<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-26264
TELE-COMMUNICATIONS INTERNATIONAL, INC.
---------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1289408
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant (1) 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 (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding of Tele-Communications International,
Inc.'s common stock (net of shares held in treasury) as of October 31, 1997,
was:
Series A common stock - 103,627,880 shares; and
Series B common stock - 11,700,000 shares.
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
Assets amounts in thousands
- ------
<S> <C> <C>
Cash and cash equivalents (note 2) $ 49,423 44,192
Trade and other receivables, net 12,256 38,185
Film inventory and other prepaid expenses 6,244 65,749
Investment in Telewest Communications plc ("Telewest"),
accounted for under the equity method (note 5) 352,235 488,495
Investment in other affiliates, accounted for
under the equity method, and related
receivables (note 6) 571,559 421,853
Other investments (note 7) 27,594 20,873
Property and equipment, at cost:
Land 415 277
Distribution systems 274,686 216,172
Support equipment and buildings 30,151 51,111
---------- ---------
305,252 267,560
Less accumulated depreciation 82,560 65,033
---------- ---------
222,692 202,527
---------- ---------
Franchise costs and other intangible assets 722,858 755,914
Less accumulated amortization 78,646 61,576
---------- ---------
644,212 694,338
---------- ---------
Deferred financing costs and other assets,
net of amortization 13,089 13,089
---------- ---------
$1,899,304 1,989,301
========== =========
(continued)
</TABLE>
I-1
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
Liabilities and Stockholders' Equity amounts in thousands,
- ------------------------------------ except share amounts
<S> <C> <C>
Accounts payable $ 15,334 35,467
Accrued liabilities 46,284 75,173
MultiThematiques Obligation (note 6) 27,338 47,902
Debt (note 8) 553,295 511,128
Deferred income tax liability 147,995 193,748
Other liabilities 27,554 17,698
---------- ---------
Total liabilities 817,800 881,116
---------- ---------
Minority interests in equity of subsidiaries 8,644 142,187
---------- ---------
Stockholders' equity:
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
106,997,880 shares in 1997 and 106,960,873 shares in 1996 106,998 106,961
Series B Common Stock, $1 par value
Authorized 12,000,000 shares, issued
11,700,000 shares in 1997 and 1996 11,700 11,700
Additional paid-in capital 1,285,904 1,186,788
Accumulated deficit (287,070) (205,456)
Cumulative foreign currency translation
adjustments 208 26,146
Unrealized holding gains for available-
for-sale securities 1,087 --
---------- ---------
1,118,827 1,126,139
Treasury stock, at cost, 3,370,000 shares of Series A
Common Stock in 1997 (42,014) --
Due from related parties (note 9) (3,953) (160,141)
---------- ---------
Total stockholders' equity 1,072,860 965,998
---------- ---------
Commitments and contingencies
(notes 5, 6, 7, 9 and 10)
$1,899,304 1,989,301
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE>
TELE-COMMUNIATIONS INTERNATIONAL, INC.
