subject to approval by TINTA's Board of Directors, due
diligence and execution of definitive agreements. No assurance can be
given that the parties will reach agreement on the terms of such
agreements, or that the Cablevision Minority Interest Purchase will be
consummated. Additionally, the purchase price contemplated by the MOU
is significant and the Company would need to arrange for financing
before the Cablevision Minority Interest Purchase could be consummated.
(continued)
II-87
<PAGE> 150
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
BBC Joint Ventures
On March 17, 1997, Flextech announced that it had reached agreements
with (i) BBC Worldwide Limited ("BBC Worldwide") to form the two BBC
Joint Ventures and (ii) the other shareholders of UKLL and UKGL to
acquire all of the share capital in those two companies not already
owned by Flextech and the Company. One joint venture with BBC Worldwide
(the "Principal Joint Venture") will operate and launch a number of new
subscription television channels for distribution in the UK and Ireland.
Flextech and BBC Worldwide will each have a 50% interest in this
venture. The Principal Joint Venture has committed to the launch of at
least 4 new theme channels by September 30, 1998. The other joint
venture (the "Second Joint Venture") will acquire 65% of the share
capital of UKGL (following Flextech's acquisition of the UKGL share
capital as mentioned above), with put and call arrangements over the
remaining 35% of such share capital. The Second Joint Venture will
operate and develop UKGL, and both Flextech and BBC Worldwide will have
a 50% interest in that venture. The creation of the BBC Joint Ventures
is subject to a number of conditions, including approval of various
resolutions by the shareholders of Flextech at an extraordinary general
meeting to be held on April 15, 1997, and approval by the UK Department
of National Heritage. No assurances can be given that such approvals
will be obtained.
Flextech is also reviewing a possible investment in European Channel
Management and European Channel Broadcast, which market and own
distribution rights to the British Broadcasting Corporation's theme
channels, BBC World and BBC Prime. Pending the making of such
investment, Flextech will loan these two companies L.5 million ($9
million) on an interest free basis for four months. If no investment is
made by Flextech by the end of such four month period, then the loan
will begin to bear interest at 2% over LIBOR, compounded quarterly.
As described below, Flextech has undertaken to finance the working
capital requirements of the Principal Joint Venture. Flextech has also
agreed to make available to the Second Joint Venture, if required,
funding of up to L.10 million ($17 million). To support its funding
obligations, Flextech has obtained a revolving credit facility with
current borrowing availability of up to L.50 million ($86 million), and
with a term of up to 5 years, from a syndicate of banks (the "Flextech
Revolving Credit Facility"). Flextech is currently negotiating to
increase the borrowing availability under the Flextech Revolving Credit
Facility to L.85 million ($146 million)
Flextech will acquire the share capital of UKGL and UKLL not already
owned by it and the Company through the issuance of new Flextech
Ordinary Shares. Flextech will acquire the 75% of UKGL (and L.12.5
million ($21.4 million) of loan stock) and the 68.75% of UKLL (and
L.13.7 million ($23.5 million) of loan stock) that it does not already
own through the issuance of 34,954,713 new Flextech Ordinary Shares.
One of the current shareholders of UKLL will retain L.5.2 million ($8.9
million) of loan stock, which is to be repaid in two equal installments
on December 31, 1997 and 1998. Immediately following the issuance of
the new Flextech Ordinary Shares to the former shareholders of UKGL and
UKLL, the Company's voting power will fall below 50%. To increase the
Company's voting power to 50%, the Company will receive a special
voting share, which will permit the Company to cast 50% of all votes
attributable to the outstanding share capital of Flextech (the "Special
Voting Share"). The Special Voting Share will terminate upon the
occurrence of the earlier of (i) the third anniversary of issuance or
(ii) any transfer of Flextech shares by the Company outside a specified
affiliated group.
(continued)
II-88
<PAGE> 151
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(See note 1)
Notes to Financial Statements
Flextech's outstanding Flextech Non-Preference Shares had been issued
in connection with previous acquisition transactions by Flextech due to
the Company's requirement that it maintain specified voting interests
in Flextech. With the issuance of the Special Voting Share, the purpose
for the Flextech Non-Preference Shares will be eliminated. Accordingly,
and in order to simplify the capital structure of Flextech, upon the
issuance of the Special Voting Share, the Flextech Non-Preference
Shares will be converted into Flextech Ordinary Shares. Immediately
following such conversion, and the issuance of additional Flextech
Ordinary Shares in connection with the UKGL and UKLL transactions
described above, (i) the Company's interest in the equity share capital
of Flextech will decline from 46.5% to 36.1% (ii) the Company's voting
interest will be 50%, and (iii) the Company's put obligations with
respect to 10,467,090 Flextech Non-Preference Shares will be
eliminated, insofar as such obligations are based on the convertibility
of such shares.
If Flextech defaults in its funding obligation to the Principal Joint
Venture and fails to cure within 42 days after receipt of notice from
BBC Worldwide, BBC Worldwide is entitled, within the following 90 days,
to require that the Company assume all of Flextech's funding
obligations to the Principal Joint Venture (the "Standby Commitment").
Flextech's funding obligations to the Principal Joint Venture consist
of (i) the purchase of L.22 million ($38 million) of ordinary shares in
the Principal Joint Venture, (ii) a primary credit facility of L.88
million ($151 million) and, subject to certain restrictions, a standby
credit facility of L.30 million ($51 million). Borrowings under the
primary and standby credit facility would be represented by shares of
loan stock of the Principal Joint Venture, bearing interest at 2% above
LIBOR, which interest would be capitalized quarterly.
If BBC Worldwide requires the Company to perform Flextech's funding
obligations pursuant to the Standby Commitment, then the Company will
acquire Flextech's entire equity interest in the Principal Joint
Venture for L.1.00, and will replace Flextech's directors on the board
of the Principal Joint Venture with representatives of the Company.
Flextech will pay commitment and standby fees to the Company for its
undertaking under the Standby Commitment. If Flextech repays to the
Company all loans it makes to the Principal Joint Venture (plus
interest at TINTA's marginal cost of funds plus 2% per annum) within
180 days after the Company first becomes obligated to perform
Flextech's financial obligations, it may, reacquire its interest in the
Principal Joint Venture for L.1.00. The Company may also, within the
same period, require Flextech to reacquire its interest on the same
terms. The Standby Commitment will terminate on the earliest of (i) the
date on which Flextech has met all of its required financial
obligations to the Principal Joint Venture under the primary and
standby credit facilities, or (ii) the date on which Flextech delivers
a bank guarantee of all of its funding obligations to the Principal
Joint Venture.
II-89
<PAGE> 152
PART III.
Tele-Communications International, Inc. ("TINTA") is a majority-owned
subsidiary of Tele-Communications, Inc ("TCI"). During the fourth quarter of
1994 and the first quarter of 1995, TCI contributed its indirect ownership
interests in substantially all of its international cable and telephony assets
and certain of its international programming assets to TINTA (the
"Contributions"). For purposes of the following discussion, except to the
extent the context otherwise requires, the term the "Company" refers to (i)
such contributed ownership interests before the date of the Contributions and
(ii) TINTA and its direct and indirect subsidiaries and affiliates on and after
the date that the Contributions were completed.
Item 10. Directors and Executive Officers of the Registrant
The following lists the directors and executive officers of TINTA,
their birthdates and a description of their business experience and positions
held with TINTA as of March 1, 1997.
<TABLE>
<CAPTION>
Name Position
----- --------
<S> <C>
John C. Malone Has served as Chairman of the Board and as a director of TINTA
Born March 7, 1941 since May 1995. Dr. Malone has served as a Chief Executive Officer
of TCI since January 1994, and as Chairman of the Board of TCI
since November 1996. Dr. Malone served as President of TCI from
January 1994 to March 1997, as Chief Executive Officer of TCI
Communications, Inc., a subsidiary of TCI ("TCIC") from March 1992
to October 1994 and as President of TCIC from 1973 to October
1994. Dr. Malone is also a director of TCI, TCIC, TCI Pacific
Communications, Inc., BET Holdings, Inc., The Bank of New York and
TCI Satellite Entertainment, Inc.
Fred A. Vierra Has served as Chief Executive Officer and as a director of TINTA
Born November 9, 1931 since October 1994 and as Vice Chairman of the Board of TINTA since
May 1995. From October 1994 to May 1995, Mr. Vierra served as
Chairman of the Board of TINTA. Mr. Vierra served from December
1991 to October 1994 as Executive Vice President of TCIC, and has
served as Executive Vice President of TCI since January 1994. Mr.
Vierra is a director of Telewest Communications plc ("Telewest")
and Flextech plc ("Flextech").
Adam N. Singer Has served as President and Chief Operating Officer of TINTA since
Born January 19, 1952 October 1994 and as a director of TINTA since May 1995. Previously,
from June 1992 to October 1994, Mr. Singer was Vice
President-International of TCIC. Mr. Singer was President and Chief
Executive Officer of Flextech Television Limited ("FTV") (formerly
United Artists Entertainment (Programming) Limited) from September
1988 to June 1992. Mr. Singer is a director of Telewest and Flextech.
</TABLE>
III-1
<PAGE> 153
<TABLE>
<CAPTION>
Name Position
----- --------
<S> <C>
Tomiichi Akiyama Has served as a director of TINTA since August 1995. Mr. Akiyama has
Born December 17, 1929 served as Senior Corporate Advisor of Sumitomo Corporation
("Sumitomo") from February 1997 to present. Mr. Akiyama served as
Chairman of the Board of Sumitomo from June 1996 to February 1997
and as President of Sumitomo from June 1990 to February 1997.
Paul A. Gould Has served as a director of TINTA since July 1995, and as a
Born September 27, 1945 director of TCI since December 1996. Mr. Gould has been a Managing
Director and an Executive Vice President of Allen & Company
Incorporated for more than the last five years. He is also a
director of National Patent Development Corporation, Choice
International and United Video Satellite Group Inc.
Jerome H. Kern Has served as a director of TINTA since May 1995. Mr. Kern is
Born June 1, 1937 special counsel of the law firm of Baker & Botts, L.L.P. since July
1996; and was a senior partner with Baker & Botts, L.L.P. from
September 1992 to June 1996. From January 1992 to September 1992,
Mr. Kern was senior partner with the Law Offices of Jerome H. Kern.
Mr. Kern has served as a director of TCI since June 1994.
Pierre Lescure Has served as a director of TINTA since July 1995. Mr. Lescure has
Born February 7, 1945 served as Chief Executive Officer of Canal + S.A. and Chairman and
Chief Executive Officer of Le Studio Canal + since 1986.
Miranda Curtis Has served as Executive Vice President of TINTA since September
Born November 26, 1955 1996. Ms. Curtis served as Senior Vice President of TINTA from May
1995 to August 1996. From October 1994 to May 1995, Ms. Curtis
served as a Vice President of TINTA. From May 1992 to October 1994,
Ms. Curtis was Director of International Development in the
international division of TCI (and its predecessor company) and was
principally responsible for that division's activities in Asia and
the UK. From September 1989 through May 1992, Ms. Curtis served as
Director of Development and Marketing for a predecessor of Telewest
and then as Business Development Manager of FTV.
Wayne Gowen Has served as Senior Vice President of TINTA since February 1996.
Born October 21, 1946 Mr. Gowen served as Managing Director, TeleCommunications of
Comcast Europe from October 1993 to January 1996, and as Vice
President of Corporate Development of U S WEST, Inc. from January
1992 through September 1993. Form October 1989 to January 1992,
Mr. Gowen served as Managing Director of U S WEST Cable
Communications in the United Kingdom.
</TABLE>
III-2
<PAGE> 154
<TABLE>
<CAPTION>
Name Position
----- --------
<S> <C>
Graham Hollis Has served as Executive Vice President of TINTA since September
Born January 9, 1952 1996 and as Chief Financial Officer of TINTA since May 1995. Mr.
Hollis served as a Vice President of TINTA from May 1995 to August
1996. From July 1994 to May 1995, Mr. Hollis was the Director of
Finance of the Company. From January 1994 to July 1994, Mr. Hollis
was Vice President-Finance of DTC Management, LLC, a subsidiary of
The Peninsula and Oriental Steam Navigation Company, an English
company. Prior to his position with DTC Management, LLC, Mr.
Hollis served as the Director of Accounting for TCD North, Inc.
Gregory B. Armstrong Has served as Senior Vice President of TINTA since September 1996.
Born September 27, 1946 Mr. Armstrong served as a Vice President of TINTA from May 1995 to
August 1996, having previously been an employee of the Company
since August, 1994. Mr. Armstrong was President of Cable
Management Group, Inc. from 1988 to 1994.
Stephen M. Brett Has served as Vice President and Secretary of TINTA since May 1995.
Born September 20, 1940 Mr. Brett has served as Executive Vice President and General
Counsel, and Secretary of TCI since January 1994 and as Senior Vice
President and General Counsel of TCIC since December 1991.
Richard L. Rexroat, Jr. Has served as Vice President of Engineering of TINTA since May
Born October 5, 1945 1995. From February 1993 to May 1995, Mr. Rexroat served as Vice
President of TCI responsible for its technical cable operations.
Prior to February 1993, Mr. Rexroat served at different times as
Director of Engineering, Director of Fiber Optic Engineering and
Operations Engineer for TCIC.
</TABLE>
TINTA's Restated Certificate of Incorporation provides for a Board of
Directors of not less than three members, with the exact number of directors to
be fixed by resolution of the Board. The Board of Directors currently consists
of seven members. For purposes of determining their terms, directors are
divided into three classes. The Class I directors, whose term expire at the
1997 annual stockholders' meeting, include Messrs. Vierra and Lescure. The
Class II directors, whose terms expire at the 1998 annual stockholders'
meeting, include Dr. Malone and Mr. Gould. The Class III directors, whose term
expire at the 1999 annual stockholders' meeting, include Messrs. Akiyama,
Singer and Kern. Each director elected at an annual stockholders meeting will
serve for a term ending on the date of the third annual stockholders' meeting
after his election or until his earlier death, resignation or removal.
III-3
<PAGE> 155
Other
There are no family relations, of first cousin or closer, among the
individuals named above, by blood, marriage or adoption.
During the past five years, none of the persons named above has had
any involvement in such legal proceedings as would be material to an evaluation
of that person's ability or integrity, except as noted above.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires TINTA's officers and directors, and persons who own more than ten
percent of a registered class of TINTA's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish TINTA with copies of all Section 16(a)
forms they file.
Based solely on review of the copies of such Forms 3, 4 and 5 and
amendments thereto furnished to TINTA with respect to its most recent fiscal
year, or written representations that no Forms 5 were required, TINTA believes
that, during the year ended December 31, 1996, its officers, directors and
greater-than-ten-percent beneficial owners complied with all Section 16(a)
filing requirements.
Item 11. Executive Compensation
(a) Summary Compensation Table. The following table shows, for
the three years ended December 31, 1996, all forms of compensation for the
Chief Executive Officer and each of the four most highly compensated executive
officers of TINTA, whose total annual salary and bonus exceeded $100,000 for
the year ended December 31, 1996.
On December 4, 1996, the Company distributed (the "Distribution") to
the holders of shares of Tele-Communications, Inc. Series A TCI Group Common
Stock ("Series A TCI Group Common Stock") and Tele-Communications, Inc. Series
B TCI Group Common Stock ("Series B TCI Group Common Stock" and together with
the Series A TCI Group Common Stock, the "TCI Group Common Stock") all of the
issued and outstanding common stock of TCI Satellite Entertainment, Inc.
("Satellite"), a wholly-owned subsidiary of TCI prior to the Distribution.
Certain directors, officers and employees of TCI and its subsidiaries have been
granted options to purchase shares of Series A TCI Group Common Stock ("TCI
Options") and stock appreciation rights with respect to shares of Series A TCI
Group Common Stock ("TCI SARs"). The TCI Options and TCI SARs have been
granted pursuant to various stock plans of TCI (the "TCI Plans"). The TCI
Plans give the Board of Directors of TCI (the "TCI Board") the authority to
make equitable adjustments to outstanding TCI Options and TCI SARs in the event
of certain transactions, of which the Distribution of Satellite was one.
III-4
<PAGE> 156
The TCI Board determined that, immediately prior to the Distribution, each TCI
Option would be divided into two separately exercisable options: (i) an option
to purchase TCI Satellite Entertainment, Inc. Series A Common Stock ("SATCo
Option"), exercisable for the number of shares of TCI Satellite Entertainment,
Inc. Series A common stock ("SATCo Series A Common Stock") that would have been
issued in the Distribution in respect of the shares of Series A TCI Group Common
Stock subject to the applicable TCI Option, if such TCI Option had been
exercised in full immediately prior to the record date of the Distribution, and
containing substantially equivalent terms as the existing TCI Option, and (ii)
an option to purchase Series A TCI Group Common Stock (a "Series A TCI Group
Option"), exercisable for the same number of shares of Series A TCI Group Common
Stock as the corresponding TCI Option had been. The aggregate exercise price of
each TCI Option was allocated between the SATCo Option and the Series A TCI
Group Option into which it was divided, and all other terms, including date of
grant, of the SATCo Option and Series A TCI Group Option are in all material
respects the same as the terms of such TCI Option. Similar adjustments were
made to the outstanding TCI SARs, resulting in the holders thereof holding stock
appreciation rights ("SARs") with respect to Series A TCI Group Common Stock and
SATCo Series A Common Stock instead of TCI SARs, and to outstanding restricted
stock awards, resulting in the holders thereof holding restricted shares of
SATCo Series A Common Stock in addition to restricted stock of Series A TCI
Group Common Stock, effective immediately prior to the Distribution. The
foregoing adjustments were made pursuant to the anti-dilution provisions of the
TCI Plans pursuant to which the respective TCI Options and TCI SARs were
granted.
Prior to the Distribution, TCI and Satellite entered into an agreement
to sell to each other from time to time at the then current market price shares
of Series A TCI Group Common Stock and SATCo Series A Common Stock,
respectively, as necessary to satisfy their respective obligations under such
securities.
TCI, in addition to the TCI Group Common Stock, has issued
Tele-Communications, Inc. Series A Liberty Media Group Common Stock (Series A
Liberty Group Common Stock"), and Tele-Communications, Inc. Series B Liberty
Media Group common stock (Series B Liberty Group Common Stock," and together
with the Series A Liberty Group Common Stock, the "Liberty Media Group Common
Stock"). Prior to the Distribution, Satellite was a member of the TCI Group
and all of the assets and businesses of Satellite were included in the TCI
Group. Accordingly, the Distribution was made to holders of TCI Group Common
Stock and the holders of Liberty Media Group Common Stock did not participate
in the Distribution.
Effective January 14, 1997, the Company issued a stock dividend to
holders of Liberty Media Group Common Stock consisting of one share of Series A
Liberty Group Common Stock for every two shares of Series A Liberty Group
Common Stock owned and one share of Series A Liberty Group Common Stock for
every two shares of Series B Liberty Group Common Stock owned (the "Liberty
Group Stock Dividend"). As a result of the Liberty Group Stock Dividend, the
number of options granted to purchase Series A Liberty Group Common Stock and
the price to purchase such options have been adjusted.
III-5
<PAGE> 157
The following table shows for the years ended December 31, 1996, 1995
and 1994 all forms of compensation for the Chief Executive Officer and each of
the four most highly compensated executive officers of the Company, whose
annual salary and bonus exceeded $100,000 for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------------- ------------------------
Securities
Other Restricted Underlying All
Annual Stock Options/ Other
Name and Compensation Awards SARs Compensa-
Principal Position Year Salary ($) Bonus ($) ($) ($) (#) tion ($)(1)
- ------------------ ---- ---------- --------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred A. Vierra
(Chief Executive
Officer) 1996 $ 650,000(2) $ -- $ 4,231(3) $ -- -- $15,000
1995 $ 650,000(2) $ -- $ 3,207(3) $380,625(4) 400,000(9) $15,000
1994 $ 669,613(2) $ -- $ 1,024(3) $ -- 295,000(5) $15,000
Adam N. Singer,
(President and
Chief Opera-
ting Officer) 1996 $ 400,000 $ -- $ 9,411(6) $ -- -- $14,006
1995 $ 350,000 $ 50,000 $11,355(3) $380,625(4) 400,000(9) $ 6,006
1994 $ 314,187 $ -- $ -- $ -- 147,500(5) $15,000
Miranda Curtis
(Executive Vice
President) 1996 $ 253,654(7) $ 25,488(7) $31,775(8) $ -- -- $ --
1995 $ 157,990(7) $ 35,548(7) $31,579(8) $253,750(4) 200,000(9) $ --
1994 $ 153,930(7) $ 34,634(7) $44,917(8) $ -- 36,875(5) $ --
Richard L. Rexroat,
Jr. (Vice President
of Engineering) 1996 $ 152,250 $ -- $ 3,551(3) $ -- -- $14,760
1995 $ 145,000 $ 26,500 $ 2,998(3) $ -- 50,000(9) $13,260
1994 $ 140,000 $ 11,465 $ -- $ -- -- $13,260
Wayne Gowen
(Senior Vice
President) 1996 $ 181,731(10) $ -- $92,228(11) $ -- -- $ --
</TABLE>
III-6
<PAGE> 158
- --------------
(1) All amounts shown in this column represent contributions to the TCI
Employee Stock Purchase Plan ("TCI ESPP"). All named executive
officers of TINTA for whom contributions were made in 1996, 1995 and
1994 are fully vested. Directors who are not employees of TCI or
TINTA are ineligible to participate in the TCI ESPP. The TCI ESPP, a
defined contribution plan, enables participating employees to acquire
a proprietary interest in TCI and provides benefits upon retirement.