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------------- -----------------------------------
1997 1996 1997 1996
---------------- ----------------- --------------- ------------------
amounts in thousands,
except per share amounts
<S> <C> <C> <C> <C>
Revenue:
Cable $ 72,465 51,539 206,621 152,280
Programming -- 31,700 -- 67,593
-------- ------- -------- --------
72,465 83,239 206,621 219,873
-------- ------- -------- --------
Operating costs and expenses:
Cable (note 9) 44,955 33,204 123,374 92,594
Programming -- 38,329 -- 82,863
Programming rights provision -- -- -- 8,706
General and administrative:
Allocated from related parties (note 9) 5,270 57 7,883 592
Other 3,390 1,254 8,557 5,550
Depreciation and amortization 17,805 14,129 50,658 39,014
-------- ------- -------- --------
71,420 86,973 190,472 229,319
-------- ------- -------- --------
Operating income (loss) 1,045 (3,734) 16,149 (9,446)
Other income (expense):
Share of losses of Telewest (note 5) (37,880) (29,003) (111,338) (99,206)
Share of losses of other affiliates
(note 6) (25,717) (17,961) (74,505) (54,797)
Interest expense:
Related parties (note 9) (560) (188) (1,724) (563)
Other (8,713) (7,625) (25,906) (24,752)
Interest income:
Related parties (note 9) 588 3,865 4,340 10,802
Other 789 1,625 2,196 5,885
Gain on disposition of assets
(note 6) 58,355 -- 58,355 --
Minority interests' share of
(earnings) losses (4,283) 8,188 (8,616) 18,657
Foreign currency transaction gains
(losses) (805) 661 (206) 4,110
Other, net 464 681 4,263 5,018
-------- ------- -------- --------
(17,762) (39,757) (153,141) (134,846)
-------- ------- -------- --------
Loss before income taxes (16,717) (43,491) (136,992) (144,292)
Income tax benefit 600 12,222 55,378 42,435
-------- ------- -------- --------
Net loss $(16,117) (31,269) (81,614) (101,857)
======== ======= ======== ========
Net loss per common share
(note 1) $ (.14) (.26) (.70) (.86)
======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Consolidated Statement of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Cumulative
foreign
currency
Common Stock Additional translation
Preferred ------------------- paid-in Accumulated adjustment,
stock Series A Series B capital deficit net of taxes
--------- -------- -------- ---------- ----------- -------------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ -- 106,961 11,700 1,186,788 (205,456) 26,146
Net loss -- -- -- -- (81,614) --
Open market repurchases of
common stock -- -- -- -- -- --
Issuances of common stock -- 37 -- 561 -- --
Adjustment in connection
with the issuance of
ordinary shares by Flextech
p.l.c.
(note 6) -- -- -- 98,555 -- --
Foreign currency translation
adjustment -- -- -- -- -- (25,938)
Unrealized holding gains for
available-for-sale
securities -- -- -- -- -- --
Change in due from related
parties (note 9) -- -- -- -- -- --
------- ------- ------ --------- -------- -------
Balance at September 30, 1997 $ -- 106,998 11,700 1,285,904 (287,070) 208
======= ======= ====== ========= ======== =======
Unrealized
holding
gains for
available- Due from Total
for-sale securities, Treasury stock, related stockholders
net of taxes at cost parties equity
-------------------- --------------- -------- ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 -- -- (160,141) 965,998
Net loss -- -- -- (81,614)
Open market repurchases of
common stock -- (42,014) -- (42,014)
Issuances of common stock -- -- -- 598
Adjustment in connection
with the issuance of
ordinary shares by Flextech
p.l.c.
(note 6) -- -- -- 98,555
Foreign currency translation
adjustment -- -- -- (25,938)
Unrealized holding gains for
available-for-sale
securities 1,087 -- -- 1,087
Change in due from related
parties (note 9) -- -- 156,188 156,188
------- ------- ------- ---------
Balance at September 30, 1997 $ 1,087 (42,014) (3,953) 1,072,860
======= ======= ======= =========
</TABLE>
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------------
1997 1996
---------------- -----------------
amounts in thousands
(see note 2)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(81,614) (101,857)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 50,658 39,014
Programming rights provision -- 8,706
Stock compensation 7,367 (3,217)
Share of losses of Telewest 111,338 99,206
Share of losses of other affiliates 74,505 54,797
Gain on disposition of assets (58,355) --
Minority interests' share of earnings (losses) 8,616 (18,657)
Unrealized foreign currency transaction gains (22) (4,110)
Accretion of discount on MultiThematiques obligation 2,357 4,756
Deferred income tax benefit (71,266) (48,899)
Intercompany current federal income tax expense (benefit) 6,064 (2,665)
Changes in operating assets and liabilities, net of the effect of
the deconsolidation of Flextech p.l.c.:
Change in receivables (572) (6,058)
Change in film inventory and other prepaid expenses (2,548) (15,508)
Change in payables, accruals, other liabilities and the cash
intercompany account included
in due from related parties (17,118) 8,777
-------- --------
Net cash provided by operating activities $ 29,410 14,285
-------- --------
(continued)
</TABLE>
I-5
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Consolidated Statements of Cash Flows, continued
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------------
1997 1996
----------------- -----------------
amounts in thousands
(see note 2)
<S> <C> <C>
Cash flows from investing activities:
Effect of the deconsolidation of Flextech p.l.c. on
cash and cash equivalents $ (38,142) --
Investments in and loans to affiliates and others (107,571) (122,104)
Proceeds from disposition of assets 52,959 67,790
Cash received (paid) in connection with acquisitions, net (23,559) 5,205
Capital expended for property and equipment (47,882) (36,567)
Deposit received on sale of interest in Cablevision S.A. 21,000 --
Repayments received on loans to affiliates 19,415 --
Cash invested in certificate of deposits -- (23,966)
Cash paid to purchase minority interests -- (4,636)
Other, net 2,041 4,965
--------- --------
Net cash used in investing activities (121,739) (109,313)
--------- --------
Cash flows from financing activities:
Borrowings of debt 206,360 78,802
Repayments of debt (215,081) (200,897)
Open market repurchases of common stock (42,014) --
Loan to Tele-Communications, Inc. ("TCI") -- (336,375)
Repayments received on loan to TCI 149,245 101,316
Issuance of debentures -- 345,000
Payment of deferred financing costs (950) (9,811)
Issuance of common stock -- 9,990
Contributions from minority interest owners -- 3,548
--------- --------
Net cash provided by (used in) financing activities 97,560 (8,427)
--------- --------
Effect of exchange rate changes on cash and cash equivalents -- 244
--------- --------
Net increase (decrease) in cash and
cash equivalents 5,231 (103,211)
Cash and cash equivalents:
Beginning of period 44,192 133,109
--------- --------
End of period $ 49,423 29,898
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-6
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
September 30, 1997
(unaudited)
(1) Basis of Presentation
---------------------
Tele-Communications International, Inc. ("TINTA" or the "Company"), 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.
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. At September
30, 1997, TCI owned approximately 85% of the aggregate issued and
outstanding common stock of TINTA and 92% of the aggregate voting interest
represented by such issued and outstanding stock.
TCI's common stock, par value $1.00 per share, is comprised of six
series: Tele-Communications, Inc. Series A TCI Group Common Stock, Tele-
Communications, Inc. Series B TCI Group Common Stock, (collectively, the
"TCI Group Common Stock"), Tele-Communications, Inc. Series A Liberty Media
Group Common Stock, Tele-Communications, Inc. Series B Liberty Media Group
Common Stock, (collectively, the "Liberty Media Group Common Stock"),Tele-
Communications, Inc. Series A TCI Ventures Group Common Stock and Tele-
Communications, Inc. Series B TCI Ventures Group Common Stock,
(collectively, the "TCI Ventures Group Common Stock").
The TCI Group Common Stock is intended to reflect the separate performance
of the "TCI Group", which is comprised of TCI's domestic distribution and
communications businesses (other than the investments attributed to the TCI
Ventures Group), and any other businesses and assets of TCI not attributed
to either the Liberty Media Group or the TCI Ventures Group. The Liberty
Media Group Common Stock is intended to reflect the separate performance of
the "Liberty Media Group", which is comprised of the Company's businesses,
and investments in entities, that are engaged in the production,
acquisition and distribution through all available formats and media of
branded entertainment, educational and informational programming and
software, including multimedia products, and its investments in entities
engaged in electronic retailing, direct marketing, advertising sales
relating to programming services, informercials and transaction processing,
and the operation of UHF television stations. The TCI Ventures Group common
Stock is intended to reflect the separate performance of the "TCI Ventures
Group", which is comprised of TCI's principal international assets and
businesses and substantially all of TCI's non-cable and non-programming
domestic assets and businesses. TINTA is a member of the TCI Ventures
Group.