Under the terms of the TCI ESPP, employees are eligible for
participation after one year of service. The TCI ESPP's normal
retirement age is 65 years. Participants may contribute up to 10% of
their compensation and TCI (by annual resolution of the Board of
Directors) may contribute up to a matching 100% of the participants'
contributions. The TCI ESPP includes a salary deferral feature in
respect of employee contributions. Forfeitures (due to participants'
withdrawal prior to full vesting) are used to reduce TCI's otherwise
determined contributions. Generally, participants acquire a vested
right in TCI contributions as follows:
<TABLE>
<CAPTION>
Years of Vesting
-------- --------
Service Percentage
------- ----------
<S> <C>
Less than 1 0
1-2 20
2-3 30
3-4 45
4-5 60
5-6 80
6 or more 100
</TABLE>
Participant contributions are fully vested. Although TCI has not
expressed an intent to terminate the TCI ESPP, it may do so at any
time. The TCI ESPP provides for full immediate vesting of all
participants' rights upon termination. TINTA's employees are eligible
to participate in the TCI ESPP for so long as TCI beneficially owns
shares of the common stock of TINTA representing a majority in voting
power of the outstanding shares of capital stock of TINTA entitled to
vote generally in the election of directors.
(2) Includes deferred compensation of $250,000.
(3) Primarily consists of amounts reimbursed during the year for the
payment of taxes.
(4) On December 13, 1995, Messrs. Vierra and Singer and Ms. Curtis were
granted 15,000, 15,000 and 10,000 restricted shares, respectively, of
TINTA Series A common stock, $1.00 par value (the "Series A Common
Stock"). Such restricted shares vest as to 50% of such shares on
December 13, 1999 and as to the remaining 50% on December 13, 2000.
Such restricted shares had a value at the end of 1996, based upon the
closing sales price per share of the Series A Common Stock on Nasdaq
on December 31, 1996, of $198,750, $198,750 and $132,500,
respectively. TINTA has not paid cash dividends on its Series A Common
Stock and does not anticipate declaring and paying cash dividends on
the Series A Common Stock at any time in the foreseeable future. See
"-Option and SARs Grants in Last Fiscal Year" below.
III-7
<PAGE> 159
(5) On November 17, 1994 certain key employees of TCI were granted options
in tandem with stock appreciation rights to acquire 3,191,000 shares of
Series A TCI Group Common Stock, 1,196,625 shares of Series A Liberty
Group Common Stock, and 319,100 shares of SATCo Series A Common Stock
at adjusted purchase prices of $14.19, $14.67 and $23.06 per share,
respectively. Such options vest evenly over five years, became
exercisable beginning on November 17, 1995 and expire on November 17,
2004. Notwithstanding the vesting schedule as set forth in the option
agreement, the option shares shall become available for purchase if the
grantee's employment with TCI (a) shall terminate by reason of (i)
termination by TCI without cause (ii) termination by the grantee for
good reason (as defined in the agreement) or (iii) disability, (b)
shall terminate pursuant to provisions of a written employment
agreement, if any, between the grantee and TCI which expressly permits
the grantee to terminate such employment upon occurrence of specified
events (other than the giving of notice and passage of time), or (c) if
the grantee dies while employed by TCI. Further, the option shares will
become available for purchase in the event of an Approved Transaction,
Board Change, or Control Purchase (each as defined), unless in the case
of an Approved Transaction, the Compensation Committee of TCI under the
circumstances specified determines otherwise.
(6) The 1996 amount includes $8,994 paid to Mr. Singer as a reimbursement
of the employer match that Mr. Singer would have received in his TCI
ESPP account if his pre-tax contributions to the TCI ESPP had not been
inadvertently terminated.
(7) Ms. Curtis's salary and bonus were paid in UK pounds sterling. The
1996, 1995 and 1994 amounts in the table represent the U.S. dollar
equivalent using the average exchange rate in effect during the years
ended December 31, 1996, 1995 and 1994, respectively.
(8) All of the 1996 and 1995 amounts and $30,767 of the 1994 amount
represent the U.S. dollar equivalents, using the average exchange rate
in effect during the years ended December 31, 1996, 1995 and 1994,
respectively, for the portions of the disturbance allowances and other
compensation that were paid to Ms. Curtis in pounds sterling.
(9) The Board of Directors of TINTA adopted, on July 11, 1995, the
Tele-Communications International, Inc. 1995 Stock Incentive Plan (the
"1995 Plan"). The 1995 Plan provides for awards to be made in respect
of a maximum of 3,000,000 shares of Series A Common Stock (subject to
certain anti-dilution adjustments). Awards may be made as grants of
stock options, stock appreciation rights, restricted shares, stock
units, or any combination thereof (collectively, "Awards"). Shares of
Series A Common Stock that are subject to Awards that expire,
terminate or are annulled for any reason without having been exercised
(or deemed exercised, by virtue of the exercise of a related stock
appreciation right), or are forfeited prior to becoming vested will
return to the pool of such shares available for grant under the 1995
Plan. On December 13, 1995, pursuant to the 1995 Plan, certain
executive officers, directors and other key employees of TINTA and TCI
were granted 1,302,000 options in tandem with stock appreciation
rights to acquire shares of Series A Common Stock at a purchase price
of $16.00 per share. Additionally, one executive officer and one
employee of TCI were each granted an aggregate of 50,000 options in
tandem with stock appreciation rights to acquire from TCI shares of
Series A Common Stock owned by it. Such options vest evenly over five
years with such vesting period beginning August 4, 1995, first became
exercisable beginning on August 4, 1996 and expire on August 4, 2005.
III-8
<PAGE> 160
(10) Mr. Gowen commenced employment on February 19, 1996. Accordingly, the
1996 compensation information included in the table represents ten
months of employment.
(11) Amount is primarily comprised of a cost of living allowance with
respect to Mr. Gowen's term as an expatriate employee working out of
the Company's London office during 1996.
(b) Option and SARs Grants in Last Fiscal Year. During the year
ended December 31, 1996, no Awards under the 1995 Plan were granted to the
named executive officers of TINTA. For a description of certain options
granted to nonemployee directors of TINTA, see "-Compensation of Directors"
below.
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR
Value Table. The following table provides each exercise of stock options and
SARs during the year ended December 31, 1996 by each of the named executive
officers of TINTA and the December 31, 1996 year-end number and value of
unexercised options and SARs on an aggregated basis:
III-9
<PAGE> 161
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised in-the-Money
Options/SARs Options/SARs
at 12/31/96(#) at 12/31/96($)
Name and Shares Acquired Exercisable/ Exercisable/
Series of Common Stock on Exercise (#) Value Realized($) Unexercisable Unexercisable(1)
---------------------- --------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Fred A. Vierra
Series A
Exercisable -- -- 80,000 $ --
Unexercisable -- -- 320,000 $ --
Series A TCI Group
Exercisable -- -- 235,000 $ 358,438
Unexercisable -- -- 165,000 $ 104,063
Series A Liberty Group
Exercisable -- -- 88,125 $ 589,301
Unexercisable -- -- 61,875 $ 329,749
SATCo Series A
Exercisable -- -- 23,500 $ --
Unexercisable -- -- 16,500 $ --
Adam N. Singer
Series A
Exercisable -- -- 80,000 $ --
Unexercisable -- -- 320,000 $ --
Series A TCI Group
Exercisable 55,000 $508,750 62,500 $ 52,031
Unexercisable -- -- 82,500 $ 52,031
Series A Liberty Group
Exercisable 20,625 $170,157 23,438 $ 132,084
Unexercisable -- -- 30,937 $ 164,866
SATCo Series A
Exercisable -- -- 7,475 $ --
Unexercisable -- -- 7,025 $ --
Miranda Curtis
Series A
Exercisable -- -- 40,000 $ --
Unexercisable -- -- 160,000 $ --
Series A TCI Group
Exercisable -- -- 15,625 $ 13,008
Unexercisable -- -- 16,875 $ 4,336
Series A Liberty Group
Exercisable -- -- 5,859 $ 33,018
Unexercisable -- -- 6,328 $ 30,134
SATCo Series A
Exercisable -- -- 1,563 $ --
Unexercisable -- -- 1,688 $ --
Richard L. Rexroat, Jr.
Series A
Exercisable -- -- 10,000 $ --
Unexercisable -- -- 40,000 $ --
Series A TCI Group
Exercisable -- -- 15,500 $ 35,844
Unexercisable -- -- 4,500 $ 10,406
Series A Liberty Group
Exercisable -- -- 5,813 $ 45,814
Unexercisable -- -- 1,688 $ 13,301
SATCo Series A
Exercisable -- -- 1,550 $ --
Unexercisable -- -- 450 $ --
</TABLE>
III-10
<PAGE> 162
__________________
(1) Based on the closing sales price per share of Series A Common Stock,
Series A TCI Group Common Stock, Series A Liberty Group Common Stock,
and SATCo Series A Common Stock on Nasdaq on December 31, 1996.
(d) Compensation of Directors. The standard arrangement by which
the Company's directors are compensated for all services (including any amounts
payable for committee participating or special assignments) as a director is as
follows: each director receives a fee of $500 plus travel expenses for
attendance at each meeting of the Board of Directors and each director who is
not a full-time employee of the Company receives additional compensation of
$30,000 per year.
On April 11, 1996, the Board of Directors adopted the
Tele-Communications International, Inc. 1996 Nonemployee Director Stock Option
Plan (the "Director Plan"). The Director Plan provides for grants to be made
to nonemployee directors of TINTA of options to purchase a maximum of 1,000,000
shares of Series A Common Stock (subject to certain anti-dilution adjustments).
Shares that are subject to such options that expire or terminate for any reason
without having been exercised will return to the pool of shares underlying
options available for grant under the Director Plan. On April 11, 1996, each
of Messrs. Akiyama, Gould, Kern, Lescure and Malone were granted, pursuant to
the Director Plan, an option to purchase 50,000 shares of Series A Common Stock
at an exercise price of $16 per share. Mr. Akiyama waived his right to receive
such option. Each person who becomes a director of the Company and is not an
employee of the Company or any of its subsidiaries will be automatically
granted similar options upon such person becoming a director. Additionally,
each person who is an employee and director of the Company who ceases to be an
employee of the Company but remains a director of the Company will be
automatically granted similar options upon such event. Options granted under
the Director Plan vest and become exercisable in equal annual installments
commencing on the first anniversary of the date of the grant. Each option
granted under the Director Plan will terminate upon the earliest to occur of
the following: (i) the expiration of 10 years following the date upon which the
option is granted; (ii) the expiration of one year following the date upon
which the optionee ceases to be a director of the Company for any reason other
than voluntary termination of director status; or (iii) the expiration of three
months following the date on which the optionee voluntarily ceases his status
as a director.
There are no other arrangements whereby any of TINTA's directors
received compensation for services as a director during 1996 in addition to or
in lieu of that specified by the aforementioned standard arrangement.
III-11
<PAGE> 163
(e) Employment Contracts, Termination of Employment and Change of
Control Agreements. TINTA and TCI have entered into an Amended and Restated
Employment Agreement with Mr. Vierra relating to Mr. Vierra's employment with
TINTA as Vice Chairman and Chief Executive Officer, providing for a base salary
of $650,000 per year. Mr. Vierra's salary is subject to annual review by the
Board of Directors, which may in its sole discretion increase his salary. Mr.
Vierra's salary for 1996 is currently set at $650,000. Mr. Vierra's employment
agreement provides for the deferral of a portion of each monthly salary payment
so as to result in the deferral of salary at the rate of $250,000 per annum.
The deferred amounts are to be paid in monthly installments over a 240-month
period commencing on the later of December 31, 1998 and the termination of Mr.
Vierra's full-time employment with TINTA, together with interest thereon at the
rate of 8% per annum compounded annually from the date of deferral to the
payment date. In the event of Mr. Vierra's death, all outstanding deferred
amounts will be paid in a lump sum to his beneficiaries.
While he is employed by TINTA pursuant to his employment agreement,
Mr. Vierra is entitled to participate in all formal incentive compensation
plans, stock incentive plans, employee stock purchase plans, retirement plans
and insurance plans or policies adopted for the benefit of TCI's or TINTA's
executive officers or employees generally. Additionally, Mr. Vierra's
employment agreement provides for personal use of TCI's aircraft and flight
crew, limited to an aggregate value of $35,000 per year.
Mr. Vierra's employment agreement has a stated termination date of
December 31, 1998. It also provides that upon an earlier termination of Mr.
Vierra's employment by TINTA without cause, all remaining compensation due
under such agreement for the balance of the employment term would become
immediately due and payable to Mr. Vierra. Upon his death during the employment
term, TINTA would pay to Mr. Vierra's beneficiaries a lump sum in an amount
equal to the lesser of (i) the compensation due under his employment agreement
for the balance of the employment term and (ii) one year's salary. In the event
of his disability, TINTA would continue to pay Mr. Vierra his annual salary as
and when it would have otherwise become due until the first to occur of the end
of the employment term or the date of his death.
Mr. Vierra's agreement further provides that during his employment
with TINTA and for the longer of a period of two years following the effective
date of his termination of employment or if Mr. Vierra terminates his
employment before the end of the term of his employment in breach of the
employment agreement, or if Mr. Vierra is terminated "for cause" (as defined in
the employment agreement) by TINTA, until December 31, 1998 with TINTA, he will
not be connected with any entity in any manner, as defined in the agreement,
which competes in a material respect with the business of TINTA or any of
TINTA's or TCI's majority owned subsidiaries. However, the agreement provides
that Mr. Vierra may own securities of any corporation listed on a national
securities exchange or quoted in the Nasdaq National Market System to the
extent of an aggregate of 5% of the amount of such securities outstanding.
Under the employment agreement, substantially all of Mr. Vierra's business
time, attention and efforts will be devoted to the affairs of TINTA. TCI is a
party to the employment agreement and agrees to provide to Mr. Vierra certain
benefits thereunder, however, any payment or expense incurred by TCI under the
employment agreement will be reimbursed to TCI by TINTA under the terms of the
Services Agreement between TCI and TINTA. See "Certain Relationships and
Related Transactions."
III-12
<PAGE> 164
(f) Additional Information With Respect to Compensation Committee
Interlocks and Insider Participation in Compensation Decisions. The
Compensation Committee of TINTA's Board of Directors is responsible for
determining executive compensation policies and guidelines. Messrs. Malone,
Gould and Kern constitute the Compensation Committee. Dr. Malone is the
Chairman of the Board of TINTA and the Chief Executive Officer of TCI. He is
not an officer of any of the Company's subsidiaries. Neither Mr. Gould nor Mr.
Kern are or were officers of the Company or any of its subsidiaries. However,
Mr. Kern is a director of TCI and special counsel with the law firm of Baker
and Botts, L.L.P., the principal outside counsel for TINTA.
Item 12. Security Ownership or Certain Beneficial Owners and
Management.
(a) Security Ownership of Certain Beneficial Owners. On January
31, 1997, TCI owned 86,250,000 shares of Series A Common Stock and all of the
11,700,000 outstanding shares of TINTA's Series B Common Stock, $1 par value per
share (the "Series B Common Stock," and together with the Series A Common Stock,
the "Common Stock"), which represented 83% of the shares of outstanding Common
Stock and 91% of the combined voting power of the outstanding Common Stock
outstanding at that date. TCI is the only person known to TINTA that
beneficially owns 5% or more of either series of Common Stock.
(b) Security Ownership of Management. The following table sets
forth information with respect to the beneficial ownership of shares of the
Series A Common Stock, Series A TCI Group Common Stock, Series B TCI Group
Common Stock, Series A Liberty Group Common Stock, Series B Liberty Group
Common Stock, Tele-Communications, Inc. Class B 6% Cumulative Redeemable
Exchangeable Preferred Stock ("TCI Class B Preferred Stock"), Convertible
Preferred Stock, Series C ("TCI Series C Preferred Stock") Redeemable
Convertible TCI Group Preferred Stock, Series G ("TCI Series G Preferred
Stock") and Redeemable Convertible Liberty Media Group Preferred Stock, Series
H ("TCI Series H Preferred Stock") as of January 31, 1997, by each director of
TINTA owning any of the foregoing securities, by each of the executive officers
named in the Summary Compensation Table and by the directors and all executive
officers of TINTA as a group. Shares issuable upon exercise of options are
deemed to be outstanding for the purpose of computing the percentage ownership
and overall voting power of persons beneficially owning such options, but have
not been deemed to be outstanding for the purpose of computing the percentage
ownership or overall voting power of any other person. The number of shares of
Series A TCI Group Common Stock, Series B TCI Group Common Stock, Series A
Liberty Group Common Stock, and Series B Liberty Group Common Stock in the
table includes interests of the named directors and executive officers or of
members of the group of directors and executive officers in shares held by the
trustee of TCI's ESPP and shares held by the trustee of the United Artists
Employee Stock Ownership Plan for their respective accounts. So far as is known
to TINTA, the persons indicated below have sole voting and investment power
with respect to the shares indicated as owned by them, except as otherwise
stated in the notes to the table and except for the shares held by the trustee
of the TCI ESPP for the benefit of such persons, which shares are voted at the
discretion of the trustee.
III-13
<PAGE> 165
<TABLE>
<CAPTION>
Amount and
Nature of
Title of Beneficial Percent of Voting
Beneficial Owner Class or Series Ownership Class(1) Power(1)
- ---------------- --------------- --------- -------- --------
<S> <C> <C> <C> <C>
John C. Malone Series A 50,000(2) * *
Series A TCI Group 2,172,711(3) * 16.87%
Series B TCI Group 25,287,083(4)(5) 29.87%
Series A Liberty Group 3,929,209(3) *
Series B Liberty Group 6,349,270(4)(5) 29.97%
TCI Class B Preferred Stock 306,000(4) 18.89%
Fred A. Vierra Series A 446,000(6) * *
Series A TCI Group 581,473(7) * *
Series A Liberty Group 211,889(7) *
TCI Class B Preferred Stock 200 *
Adam N. Singer Series A 415,500(8) * *
Series A TCI Group 148,041(9) * *
Series A Liberty Group 55,258(9) *
Jerome H. Kern Series A 50,000(2) * *
Series A TCI Group 2,050,000(10) * *
Series A Liberty Group 768,750(10) *
Paul A. Gould Series A 95,000(2) * *
Series A TCI Group 127,330(15) * *
Series B TCI Group 243,824 *
Series A Liberty Group 102,538(15) *
Series B Liberty Group 39,081 *
TCI Class B Preferred Stock 19,558 1.21%
Pierre Lescure Series A 50,000(2) * *
Miranda Curtis Series A 210,500(11) * *
Series A TCI Group 32,500(12) * *
Series A Liberty Group 12,187(12) *
Richard L. Rexroat, Jr. Series A 50,000(13) * *
Series A TCI Group 39,740(14) * *
Series A Liberty Group 14,684(14) *
TCI Class B Preferred Stock 32 *
All directors and Series A 1,518,600(16) 1.40% *
executive officers
as a group Series A TCI Group 5,927,557(17) * 17.25%
(13 persons) Series B TCI Group 25,530,907 30.16%
Series A Liberty Group 5,385,867(17) 2.34%
Series B Liberty Group 6,388,351 30.15%
TCI Class B Preferred Stock 325,790 20.11%
</TABLE>
III-14
<PAGE> 166
__________________________
* Less than one percent
(1) Based on 106,950,873 shares of Series A Common Stock (after
elimination of treasury shares), 11,700,000 shares of Series B Common
Stock, 597,497,573 shares of Series A TCI Group Common Stock (after
elimination of shares of TCI held by subsidiaries of TCI), 84,647,065
shares of Series B TCI Group Common Stock, 228,558,926 shares of
Series A Liberty Group Common Stock, 21,187,969 shares of Series B
Liberty Group Common Stock, 1,620,026 shares of TCI Class B Preferred
Stock 70,575 shares of TCI Series C Preferred Stock, 6,693,177 shares
of TCI Series G Preferred Stock and 6,693,177 shares of TCI Series H
Preferred Stock outstanding on January 31, 1997.
(2) Assumes the exercise in full of options granted in April 1996,
pursuant to the Director Plan, to acquire 50,000 shares of Series A
Stock. None of such options are exercisable until April 11, 1997.
(3) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November of 1992 to acquire 1,000,000
shares of Series A TCI Group Common Stock and 375,000 shares of Series
A Liberty Group Common Stock. Options to acquire 800,000 shares of
Series A TCI Group Common Stock and 300,000 shares of Series A Liberty
Group Common Stock are currently exercisable. Also assumes the
exercise in full of stock options granted in tandem with stock
appreciation rights in December of 1995 to acquire 1,000,000 shares of
Series A TCI Group Common Stock and 375,000 shares of Series A Liberty
Group Common Stock. Options to acquire 200,000 shares of Series A TCI
Group Common Stock and 75,000 shares of Series A Liberty Group Common
Stock are currently exercisable.
(4) Includes 1,173,000 shares of Series B TCI Group Common Stock, 146,625
shares of Series A Liberty Group Common Stock, 293,250 shares of
Series B Liberty Group Common Stock and 6,900 shares of TCI Class B
Preferred Stock held by Dr. Malone's wife, Mrs. Leslie Malone, but Dr.
Malone has disclaimed any beneficial ownership of such shares.
(5) Pursuant to a letter agreement, dated June 17, 1988, the late Mr. Bob
Magness, formerly Chairman of The Board of TCI, and Kearns - Tribune
Corporation each agreed with Dr. Malone that prior to making a
disposition of a significant portion of their respective holdings of
Series B TCI Group Common Stock or Series B Liberty Group Common
Stock, he or it would first offer Dr. Malone the opportunity to
purchase such shares.
(6) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in December of 1995 to acquire 400,000
shares of Series A Common Stock. Options to acquire 80,000 of such
shares of Series A Common Stock are currently exercisable. Also
includes 15,000 shares of restricted Series A Common Stock granted in
December 1995. Such shares vest as to 50% in December of 1999 and as
to the remaining 50% in December of 2000.
III-15
<PAGE> 167
(7) Assumes the exercise in full of the following: (a) stock options
granted in tandem with stock appreciation rights in November 1992 to
acquire 100,000 shares of Series A TCI Group Common Stock and 37,500
shares of Series A Liberty Group Common Stock of which options to
acquire 80,000 and 30,000, respectively of such shares are currently
exercisable; (b) stock options granted in tandem with stock
appreciation rights in November 1993 to acquire 100,000 shares of
Series A TCI Group Common Stock and 37,500 shares of Series A Liberty
Group Common Stock, of which options to acquire 75,000 and 28,125,
respectively of such shares are currently exercisable; and (c) stock
options granted in tandem with stock appreciation rights in November
1994 to acquire 200,000 shares of Series A TCI Group Common Stock and
75,000 shares of Series A Liberty Group Common Stock, of which options
to acquire 80,000 and 30,000, respectively, of such shares are
currently exercisable.