(continued)
I-7
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
On August 28, 1997, the stockholders of TCI authorized the Board of
Directors of TCI (the "Board") to issue Tele-Communications, Inc. Series A
and Series B TCI Ventures Group common stock ("TCI Ventures Group Stock")
which reflects the separate performance of the TCI Ventures Group. TCI's
85% equity interest in TINTA has been attributed to the TCI Ventures Group
along with substantially all of TCI's non-cable and non-programming
domestic assets. In connection with the formation of the TCI Ventures
Group, the shares of TINTA common stock held by TCI were transferred to TCI
Ventures Group, LLC ("TVG LLC"), a wholly-owned subsidiary of TCI,
effective October 1, 1997. On September 10, 1997, TCI consummated an
exchange offer (the "Exchange Offer") whereby TCI issued 118,661,300 shares
of Tele-Communications, Inc. Series A TCI Ventures Group Common Stock and
16,266,400 shares of Tele-Communications, Inc. Series B TCI Ventures Group
Common Stock in exchange for an equivalent number of Tele-Communications,
Inc. Series A TCI Group Common Stock and Tele-Communications, Inc. Series B
TCI Group Common Stock, respectively.
The net loss per share set forth in the accompanying consolidated
statements of operations was computed using historical losses and a
weighted average number of common shares of (i) 115.3 million and 118.7
million for the three months ended September 30, 1997 and 1996,
respectively, and (ii) 116.6 million and 118.5 million for the nine months
ended September 30, 1997 and 1996, respectively. Common stock equivalents
were not included in the weighted average common shares outstanding because
their inclusion would be anti-dilutive.
During the nine months ended September 30, 1997 and 1996, the most
significant entities that were reflected in the Company's consolidated
financial statements on a consolidated basis were engaged in the multi-
channel video distribution business (the "cable" business) in Puerto Rico
(the "Consolidated Puerto Rico Subsidiary"), and in Buenos Aires, Argentina
through Cablevision S.A. and certain affiliated companies ("Cablevision").
Additionally, Flextech p.l.c. ("Flextech"), a company engaged in the
distribution and production of programming for multi-channel video
distribution systems (the "programming business") in the UK and other parts
of Europe, was included in the Company's consolidated financial statements
on a consolidated basis through December 31, 1996. See notes 4 and 6.
Effective January 1, 1997, the Company's three consolidated Puerto Rico
entities were merged together into the Puerto Rico Subsidiary. For purposes
of this discussion, except to the extent the context otherwise requires,
the term the "Puerto Rico Subsidiary" refers to the three consolidated
Puerto Rico entities prior to such merger and the Puerto Rico Subsidiary
following such merger.
(continued)
I-8
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The Company's ownership interest in the issued and outstanding share
capital of Flextech was 48.8% during the three months ended March 31, 1996,
46.2% from April 1996 through April 1997, 35.9% from April 1997 to July
1997, 36.3% from July 1997 to September 1997 and 36.8% from September 1997
to the present. The Company's voting interest in Flextech was 50.6% during
1996 and approximately 50% from January 1997 to the present. In light of
the Company's decreased voting interest in Flextech, the Company, effective
January 1, 1997, ceased to consolidate Flextech and began to account for
Flextech using the equity method of accounting. For additional information
see note 6.
As further described in note 9, the accompanying consolidated 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.
The accompanying interim consolidated financial statements are unaudited
but, in the opinion of management, reflect all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of the results
of such periods. The results of operations for any interim period are not
necessarily indicative of results for the full year. These unaudited
interim consolidated financial statements should be read in conjunction with
the Company's December 31, 1996 audited financial statements and notes
thereto.
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement No.
128"). Statement No. 128 requires the presentation of basic earnings per
share ("EPS") and, for companies with potentially dilutive securities, such
as convertible debt, options and warrants, diluted EPS. Statement No. 128
is effective for annual and interim periods ending after December 31, 1997.
The Company does not expect that Statement No. 128 will have a material
impact on the calculation of the Company's loss per share.
(continued)
I-9
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
From time to time, the Company uses certain derivative financial
instruments to manage its foreign currency risks. Because the Company
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. However, the
Company may enter into forward contracts to reduce its exposure to short-
term (generally no more than one year) movements in the exchange rates
applicable to firm funding commitments that are denominated in currencies
other than the U.S. dollar. When high correlation of changes in the market
value of the forward contract and the fair value of the firm commitment is
probable, the forward contract is accounted for as a hedge. Changes in the
market value of a forward contract that qualifies as a hedge and any gains
or losses on early termination of such a forward contract are deferred and
included in the measurement of the item (generally an investment in, or an
advance to, a foreign affiliate) that results from the funding of such
commitment. Market value changes in derivative financial instruments that
do not qualify as hedges are recognized currently in the consolidated
statements of operations. To date, the Company's use of forward contracts,
as described above, has not had a material impact on the Company's financial
position or results of operations.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Certain prior year amounts have been reclassified to conform to
the 1997 presentation.
Unless otherwise indicated, convenience translations of foreign
currencies into U.S. dollars are calculated using the applicable spot rate
at September 30, 1997.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
-----------------------------------------------------------------
At September 30, 1997, the Company's cash and cash equivalents included
$900,000 of cash and cash equivalents held by Cablevision. The cash and cash
equivalent balances of Cablevision are available to be applied toward the
liquidity requirements of Cablevision, and 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 $25.5 million and $19.0 million during the nine
months ended September 30, 1997 and 1996, respectively. Cash paid for income
taxes was $11.7 million and $8.9 million during the nine months ended
September 30, 1997 and 1996, respectively.
(continued)
I-10
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
Cash paid (received) for acquisitions is as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------
1997 1996
---------- ---------
amounts in thousands
<S> <C> <C>
Recorded value of assets acquired $ 63,556 65,182
Issuance of notes payable -- (1,000)
Liabilities assumed (including debt of
$32.3 million in 1997) (38,482) (26,164)
Increase in minority interests in equity of subsidiaries (1,515) (43,223)
-------- -------
Cash paid (received) for acquisitions $ 23,559 (5,205)
======== =======
</TABLE>
The effects of changing the method of accounting for the Company's
ownership interest in Flextech from the consolidation method to the
equity method are summarized below (amounts in thousands):
<TABLE>
<S> <C>
Assets reclassified to equity investments $ 177,003
Liabilities reclassified to equity investments (72,512)
Minority interests in equity of subsidiaries reclassified to
equity investments (142,633)
---------
Decrease in cash and cash equivalents $ (38,142)
=========
</TABLE>
(3) Acquisitions
------------
On May 1, 1997, the Puerto Rico Subsidiary paid cash consideration of
$12.0 million, and assumed aggregate indebtedness of $32.3 million, to
acquire the 50% ownership interest in Caguas/Humacao Cable Systems
("Caguas") which the Company did not already own (the "Caguas
Acquisition"). In connection with the Caguas Acquisition, the Puerto Rico
Subsidiary entered into a new reducing revolving bank credit facility
(the "Puerto Rico Bank Facility") and used borrowings of approximately
$45 million thereunder to fund the cash portion of the purchase price and
to repay the assumed indebtedness. See note 8.
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 of approximately $45 million 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 were repaid
in their entirety during the second quarter of 1997.
(continued)
I-11
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(4) Cablevision
-----------
At September 30, 1997, TINTA had a 51% ownership interest in Cablevision.
On October 9, 1997, TINTA sold a portion of its 51% interest in Cablevision
to CEI Citicorp Holdings Sociedad Anonima ("CEI") and T.I. Telefonica
Internacional de Espana S.A. ("Telefonica," together with CEI, the
"Buyers") for cash proceeds of $120 million ($21 million of which was
received during the third quarter of 1997). In addition, on October 9,
1997, Cablevision issued 3,541,829 shares of stock in the aggregate to the
Buyers for $80 million in cash and notes receivable with an aggregate
principal amount of $240 million, plus accrued interest at LIBOR, due
within the earlier of two years or at the request of Cablevision's board of
directors. The above transactions, (collectively, the "Cablevision Sale")
reduced TINTA's interest in Cablevision to 26.24%. Cash proceeds received
by TINTA from the Cablevision Sale of $120 million were based on a
negotiated value of $210 million for approximately one-half of TINTA's 51%
interest in Cablevision. TINTA will continue to have the right to manage
Cablevision (pursuant to a renewable five-year management contract that was
entered into in connection with the Cablevision Sale), and all material
corporate transactions of Cablevision will require TINTA's approval, so
long as TINTA maintains at least a 16% interest in Cablevision. The Buyers
also purchased the additional 39% interest in Cablevision that TINTA
currently had the right to acquire. As a result of the Cablevision Sale,
effective October 1, 1997, TINTA will cease to consolidate Cablevision and
will begin to account for Cablevision using the equity method of
accounting.