(8) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in December of 1995 to acquire 400,000
shares of Series A Common Stock. Options to acquire 80,000 of such
shares of Series A Common Stock are currently exercisable. Also
includes 15,000 shares of restricted Series A Common Stock granted in
December 1995. Such shares vest as to 50% in December of 1999 and as
to the remaining 50% in December of 2000.
(9) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November 1992 to acquire 20,000 shares of
Series A TCI Group Common Stock and 7,500 shares of Series A Liberty
Group Common Stock. Options to acquire 10,000 and 3,750, respectively
of such shares are currently exercisable. Also assumes the exercise in
full of stock options granted in tandem with stock appreciation rights
in October 1993 to acquire 25,000 shares of Series A TCI Group Common
Stock and 9,375 shares of Series A Liberty Group Common Stock. Options
to acquire 12,500 and 4,688, respectively of such shares are currently
exercisable. Additionally assumes the exercise in full of stock
options granted in tandem with stock appreciation rights in November
1994 to acquire 100,000 shares of Series A TCI Group Common Stock and
37,500 shares of Series A Liberty Group Common Stock, of which options
to acquire 40,000 and 15,000, respectively, of such shares are
currently exercisable.
(10) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights to acquire 1,500,000 shares of Series A TCI
Group Common Stock and 562,500 shares of Series A Liberty Group Common
Stock. Options to acquire 1,100,000 and 412,500 shares, respectively,
are currently exercisable, and the remainder vest and become
exercisable evenly over one year. The options expire on October 12,
1998. Additionally assumes the exercise in full of stock options
granted in November 1994 to purchase 50,000 shares of Series A TCI
Group Common Stock and 18,750 shares of Series A Liberty Group Common
Stock. Options to acquire 20,000 and 7,500, respectively, of such
shares are currently exercisable. Also assumes the exercise in full of
stock options granted in tandem with stock appreciation rights in
December of 1995 to acquire 500,000 shares of Series A TCI Group
Common Stock and 187,500 shares of Series A Liberty Group Common
Stock. Options to acquire 100,000 and 37,500, respectively of such
shares are currently exercisable.
(11) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in December of 1995 to acquire 200,000
shares of Series A Common Stock. Options to acquire 40,000 of such
shares are currently exercisable. Also includes 10,000 shares of
restricted Series A Common Stock granted in December 1995. Such shares
vest as to 50% in December of 1999 and as to the remaining 50% in
December of 2000.
III-16
<PAGE> 168
(12) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in October 1993 to acquire 7,500 shares of
Series A TCI Group Common Stock and 2,812 shares of Series A Liberty
Group Common Stock. Options to acquire 5,625 and 2,109, respectively
of such shares are currently exercisable. Also assumes the exercise in
full of stock options granted in tandem with stock appreciation rights
in November 1994 to acquire 25,000 shares of Series A TCI Group Common
Stock and 9,375 shares of Series A Liberty Group Common Stock, of
which options to 10,000 and 3,750, respectively, of such shares are
currently exercisable.
(13) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in December 1995 to acquire 50,000 shares of
Series A Common Stock. Options to acquire 10,000 of such shares are
currently exercisable.
(14) Assumes the exercise in full of stock options granted in tandem with
stock appreciation rights in November 1992 to acquire 10,000 shares of
Series A TCI Group Common Stock and 3,750 shares of Series A Liberty
Group Common Stock. Options to acquire 8,000 and 3,000, respectively
of such shares are currently exercisable. Also assumes the exercise in
full of stock options granted in tandem with stock appreciation rights
in October 1993 to acquire 10,000 shares of Series A TCI Group Common
Stock and 3,750 shares of Series A Liberty Group Common Stock. Options
to acquire 7,500 and 2,813, respectively of such shares are currently
exercisable.
(15) Assumes the exercise in full of options granted in December 1996 to
acquire 50,000 shares of Series A TCI Group Common Stock and 18,750
shares of Series A Liberty Group Common Stock. None of these options
are exercisable until December 13, 1997.
(16) Certain executive officers and directors (7 persons, including Messrs.
Vierra, Singer and Rexroat and Ms. Curtis) hold options, which were
granted in tandem with stock appreciation rights in December of 1995,
to acquire 1,200,000 shares of Series A Common Stock. Options to
acquire 240,000 of such shares are currently exercisable.
Additionally, Messrs. Vierra and Singer and Ms. Curtis hold in the
aggregate 40,000 shares of restricted Series A Common Stock. Such
shares vest as to 50% in December of 1999 and as to the remaining 50%
in December of 2000.
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(17) Certain executive officers and directors (5 persons, including Messrs.
Malone, Vierra, Singer and Rexroat) hold options, which were granted
in tandem with stock appreciation rights in November 1992, to acquire
1,230,000 shares of Series A TCI Group Common Stock and 461,250 shares
of Series A Liberty Group Common Stock. Options to acquire 978,000 and
366,750, respectively of such shares are currently exercisable. Also,
certain executive officers and directors (6 persons, including Messrs.
Vierra, Singer, Kern and Rexroat and Ms. Curtis) hold options, which
were granted in tandem with stock appreciation rights in October and
November of 1993, to acquire 1,742,500 shares of Series A TCI Group
Common Stock and 653,437 shares of Series A Liberty Group Common
Stock. Options to acquire 1,275,625 and 478,360, respectively of such
shares are currently exercisable. Additionally, certain executive
officers and directors (6 persons including Messrs. Vierra and Singer
and Ms. Curtis) hold options, which were granted in tandem with stock
appreciation rights in November 1994, to acquire 543,000 shares of
Series A TCI Group Common Stock and 203,625 shares of Series A Liberty
Group Common Stock. Options to acquire 217,200 and 81,450,
respectively, of such shares are currently exercisable. In addition,
Mr. Kern holds a stock option, which was granted in November of 1994,
to purchase 50,000 shares of Series A TCI Group Common Stock and
18,750 shares of Series A Liberty Group Common Stock. Options to
acquire 20,000 and 7,500, respectively, of such shares are currently
exercisable. Certain executive officers and directors (3 persons,
including Messrs. Malone and Kern) hold options, which were granted in
tandem with stock appreciation rights in December 1995, to acquire
1,800,000 shares of Series A TCI Group Common Stock and 675,000 shares
of Series A Liberty Group Common Stock. Options to acquire 360,000
and 135,000, respectively of such shares are currently exercisable.
In addition, Mr. Gould holds a stock option, which was granted in
December 1996, to purchase 50,000 shares of Series A TCI Group Common
Stock and 18,750 shares of Series A Liberty Group Common Stock. None
of the options are exercisable until December 13, 1997. Additionally,
an officer holds 40,000 shares of restricted Series A TCI Group Common
Stock and 15,000 shares of restricted Series A Liberty Group Common
Stock. Such shares vest 50% in December of 1999 and the remaining 50%
in December of 2000.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others.
Relationship with TCI
TCI owns 86,250,000 shares of Series A Common Stock and 11,700,000
shares of Series B Common Stock which, at December 31, 1996, collectively
represented approximately 91% of the total voting power of the outstanding
shares of Common Stock. Consequently, TCI has significant influence over the
policies and affairs of TINTA and is in a position to determine the outcome of
corporate actions requiring stockholder approval, including the election of
directors, the adoption of amendments to the TINTA Charter and the approval of
mergers and sales of TINTA's assets.
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During 1996, TCI announced that its Board of Directors had approved
the filing of a request for a ruling from the Internal Revenue Service, with
respect to the tax-free nature of the distribution of its entire equity
ownership interest in TINTA to holders of TCI Group Common Stock. The
Company cannot presently predict whether or when any such distribution will
occur. However, any disposition of Common Stock by TCI that results in it
owning less than a majority in voting power of the Common Stock may have
significant adverse consequences for TINTA, including the possible termination
of TCI's lending commitment to TINTA. See "TCI Credit Facility" below.
TCI formed TINTA during the fourth quarter of 1994 and the first
quarter of 1995 through the contribution to TINTA of substantially all of TCI's
international cable television and telephony assets and certain of TCI's
international programming assets. Those international programming assets that
were not contributed to TINTA remained in two of TCI's other subsidiaries,
Liberty Media Corporation ("Liberty") and TCIC. The international programming
assets that currently remain with Liberty are those that are either (i) devoted
to foreign sports programming or (ii) owned directly or indirectly (in whole or
in part) by U.S.-based programming companies in which Liberty has an interest.
During 1996, Liberty contributed its interests in foreign sports programming to
a limited liability company owned in equal parts by subsidiaries of TINTA and
Liberty, Liberty/TINTA LLC (the "LLC"). The LLC then contributed such assets to
a newly formed sports programming venture with The News Corporation Limited.
See "Sports Programming Venture" below.
U.S.-based programming companies in which Liberty has an ownership
interest, and which operate or have interests in foreign programming services,
are Discovery Communications, Inc. (49% interest), Time Warner, Inc. (9% limited
voting interest), QVC, Inc. (42.6% interest), The Box Worldwide (formerly, Video
Jukebox Network, Inc.) (5% interest) and DMX, Inc. (10% interest). The
U.S.-based programming companies identified above are engaged primarily in the
production and development of programming for the U.S. market.
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TCI has advised TINTA that TCI presently intends (i) to make available
to TINTA any opportunity to acquire, develop, own and/or manage cable and/or
telephony operations outside the United States that is presented to TCI or any
of its controlled affiliates and (ii) except as provided below, to make
available to TINTA any opportunity to acquire, develop, manage and/or operate
programming services outside of the United States (a "Programming Opportunity")
that is presented to TCI or any of its controlled affiliates. The foregoing
does not apply to (a) international programming services owned or managed,
directly or indirectly (in whole or in part), by TCI or any of its controlled
affiliates other than TINTA as of July 12, 1995, (b) international programming
opportunities under development by TCI or any of its controlled affiliates
other than TINTA that were the subject of a signed letter of intent or other
agreement in principle as of July 12, 1995, (c) a Programming Opportunity in
respect of foreign sports programming pursued by a partnership owned equally by
TINTA and Liberty and made available to a joint venture in which TINTA and
Liberty own an equal interest (see "Sports Programming Venture" below), (d) a
Programming Opportunity presented to a public company that is a controlled
affiliate of either TCI or any of TCI's controlled affiliates (other than
TINTA), (e) a Programming Opportunity presented to, or cable television or
cable telephony services provided by, any company or other entity in which TCI
or any of its controlled affiliates has an interest but which is not itself a
controlled affiliate of either TCI or any of TCI's controlled affiliates
(included in this category would be, among others, Discovery Communications,
Inc., International Family Entertainment, Inc., Turner Broadcasting System,
Inc. and QVC, Inc.) and (f) the distribution outside the United States of a
programming service initially distributed within the United States and owned
and/or managed by TCI or any of its controlled affiliates (other than TINTA).
If TINTA determines not to pursue a Programming Opportunity, subsidiaries or
controlled affiliates of TCI other than TINTA may pursue such Programming
Opportunity or TINTA and another subsidiary of TCI (or any of its other
controlled affiliates) may pursue such opportunity jointly. Neither TCI nor
any of its controlled affiliates will be obligated to make available to TINTA
any Programming Opportunity to the extent TCI or such controlled affiliate is
legally (for example, by a fiduciary duty owed to others) or contractually
prohibited from doing so. The foregoing arrangement concerning Programming
Opportunities will, in any event, be terminable at such time as TCI ceases to
beneficially own at least a majority in voting power of the outstanding Common
Stock of TINTA.
TCI and TINTA have entered into a number of intercompany agreements
more fully described below covering matters such as lending arrangements,
indemnification, the provision of services, tax sharing, the use of the
Tele-Communications name and registration rights. TCI also provides certain
administrative, financial, legal, treasury, accounting, tax and other services
to the Company and makes available certain of its employee benefit plans to the
Company's employees. The terms of these arrangements were established by TCI
in consultation with TINTA, but were executed while TINTA was a wholly-owned
subsidiary and were not the results of arm's-length negotiations. Accordingly,
although the Company believes that the terms of these arrangements are
reasonable, there is no assurance that the terms and conditions of these
agreements, or the terms of any future arrangements between TCI and the
Company, are or will be as favorable to the Company as could be obtained from
unaffiliated third parties.
If TCI were to seek to reacquire the shares of TINTA held by the
public, it would likely have the power to do so over the objection of other
stockholders, subject to any applicable provisions of Delaware law requiring
such a transaction to be "fair" to minority stockholders.
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Conflicts of interest between the Company and TCI could arise with
respect to business dealings between them, including potential acquisitions of
businesses or properties, the issuance of additional securities, the election
of new or additional directors, and the payment of dividends by TINTA. A
conflict of interest could also arise from TCI's position as the sole and
exclusive agent for TINTA in any and all matters relating to TINTA's federal
income tax liability, which includes the sole and exclusive responsibility for
the preparation and filing of consolidated federal and consolidated or combined
state income tax returns (or amended returns), to contest or compromise any
asserted tax adjustment or deficiency and to file, litigate or compromise any
claim for refund on behalf of TINTA. TINTA has not instituted any formal plan
or arrangement to address potential conflicts of interest that may arise
between the Company and TCI. However, the directors of TINTA intend to
exercise reasonable judgment and take such steps as they deem necessary under
all of the circumstances in resolving any specific conflict of interest that
may occur and will determine what, if any, specific measures, such as retention
of an independent advisor or independent counsel or appointment of a special
committee, may be necessary or appropriate. There can be no assurance that any
conflicts will be resolved in favor of the Company.
Sports Programming Venture
Effective April 29, 1996, TINTA, Liberty and The News Corporation
Limited ("News Corp.") formed a joint venture including a number of partnerships
or other entities under common ownership (the "Sports Venture") to operate
currently existing sports services in Latin America and Australia and a variety
of new sports services throughout the world, excluding the United States, Canada
and certain other defined geographic areas. News Corp. owns a 50% interest in
the Sports Venture with the remaining 50% owned by the LLC. As of December 31,
1996, TINTA had contributed to the LLC $49 million in cash and its 35% equity
interest in Torneos y Competencias S.A. ("Torneos"), an Argentinean sports
programming production company, and Liberty had contributed to the LLC its
interests in Latin American and Australian sports programming services and its
rights under various television sports programming agreements. The LLC
contributed the non-cash assets contributed to it by TINTA and Liberty to the
Sports Venture. News Corp. contributed various international sports rights and
certain trademark rights in exchange for its 50% interest in the Sports Venture.
TINTA may make additional cash contributions totaling $29 million to
the LLC to fund the operations of the Sports Venture. As part of the formation
of the Sports Venture, the LLC is entitled to receive from News Corp. 7.5% of
the outstanding stock of STAR Television Limited. Upon the delivery of such
stock to the LLC, News Corp. is entitled to receive from the LLC up to $20
million and rights under various Asian sports programming agreements. STAR
Television Limited operates a satellite-delivered television platform in Asia.
III-21
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The agreement with News Corp. includes, among other things, provisions
generally prohibiting any of the parties from engaging in any business that is
within the scope of the business to be conducted by the Sports Venture (other
than through the Sports Venture), that being the operation of programming
services featuring predominantly sports and sports-related programming, data or
content for distribution by any means and in any form anywhere in the world,
except in the excluded areas noted above. Those restrictions will be binding on
TCI until such time as neither TINTA nor Liberty is controlled by TCI. The
agreement with News Corp. also includes provisions granting to a separate
joint venture to be formed by Liberty and Fox Inc. (a wholly owned subsidiary
of News Corp.) rights of first refusal with respect to international sports
programming as to which the Sports Venture holds United States distribution
rights.
The members of the Sports Venture generally will be prohibited from
transferring all or any part of their interests therein during the first five
years after its formation. Thereafter, any proposed transfer will be subject to
a right of first refusal in favor of the other member. Transfers to affiliates
will not be subject to those transfer restrictions or rights of first refusal.
In certain events, either member of the Sports Venture will have the right to
trigger a procedure under which the other member will be required either to
purchase the triggering member's interest or to sell its interest to the
triggering member, in either case at the price stated by the triggering member.
Those buy/sell rights will arise if, at any time after the fifth anniversary of
the formation of the Sports Venture, the members cannot agree for two
consecutive years on the approval of an annual budget or the appointment of a
chief executive officer for the Sports Venture. The agreement governing the
formation of the LLC will include restrictions on transfers of interests and
buy/sell rights applicable to the interests of TINTA and Liberty in that entity
that are substantially the same as those applicable to the interests in the
Sports Venture.
On April 19, 1996, TINTA, Torneos and the stockholders of Torneos
entered into an agreement (the "TINTA/Torneos Sports Agreement") whereby TINTA
agreed to make minimum periodic payments from 1996 through 2004 aggregating
$235.2 million to acquire certain rights and considerations, including the
exploitation rights to all sports rights owned by Torneos with the exception of
any rights which at that time had been contractually committed to any third
party. In particular, TINTA acquired worldwide distribution rights outside of
Argentina for Clasico del Domingo and worldwide distribution rights (excluding
Buenos Aires) for Futbol de Primera and Torneos de Verano (Summer Games).
Pending the assignment of the rights under the TINTA/Torneos Sports Agreement
which fit within the geographic area and business plan of the Sports Venture
(the "Sports Venture Rights") to the Sports Venture, TINTA, News Corp. and
Liberty have paid their respective portion of any payments made with respect to
the Sports Venture Rights. Through December 31, 1996, payments made under the
TINTA/Torneos Sports Agreement totaled $9.4 million.
TCI Credit Facility
TINTA and TCI have entered into a subordinated revolving credit
facility (the "TCI Credit Facility"), effective April 25, 1995, which provides
for loans from TCI to TINTA in an aggregate principal amount at any time
outstanding of up to $200 million (the "Commitment"). Borrowings under the TCI
Credit Facility, together with all accrued interest thereon, will be payable in
full on April 30, 2000. At December 31, 1996, no borrowings were outstanding
under the TCI Credit Facility.
Prior to April 30, 2000, borrowings repaid by TINTA under the TCI
Credit Facility will be available for reborrowing, subject to certain
conditions to borrowing.
III-22
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Interest Rate and Payment. Effective January 1, 1996, borrowings under
the TCI Credit Facility bear interest at the rate of 13% per annum. Accrued
interest on outstanding borrowings, which will compound quarterly, are due and
payable on April 30, 2000 or upon the earlier repayment of such borrowings
under the TCI Credit Facility.
During the year ended December 31, 1996, TINTA had no borrowings
pursuant to the TCI Credit Facility. Accordingly, TINTA incurred no interest
expense during the year ended December 31, 1996 with respect to the TCI Credit
Facility.
Fees. TINTA paid to TCI a $2 million origination fee and is required
to pay an annual credit facility fee in an amount equal to .375% of the unused
borrowing availability under the TCI Credit Facility. Such credit facility fee
aggregated $750,000 during the year ended December 31, 1996.
Subordination; No Collateral. The payment of the principal of and
interest on all borrowings under the TCI Credit Facility are subordinated in
right of payment to the prior payment in full of all "Senior Indebtedness."
Senior Indebtedness is defined, generally, as all indebtedness of TINTA for
money borrowed, obligations of TINTA in respect of letters of credit or
bankers' acceptances and indebtedness issued as part of the deferred purchase
price of property, except any such indebtedness that by the terms of the
instrument creating or representing such indebtedness is expressly made equal
in right of payment with, or subordinate and subject in right of payment to,
borrowings outstanding under the TCI Credit Facility. If TINTA incurs Senior
Debt (defined generally as indebtedness for money borrowed from institutional
lenders) in a principal amount in excess of $200 million (such excess, the
"Senior Excess Amount"), the Commitment will be immediately reduced by the
amount of such Senior Excess Amount. In such event, outstanding loans from TCI
in a principal amount necessary to cause such outstanding loans to not exceed
the amount of the Commitment, as so adjusted, together with accrued interest,
will immediately become due and payable. The Commitment may be readjusted
upward (but not above $200 million) to the extent that such Senior Excess
Amount is subsequently repaid by TINTA. Borrowings under the TCI Credit
Facility are unsecured. The Debentures (defined below) constitute "Senior
Indebtedness" under the terms of the TCI Credit Facility.
Early Termination. If at any time TCI shall beneficially own capital
stock of TINTA representing less than a majority in voting power of the
outstanding shares of TINTA capital stock entitled to vote for the election of
directors, TCI may terminate its obligation to make further loans under the TCI
Credit Facility upon two business days prior notice to TINTA. The principal of
and interest on all outstanding loans shall become due and payable on the first
anniversary of the receipt by TINTA of such notice.
III-23
<PAGE> 175
Loans to TCI Pursuant to Unsecured Promissory Note
On February 8, 1996, the Company received net cash proceeds of
approximately $336 million from the issuance of 4 1/2% Convertible Subordinated
Debentures due 2006 having an aggregate principal amount of $345 million (the
"Debentures"). Pending its use by TINTA, the net proceeds from the Debentures
were loaned to TCI pursuant to an unsecured promissory note (the "TCI Note
Receivable"). Amounts outstanding under the promissory note bear interest at
variable rates based on TCI's weighted average cost of bank borrowings of
similar maturities, and principal and interest is due and payable as mutually
agreed from time to time by TCI and TINTA. The aggregate borrowings by TCI
under the unsecured promissory note may not exceed $400 million. At December
31, 1996, amounts outstanding under the TCI Note Receivable aggregated $176.5
million. During the year ended December 31, 1996, interest income related to
the TCI Note Receivable aggregated $14 million.
Registration Rights Agreement
On July 15, 1995 TINTA and TCI entered into a Registration Rights
Agreement (the "Registration Rights Agreement") which, among other things,
provides that upon the request of TCI, TINTA will register under the Securities
Act of 1933 any of the shares of Series A Common Stock or Series B Common Stock
(and any other shares of capital stock of TINTA issued in respect of such
shares) held by TCI for sale in accordance with TCI's intended method of
disposition thereof. TCI has the right to request three such registrations.
TINTA has agreed to pay all registration expenses (other than underwriting
discounts and commissions) in connection with such registrations. The
Registration Rights Agreement will terminate five years after the date on which
TCI ceases to own shares of Common Stock representing at least 30% in voting
power of the outstanding shares of capital stock of TINTA entitled to vote
generally in the election of directors.
Indemnification Agreement
TCI or certain of its subsidiaries (other than TINTA) continues to be
an obligor under, or a guarantor of the payment or performance of, certain
contractual obligations, including debt obligations, of certain entities in
which the Company has an interest. TINTA has entered into an Indemnification
Agreement with TCI, pursuant to which TINTA has agreed to indemnify TCI for any
payment made by TCI, or any claim, loss or liability that TCI may otherwise
incur, by reason of such obligations. TINTA has not made any payments to TCI
pursuant to the Indemnification Agreement.
Services Agreement
TCI has agreed, at the request of the Company, to provide certain
facilities, services and personnel to the Company. The scope of the facilities,
personnel and services to be provided by TCI to the Company and the respective
charges payable in respect thereof are set forth in a services agreement
between TCI and TINTA (the "Services Agreement"). Pursuant to the Services
Agreement, TCI has agreed to provide to TINTA administrative and operational
services necessary for the conduct of its business, including, but not limited
to, such services as are generally performed by TCI's accounting, finance,
administrative, legal and tax departments. In addition, TCI has agreed to make
available to TINTA such general overall management services and strategic
planning services as TCI and TINTA shall agree and shall provide TINTA with
such access to and assistance from TCI's cable engineering and construction
groups and TCI's domestic cable television and programming and
technology/venture personnel as TINTA may from time to time request.
III-24
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The Services Agreement also provides that TCI, for so long as TCI
continues to beneficially own shares of Common Stock representing at least a
majority in voting power of the outstanding shares of capital stock of TINTA
entitled to vote generally in the election of directors, will continue to
provide in the same manner, and on the same basis as generally provided from
time to time to other participating TCI subsidiaries, benefits and
administrative services to the Company's employees. In this regard, TINTA will
be allocated that portion of TCI's compensation expense attributable to
benefits extended to employees of the Company.
Pursuant to the Services Agreement, TINTA will from time to time
reimburse TCI for all direct expenses incurred by TCI in providing such
services and a pro rata share of all indirect expenses incurred by TCI in
connection with the rendering of such services, including a pro rata share of
the salary and other compensation of TCI employees performing services for the
Company, general overhead expenses and rental expenses for any physical
facilities of TCI utilized by the Company. In this regard, it is anticipated
that the Company will, for the foreseeable future, share office space with, or
sublease office space from, TCI. The obligations of TCI to provide services
under the Services Agreement (other than TCI's obligation to allow the
Company's employees to participate in TCI's employee benefit plans) will
continue in effect until terminated by either TINTA at any time on not less
than 60 days' notice to TCI, or by TCI at any time after three years on not
less than four months' notice to TINTA.
The amounts charged to TINTA by TCI pursuant to the Services Agreement
aggregated $2.9 million during the year ended December 31, 1996.
III-25
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Tax Sharing Agreement
Federal income taxes and certain state and local taxes will be paid by
TCI and TINTA on a consolidated basis. However, pursuant to a tax sharing
agreement (the "Tax Sharing Agreement"), federal income taxes are calculated,
with certain adjustments, on a separate return basis for each corporation
included in TCI's consolidated tax group (including the Company's subsidiary
corporations that are included in such group (the "TINTA Tax Group"), applying
provisions of the Internal Revenue Code of 1986, as amended, and related
regulations as if each such corporation filed a separate return for federal
income tax purposes. Based upon these separate calculations, an allocation of
tax liabilities is made such that TINTA is responsible to TCI for its gross
share of TCI's consolidated federal income tax liabilities, such gross share
being determined without regard to (a) tax benefits that are attributable to
TCI and its other consolidated corporations or (b) certain tax benefits that
are attributable to the TINTA Tax Group but that are taken into account in
determining TCI's consolidated federal income tax benefit carryovers.
Similarly, TCI would reimburse TINTA for tax benefits attributable to the TINTA
Tax Group and actually used by TCI in determining its consolidated federal
income tax liability. Tax attributes, including but not limited to net
operating losses, foreign tax credits, alternative minimum tax net operating
losses, alternative minimum tax credits, deferred intercompany gains and tax
bases in assets will be inventoried and tracked for the consolidated entities
comprising each of TINTA and TCI and its other consolidated subsidiaries. In
addition, pursuant to the Tax Sharing Agreement, state and local income taxes
are calculated on a separate return basis for TCI and TINTA (applying
provisions of state and local tax law and related regulations as if the TINTA
Tax Group were a separate unitary or combined group for tax purposes) and TCI's
combined or unitary tax liability is allocated between TCI and TINTA based upon
such separate calculation. TCI has retained the right to file all returns, make
all elections and control all audits and contests. The Tax Sharing Agreement
will terminate as to TINTA at such time as TINTA is no longer permitted to file
a consolidated federal income tax return for federal income tax purposes with
TCI. Under current Internal Revenue Service regulations, TINTA and TCI must
file a consolidated return until such time as TCI owns less than 80% of the
total voting power of the capital stock of TINTA or owns stock representing
less than 80% in value of the total value of the capital stock of TINTA.
During the year ended December 31, 1996, intercompany income tax
benefits aggregating $10.2 million were allocated to TCI by TINTA. Pursuant to
the Tax Sharing Agreement, the resulting receivable will only be settled in
cash upon the deconsolidation of TINTA for purposes of TCI's federal income tax
returns.
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Other Transactions
On July 18, 1995, Dr. Malone purchased 450,000 shares of Series A
Common Stock in the TINTA's initial public offering at a per share price of $16.
Effective April 1, 1996, TCI purchased all of such shares from Dr. Malone at the
then current market price of $21.75 per share.
TINTA's Puerto Rico subsidiaries purchase programming services from a
subsidiary of TCI. The charges, which approximate such TCI subsidiary's cost and
are based on the aggregate number of subscribers served by the such Puerto Rico
subsidiaries, aggregated $4.3 million during the year ended December 31, 1996.
Certain key employees of TINTA hold stock options with tandem stock
appreciation rights with respect to certain common stock of TCI (the "TCI
Options and SARs"). Estimates of the compensation expense relating to the TCI
Options and SARs have been included in the financial statements of the Company,
but are subject to future adjustment based upon the market value of the
underlying TCI common stock, and ultimately on the final determination of
market value when the rights are exercised. The estimated compensation
adjustment with respect to the TCI Options and SARs resulted in a decrease to
TINTA's share of TCI's stock compensation liability of $1.8 million for the
year ended December 31, 1996. TINTA's share of TCI's stock compensation
liability will be settled in cash only to the extent that TCI is required to
make cash payments to satisfy such liability.
During 1996, TCIC transferred, subject to regulatory approval, certain
distribution equipment to a subsidiary of TINTA in exchange for a L14,950,000
($23.3 million using the applicable exchange rate) principal amount promissory
note. Such note bears interest at 7% compounded semi-annually. During the year
ended December 31, 1996, the U.S. dollar equivalent of interest expense incurred
with respect to such note was $658,000. The distribution equipment was
subsequently leased back to TCIC over a 5 year term with semi-annual payments of
L998,000 ($1.7 million), plus expenses. TINTA can require TCIC to repurchase
the equipment at the end of the lease term at an amount equal to the greater of
(i) fair market value or (ii) an amount that when combined with the rental
payments received (excluding executory costs) during the lease term, and
discounted using an interest rate of 7%, would not exceed 89% of the fair market
value of the equipment at the inception of the lease. During the year ended
December 31, 1996, the U.S. dollar equivalent of the lease revenue under the
above-described lease agreement aggregated $1.4 million.
(b) Certain Business Relationships. Mr. Jerome H. Kern, a director
of TINTA, is a special counsel with the law firm of Baker & Botts, L.L.P., the
principal outside counsel for TINTA.
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PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Included in Part II of this Report: Page No.
--------
<S> <C>
Independent Auditors' Report II-27
Balance Sheets,
December 31, 1996 and 1995 II-28
Combined Statements of Operations,
Years ended December 31, 1996, 1995 and 1994 II-30
Statements of Equity,
Years ended December 31, 1996, 1995 and 1994 II-31
Combined Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994 II-32
Notes to Financial Statements,
December 31, 1996, 1995 and 1994 II-34
</TABLE>
(a) (2) Financial Statement Schedules
Included in Part IV of this Report:
(i) Financial Statement Schedules required to be filed:
All schedules have been omitted because they are not applicable,
or the required information is set forth in the applicable
financial statements or notes thereto.
(ii) Separate financial statements for Telewest Communications plc:
<TABLE>
<CAPTION>
Consolidated Financial Statements Page No.
--------------------------------- --------
<S> <C>
Independent Auditors' Report IV-10
Consolidated Statements of Operations IV-11
Consolidated Balance Sheets IV-12
Consolidated Statements of Cash Flows IV-13
Consolidated Statement of Shareholders' Equity IV-14
Notes to the Consolidated Financial Statements IV-15 to IV-28
</TABLE>
(continued)
IV-1
<PAGE> 180
(a) (3) Exhibits
The following exhibits are filed herewith or incorporated by reference herein
(according to the number assigned to them in Item 601 of Regulation S-K), as
noted:
3 - Articles of Incorporation and Bylaws:
Restated Certificate of Incorporation. (b)
Bylaws of Registrant. (b)
4 - Instruments Defining the Rights of Security Holders:
Indenture dated as of February 7, 1996,
between Tele-Communications International,
Inc. and the Bank of New York relating to
Subordinated Debt Securities.(r)
10 - Material Contracts
10.1 Registration Rights Agreement between TINTA
and TCI dated July 12, 1995.(b)
10.2 Indemnification Agreement between TINTA and
TCI dated July 12, 1995.(b)
10.3 Services Agreement between TINTA and TCI dated
July 18, 1995.(b)
10.4 Tax Sharing Agreement between TINTA and TCI
dated July 18, 1995.(b)
10.5 First Amendment to Tax Sharing Agreement
between TINTA and TCI dated October 1995.(r)
10.6 Trade Name and Service Mark License Agreement
between TINTA and TCI dated July 18, 1995.(b)
10.7 Subordinated Revolving Credit Agreement
between TINTA and TCI dated July 12, 1995.(b)
10.8 Loan Agreement, dated October 4, 1993, as
amended by Supplemental Agreement on
October 3, 1994, among London South
Cable Partnership, Avon Cable Limited
Partnership, United Artists Communications
(London South) plc, United Artists
Communications (Avon) Limited, The
Toronto-Dominion Bank and certain banks
and financial institutions parties
thereto.(d)
10.9 Second Supplemental Agreement, dated
November 1, 1994, relating to the
Loan Agreement referred to in Exhibit
10.7(a).(d)
10.10 Loan Agreement, dated June 13, 1994, among
Telewest Scotland Holdings Limited,
Canadian Imperial Bank of Commerce and
certain banks and financial institutions
parties thereto.(d)
10.11 Supplemental Agreement, dated November 19,
1994, relating to the Loan Agreement
referred to in Exhibit 10.8(a).(d)
10.12 Relationship Agreement, entered into as of
November 22, 1994, by and among
Telewest, TINTA and US WEST.(e)
IV-2
<PAGE> 181
10 - Material Contracts (continued)
10.13 Amendment to Relationship Agreement by and
among Telewest, International and U S
WEST referred to in Exhibit 10.9(a).(b)
10.14 Shareholders' Agreement, entered into as of
November 22, 1994, between certain
subsidiaries of TCI and certain
subsidiaries of US WEST.(e)
10.15 Amendment to Shareholders Agreement referred
to in Exhibit 10.10(a).(a)
10.16 Registration Rights Agreement, dated as of
November 22, 1994, between Telewest and
certain subsidiaries of TCI (Identical
agreement was entered into between
Telewest and certain subsidiaries of US
WEST.)(e)
10.17 Operating Agreement of T W Holdings, L.L.C.(a)
10.18 TCI International Holdings, Inc./Gerry
Lenfest Guarantee Agreements dated
November 19, 1994.(a)
10.19 Guarantee Agreement, dated November 19, 1994
by Australis Holdings Pty Limited in
favor of TINTA.(e)
10.20 Guarantee Agreement, dated November 19, 1994
by TINTA in favor of Australis Holdings
Pty Limited.(e)
10.21 Amended and Restated Stock Purchase
Agreement dated April 25, 1995 among
Eduardo Eurnekian and the Stockholders
of Cablevision S.A., Construred S.A.,
Univent's S.A., Televisora Belgrano S.A.
and TINTA.(a)
10.22 Amended and Restated Stockholders Agreement
dated April 25, 1995 among Eduardo
Eurnekian, Basilia Jaliquias, Alberto
Antranik Eurnekian, Natalio Wende, Enrique
Kevorkyan, Sebastian Arias Duval, Lorenzo
Luis Marchese, Tomas Daniel Kolakovic and
TINTA.(a)
10.23 Promissory Note dated April 25, 1995 in the
amount of $21,688,748 payable by TINTA to
Eduardo Eurnekian.(a)
10.24 Promissory Note dated April 25, 1995 in
the amount of $21,688,748, payable by
TINTA to Eduardo Eurnekian.(a)
10.25 Promissory Note dated April 25, 1995 in
the amount of $21,688,748, payable by
TINTA to Eduardo Eurnekian.(a)
10.26 Promissory Note dated April 25, 1995 in
the amount of $21,688,748, payable by
TINTA to Eduardo Eurnekian.(a)
10.27 Promissory Note dated February 9, 1996 payable
by Tele-Communications, Inc. to TINTA.(r)
10.28 United Communications International
Partnership Agreement dated as of
August 30, 1990, between United
International Holdings and US WEST
Cable Europe, Inc., as assigned to
United International Holdings, Inc.
pursuant to the Assignment and
Assumption Agreement dated as of January
1, 1993, between United International
Holdings and United Inter- national
Holdings, Inc.(g)
IV-3
<PAGE> 182
10 - Material Contracts (continued)
10.29 Amendment of Partnership Agreement dated
November 9, 1992, between Telewest Europe
Group and United International
Holdings.(g)
10.30 Shareholders Agreement in relation to Flextech
plc dated May 10, 1993, between HC Crown
Corp. and TINTA.(a)
10.31 Shareholders Agreement in relation to
Flextech plc dated May 10, 1995
between US WEST Marketing Resources (UK)
Limited and TINTA.(a)
10.32 Shareholders Agreement among Sumitomo
Corporation, TCI Japan, Inc., TCI
International Holdings, Inc. and Jupiter
Telecommunications Co., Ltd. dated
December 6, 1994.(a)
10.33 Employment Agreement between TINTA and Fred A.
Vierra. +(b)
10.34 Restated and Amended Employment Agreement,
dated as November 1, 1992, between the
Company and John C. Malone.+(j)
10.35 Assignment and Assumption Agreement, dated
as of August 4, 1994, among TCI/Liberty
Holding Company, Tele-Communications, Inc.
and John C. Malone. +(l)
10.36 Form of Indemnification Agreement by and
between TINTA and each director.+(a)
10.37 Tele-Communications, Inc. 1994 Stock Incentive
Plan.(i)
10.38 The Tele-Communications International, Inc.
1995 Stock Incentive Plan.(a)
10.39 Tele-Communications, Inc. 1996 Stock Incentive
Plan.(c)
10.40 Form of 1992 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement. +(k)
10.41 Form of Assumption and Amended and
Restated Stock Option Agreement between
the Company, TCI/Liberty Holding Company
and grantee relating to assumption of
options and related stock appreciation
rights under Tele-Communications, Inc.'s
1992 Stock Incentive Plan pursuant to
Tele-Communications, Inc.'s 1992
Non-Qualified Stock Option and Stock
Appreciation Rights Agreement.+(m)
10.42 Form of 1993 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement. +(k)
10.43 Non-Qualified Stock Option and Stock
Appreciation Rights Agreement, dated as
of November 12, 1993, by and between
Tele-Communications, Inc. and Jerome H.
Kern. +(k)
IV-4
<PAGE> 183
10 - Material Contracts (continued)
10.44 Assumption and Amended and Restated Stock
Option Agreement between
Tele-Communications, Inc., TCI/Liberty
Holding Company and a director of
Tele-Communications, Inc. relating to
assumption of options and related stock
appreciation rights granted outside of an
employee benefit plan pursuant to
Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock
Appreciation Rights Agreement. +(m)
10.45 Form of Assumption and Amended and
Restated Stock Option Agreement
between Tele- Communications, Inc.,
TCI/Liberty Holding Company and grantee
relating to assumption of options and
related stock appreciation rights
granted under Tele-Communications, Inc.'s
1992 Stock Incentive Plan pursuant to
Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock
Appreciation Agreement. +(m)
10.46 Form of 1994 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement. +(l)
10.47 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
TCI Group common stock pursuant to the
Tele-Communications, Inc. 1994 Stock
Incentive Plan. +(c)
10.48 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1994
Stock Incentive Plan. +(c)
10.49 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
TCI Group common stock pursuant to the
Tele-Communications, Inc. 1996 Stock
Incentive Plan. +(c)
10.50 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1996
Stock Incentive Plan. +(c)
10.51 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
Tele-Communications International, Inc.
common stock pursuant to the
Tele-Communications International, Inc.
1995 Stock Incentive Plan. +(c)
10.52 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
Tele-Communications International, Inc.
common stock. +(c)
10.53 Qualified Employee Stock Purchase Plan of
Tele-Communications, Inc., as amended. +(n)
IV-5
<PAGE> 184
10 - Material Contracts (continued)
10.54 Form of Restricted Stock Award Agreement for
1995 Award of Series A TCI Group
Restricted Stock pursuant to the
Tele-Communications, Inc. 1994 Stock
Incentive Plan. +(c)
10.55 Form of Restricted Stock Award Agreement
for 1995 Award of Series A Liberty
Media Group Restricted Stock pursuant to
the Tele-Communications, Inc. 1994 Stock
Incentive Plan.+(c)
10.56 Form of Restricted Stock Award Agreement
for 1995 Award of Series A
Tele-Communications International, Inc.
Restricted Stock pursuant to the
Tele-Communications International 1995
Stock Incentive Plan.(c)
10.57 Agreement regarding International Sports
Joint Venture by and among Liberty
Media Corporation, The News Corporation
Limited, TINTA and TCI dated October 30,
1995.(b)
10.58 Agreement regarding U.S. Sports Joint
Venture by and among Liberty Media
Corporation, Fox, Inc., TCI and The News
Corporation Limited dated October 30,
1995.(b)
10.59 Share Exchange Agreement among certain
affiliates of SBC CableComms (UK), an
affiliate of Cox Communications, Inc.,
("Cox"), Telewest, Telewest
Communications plc, SBC International,
Inc., SBCC and Cox dated August 14,
1995.(h)
10.60 The Scheme of Arrangement under Section 425
of the Companies Act of 1985 dated
August 14, 1995.(h)
10.61 Indenture among Telewest and The Bank of
New York dated October 3, 1995 relating
to the Senior Debentures.(b)
10.62 Subscription and Option Agreement among
Flextech, Flextech 1992 plc and Scottish
Television plc dated August 31, 1995.(b)
10.63 Agreement for the sale and purchase of all
of the issued share capital of various
companies owned by IVS Cable Holdings
Limited among IVS Cable Holdings
Limited, Flextech and Koninkigke PTT
Nederland NV dated October 17, 1995.(b)
10.64 Stock Exchange Agreement dated July 28,
1995 among certain stockholders of
Torneos y Compentencias S.A., Torneos y
Compentencias S.A. and TINTA.(b)
10.65 Subscription Agreement date November 21, 1995
among Canal + S.A., Generale d'Images
S.A., TINTA and MultiThematiques S.A.(b)
10.66 Cooperation Agreement dated November 21, 1995
among Canal + S.A., Generale d'Images
S.A., TINTA.(b)
10.67 Side Letter among Canal + S.A.,
MultiThematiques S.A., TINTA dated November 21,
1995.(b)
10.68 Side Letter from Canal + S.A. to TINTA
relating to a future 50/50 holding company.(b)
IV-6
<PAGE> 185
10 - Material Contracts (continued)
10.69 Agreement of Amendment of Partnership
Agreement dated as of May 19, 1995
between Telewest Europe Group, UIH, Joint
Venture, Inc. (formerly known as United
International Management, Inc.) and
UPC.(b)
10.70 Agreement of Amendment of Third Amended
and Restated Partnership Agreement of
United International Investments dated
July 13, 1995 among UA-UII, Inc., Joint
Venture, Inc., UIH and UPC.(b)
10.71 Subscription Agreement relating to Jupiter
Programming Co., Ltd. dated February 21,
1996 between Sumitomo Corporation and TCI
Japan, Inc.(r)
10.72 Shareholders Agreement relating to Jupiter
Programming Co., Ltd. dated February
21, 1996 between Sumitomo Corporation, TCI
Japan, Inc., Tele-Communications
International, Inc. and Jupiter
Programming Co., Ltd.(r)
10.73 Sale Contract dated February 7, 1996 between
Cordillera Comunicaciones Limitada and
Compana de Telecomunicaciones de Chile
S.A.(r)
10.74 Signal Transmission and Connection
Maintenance Agreement dated February 7,
1996 between Metroplos-Intercom S.A. and
Compana de Telecomunicaciones de Chile
S.A.(r)
10.75 Shareholders Agreement in relation to
Flextech p.l.c. dated March 20, 1996
between International Family
Entertainment, Inc. and
Tele-Communications International, Inc.(o)
10.76 English translation of Shareholders
Agreement dated February 7, 1996
between Cordillera Communicaciones
Limitada and others, and Invercom S.A. and
others. (o)
10.77 North America DTH Platform Memorandum of
Understanding. (p)
10.78 Multi-Country DTH Platform Memorandum of
Understanding. (p)
10.79 Stock Purchase Agreement by and among
Eduardo Eurnekian and Natalio Wende
owners of Oeste Cable Color S.A. and
Cablevision.(q)
10.80 Deed of Guarantee and Indemnity and
Subordination by Independent Newspapers,
plc, Tele-Communications International,
Inc., and United and Philips
Communications, B.V. as Guarantors in
favour of the Governor and Company of the
Bank of Ireland.(q)
21 - Subsidiaries of the Registrant.