Prior to 1997 none of Cablevision's post-acquisition operating results had
been allocated to Cablevision's 49% minority interest because (i) the
minority interest had no obligation to provide any funding to Cablevision
and (ii) Cablevision's liabilities exceeded the minority interest's
historical cost basis in Cablevision's assets. During the second quarter
of 1997, Cablevision's post-acquisition net earnings (exclusive of the
effects of purchase accounting) caused the minority interest's historical
cost basis in Cablevision's net assets to become positive. Accordingly,
the Company began allocating 49% of such net earnings to the minority
interest during the second quarter of 1997. If the minority interest's
historical cost basis had been positive since January 1, 1996, the Company
would have allocated an additional $4.3 million in 1997 and $12.9 million
in 1996 of Cablevision's net earnings to the minority interest.
(5) Investment in Telewest
----------------------
At September 30, 1997, the Company indirectly owned, through its 50%
ownership interest in TW Holdings, Inc., 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.
The reported closing price on the London Stock Exchange of Telewest's
ordinary shares was (Pounds)0.825 ($1.34) at September 30, 1997.
(continued)
I-12
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
As a result of Telewest's 1995 issuance of U.S. dollar denominated
debentures (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 nine months ended
September 30, 1997 and 1996, Telewest experienced foreign currency
transaction losses of (Pounds)32.8 million ($54.5 million using the
applicable exchange rate) and (Pounds)55.2 million ($84.6 million using the
applicable exchange rate), respectively, resulting from the translation of
the Telewest Debentures into UK pounds sterling and the adjustment of a
related foreign currency option contract to market value.
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 1.6393 to 1 and 1.5411 to 1
during the nine months ended September 30, 1997 and 1996, respectively.
The spot rate used to translate the Company's share of Telewest's net
assets from UK pounds to U.S. dollars was 1.6185 to 1 and 1.7125 to 1 at
September 30, 1997 and December 31, 1996, respectively.
Summarized unaudited results of operations of Telewest are as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------------------------
1997 1996
------------------- -----------------
<S> <C> <C>
amounts in thousands
Revenue $ 460,646 318,144
Operating, selling, general and
administrative expenses (408,038) (326,693)
Depreciation and amortization (239,987) (159,643)
--------- --------
Operating loss (187,379) (168,192)
Share of losses of affiliates (26,078) (17,626)
Interest expense, net (154,510) (98,389)
Foreign currency transaction loss (54,487) (84,632)
Other, net 339 (197)
--------- --------
Net loss $(422,115) (369,036)
========= ========
</TABLE>
(continued)
I-13
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(6) Investments in Other Affiliates
-------------------------------
The Company's affiliates other than Telewest that are accounted for using
the equity method (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.
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 September 30, 1997, the U.S. dollar equivalent of the
amounts borrowed pursuant to the Guaranteed Obligations aggregated $15.4
million. See note 9.
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 10.
(continued)
I-14
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
The following table reflects the Company's carrying value (including
receivables) of the Other Affiliates:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------- ------------------------
amounts in thousands
<S> <C> <C>
Flextech (a) $275,720 --
MultiThematiques S.A.