23 - Consent of Experts and Counsel.
23.1 - Consent of KPMG Peat Marwick LLP
23.2 - Consent of KPMG
27 - Financial Data Schedule.
IV-7
<PAGE> 186
(a) Incorporated by reference to TINTA's Registration
Statement on Form S-1 filed with the Securities
and Exchange Commission on July 11, 1995
(Registration No. 33-91876).
(b) Incorporated by reference to TINTA's Registration
Statement on Form S-1 filed with the Securities
and Exchange Commission on December 15, 1995
(Registration No. 33-80491).
(c) Incorporated by reference to Tele-Communications,
Inc.'s Annual Report on Form 10-K dated December
31, 1995.
(d) Incorporated by reference to Telewest
Communications plc's Registration Statement on
Form S-1 filed with the Securities and Exchange
Commission on April 29, 1994 (Registration No.
33-79398).
(e) Incorporated by reference to Telewest
Communications plc's Annual Report pursuant to
Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December
31, 1994 on Form 10-K filed with the Securities
and Exchange Commission (Commission File Number
1-24150).
(f) Incorporated by reference to Australis Media
Limited's Registration Statement on Form F-1
filed with the Securities and Exchange Commission
on May 16, 1995 (Registration No. 33-87210).
(g) Incorporated by reference to United International
Holding, Inc.'s Registration Statement on Form
S-1 filed with the Securities and Exchange
Commission on July 22, 1993 (Registration No.
33- 61376).
(h) Incorporated by reference to Telewest
Communications plc's Current Report on Form 8-K
filed with the Securities and Exchange Commission
on August 14, 1995 (Commission File Number
1-24250).
(i) Incorporated herein by reference to
Tele-Communications, Inc.'s Form S-4
Registration Statement (Commission File No.
33-54263).
(j) Incorporated herein by reference to
Tele-Communications, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1992, as
amended by Form 10-K/A for the year ended
December 31, 1992 (Commission File No. 0-5550).
(k) Incorporated herein by reference to
Tele-Communications, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1993, as
amended by Form 10-K/A for the year ended
December 31, 1993 (Commission File No. 0-5550).
(l) Incorporated herein by reference to
Tele-Communications, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1994, as
amended by Form 10-K/A for the year ended
December 31, 1994 (Commission File No. 0-2041).
(m) Incorporated herein by reference to
Tele-Communications, Inc.'s Post Effective
Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement
(Commission File No. 33-54263).
(n) Incorporated herein by reference to the
Tele-Communications, Inc. Registration Statement
on Form S-8 (Commission File No. 33-57635).
IV-8
<PAGE> 187
(o) Incorporated herein by reference to
Tele-Communications International, Inc.'s Quarterly Report on
Form 10-Q dated March 31, 1996.
(p) Incorporated herein by reference to
Tele-Communications International, Inc.'s Quarterly Report on
Form 10-Q dated June 30, 1996.
(q) Incorporated herein by reference to
Tele-Communications International, Inc.'s Quarterly Report on
Form 10-Q dated September 30, 1996.
(r) Incorporated herein by reference to Tele-Communications International,
Inc.'s Annual Report on Form 10-K dated December 31, 1995.
+ Constitutes management contract or compensatory
arrangement.
(b) Reports on Form 8-K filed during the quarter ended December 31, 1996:
None.
IV-9
<PAGE> 188
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
TELEWEST COMMUNICATIONS PLC
We have audited the accompanying consolidated balance sheet of Telewest
Communications plc and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations and cash flows for each of the
years in the three year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements on pages 69 to 86 present
fairly, in all material respects, the financial position of Telewest
Communications plc and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31,1996 in conformity with generally accepted
accounting principles in the United States of America.
KPMG AUDIT PLC
Chartered Accountants
Registered Auditors
London, England
March 11, 1997
IV-10
<PAGE> 189
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
1996 1996 1995 1994
$ '000 (pound) '000 (pound) '000 (pound) '000
(note 2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Cable television 207,572 121,224 64,740 35,875
Telephony - residential 214,060 125,013 57,597 23,471
Telephony - business 59,181 34,562 17,449 8,812
Other ((pound)1,600,(pound)1,451 and(pound)1,481 in 1996, 1995 and
1994, respectively, from related parties) 16,210 9,467 4,998 3,869
- -----------------------------------------------------------------------------------------------------------------------
497,023 290,266 144,784 72,027
- -----------------------------------------------------------------------------------------------------------------------
OPERATING COSTS AND EXPENSES
Programming (119,700) (69,906) (32,194) (15,500)
Telephony (90,019) (52,572) (29,526) (14,714)
Selling, general and administrative (including
(pound)2,560, (pound)3,257 and (pound)2,128 in 1996, 1995 and
1994, respectively, to related parties) (286,507) (167,323) (105,388) (60,414)
Depreciation (222,113) (129,716) (60,019) (30,320)
Amortization of goodwill (44,775) (26,149) (7,854) (1,827)
- -----------------------------------------------------------------------------------------------------------------------
(763,114) (445,666) (234,981) (122,775)
- -----------------------------------------------------------------------------------------------------------------------
OPERATING LOSS (266,091) (155,400) (90,197) (50,748)
OTHER INCOME/(EXPENSE)
Interest income (including (pound)1,723, (pound)1,583 and (pound)465
in 1996, 1995 and 1994, respectively,
from related parties) 28,512 16,651 15,645 2,291
Interest expense ((pound)1,083 in 1994 to related parties) (180,086) (105,172) (26,649) (10,069)
Loss on disposal of interest rate swaps - - (8,609) -
Unrealized gain on interest rate swaps - - - 1,636
Foreign exchange losses, net (4,860) (2,838) (14,575) (21)
Share of net losses of affiliates (27,351) (15,973) (12,777) (8,466)
Gain/(loss) on disposal of assets 978 571 (419) 26
Minority interests in (profits)/losses of consolidated
subsidiaries, net (308) (180) (16) 39
Other, net - - 82 (25)
- -----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (449,206) (262,341) (137,515) (65,337)
Income tax expense (note 14) (86) (50) (16) -
- -----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EXTRAORDINARY GAIN (449,292) (262,391) (137,531) (65,337)
Extraordinary gain (note 15) - - - 7,287
- -----------------------------------------------------------------------------------------------------------------------
NET LOSS (449,292) (262,391) (137,531) (58,050)
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
Pro forma
1996 1996 1995 1994
$* (pound)* (pound)* (pound)*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
LOSS PER ORDINARY SHARE
Weighted average number of ordinary shares
outstanding 925,425,473 925,425,473 861,424,848 630,756,392
Loss per ordinary share before extraordinary gain (0.49) (0.28) (0.16) (0.10)
Extraordinary gain - - - 0.01
- -------------------------------------------------------------------------------------------------------------------------
LOSS PER ORDINARY SHARE (0.49) (0.28) (0.16) (0.09)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
* Except number of shares
IV-11
<PAGE> 190
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1996 1996 1995
$ '000 (pound) '000 (pound) '000
(note 2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents 135,470 79,116 464,818
Trade receivables (net of allowance for doubtful accounts
of (pound)5,405 and(pound)4,695) 50,179 29,305 23,123
Other receivables (note 7) 55,468 32,394 25,657
Prepaid expenses 8,849 5,168 6,133
Investments in affiliates, accounted for under the equity method,
and related receivables (note 8) 118,868 69,420 80,703
Other investments, at cost 43,948 25,666 20,666
Property and equipment (less accumulated depreciation
of (pound)308,240 and(pound)182,142) (note 9) 2,478,030 1,447,194 1,063,808
Goodwill (less accumulated amortization of(pound)37,907 and(pound)11,758) 841,236 491,290 495,881
Other assets (less accumulated amortization of (pound)4,162 and (pound)742)
(note 11) 106,825 62,387 108,931
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS 3,838,873 2,241,940 2,289,720
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable 80,230 46,855 40,402
Other liabilities (note 12) 325,679 190,200 103,824
Debt (note 13) 1,505,713 879,351 792,265
Capital lease obligations 93,132 54,390 30,314
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,004,754 1,170,796 966,805
- ----------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 594 347 167
- ----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (note 16)
Convertible preference shares, 10p par value; 661,000,000
shares authorized and 496,066,708 shares issued and outstanding 84,942 49,607 49,607
Ordinary shares, 10p par value; 2,010,000,000 shares authorized;
927,567,600 and 919,963,400 issued and outstanding in 1996
and 1995, respectively 158,828 92,757 91,996
Additional paid-in capital 2,282,302 1,332,887 1,322,971
Accumulated deficit (688,530) (402,108) (139,717)
- ----------------------------------------------------------------------------------------------------------------------
1,837,542 1,073,143 1,324,857
Ordinary shares held in trust for The Telewest Restricted Share
Scheme (note 17) (4,017) (2,346) (2,109)
- ----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,833,525 1,070,797 1,322,748
- ----------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (note 18)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 3,838,873 2,241,940 2,289,720
======================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
IV-12
<PAGE> 191
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
1996 1996 1995 1994
$ '000 (pound) '000 (pound) '000 (pound) '000
(note 2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss before extraordinary gain (449,292) (262,391) (137,531) (65,337)
Adjustments to reconcile loss before extraordinary gain
to net cash provided by/(used in) operating activities:
Depreciation 222,113 129,716 60,019 30,320
Amortization of goodwill 44,775 26,149 7,854 1,827
Amortization of deferred financing costs and issue
discount on senior discount debentures 126,888 74,104 16,605 -
Accrued interest on senior debentures - - 5,451 -
Unrealized loss on foreign currency translation 4,860 2,838 14,575 -
Loss on disposal of interest rate swaps - - 8,609 -
Unrealized gain on interest rate swaps - - - (1,636)
Share of losses of affiliates 27,351 15,973 12,777 8,466
(Gain)/loss on disposals of assets (978) (571) 419 (26)
Minority interests in profit/(loss) 308 180 16 (39)
Changes in operating assets and liabilities, net of
effect of acquisition of subsidiaries:
Change in receivables (27,239) (15,908) (5,282) (8,102)
Change in prepaid expenses 1,632 953 (3,367) 1,004
Change in accounts payable (7,834) (4,575) (5,603) 15,293
Change in other liabilities 88,471 51,668 19,206 9,067
Other - - (356) -
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 31,055 18,136 (6,608) (9,163)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (795,136) (464,367) (254,453) (202,683)
Cash paid for acquisition of subsidiaries (24,258) (14,167) (3,232) (236)
Additional investments in and loans to affiliates (4,671) (2,728) (9,143) (23,761)
Additions to other investments (8,562) (5,000) - -
Proceeds from disposals of assets 5,238 3,059 688 294
Other investing activities - - 335 (5,505)
- ----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (827,389) (483,203) (265,805) (231,891)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash paid for credit facility arrangement costs (31,506) (18,400) - -
Proceeds from debenture issue - - 754,812 -
Cash paid for foreign currency option - - (88,070) -
Repayment of borrowings (1,604) (937) (157,930) (219,700)
Cash paid for debenture issue costs (1,420) (829) (20,574) -
Cash paid for share issue costs - - (6,141) (28,543)
Proceeds from share issues - - - 511,800
Proceeds from borrowings 171,915 100,400 - 174,200
Capital element of finance lease repayments (2,108) (1,231) (1,291) (210)
Net contributions from Joint Venturers and minorities - - - 44,995
- ----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 135,277 79,003 480,806 482,542
- ----------------------------------------------------------------------------------------------------------------------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (661,057) (386,064) 208,393 241,488
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 620 362 8,423 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 795,907 464,818 248,002 6,514
- ----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR 135,470 79,116 464,818 248,002
======================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
IV-13
<PAGE> 192
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net assets of
the Joint Venture
(pound) '000
(See note 1)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
JOINT VENTURE:
PERIOD FROM JANUARY 1 TO NOVEMBER 22, 1994
Balance at January 1, 1994 311,695
Capital contribution 121,873
Repayment of the Joint Venturers' capital accounts (75,700)
Net loss (55,864)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT NOVEMBER 22, 1994 302,004
======================================================================================================================
</TABLE>
On November 22, 1994 the net assets of Joint Venture were contributed to the
Company, as described in Note 1 to the consolidated financial statements. The
contribution appears as an increase in additional paid-in capital in the
following table.
<TABLE>
<CAPTION>
Convertible Additional
preference Ordinary Shares held paid-in Accumulated
shares shares in trust capital deficit Total
(pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPANY:
Shares issued during the year 15,300 84,824 - 384,272 - 484,396
Ordinary shares held in trust
for the Telewest Restricted
Share Scheme - - (7,280) - - (7,280)
Contribution of the Joint
Venture to the Company
on November 22, 1994 - - - 302,004 - 302,004
Net loss - - - - (2,186) (2,186)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1994 15,300 84,824 (7,280) 686,276 (2,186) 776,934
Conversion of ordinary
shares into convertible
preference shares 11,227 (11,227) - - - -
Shares issued in connection
with the acquisition
of TCMN (see note 5) 23,080 18,399 - 636,695 - 678,174
Accrued employee
compensation relating
to the Telewest Restricted
Share Scheme - - 5,171 - - 5,171
Net loss - - - - (137,531) (137,531)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1995 49,607 91,996 (2,109) 1,322,971 (139,717) 1,322,748
Ordinary shares issued _ 761 - 9,916 - 10,677
Accrued employee compensation
relating to the Telewest
Restricted Share Scheme - - (237) - - (237)
Net loss - - - - (262,391) (262,391)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1996 49,607 92,757 (2,346) 1,332,887 (402,108) 1,070,797
======================================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements.
IV-14
<PAGE> 193
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
years ended December 31, 1996 and 1995
1 ORGANIZATION AND HISTORY
Telewest Communications plc ("the Company") is a cable television and telephony
operator which offers these services to business and residential customers in
the United Kingdom ("UK"). The Company derives its cable television revenues
from installation fees, monthly basic and premium service fees and advertising
charges. The Company derives its telephony revenues from connection charges,
monthly line rentals, call charges, special residential service charges and
interconnection fees payable by other operators. The cable television and
telephony services account for approximately 42% and 55%, respectively, of the
Company's revenue. This revenue is predominantly derived from residential,
rather than business, customers.
The Company was incorporated on October 20, 1994 under the laws of England and
Wales in preparation for the October 2,1995 internal reorganization of Telewest
Communications Cable Limited ("TCCL"), then called TeleWest Communications plc,
and its subsidiaries whereby the entire issued share capital of TCCL was
transferred to the Company in exchange for fully paid up shares of the Company.
TCCL had traded since November 22, 1994 when affiliates of Tele-Communications,
Inc. (the "TCI Affiliates") and affiliates of US WEST, Inc. (the "US WEST
Affiliates") contributed their UK cable interests to TCCL (the "Contribution").
These interests were previously held by the TCI Affiliates and US WEST
Affiliates through TCI/US West Cable Communications Group, a general
partnership. TCI/US WEST Cable Communications Group and its subsidiaries
collectively are referred to herein as the "Joint Venture" and the TCI
Affiliates and US WEST Affiliates collectively are referred to herein as the
"Joint Venturers".
2 BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of America ("US
GAAP"). The preparation of financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The Company's historical
shareholders' equity for the periods prior to November 22, 1994, is the excess
of the Joint Venture's assets over the Joint Venture's liabilities and
represents the historical cost of the capital contributions made by the Joint
Venturers less the accumulated deficit arising from the Joint Venture's
operations.
The economic environment and currency in which the Company operates is the UK
and hence its reporting currency is Pounds Sterling ((pound)). Certain
financial information for the year ended December 31, 1996 has been translated
into US Dollars, with such US Dollar amounts being unaudited and presented
solely for the convenience of the reader, at the rate of $1.7123 = (pound)1.00,
the Noon Buying Rate of the Federal Reserve Bank of New York on December 31,
1996. The presentation of the US Dollar amounts should not be construed as a
representation that the Pounds Sterling amounts could be so converted into US
Dollars at the rate indicated or at any other rate.
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
those of all majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated upon consolidation.
All acquisitions have been accounted for under the purchase method of
accounting. Under this method, the results of subsidiaries and affiliates
acquired in the year are included in the consolidated statement of operations
from the date of acquisition.
Goodwill arising on consolidation (representing the excess of the fair value of
the consideration given over the fair value of the identifiable net assets
acquired) is amortized over the acquisition's useful life or over a maximum
period of 40 years. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through projected undiscounted future operating
cash flows of the acquired operations. The assessment of the recoverability of
goodwill will be impacted if projected future operating cash flows are not
achieved. The amount of goodwill impairment, if any, is measured based on the
projected discounted future operating cash flows using a discount rate
reflecting the Company's cost of funds.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly-liquid investments with original
maturities of three months or less that are readily convertible into cash.
FINANCIAL INSTRUMENTS
The Company uses foreign currency option contracts which permit, but do not
require, the Company to exchange foreign currencies at a future date with
another party at a contracted exchange rate. The Company also enters into
combined foreign currency and interest rate swap contracts ("Foreign Currency
Swaps"). Such contracts are used to hedge against adverse changes in foreign
currency exchange rates associated with obligations denominated in foreign
currency.
IV-15
<PAGE> 194
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The foreign currency option and Foreign Currency Swaps are recorded on the
balance sheet in other assets or other liabilities at their fair value at the
reporting period with changes in their fair value during the reporting period
being reported as part of the foreign exchange gain or loss in the statement of
operations. Such gains and losses are offset against foreign exchange gains and
losses on the obligations denominated in foreign currencies which have been
hedged.
Interest rate swap agreements which are used to manage interest rate risk on
the Company's borrowings are accounted for using the accruals method. Net
income or expense resulting from the differential between exchanging floating
and fixed rate interest payments is recorded on an accruals basis. To the
extent that the interest rate swap agreements are delayed starting, net income
or expense is not recognized until the effective date of the agreement.
Other interest rate swaps which are held as trading assets are recorded on the
balance sheet at their fair value at the end of each reporting period with
changes in their fair value being recorded as gains and losses in the statement
of operations.
INVESTMENTS
Investments in partnerships, joint ventures and subsidiaries in which the
Company's voting interest is 20% to 50%, and others where the Company has
significant influence, are accounted for using the equity method. Investments
which do not have a readily determinable fair value, in which the Company's
voting interest is less than 20%, and in which the Company does not have
significant influence, are carried at cost and written down to the extent that
there has been an other-than-temporary diminution in value.
ADVERTISING COSTS
Advertising costs are expensed as incurred. The amount of advertising costs
expensed was (pound)24,846,000, (pound)10,246,000, and (pound)4,313,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, including the historical carryover
basis cost from the Contribution. Except during the prematurity period as
described below, depreciation is provided to write off the cost, less estimated
residual value, of property and equipment by equal installments over their
estimated useful economic lives as follows:
<TABLE>
<S> <C>
Freehold and long leasehold buildings 50 years
Cable and ducting 20 years
Electronic equipment
- - System electronics 8 years
- - Switching equipment 8 years
- - Subscriber electronics 5 years
- - Headend, studio and playback facilities 5 years
Other equipment
- - Office furniture and fittings 5 years
- - Motor vehicles 4 years
</TABLE>
During the prematurity period, depreciation of cable and ducting and system
electronics is charged monthly to write off the estimated cost at the end of
the prematurity phase over a useful life of 20 and 8 years, respectively. In
accordance with Statement of Financial Accounting Standard ("SFAS") No 51,
"Financial Reporting by Cable Television Companies", the monthly charge is
scaled down by a ratio of average customers in the current period to the
estimated customer base at the end of the prematurity period. The prematurity
period covers the period between connecting the first customer and substantial
completion of the network.
Preconstruction costs which are included within cable and ducting are amortized
over the life of the franchise from the date of the first customer.
The Company accounts for costs, expenses and revenues applicable to the
construction and operation of its cable systems under SFAS No 51.
The estimated useful lives of cable and ducting and systems electronics were
reassessed with effect from January 1, 1996, and were changed from 25-30 years
and 10 years to 20 years and 8 years, respectively. The net book value of these
assets are being written-off over their revised estimated remaining lives.
FRANCHISE COSTS
Expenditure incurred on successful applications for franchise licenses is
included in property and equipment and is amortized over the remaining life of
the original franchise term. Costs relating to unsuccessful applications are
charged to the statement of operations.
DEFERRED FINANCING COSTS
Costs incurred in raising debt are deferred and recorded on the balance sheet
in other assets. The costs are amortized to the consolidated statement of
operations at a constant rate to the carrying value of the debt over the life
of the obligation.
MINORITY INTERESTS
Recognition of the minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the equity of those consolidated subsidiaries.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the rate of exchange in
effect at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated using the rate of exchange
ruling at the balance sheet date and the gains or losses on translation are
included in the statement of operations.
REVENUE RECOGNITION
Revenue is recognized as services are delivered. Other revenues include
connection fees which are recognized in the period of connection to the extent
that the fee is offset by direct selling costs. The remainder is recognized
over the estimated average period that customers are expected to remain
connected to the system.
IV-16
<PAGE> 195
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
PENSION COSTS
The Company does not have a defined-benefit pension plan but operates a
defined-contribution scheme or contributes up to specified limits to the
third-party scheme of the employee's choice. The amount included in losses in
1996, 1995 and 1994 of (pound)2,580,000, (pound)1,538,000, and (pound)839,000,
respectively, represents the contributions payable to the selected schemes in
respect of the relevant accounting periods.
INCOME TAXES
Prior to November 22, 1994 no provision had been made for income tax expense or
benefit in the accompanying financial statements as the earnings or losses of
the Joint Venture were reported in the respective income tax returns of the
individual Joint Venturers. Following the reorganization effective on November
22, 1994, the Company became subject to UK taxation and adopted SFAS No 109,
"Accounting for Income Taxes". The adoption of SFAS No 109 does not give rise
to any cumulative adjustment to be made in the 1994 consolidated statement of
operations. Under the asset and liability method of SFAS No 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered.
SHARE-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", encourages, but does
not require, companies to record compensation cost for share-based employee
compensation plans at fair value. The Company has chosen to continue to account
for share-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for
share options is measured as the excess, if any, of the quoted market price of
the Company's shares at the date of the grant over the amount an employee must
pay to acquire the shares.
Shares purchased by trustees in connection with the Telewest Restricted Share
Scheme, are valued at the market price on the date on which they are purchased
and are reflected as a reduction of shareholders' equity in the balance sheet.
This equity account is reduced when the shares are awarded to employees based
on the original cost of the shares to the trustees. The value of awards of
ordinary shares to be made to employees in future years is charged to the
statement of operations to the extent that the awards have been awarded to and
earned by employees in the current accounting period. The value of shares which
have been awarded to, but have not been earned by employees, is included as
deferred compensation expense within other assets.
LOSS PER ORDINARY SHARE
Loss per ordinary share is based on the weighted average number of ordinary
shares outstanding during the year. Ordinary share equivalents are not included
in the computation as their effect would be to decrease the loss per share. The
pro forma loss per ordinary share calculated for the year ended December 31,
1994 assumes that ordinary shares issued to the Joint Venturers in return for
the Contribution had been outstanding for the entire year.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities". The statement establishes, among other things, new criteria
for determining whether a transfer of financial assets in exchange for cash or
other consideration should be accounted for as a sale or as a pledge of
collateral in a secured borrowing. SFAS No. 125 also establishes new accounting
requirements and servicing of financial assets and extinguishment of
liabilities occurring after December 31,1996. In December 1996, SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125", was issued. SFAS No. 127 defers for one year the effective date of certain
requirements of SFAS No. 125. SFAS No. 125 is not expected to have a material
impact on the financial position or results of operations of the Company.
Statement of Position ("SOP") No. 96-1 "Environmental Remediation Liabilities",
was issued in October 1996. This statement provides authoritative guidance on
specific accounting issues that are present in the recognition, measurement,
display, and disclosure of environment remediation liabilities. The provisions
of this statement are effective for fiscal years beginning after December 15,
1996. SOP 96-1 is not expected to have a material impact on the financial
position or results of operations of the Company.
4 FINANCIAL INSTRUMENTS
FOREIGN CURRENCY OPTION CONTRACT
At December 31, 1996, the Company held a Pounds Sterling put option to purchase
US$1,537,000,000 to hedge its exposure to adverse fluctuations in exchange
rates on the principal amount at maturity of its US Dollar-denominated Senior
Discount Debentures due 2007 ("Senior Discount Debentures"). The expiration
date of this option contract is September 28, 2000. The put option has a strike
price at expiration of (pound)1.00 = US$1.4520. The foreign currency option has
been included in other assets at its fair value on December 31, 1996.
IV-17
<PAGE> 196
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4 FINANCIAL INSTRUMENTS (continued)
FOREIGN CURRENCY SWAP
The Company has entered into a Foreign Currency Swap to hedge its exposure to
adverse fluctuations in exchange rates on the principal amount of its US
Dollar-denominated Senior Debentures due 2006 ("Senior Debentures"). The terms
of the contract provided for the Company to make an initial exchange of
principal of US$300,000,000 in exchange for (pound)196,078,000. On expiration
on October 1, 2000, the initial principal amounts will be re-exchanged. The
interest element of the Foreign Currency Swap requires the Company to make
Pounds Sterling fixed-rate interest payments and to receive US Dollar
fixed-rate interest payments on the initial exchange amounts on a semi-annual
basis. The Foreign Currency Swap contract has been included in other
liabilities at its fair value on December 31, 1996.
INTEREST RATE SWAPS
The Company has also entered into certain delayed-starting interest rate swap
agreements in order to manage interest rate risk on its senior secured credit
facility ("Senior Secured Facility"). The effective dates of the swap
agreements are January 2, 1997 and March 31, 1997, and the agreements mature on
December 31, 2001 and March 28, 2002.
The aggregate notional principal amount of the swaps
adjusts upwards on a semi-annual basis to a maximum of (pound)750 million. In
accordance with the swap agreements, the Company receives interest at the six
month LIBOR rate and pays a fixed interest rate in the range of 7.835 - 7.975%.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 119 "Disclosures about Derivative Financial Instruments and Fair Value
of Financial Instruments" requires disclosure of an estimate of the fair values
of certain financial instruments. SFAS No. 119 defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties other than in a forced sale.
Fair value estimates are made at a specific point in time, based upon relevant
market information and information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment, and therefore cannot be determined precisely. Changes in
assumptions could significantly affect the estimates.
At December 31, 1996, the Company's significant financial instruments include
cash and cash equivalents, trade receivables, a foreign currency option
contract, a Foreign Currency Swap, interest rate swap agreements, trade
payables and long-term borrowings. The following table summarizes the fair
value of the foreign currency option contract, the Foreign Currency Swap, the
interest rate swap agreements, the Senior Discount Debentures and the Senior
Debentures. The fair value of the other financial instruments held by the
Company approximates their recorded carrying amount due to the short maturity
of these instruments and these instruments are not presented in the following
table.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996 At December 31, 1995
CARRYING Carrying
AMOUNT FAIR VALUE amount Fair value
(pound) '000 (pound) '000 (pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Foreign currency
option contract 25,828 25,828 85,742 85,742
Liabilities:
Interest rate swap
agreements - 4,776 - -
Foreign Currency Swap 26,481 26,481 3,983 3,983
Senior Discount
Debentures 600,799 621,367 595,266 601,222
Senior Debentures 175,203 179,582 193,113 196,975
===============================================================================
</TABLE>
The estimated fair value of the foreign currency option contract, the interest
rate swap agreements and the Foreign Currency Swap are based on quotations
received from independent, third party financial institutions and represent the
net amount receivable or payable to terminate the position, taking into
consideration market rates and counterparty credit risk. The estimated fair
value of the Senior Discount Debentures and the Senior Debentures are also
based on quotations from independent third party financial institutions and are
based on discounting the future cash flows to net present values using
appropriate market interest rates prevailing at the year end.
MARKET RISK AND CONCENTRATIONS OF CREDIT RISK
Market risk is the sensitivity of the value of the financial instruments to
changes in related currency and interest rates. Generally, the Company is not
exposed to such market risk because gains and losses on the financial
instruments are offset by gains and losses on the underlying assets and
liabilities.
The Company may be exposed to potential losses due to the credit risk of
non-performance by the counterparties to its foreign currency option, interest
rate swap agreements and Foreign Currency Swap contract, however such losses
are not anticipated as these counterparties are major international financial
institutions.
Temporary cash investments also potentially expose the Company to
concentrations of credit risk, as defined by SFAS No. 105 "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risks". The Company places
its temporary cash investments with major international financial institutions
and limits the amount of credit exposure to any one financial institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the large number of customers comprising the Company's customer base.
At December 31, 1996, the Company had no significant concentration of credit
risk.
IV-18
<PAGE> 197
5 BUSINESS COMBINATIONS
On January 10, 1996, the Company acquired the entire issued share capital of
Telewest Communications (Worcester) Limited, then called Bell Cablemedia
(Worcester) Limited and the owner of the Worcester cable franchise, for cash
consideration of (pound)9,849,000. Telewest Communications (Worcester) Limited
was otherwise a dormant company with net assets of (pound)2 representing its
called up share capital. This acquisition has been accounted for under the
purchase method of accounting. The goodwill arising on acquisition was
(pound)9,848,998 and is being amortized on a straight line basis over 20 years.
During the year, the Company made various other minor acquisitions, largely for
share consideration. The goodwill arising on these acquisitions was
(pound)11,708,000 and is being amortized on a straight-line basis over 20
years.
On October 3, 1995, the Company acquired the entire share capital of Telewest
Communications (Midlands & North West) Limited ("TCMN"), then called SBC
CableComms (UK), a company which holds cable television and telephony interests
in the UK, from an affiliate of Cox Communications, Inc. and affiliates of SBC
Communications, Inc., in exchange for an aggregate of 183,994,960 ordinary
shares of 10 pence each and 230,790,208 convertible preference shares of 10
pence each. The value attributable to the shares issued was (pound)1.635 per
share, being the market price of the shares on June 8, 1995, the day the terms
of the acquisition were agreed to and announced. The fair value of the share
consideration using this share price was (pound)678,174,000. The aggregate cost
of acquisition was (pound)689,878,000 including payment of expenses relating to
the acquisition. This acquisition has been accounted for under the purchase
method of accounting. The goodwill arising on acquisition is (pound)464,872,000
and is being amortized on a straight-line basis over 20 years.
The operating results of these acquisitions are included in
the Company's consolidated statement of operations from their respective dates
of acquisition. The following unaudited pro forma information presents the
consolidated results of operations of the Company as if the acquisitions had
occurred at the beginning of 1995, after giving effect to the amortization of
goodwill arising as a result of each of the acquisitions:
<TABLE>
<CAPTION>
1996 1995
(pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue 290,266 191,195
Net loss (262,608) (189,225)
===============================================================================
</TABLE>
The above unaudited pro forma financial information is presented for
information purposes only and is not necessarily indicative of the operating
results that would have occurred had the acquisition been consummated as of the
dates indicated above, nor is it indicative of future results.
6 SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash paid for interest was (pound)25,795,000, (pound)6,041,000 and
(pound)8,013,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Significant non-cash investing activities of the Company are described below.
The amounts stated for 1996 represent the purchase of former minority
shareholders' interests in certain UK cable interests held by the Company. The
amounts stated for 1995 represent the purchase of TCMN for largely share
consideration as described in Note 5 to the consolidated financial statements.
The amounts stated for 1994 represent the contribution of UK cable interests to
the Company by the Joint Venturers.
<TABLE>
<CAPTION>
1996 1995 1994
(pound) '000 (pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchase/contribution of
cable interests:
Assets - 428,080 3,967
Liabilities assumed - (45,144) (2,744)
Debt assumed - (157,930) -
Minority interest in
subsidiaries - - (44)
- -------------------------------------------------------------------------------
Net assets acquired/
contributed - 225,006 1,179
Goodwill on acquisition 9,874 464,872 -
- -------------------------------------------------------------------------------
9,874 689,878 1,179
===============================================================================
Share consideration/
capital contribution 9,869 678,174 1,179
Costs of acquisition 5 11,704 -
- -------------------------------------------------------------------------------
9,874 689,878 1,179
===============================================================================
</TABLE>
The Company entered into finance lease arrangements for switching equipment and
other equipment with a total capital value at the beginning of the lease of
(pound)25,307,000, (pound)16,920,000 and (pound)6,820,000 during the years
ended December 31, 1996, 1995 and 1994, respectively.
7 OTHER RECEIVABLES
<TABLE>
<CAPTION>
At December 31
1996 1995
(pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C>
Value Added Tax refund 10,633 5,145
Interconnection receivables 3,865 3,019
Interest receivable 63 3,341
Accrued income 4,356 3,311
Recoverable expenses 5,714 2,808
Other 7,763 8,033
- -------------------------------------------------------------------------------
32,394 25,657
===============================================================================
</TABLE>
IV-19
<PAGE> 198
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
8 INVESTMENTS
The Company has investments in affiliates accounted for under the equity method
at December 31, 1996 and 1995 as follows:
<TABLE>
<CAPTION>
Percentage ownership
at December 31
1996 1995
(pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C>
Cable London plc 50.00% 49.00%
Birmingham Cable Corporation
Limited 27.47% 27.47%
London Interconnect Limited 16.67% 16.67%
Central Cable Sales Limited 50.00% 50.00%
===============================================================================
</TABLE>
The Company has accounted for its investment in London Interconnect Limited
under the equity method because it is in a position to exercise a significant
influence over London Interconnect Limited.
Summarized financial information for such affiliates which operate principally
in the cable television and telephony industries is as follows:
COMBINED FINANCIAL POSITION
<TABLE>
<CAPTION>
At December 31
1996 1995
(pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment, net 391,183 311,265
Intangible assets, net 3,845 4,644
Other assets, net 105,475 149,786
- -------------------------------------------------------------------------------
TOTAL ASSETS 500,503 465,695
===============================================================================
Debt 281,500 247,653
Other liabilities 91,947 50,268
Owners' equity 127,056 167,774
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY 500,503 465,695
===============================================================================
</TABLE>
COMBINED OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
(pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue 98,329 70,016
Operating expenses (124,358) (99,184)
- -------------------------------------------------------------------------------
Operating loss (26,029) (29,168)
Interest expense (15,945) (4,615)
- -------------------------------------------------------------------------------
NET LOSS (41,974) (33,783)
===============================================================================
</TABLE>
The Company's investments in affiliates are comprised as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31
1996 1995
(pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C>
Loans 29,089 24,593
Share of net assets 40,331 56,110
- -------------------------------------------------------------------------------
69,420 80,703
===============================================================================
</TABLE>
Any excess of the purchase cost over the value of the net assets acquired is
included in goodwill and amortized over 20 years on a straight-line basis.
IV-20
<PAGE> 199
9 PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Cable and Electronic Other
Land Buildings ducting equipment equipment Total
(pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ACQUISITION COSTS
Balance at January 1, 1996 4,223 36,005 766,866 359,617 79,239 1,245,950
Additions - 9,951 335,844 130,783 39,012 515,590
Disposals - - (749) (565) (4,792) (6,106)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31,1996 4,223 45,956 1,101,961 489,835 113,459 1,755,434
- ---------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
Balance at January 1, 1996 - 4,920 74,532 70,810 31,880 182,142
Charge for year - 2,458 47,374 60,220 19,664 129,716
Disposals - - (725) (547) (2,346) (3,618)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 - 7,378 121,181 130,483 49,198 308,240
- ---------------------------------------------------------------------------------------------------------------------------
1996 NET BOOK VALUE 4,223 38,578 980,780 359,352 64,261 1,447,194
===========================================================================================================================
ACQUISITION COSTS
Balance at January 1, 1995 4,055 16,643 321,208 149,652 30,575 522,133
On acquisition of TCMN 168 14,551 284,670 131,682 25,681 456,752
Additions - 4,811 161,439 78,729 24,097 269,076
Disposals - - (451) (446) (1,114) (2,011)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31,1995 4,223 36,005 766,866 359,617 79,239 1,245,950
- ---------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION
Balance at January 1,1995 - 2,106 25,926 28,040 11,218 67,290
On acquisition of TCMN - 833 26,201 17,080 11,660 55,774
Charge for year - 1,981 22,507 25,791 9,740 60,019
Disposals - - (102) (101) (738) (941)
- ---------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 - 4,920 74,532 70,810 31,880 182,142
- ---------------------------------------------------------------------------------------------------------------------------
1995 NET BOOK VALUE 4,223 31,085 692,334 288,807 47,359 1,063,808
===========================================================================================================================
</TABLE>
Cable and ducting consists principally of civil engineering and fibre optic
costs. In addition, cable and ducting includes net book value of
preconstruction and franchise costs of (pound)13,220,000 and (pound)14,388,000
as of December 31, 1996 and 1995, respectively. Electronic equipment includes
the Company's switching, headend and converter equipment. Other equipment
consists principally of motor vehicles, office furniture and fixtures and
leasehold improvements.
10 VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions charged to
Balance at Acquisition Costs and Other Balance at
January 1 of TCMN expenses accounts Deductions December 31
(pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Allowance for doubtful accounts 4,695 - 9,020 - (8,310) 5,405
==========================================================================================================================
1995
Allowance for doubtful accounts 1,736 1,063 5,920 - (4,024) 4,695
==========================================================================================================================
1994
Allowance for doubtful accounts 577 - 3,392 26 (2,259) 1,736
==========================================================================================================================
</TABLE>
IV-21
<PAGE> 200
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11 OTHER ASSETS
The components of other assets, net of amortization, are as follows:
<TABLE>
<CAPTION>
At December 31
1996 1995
(pound) '000 (pound) '000
- ------------------------------------------------------------------------
<S> <C> <C>
Deferred financing costs of debentures 17,510 20,716
Deferred financing costs of Senior
Secured Facility 18,186 -
Foreign currency option contract 25,828 85,742
Other 863 2,473
- ------------------------------------------------------------------------
62,387 108,931
========================================================================
</TABLE>
12 OTHER LIABILITIES
Other liabilities are summarized as follows:
<TABLE>
<CAPTION>
At December 31
1996 1995
(pound) '000 (pound) '000
- ------------------------------------------------------------------
<S> <C> <C>
Amounts due to affiliated or other
related parties 1,901 2,052
Accrued interest 8,921 5,740
Accrued construction costs 36,397 14,859
Accrued expenses and deferred income 82,938 58,507
Foreign Currency Swap 26,481 3,983
Other liabilities 33,562 18,683
- ------------------------------------------------------------------
190,200 103,824
==================================================================
</TABLE>
13 DEBT
Debt is summarized as follows at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Weighted average
interest rate 1996 1995
1996 1995 (pound) '000 (pound) '000
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Senior
Debentures 9.625% 9.625% 175,203 193,113
Senior Discount
Debentures 11.000% 11.000% 600,799 595,266
Senior Secured
Facility 8.281% - 100,000 -
Other debt 7.790% 8.450% 3,349 3,886
- -------------------------------------------------------------------------------
879,351 792,265
===============================================================================
</TABLE>
SENIOR DEBENTURES
In October 1995, the Company issued US$300,000,000 principal amount of Senior
Debentures with a yield to maturity of 9.625%. The cash consideration received
at the date of issue was (pound)188,703,000. The Senior Debentures mature on
October 1, 2006. Interest on the Senior Debentures accrues semi-annually and is
payable in arrears. The Senior Debentures are redeemable, in whole or in part,
at the option of the Company at any time on or after October 1, 2000 at the
redemption price of 104.813% of the principal amount during the year commencing
October 1, 2000, 102.406% of the principal amount during the year commencing
October 1, 2001, and thereafter at 100% of the principal amount plus accrued
and unpaid interest.
The Senior Debentures and the Senior Discount Debentures, which are described
below, were issued to finance general working capital, capital expenditure,
foreign currency swap and options to hedge against adverse fluctuations in
exchange rates, and additional investments in affiliated companies. A portion
of the net proceeds of the issue also was used to repay the (pound)157,930,000
indebtedness outstanding under the loan facility held by TCMN at the date that
it was acquired by the Company.
The indenture under which the Senior Debentures were issued contains various
covenants which, among other things, restrict the ability of the Company to
incur additional indebtedness, pay dividends, create certain liens, enter into
certain transactions with shareholders or affiliates, or sell certain assets.
The Company was in compliance with the convenants at December 31, 1996.
The Company has entered into a Foreign Currency Swap to hedge its exposure to
adverse fluctuations in exchange rates on the principal amount which will be
outstanding on October 1, 2000, the earliest redemption date, and the
associated interest payments of the Senior Debentures. The terms of the Foreign
Currency Swap are described in Note 4 to the consolidated financial statements.
The Senior Debentures are unsecured liabilities of the Company.
SENIOR DISCOUNT DEBENTURES
In October 1995, the Company issued US$1,536,413,000 principal amount at
maturity of Senior Discount Debentures with a yield to maturity of 11%. The
cash consideration received at the date of issue was (pound)566,109,000
(US$900,000,000). At December 31, 1996, the unamortized portion of the discount
on issue was (pound)296,482,000 (US$507,665,000). The Senior Discount
Debentures mature on October 1, 2007. Interest on the Senior Discount
Debentures accrues semi-annually. Cash interest will not accrue on the Senior
Discount Debentures prior to October 1, 2000 and is thereafter payable in
arrears on April 1 and October 1 of each year at a rate of 11% per annum. The
Senior Discount Debentures are redeemable, in whole or in part, at the option
of the Company at any time on or after October 1, 2000 at the redemption price
of 100% of the principal amount plus accrued and unpaid interest.
The indenture under which the Senior Discount Debentures were issued contains
various covenants as set out for the Senior Debentures above and the Company
was in compliance with such covenants at December 31, 1996.
IV-22
<PAGE> 201
13 DEBT (continued)
The Company has purchased a five year Pounds Sterling put option to purchase
US$1,537,000,000 to hedge its exposure to adverse fluctuations in exchange
rates on the principal amount which will be outstanding on October 1, 2000, the
earliest redemption date, of the Senior Discount Debentures. The terms of the
foreign currency option contract are described in Note 4 to the consolidated
financial statements.
The Senior Discount Debentures are unsecured liabilities of the Company.
SENIOR SECURED FACILITY
During the year, a subsidiary of the Company entered into a senior secured
credit facility (the "Senior Secured Facility") with a syndicate of banks. The
facility is available to finance the capital expenditure, working capital
requirements and other permitted related activities involving the construction
and operation of all the Company's owned and operated franchises, to pay cash
interest on the Company's unsecured debentures, to fund the repayment of
existing secured borrowings in respect of the London South and South West
Regional Franchise Areas, to fund loans to or investments in affiliated
companies, to bid for or purchase, and subsequently construct, licenses or
franchises which may become available and to refinance advances and the payment
of interest, fees, and expenses in respect of the Senior Secured Facility.
The facility is divided into two tranches: the first portion (Tranche A) is
available on a revolving basis for up to (pound)300 million, reducing to
(pound)100 million by June 30, 1998 with full repayment by December 31, 1998;
the second portion (Tranche B) is available on a revolving basis concurrently
with Tranche A for an amount up to 6.5 times the trailing, rolling six month
annualized consolidated net operating cash flow, gradually reducing throughout
the period of the facility to 4 times by January 1, 2000. Thereafter, the
amount outstanding under the Tranche B facility converts to a term loan
amortizing over 5 years. The aggregate drawing at any time under both tranches
cannot exceed (pound)1.2 billion. At December 31, 1996, (pound)100,000,000 was
outstanding under Tranche A. During the year, the Company paid (pound)2,487,000
for commitment fees relating to the unused portion of the facility.