("MultiThematiques") (b) 71,334 84,007
Liberty/TINTA LLC (c) 65,143 63,227
Jupiter Telecommunications Co., Ltd. ("Jupiter") (d) 59,290 47,251
United International Investments 26,251 25,598
Bresnan International Partners (Chile), L.P. 23,987 34,408
Bresnan International Partners (Poland), L.P. 22,709 27,951
Jupiter Programming Co., Ltd. ("JPC") 15,665 2,830
Asia Business News (Singapore) PTE Ltd. ("ABN") 7,269 9,556
Flextech Affiliates (e) -- 129,563
Other 4,191 (2,538)
-------- -------
$571,559 421,853
======== =======
</TABLE>
(a) Flextech
--------
At September 30, 1997, the Company owned 57,889,033 Flextech ordinary
shares ("Flextech Ordinary Shares") representing 36.8% of the issued and
outstanding Flextech share capital and, when combined with a special
voting share owned by TINTA, approximately 50% of the aggregate voting
interests attributable to such Flextech share capital. Based upon the
(Pounds)6.015 ($9.74) per share closing price at September 30, 1997 of
the Flextech Ordinary Shares on the London Stock Exchange, the Flextech
Ordinary Shares owned by the Company had an aggregate market value of
(Pounds)348.2 million ($563.6 million) at September 30, 1997.
(continued)
I-15
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
In January 1997, the Company reduced its voting interest in Flextech
to 50% by issuing to a nominee an irrevocable proxy (the "Proxy") to
vote 960,850 Flextech Ordinary Shares at any shareholder meeting to be
held through December 31, 1997. In April 1997, Flextech and BBC
Worldwide Limited ("BBC Worldwide") formed two separate joint ventures
(the "BBC Joint Ventures") and entered into certain related
transactions, as described below. The consummation of the BBC Joint
Ventures and related transactions resulted in, among other things, a
reduction of TINTA's ownership interest in Flextech to 35.9% and the
issuance to TINTA by Flextech of a special voting share (the "Special
Voting Share"). The Special Voting Share when combined with TINTA's
other share capital in Flextech allows TINTA to cast 50% of the votes
on most matters brought to the shareholders of Flextech for vote. So
long as the Proxy remains outstanding, TINTA's 50% voting interest
will be reduced by the 960,850 votes represented by the Proxy. 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.
In light of the Company's decreased voting interest in Flextech, the
Company, effective January 1, 1997, ceased to consolidate Flextech and
began to account for Flextech using the equity method of accounting.
In connection with the April 1997 formation of the two BBC Joint
Ventures, Flextech acquired from the other shareholders of UK Living
Limited ("UKLL") and UK Gold Television Limited ("UKGL") all of the
share capital in those two companies not already owned by Flextech and
the Company through the issuance of 34,954,713 new Flextech Ordinary
Shares, valued at (Pounds)7.20 ($11.65) per share for U.S. financial
reporting purposes. 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 each have a 50% interest in this
venture. The other joint venture (the "Second Joint Venture")
acquired 65% of the share capital of UKGL from Flextech, 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 have a 50% interest in that venture.
Flextech had issued convertible non-preference shares ("Flextech Non-
Preference Shares") in connection with previous transactions 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 was 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 were converted into Flextech Ordinary Shares.
(continued)
I-16
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
Each of the Principal Joint Venture and the Second Joint Venture have
entered into programming license agreements with the British
Broadcasting Corporation (the "BBC License Agreements"), under which
such joint ventures will have the right to acquire licenses to
broadcast programming originated by the British Broadcasting
Corporation on the channels which the joint ventures are to operate.
The BBC License Agreements, which contain certain exclusivity
provisions, have initial terms of 15 years, which terms will
automatically be extended for an additional 15 years unless the
relevant joint venture elects to give notice to the contrary.
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 (Pounds)10 million ($16.2 million).
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").
In addition to Flextech's April 1997 purchase of (Pounds)22 million
($35.6 million) of ordinary shares in the Principal Joint Venture,
Flextech is obligated to provide the Principal Joint Venture with a
primary credit facility of (Pounds)88 million ($142.4 million) and,
subject to certain restrictions, a standby credit facility of
(Pounds)30 million ($48.6 million).
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 (Pounds)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 the Company 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 (Pounds)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.
(continued)
I-17
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
So long as the Company is contingently obligated under the Standby
Commitment, it has been agreed that (i) Flextech will not sell any of
its direct or indirect interests in the Principal Joint Venture, (ii)
Flextech will not conduct its business in such a way as is likely to
cause it to be in material breach of any material contracts or to have
insufficient working capital to meet its funding obligation to the
Principal Joint