Borrowings under the facility are secured by the assets of the Company,
including the partnership interests and shares of subsidiaries, and bear
interest at 2.25% above LIBOR for Tranche A and between 0.5% and 1.875% above
LIBOR (depending on the ratio of borrowings to the trailing, rolling six month
annualized consolidated net operating cash flow) for Tranche B. In September
1996, the Company entered into certain delayed-starting interest rate swap
agreements in order to manage interest rate risk on the Senior Secured
Facility. The terms of the swap agreements are described in Note 4 to the
consolidated financial statements.
The Company's ability to borrow under the facility is subject to, among other
things, its compliance with the financial and other covenants and borrowing
conditions contained therein.
The Company was in compliance with the covenants at December 31, 1996.
OTHER DEBT
Other debt is represented by property loans which are secured on freehold land
and buildings held by the Company which mature in 1997. The property loans bear
interest at a rate of between 1.00% and 1.75% above LIBOR.
14 INCOME TAXES
As discussed in Note 3 to the consolidated financial statements, the Company
has adopted SFAS No 109 as of November 22, 1994. The adoption of this standard
has no cumulative effect to be reported in the 1994 consolidated statement of
operations.
Loss before income taxes is solely attributable to the UK.
The provisions for income taxes follow:
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
(pound) '000 (pound) '000
- --------------------------------------------------------------------------------
<S> <C> <C>
Currently payable 50 16
================================================================================
</TABLE>
A reconciliation of income taxes determined using the statutory UK rate of 33%
to the effective rate of income tax is as follows:
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
% %
- --------------------------------------------------------------------------------
<S> <C> <C>
Corporate tax at UK statutory rates (33) (33)
Permanent differences 1 3
Valuation allowance and other
temporary differences 30 26
Share of losses of affiliates 2 4
- --------------------------------------------------------------------------------
- -
================================================================================
</TABLE>
Deferred income tax assets and liabilities at December 31, 1996 and 1995 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
(pound) '000 (pound) '000
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets relating to:
Fixed assets - 2,200
Net operating loss carryforwards 310,300 97,000
Other 3,400 9,200
- --------------------------------------------------------------------------------
Deferred tax asset 313,700 108,400
Valuation allowance (175,200) (96,300)
- --------------------------------------------------------------------------------
138,500 12,100
- --------------------------------------------------------------------------------
Deferred tax liabilities relating to:
Fixed assets (110,600) -
Other (27,900) (12,100)
- --------------------------------------------------------------------------------
Deferred tax liabilities (138,500) (12,100)
- --------------------------------------------------------------------------------
DEFERRED TAX ASSET PER
BALANCE SHEET - -
================================================================================
</TABLE>
IV-23
<PAGE> 202
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14 INCOME TAXES (continued)
At December 31, 1996 and 1995 the Company estimates that it has, subject to
Inland Revenue agreement, net operating losses ("NOLs") of (pound)940,000,000
and (pound)294,000,000, available to relieve against future profits. NOLs at D
ember 31, 1995 exclude capital allowances on assets which were available to the
Company, but had not been claimed. At December 31, 1996, NOLs include a claim
for all available capital allowances.
The NOLs have an unlimited carry forward period under UK tax law, but are
limited to their use to the type of business which has generated the loss.
15 EXTRAORDINARY GAIN
The Company had entered into interest rate swap agreements in order to manage
the interest rate risk on its previous revolving credit facilities by swapping
the interest rate on part of its variable rate debt for a fixed interest rate.
Following the initial public offering of the Company in November 1994, the
Company used a portion of the proceeds from the offering to repay all amounts
outstanding under these credit facilities and the interest rate swap agreements
ceased to be a hedge of the interest rate liability. The interest rate swaps
were retained pending their use as hedges of interest rates on future drawdowns
of the credit facilities. They had been placed on the balance sheet at their
fair value at the date upon which the debt was repaid and an extraordinary gain
equal to the aggregate fair value of the interest rate swaps at this date was
recognized in the consolidated statement of operations. Any change in the
aggregate fair value of the swap agreements since this date had been recognized
in the consolidated statement of operations. On October 12, 1995, the Company
sold the interest rate swaps, recognizing a loss on disposal.
16 SHAREHOLDERS' EQUITY
MOVEMENTS IN SHARE CAPITAL
During the year the Company issued 7,604,200 ordinary shares of 10 pence each
for the following consideration: an additional 1% of the ordinary shares of
Cable London plc, the surrender by Trans-Global (UK) Limited of its option to
acquire 9.9% of equity in the South East Regional Franchise Area, and the
remaining 20% of the ordinary shares of Telewest Communications (Cotswolds)
Limited held by a minority interest.
On October 3, 1995, the Company acquired the entire share capital of TCMN from
its former shareholders in exchange for an aggregate of 183,994,960 ordinary
shares of 10 pence each and 230,790,208 convertible preference shares of 10
pence each. On October 2, 1995, pursuant to a court-approved scheme of
arrangement (the "Scheme of Arrangement"), the Company exchanged 735,468,440
ordinary shares of 10 pence each and 265,276,500 convertible preference shares
of 10 pence each in consideration for the transfer of shares of TCCL to the
Company. Dealings in ordinary shares and ADSs representing ordinary shares of
TCCL ceased on the London Stock Exchange and NASDAQ National Market immediately
prior to the execution of the Scheme of Arrangement and upon completion of the
Scheme of Arrangement, dealings in the ordinary shares and ADSs representing
ordinary shares of the Company commenced. Immediately prior to the execution of
the Scheme of Arrangement on October 2, 1995, TCCL restructured its share
capital by converting 112,276,500 ordinary shares of 10 pence each into
112,276,500 convertible preference shares of 10 pence each.
On November 22, 1994, immediately following the Contribution, TCCL issued
604,000,000 ordinary shares and 153,000,000 convertible preference shares to
the Joint Venturers and completed an initial public offering in which
239,744,940 ordinary shares of 10 pence each were issued to the public market.
CONVERTIBLE PREFERENCE SHARES
The convertible preference shares are convertible into fully paid up ordinary
shares at any time on the basis of one ordinary share for every convertible
preference share provided that, immediately following the conversion, the
percentage of the issued ordinary share capital of the Company held by members
of the public, as defined by the listing rules of the London Stock Exchange,
does not fall below 25%. The ordinary shares arising on conversion will rank
pari passu in all respects with the ordinary shares then in issue.
The holders of the convertible preference shares are entitled to receive a
dividend of such amount as is declared and paid in relation to each ordinary
share, subject to the dividend to be paid not exceeding 20 pence per share net
of any associated tax credit.
In the event of a winding-up of the Company or other return of capital, the
assets of the Company available for distribution will be paid first to the
holders of the convertible preference shares up to the sum of capital paid-up
or credited as paid-up unless the right of election upon a winding-up of the
Company has been exercised in respect of the convertible preference shares
("the Elected Shares"). If the election has been exercised, the holders of the
ordinary shares and the Elected Shares will receive any surplus in accordance
with the amount paid-up or credited as paid-up on the shares held.
The holders of the convertible preference shares are not entitled to vote at
any general meeting of the Company unless the meeting includes the
consideration of a resolution for winding up the Company or a resolution
modifying the rights or privileges attaching to the convertible preference
shares.
IV-24
<PAGE> 203
17 SHARE-BASED COMPENSATION PLANS
At December 31, 1996, the Company operated three types of share-based
compensation plans: the Telewest Executive Share Option Schemes, the Telewest
Sharesave Schemes, and the Telewest Restricted Share Scheme.
The Company applies APB Opinion Bulletin No. 25 and related interpretations in
accounting for its share-based compensation plans. Accordingly, no compensation
cost has been charged to the statement of operations in respect of
performance-based option grants since the options do not have exercise prices
less than the market value of the Company's ordinary shares. Compensation cost
has been recognized for fixed option grants since the options have exercise
prices less than the market value of the Company's ordinary shares at the date
of grant. Compensation cost has also been recognized for awards over ordinary
shares made under the Telewest Restricted Share Scheme since the awards have no
exercise price. Compensation cost recognized for fixed option grants and awards
under the Telewest Restricted Share Scheme was (pound)1,380,000,
(pound)1,334,000 and (pound)nil for 1996, 1995, and 1994, respectively.
If compensation cost for share option grants and for awards under the Telewest
Restricted Share Scheme had been determined based on their fair value at the
date of grant for 1996 and 1995 consistent with the method prescribed by SFAS
123, the Company's net loss and loss per share would have been adjusted to the
pro forma amounts set out below:
<TABLE>
<CAPTION>
1996 1995
(pound) '000 (pound) '000
- -----------------------------------------------------------------
<S> <C> <C>
Net loss - As reported 262,391 137,531
- Pro forma 264,579 138,468
(pound) (pound)
- -----------------------------------------------------------------
Loss per share - As reported 0.28 0.16
- Pro forma 0.29 0.16
- -----------------------------------------------------------------
</TABLE>
PERFORMANCE-BASED SHARE OPTION COMPENSATION PLANS
The Company has two performance-based share option plans: the Telewest 1995
(No. 1) Executive Share Option Scheme and the Telewest 1995 (No. 2) Executive
Share Option Scheme. Under both plans, certain officers and key employees are
granted options to purchase ordinary shares of the Company. The exercise price
of each option generally equals the market price of the Company's ordinary
shares on the date of grant. The options are exercisable between three and ten
years after the date of the grant with exercise conditional on the Company's
shares out-performing by price the FT-SE100 Index over any three year period
preceding exercise. The Company may grant options for up to 92,000,000 ordinary
shares.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model using a weighted-average risk-free
interest rate of 8.1 per cent and 8.3 per cent for grants in 1996 and 1995,
respectively, and an expected volatility of 30 per cent used for grants in both
1996 and 1995. The Company does not expect to pay a dividend on its ordinary
shares at any time during the expected life of the option.
IV-25
<PAGE> 204
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17 SHARE-BASED COMPENSATION PLANS (continued)
A summary of the status of the Company's performance-based share option plans
as at December 31, 1996 and 1995, the first year in which the options were
granted, and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
WEIGHTED Weighted
NUMBER AVERAGE Number average
OF SHARES EXERCISE PRICE of shares exercise price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 8,645,229 160.4p - -
Granted 4,121,474 140.9p 8,871,398 160.3p
Forfeited (1,527,851) 162.6p (226,169) 158.0p
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 11,238,852 153.0p 8,645,229 160.4p
===========================================================================================================================
Options exercisable at year end 1,023,042 154.3p - -
Weighted average fair value of options granted
during the year 75.6p 86.0p
</TABLE>
The following table summarizes information about the Company's
performance-based share option plans outstanding at December 31, 1996.
<TABLE>
<CAPTION>
Options outstanding Options exercisable
------------------------------------------------------ ---------------------------------
Number Weighted Number
outstanding at average Weighted exercisable at Weighted
December 31, remaining average December 31, average
Range of exercise prices 1996 contractual life exercise price 1996 exercise price
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
138.0 - 141.0p 3,945,812 7.0 years 140.1p 343,954 140.6p
154.5 - 155.5p 5,275,536 5.8 years 154.6p 414,019 154.6p
171.5 - 173.5p 2,017,504 6.9 years 172.4p 265,069 171.8p
- ---------------------------------------------------------------------------------------------------------------------------------
138.0 - 173.5p 11,238,852 6.4 years 152.7p 1,023,042 154.3p
=================================================================================================================================
</TABLE>
FIXED SHARE OPTION COMPENSATION PLANS
The Company also operates the Telewest Sharesave Scheme, a fixed share option
compensation scheme. Under this plan, the Company grants options to employees
to purchase ordinary shares at a 20% discount to market price. These options
can be exercised only with funds saved by employees over time in a qualified
savings account. The options are exercisable between
37 and 66 months after the date of grant.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model using a weighted-average risk-free
interest rate of 7.4 per cent, 7.2 per cent, and 8.7 per cent for grants in
1996, 1995 and 1994, respectively, and an expected volatility of 30 per cent
for all years. The Company does not expect to pay a dividend on its ordinary
shares at any time during the expected life of the option.
A summary of the status of the Company's fixed share option plans as of
December 31, 1996, 1995, and 1994 and the changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
WEIGHTED Weighted Weighted
NUMBER AVERAGE Number average Number average
OF SHARES EXERCISE PRICE of shares exercise price of shares exercise price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 3,345,941 139.6p 1,666,534 150.0p - -
Granted 2,165,009 102.5p 2,168,157 134.0p 1,666,534 150.0p
Forfeited (1,434,315) 139.8p (488,750) 150.0p - -
- ---------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 4,076,635 119.8p 3,345,941 139.6p 1,666,534 150.0p
==================================================================================================================================
Options exercisable at year end 75,977 32,200 -
Weighted average fair value of
options granted during the year 49.7p 79.3p 97.4p
</TABLE>
IV-26
<PAGE> 205
17 SHARE-BASED COMPENSATION PLANS (continued)
The following table summarizes information about the Company's fixed share
options outstanding at December 31, 1996.
<TABLE>
<CAPTION>
Options outstanding
- -------------------------------------------------------------------------------
Number Weighted average
outstanding at remaining
Exercise price December 31, 1996 contractual life
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
102.5p 2,165,009 3.6 years
134.0p 1,258,104 4.6 years
150.0p 653,522 3.6 years
- -------------------------------------------------------------------------------
102.5 - 150.0p 4,076,635 3.9 years
===============================================================================
</TABLE>
TELEWEST RESTRICTED SHARE SCHEME
The Company operates the Telewest Restricted Share Scheme in conjunction with
an employment trust, the Telewest Employees Share Ownership Plan Trust (the
"Telewest ESOP"), which has been designed to provide incentives to executives
of the Company based on the performance of the Company. Under the Telewest
Restricted Share Scheme, executives may be granted awards over ordinary shares
of the Company based on a percentage of salary. The awards are made for no
consideration. The awards generally vest three years after the date of the
award and are exercisable for up to seven years after the date when they vest.
Awards granted under the Telewest Restricted Share Scheme may be made over a
maximum of 4,000,000 ordinary shares of the Company.
The fair value of each award is the share price of the ordinary shares on the
date the award was made.
A summary of the status of the Company's Restricted Share Scheme at December
31, 1996 and 1995, the first year in which the awards were made, and changes
during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995
NUMBER OF Number of
SHARES shares
- -------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 2,616,857 -
Granted 328,297 2,857,191
Exercised (62,920) _
Forfeited (233,801) (240,334)
- -------------------------------------------------------------
Outstanding at end of year 2,648,433 2,616,857
=============================================================
Awards exercisable at year end 646,341 49,867
=============================================================
WEIGHTED AVERAGE FAIR
VALUE OF AWARDS GRANTED
DURING THE YEAR (pound)1.47 (pound)1.72
</TABLE>
At December 31, 1996, the 2,648,433 awards outstanding and the 646,341 awards
exercisable have weighted average remaining contractual lives of 8.2 years and
8.0 years, respectively.
18 COMMITMENTS AND CONTINGENCIES
CAPITAL AND OPERATING LEASES
The Company leases a number of assets under arrangements accounted for as
capital leases, as follows:
<TABLE>
<CAPTION>
Acquisition Accumulated Net book
costs depreciation value
(pound) '000 (pound) '000 (pound) '000
- ---------------------------------------------------------------------
<S> <C> <C> <C>
At December 31, 1996
Electronic equipment 46,634 (8,376) 38,258
Other equipment 8,780 (1,900) 6,880
At December 31, 1995
Electronic equipment 27,148 (3,352) 23,796
Other equipment 1,512 (432) 1,080
- ---------------------------------------------------------------------
</TABLE>
Depreciation charged on these assets was (pound)7,106,000 and (pound)3,194,000
for the years ended December 31, 1996 and 1995, respectively.
The Company leases business offices and uses certain equipment under lease
arrangements accounted for as operating leases. Minimum rental expense under
such arrangements amounted to (pound)3,065,000, (pound)2,276,000 and
(pound)1,535,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Future minimum lease payments under capital and operating leases are summarized
as follows as at December 31,1996:
<TABLE>
<CAPTION>
Capital Operating
leases leases
(pound) '000 (pound) '000
- --------------------------------------------------------------
<C> <C> <C>
1997 6,033 2,796
1998 7,036 2,234
1999 8,025 1,717
2000 9,320 1,687
2001 8,517 1,630
2002 and thereafter 32,411 10,116
- ------------------------------------------------
71,342
Imputed interest (16,952)
- ------------------------------------------------
TOTAL 54,930
================================================
</TABLE>
It is expected that, in the normal course of business, expiring leases will be
renewed or replaced.
MINORITY INTERESTS
In October 1993, the Company acquired all of the outstanding minority interests
in the London South Regional Franchise Area from various shareholders other
than the interest of one shareholder holding an approximately 0.03% interest in
the London South Regional Franchise Area.
IV-27
<PAGE> 206
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
18 COMMITMENTS AND CONTINGENCIES (continued)
In consideration for such minority interests, the Company made an initial
payment to the sellers of approximately (pound)790,000 and may be required to
make an additional payment to one of the sellers upon the occurrence of certain
events (including the completion of certain share issuances by the Company).
The amount of this payment is based upon the valuation of the London South
Regional Franchise Area and the percentage of the franchise formerly owned by
the minority shareholders. The Company does not expect any payments to the
shareholders to have a material effect on the liquidity or capital resources of
the Company.
CONTINGENT LIABILITIES
The Company is a party to various legal proceedings in the ordinary course of
business which it does not believe will result, in aggregate, in a material
adverse effect on its financial condition.
19 RELATED PARTY TRANSACTIONS
The Company, in the normal course of providing cable television services,
purchases certain of its programming from UK affiliates of TCI. Such
programming is purchased on commercially-available terms. Total purchases in
the year amounted to (pound)6,951,000.
The Company has management agreements with TCI and US WEST under which amounts
are paid by the Company relating to TCI and US WEST employees who have been
seconded to the Company. For the years ended December 31, 1996, 1995 and 1994,
fees charged to the Company under the agreements were (pound)2,185,000,
(pound)3,042,000 and (pound)2,128,000, respectively. The Company has similar
managment agreements with Cox Communications, Inc. and SBC Communications, Inc.
For the years ended December 31,1996 and 1995, fees charged to the Company
under these agreements were (pound)374,000 and (pound)233,000, respectively.
The Company has entered into consulting agreements with its affiliates pursuant
to which the Company provides consulting services related to telephony
operations. Under the agreements, the Company receives an annual fee from each
affiliate based upon the affiliate's revenues. Fees received for the years
ended December 31,1996, 1995 and 1994 were (pound)642,000, (pound)566,000 and
(pound)557,000, respectively. The Company also receives a fee for providing
switching support services, comprising of a fixed element based on a number of
switches and a variable element based on a number of lines. Fees received for
the years ended December 31, 1996, 1995 and 1994, were (pound)741,000,
(pound)827,000 and (pound)822,000, respectively.
20 QUARTERLY FINANCIAL INFORMATION (unaudited)
<TABLE>
<CAPTION>
1996
Total Fourth quarter Third quarter Second quarter First quarter
(pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 290,266 83,663 73,123 68,320 65,160
Operating loss (155,400) (46,095) (34,512) (38,536) (36,257)
Finance expenses, net (90,788) 28,222 (30,710) (54,503) (33,797)
Net loss (262,391) (22,361) (69,303) (97,080) (73,647)
Loss per ordinary share 28 pence 2 pence 7 pence 10 pence 8 pence
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
1995
Total Fourth quarter Third quarter Second quarter First quarter
(pound) '000 (pound) '000 (pound) '000 (pound) '000 (pound) '000
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue 144,784 57,144 32,240 28,969 26,431
Operating loss (90,197) (33,464) (20,135) (19,209) (17,389)
Finance expenses, net (34,607) (29,344) (3,662) (1,064) (537)
Net loss (137,531) (66,346) (27,325) (23,547) (20,313)
Loss per ordinary share 16 pence 7 pence 3 pence 3 pence 2 pence
===================================================================================================================================
</TABLE>
The Company regularly reviews the estimated useful lives of its property and
equipment and the estimates used in calculating the capitalizable overheads
which relate to the construction of the cable network. With effect from January
1, 1996, the Company has revised the estimated useful lives of certain assets
as set out in Note 3 to the consolidated financial statements and certain of
the estimates used in calculating capitalizable overheads. The impact of these
revisions is to increase the depreciation charge for the year from
(pound)110,233,000 to (pound)129,716,000 and to increase the loss per ordinary
share for the year by 2 pence, and to increase the capitalization of overheads
in the year from (pound)38,812,000 to (pound)54,019,000, and to reduce loss per
ordinary share for the year by 2 pence. This impact principally has been
accounted for in the fourth quarter of 1996.
Finance expenses includes foreign exchange gains and losses on the
re-translation or valuation of non-Sterling denominated financial instruments
using period end exchange rates and market valuations.
IV-28
<PAGE> 207
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 International, Inc.
By: /s/ Fred A. Vierra
----------------------------------
Name: Fred A. Vierra
Dated March 18, 1997 Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ John C. Malone March 18, 1997
- -------------------------------------------
John C. Malone Chairman of the Board and
Director
/s/ Fred A. Vierra
- -------------------------------------------
Fred A. Vierra Vice Chairman of the Board, March 18, 1997
Chief Executive Officer
and Director
/s/ Adam N. Singer
- -------------------------------------------
Adam N. Singer President, Chief Operating March 18, 1997
Officer and Director
/s/ Jerome H. Kern
- -------------------------------------------
Jerome H. Kern Director March 18, 1997
/s/ Graham E. Hollis
- -------------------------------------------
Graham E. Hollis Executive Vice President March 18, 1997
(Chief Financial Officer and
Principal Accounting Officer)
</TABLE>
IV-29
<PAGE> 208
EXHIBIT INDEX
3 - Articles of Incorporation and Bylaws:
Restated Certificate of Incorporation. (b)
Bylaws of Registrant. (b)
4 - Instruments Defining the Rights of Security Holders:
Indenture dated as of February 7, 1996,
between Tele-Communications International,
Inc. and the Bank of New York relating to
Subordinated Debt Securities.(r)
10 - Material Contracts
10.1 Registration Rights Agreement between TINTA
and TCI dated July 12, 1995.(b)
10.2 Indemnification Agreement between TINTA and
TCI dated July 12, 1995.(b)
10.3 Services Agreement between TINTA and TCI dated
July 18, 1995.(b)
10.4 Tax Sharing Agreement between TINTA and TCI
dated July 18, 1995.(b)
10.5 First Amendment to Tax Sharing Agreement
between TINTA and TCI dated October 1995.(r)
10.6 Trade Name and Service Mark License Agreement
between TINTA and TCI dated July 18, 1995.(b)
10.7 Subordinated Revolving Credit Agreement
between TINTA and TCI dated July 12, 1995.(b)
10.8 Loan Agreement, dated October 4, 1993, as
amended by Supplemental Agreement on
October 3, 1994, among London South
Cable Partnership, Avon Cable Limited
Partnership, United Artists Communications
(London South) plc, United Artists
Communications (Avon) Limited, The
Toronto-Dominion Bank and certain banks
and financial institutions parties
thereto.(d)
10.9 Second Supplemental Agreement, dated
November 1, 1994, relating to the
Loan Agreement referred to in Exhibit
10.7(a).(d)
10.10 Loan Agreement, dated June 13, 1994, among
Telewest Scotland Holdings Limited,
Canadian Imperial Bank of Commerce and
certain banks and financial institutions
parties thereto.(d)
10.11 Supplemental Agreement, dated November 19,
1994, relating to the Loan Agreement
referred to in Exhibit 10.8(a).(d)
10.12 Relationship Agreement, entered into as of
November 22, 1994, by and among
Telewest, TINTA and US WEST.(e)
<PAGE> 209
EXHIBIT INDEX
10 - Material Contracts (continued)
10.13 Amendment to Relationship Agreement by and
among Telewest, International and U S
WEST referred to in Exhibit 10.9(a).(b)
10.14 Shareholders' Agreement, entered into as of
November 22, 1994, between certain
subsidiaries of TCI and certain
subsidiaries of US WEST.(e)
10.15 Amendment to Shareholders Agreement referred
to in Exhibit 10.10(a).(a)
10.16 Registration Rights Agreement, dated as of
November 22, 1994, between Telewest and
certain subsidiaries of TCI (Identical
agreement was entered into between
Telewest and certain subsidiaries of US
WEST.)(e)
10.17 Operating Agreement of T W Holdings, L.L.C.(a)
10.18 TCI International Holdings, Inc./Gerry
Lenfest Guarantee Agreements dated
November 19, 1994.(a)
10.19 Guarantee Agreement, dated November 19, 1994
by Australis Holdings Pty Limited in
favor of TINTA.(e)
10.20 Guarantee Agreement, dated November 19, 1994
by TINTA in favor of Australis Holdings
Pty Limited.(e)
10.21 Amended and Restated Stock Purchase
Agreement dated April 25, 1995 among
Eduardo Eurnekian and the Stockholders
of Cablevision S.A., Construred S.A.,
Univent's S.A., Televisora Belgrano S.A.
and TINTA.(a)
10.22 Amended and Restated Stockholders Agreement
dated April 25, 1995 among Eduardo
Eurnekian, Basilia Jaliquias, Alberto
Antranik Eurnekian, Natalio Wende, Enrique
Kevorkyan, Sebastian Arias Duval, Lorenzo
Luis Marchese, Tomas Daniel Kolakovic and
TINTA.(a)
10.23 Promissory Note dated April 25, 1995 in the
amount of $21,688,748 payable by TINTA to
Eduardo Eurnekian.(a)
10.24 Promissory Note dated April 25, 1995 in
the amount of $21,688,748, payable by
TINTA to Eduardo Eurnekian.(a)
10.25 Promissory Note dated April 25, 1995 in
the amount of $21,688,748, payable by
TINTA to Eduardo Eurnekian.(a)
10.26 Promissory Note dated April 25, 1995 in
the amount of $21,688,748, payable by
TINTA to Eduardo Eurnekian.(a)
10.27 Promissory Note dated February 9, 1996 payable
by Tele-Communications, Inc. to TINTA.(r)
10.28 United Communications International
Partnership Agreement dated as of
August 30, 1990, between United
International Holdings and US WEST
Cable Europe, Inc., as assigned to
United International Holdings, Inc.
pursuant to the Assignment and
Assumption Agreement dated as of January
1, 1993, between United International
Holdings and United Inter- national
Holdings, Inc.(g)
<PAGE> 210
EXHIBIT INDEX
10 - Material Contracts (continued)
10.29 Amendment of Partnership Agreement dated
November 9, 1992, between Telewest Europe
Group and United International
Holdings.(g)
10.30 Shareholders Agreement in relation to Flextech
plc dated May 10, 1993, between HC Crown
Corp. and TINTA.(a)
10.31 Shareholders Agreement in relation to
Flextech plc dated May 10, 1995
between US WEST Marketing Resources (UK)
Limited and TINTA.(a)
10.32 Shareholders Agreement among Sumitomo
Corporation, TCI Japan, Inc., TCI
International Holdings, Inc. and Jupiter
Telecommunications Co., Ltd. dated
December 6, 1994.(a)
10.33 Employment Agreement between TINTA and Fred A.
Vierra. +(b)
10.34 Restated and Amended Employment Agreement,
dated as November 1, 1992, between the
Company and John C. Malone.+(j)
10.35 Assignment and Assumption Agreement, dated
as of August 4, 1994, among TCI/Liberty
Holding Company, Tele-Communications, Inc.
and John C. Malone. +(l)
10.36 Form of Indemnification Agreement by and
between TINTA and each director.+(a)
10.37 Tele-Communications, Inc. 1994 Stock Incentive
Plan.(i)
10.38 The Tele-Communications International, Inc.
1995 Stock Incentive Plan.(a)
10.39 Tele-Communications, Inc. 1996 Stock Incentive
Plan.(c)
10.40 Form of 1992 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement. +(k)
10.41 Form of Assumption and Amended and
Restated Stock Option Agreement between
the Company, TCI/Liberty Holding Company
and grantee relating to assumption of
options and related stock appreciation
rights under Tele-Communications, Inc.'s
1992 Stock Incentive Plan pursuant to
Tele-Communications, Inc.'s 1992
Non-Qualified Stock Option and Stock
Appreciation Rights Agreement.+(m)
10.42 Form of 1993 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement. +(k)
10.43 Non-Qualified Stock Option and Stock
Appreciation Rights Agreement, dated as
of November 12, 1993, by and between
Tele-Communications, Inc. and Jerome H.
Kern. +(k)
<PAGE> 211
EXHIBIT INDEX
10 - Material Contracts (continued)
10.44 Assumption and Amended and Restated Stock
Option Agreement between
Tele-Communications, Inc., TCI/Liberty
Holding Company and a director of
Tele-Communications, Inc. relating to
assumption of options and related stock
appreciation rights granted outside of an
employee benefit plan pursuant to
Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock
Appreciation Rights Agreement. +(m)
10.45 Form of Assumption and Amended and
Restated Stock Option Agreement
between Tele- Communications, Inc.,
TCI/Liberty Holding Company and grantee
relating to assumption of options and
related stock appreciation rights
granted under Tele-Communications, Inc.'s
1992 Stock Incentive Plan pursuant to
Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock
Appreciation Agreement. +(m)
10.46 Form of 1994 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement. +(l)
10.47 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
TCI Group common stock pursuant to the
Tele-Communications, Inc. 1994 Stock
Incentive Plan. +(c)
10.48 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1994
Stock Incentive Plan. +(c)
10.49 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
TCI Group common stock pursuant to the
Tele-Communications, Inc. 1996 Stock
Incentive Plan. +(c)
10.50 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1996
Stock Incentive Plan. +(c)
10.51 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
Tele-Communications International, Inc.
common stock pursuant to the
Tele-Communications International, Inc.
1995 Stock Incentive Plan. +(c)
10.52 Form of Non-Qualified Stock Option and Stock
Appreciation Rights Agreement for 1995
Grant of Options with tandem stock
appreciation rights to purchase Series A
Tele-Communications International, Inc.
common stock. +(c)
10.53 Qualified Employee Stock Purchase Plan of
Tele-Communications, Inc., as amended. +(n)
<PAGE> 212
EXHIBIT INDEX
10 - Material Contracts (continued)
10.54 Form of Restricted Stock Award Agreement for
1995 Award of Series A TCI Group
Restricted Stock pursuant to the
Tele-Communications, Inc. 1994 Stock
Incentive Plan. +(c)
10.55 Form of Restricted Stock Award Agreement
for 1995 Award of Series A Liberty
Media Group Restricted Stock pursuant to
the Tele-Communications, Inc. 1994 Stock
Incentive Plan.+(c)
10.56 Form of Restricted Stock Award Agreement
for 1995 Award of Series A
Tele-Communications International, Inc.
Restricted Stock pursuant to the
Tele-Communications International 1995
Stock Incentive Plan.(c)
10.57 Agreement regarding International Sports
Joint Venture by and among Liberty
Media Corporation, The News Corporation
Limited, TINTA and TCI dated October 30,
1995.(b)
10.58 Agreement regarding U.S. Sports Joint
Venture by and among Liberty Media
Corporation, Fox, Inc., TCI and The News
Corporation Limited dated October 30,
1995.(b)
10.59 Share Exchange Agreement among certain
affiliates of SBC CableComms (UK), an
affiliate of Cox Communications, Inc.,
("Cox"), Telewest, Telewest
Communications plc, SBC International,
Inc., SBCC and Cox dated August 14,
1995.(h)
10.60 The Scheme of Arrangement under Section 425
of the Companies Act of 1985 dated
August 14, 1995.(h)
10.61 Indenture among Telewest and The Bank of
New York dated October 3, 1995 relating
to the Senior Debentures.(b)
10.62 Subscription and Option Agreement among
Flextech, Flextech 1992 plc and Scottish
Television plc dated August 31, 1995.(b)
10.63 Agreement for the sale and purchase of all
of the issued share capital of various
companies owned by IVS Cable Holdings
Limited among IVS Cable Holdings
Limited, Flextech and Koninkigke PTT
Nederland NV dated October 17, 1995.(b)
10.64 Stock Exchange Agreement dated July 28,
1995 among certain stockholders of
Torneos y Compentencias S.A., Torneos y
Compentencias S.A. and TINTA.(b)
10.65 Subscription Agreement date November 21, 1995
among Canal + S.A., Generale d'Images
S.A., TINTA and MultiThematiques S.A.(b)
10.66 Cooperation Agreement dated November 21, 1995
among Canal + S.A., Generale d'Images
S.A., TINTA.(b)
10.67 Side Letter among Canal + S.A.,
MultiThematiques S.A., TINTA dated November 21,
1995.(b)
10.68 Side Letter from Canal + S.A. to TINTA
relating to a future 50/50 holding company.(b)
<PAGE> 213
EXHIBIT INDEX
10 - Material Contracts (continued)
10.69 Agreement of Amendment of Partnership
Agreement dated as of May 19, 1995
between Telewest Europe Group, UIH, Joint
Venture, Inc. (formerly known as United
International Management, Inc.) and
UPC.(b)
10.70 Agreement of Amendment of Third Amended
and Restated Partnership Agreement of
United International Investments dated
July 13, 1995 among UA-UII, Inc., Joint
Venture, Inc., UIH and UPC.(b)
10.71 Subscription Agreement relating to Jupiter
Programming Co., Ltd. dated February 21,
1996 between Sumitomo Corporation and TCI
Japan, Inc.(r)
10.72 Shareholders Agreement relating to Jupiter
Programming Co., Ltd. dated February
21, 1996 between Sumitomo Corporation, TCI
Japan, Inc., Tele-Communications
International, Inc. and Jupiter
Programming Co., Ltd.(r)
10.73 Sale Contract dated February 7, 1996 between
Cordillera Comunicaciones Limitada and
Compana de Telecomunicaciones de Chile
S.A.(r)
10.74 Signal Transmission and Connection
Maintenance Agreement dated February 7,
1996 between Metroplos-Intercom S.A. and
Compana de Telecomunicaciones de Chile
S.A.(r)
10.75 Shareholders Agreement in relation to
Flextech p.l.c. dated March 20, 1996
between International Family
Entertainment, Inc. and
Tele-Communications International, Inc.(o)
10.76 English translation of Shareholders
Agreement dated February 7, 1996
between Cordillera Communicaciones
Limitada and others, and Invercom S.A. and
others. (o)
10.77 North America DTH Platform Memorandum of
Understanding. (p)
10.78 Multi-Country DTH Platform Memorandum of
Understanding. (p)
10.79 Stock Purchase Agreement by and among
Eduardo Eurnekian and Natalio Wende
owners of Oeste Cable Color S.A. and
Cablevision.(q)
10.80 Deed of Guarantee and Indemnity and
Subordination by Independent Newspapers,
plc, Tele-Communications International,
Inc., and United and Philips
Communications, B.V. as Guarantors in
favour of the Governor and Company of the
Bank of Ireland.(q)
21 - Subsidiaries of the Registrant.
23 - Consent of Experts and Counsel.
23.1 - Consent of KPMG Peat Marwick LLP
23.2 - Consent of KPMG
27 - Financial Data Schedule.
<PAGE> 214
EXHIBIT INDEX
(a) Incorporated by reference to TINTA's Registration
Statement on Form S-1 filed with the Securities
and Exchange Commission on July 11, 1995
(Registration No. 33-91876).
(b) Incorporated by reference to TINTA's Registration
Statement on Form S-1 filed with the Securities
and Exchange Commission on December 15, 1995
(Registration No. 33-80491).
(c) Incorporated by reference to Tele-Communications,
Inc.'s Annual Report on Form 10-K dated December
31, 1995.
(d) Incorporated by reference to Telewest
Communications plc's Registration Statement on
Form S-1 filed with the Securities and Exchange
Commission on April 29, 1994 (Registration No.
33-79398).
(e) Incorporated by reference to Telewest
Communications plc's Annual Report pursuant to
Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December
31, 1994 on Form 10-K filed with the Securities
and Exchange Commission (Commission File Number
1-24150).
(f) Incorporated by reference to Australis Media
Limited's Registration Statement on Form F-1
filed with the Securities and Exchange Commission
on May 16, 1995 (Registration No. 33-87210).
(g) Incorporated by reference to United International
Holding, Inc.'s Registration Statement on Form
S-1 filed with the Securities and Exchange
Commission on July 22, 1993 (Registration No.
33- 61376).
(h) Incorporated by reference to Telewest
Communications plc's Current Report on Form 8-K
filed with the Securities and Exchange Commission
on August 14, 1995 (Commission File Number
1-24250).
(i) Incorporated herein by reference to
Tele-Communications, Inc.'s Form S-4
Registration Statement (Commission File No.
33-54263).
(j) Incorporated herein by reference to
Tele-Communications, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1992, as
amended by Form 10-K/A for the year ended
December 31, 1992 (Commission File No. 0-5550).
(k) Incorporated herein by reference to
Tele-Communications, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1993, as
amended by Form 10-K/A for the year ended
December 31, 1993 (Commission File No. 0-5550).
(l) Incorporated herein by reference to
Tele-Communications, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1994, as
amended by Form 10-K/A for the year ended
December 31, 1994 (Commission File No. 0-2041).
(m) Incorporated herein by reference to
Tele-Communications, Inc.'s Post Effective
Amendment No. 1 to Form S-4 Registration
Statement on Form S-8 Registration Statement
(Commission File No. 33-54263).
(n) Incorporated herein by reference to the
Tele-Communications, Inc. Registration Statement
on Form S-8 (Commission File No. 33-57635).
<PAGE> 215
EXHIBIT INDEX
(o) Incorporated herein by reference to
Tele-Communications International, Inc.'s Quarterly Report on
Form 10-Q dated March 31, 1996.
(p) Incorporated herein by reference to
Tele-Communications International, Inc.'s Quarterly Report on
Form 10-Q dated June 30, 1996.
(q) Incorporated herein by reference to
Tele-Communications International, Inc.'s Quarterly Report on
Form 10-Q dated September 30, 1996.
(r) Incorporated herein by reference to Tele-Communications International,
Inc.'s Annual Report on Form 10-K dated December 31, 1995.
+ Constitutes management contract or compensatory
arrangement.
<PAGE> 1
EXHIBIT 21
A table of the subsidiaries of Tele-Communications International, Inc. as of
December 31, 1996, is set forth below, indicating as to each the state or the
jurisdiction of incorporation or organization and the names under which such
subsidiaries do business (Trade Names). Subsidiaries not included in the table
are inactive or, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
Admi, Inc. DE
Bresnan International Partners (Chile), L.P. DE
Bresnan International Partners (Poland), L.P. DE
Cable AdNet of Puerto Rico, Inc. DE Cable Adnet
Cable Programme Partners-1 Limited Partnership DE
Cable Programme Partners (1) Ltd. UNITED KINGDOM
Cablevision S.A ARGENTINA
Caguas/Humacao Cable Systems [gp] CT
Cathay Television and Communication Company CO
Construred, S.A ARGENTINA
Discovery (UK) Ltd. UNITED KINGDOM
Fibertel-TCI2 ARGENTINA
Flextech plc UNITED KINGDOM
International Sports Programming Partners [gp] DE
ISP Distribution LP DE
ISP Transponder LP DE
ISP US Deportiva LP DE
Jupiter Programming Co., Ltd. JAPAN
Liberty/TINTA Australia, Inc. DE
Liberty/TINTA Distribution, Inc. DE
Liberty/TINTA LLC DE
Liberty/TINTA Transponder, Inc. DE
Liberty/TINTA U.S. Deportiva, Inc. DE
LNT International Sports Programming (Distribution) Ltd. CAYMAN ISLANDS
LNT International Sports Programming (Australia) Ltd CAYMAN ISLANDS
LNT International Sports Programming (Latin America) Ltd. CAYMAN ISLANDS
LNT International Sports Programming Partners Austalia [gp] DE
Melita Cable Holdings Ltd. [Malta LLC] MALTA
Melita Cable TV Limited [Malta LLC] MALTA
Melita Partnership [gp] CO
TCI-Australia, Inc. CO
TCI Argentina, Inc. CO
TCI Cable Holding Company I DE
TCI Cable Programme Partners, Inc. CO
TCI Cablevision of Puerto Rico, Inc. DE
TCI Cathay TV, Inc. CO
</TABLE>
PAGE 1 OF 2
<PAGE> 2
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI Chile, Inc, CO
TCI DTH Mexico, Inc. CO
TCI International DTH Service, Inc. CO
TCI International Investments Ltd. UNITED KINGDOM
TCI International Partnership Holdings, Inc. CO
TCI Japan, Inc. CO
TCI Movies Australia Pty. Limited AUSTRALIA
TCI of PR, Inc. CO
TCI of Puerto Rico, Inc. CO
TCI Poland, Inc. CO
TCID of New Zealand Limited NEW ZEALAND
TCID of Puerto Rico, Inc. NV
Tele-Communications Dominicana, Inc. DE
Televisora Belgrano, S.A ARGENTINA
TeleWest Communications PLC UNITED KINGDOM
TeleWest Europe Group [gp] CO
Tevel Israel International Communications Ltd. ISRAEL
TINTA Sports Programming, Inc. DE
Tishdoret Achzakot Ltd. ISRAEL
TW Holdings, L.L.C CO
UA-France, Inc. CO
UA-UII Management, Inc. CO
UA-UII, Inc. CO
UA European Theatres, Inc. CO
UCT-Netherlands, B.V NETHERLANDS
UII-Ireland Limited Liability Company UT
UII-Ireland, Ltd. [gp] CO
UII Management [gp] CO
United Artists (Learning Channel) Ltd. UNITED KINGDOM
United Artists Cable Television International Holdings, Inc. CO
United Artists Cable Television International Ltd. UNITED KINGDOM
United Artists Cable Television UK Holdings, Inc. DE
United Artists European Broadcasting Ltd. UNITED KINGDOM
United Artists European Holdings Limited UNITED KINGDOM
United Artists International, Inc. CO
United Artists Programming-Europe, Inc. CO
United Artists Programming International, Inc. CO
United Artists, B.V NETHERLANDS
United International Investments [gp] CO
Univent's S.A ARGENTINA
</TABLE>
PAGE 2 OF 2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Tele-Communications International, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-16021 and 333-16023) on Form S-8 of Tele-Communications
International, Inc. of our reports dated March 14, 1997, relating to the
balance sheets of Tele-Communications International, Inc. and subsidiaries as
of December 31, 1996 and 1995, and the related statements of operations,
stockholders equity, and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in the December 31, 1996
annual report on Form 10-K of Tele-Communications International, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
March 18, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Telewest Communications plc
We consent to the incorporation by reference in the Registration Statements
(Nos. 333-16021 and 333-16023) on Form S-8 of Tele-Communications International,
Inc. of our report dated March 11, 1997, relating to the consolidated balance
sheet of Telewest Communications plc and subsidiaries as of December 31, 1996
and 1995, and the related consolidated statements of operations and cash flows
for each of the years in the three-year period ended December 31, 1996, which
report appears in the December 31, 1996 annual report on Form 10-K of
Tele-Communications International, Inc.
/s/ KPMG Audit Plc
KPMG Audit Plc
Chartered Accountants
Registered Auditors
London, England
March 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
TELE-COMMUNICATIONS INTERNATIONAL INC.'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 44,192
<SECURITIES> 0
<RECEIVABLES> 38,185
<ALLOWANCES> 0
<INVENTORY> 65,749
<CURRENT-ASSETS> 0
<PP&E> 267,560
<DEPRECIATION> 65,033
<TOTAL-ASSETS> 1,989,301
<CURRENT-LIABILITIES> 0
<BONDS> 511,128
0
0
<COMMON> 118,661
<OTHER-SE> 847,337
<TOTAL-LIABILITY-AND-EQUITY> 1,989,301
<SALES> 0
<TOTAL-REVENUES> 314,560
<CGS> 0
<TOTAL-COSTS> 268,541
<OTHER-EXPENSES> 58,747
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,153
<INCOME-PRETAX> (176,031)
<INCOME-TAX> (45,611)
<INCOME-CONTINUING> (130,420)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (130,420)
<EPS-PRIMARY> (1.10)
<EPS-DILUTED> (1.10)
</TABLE>
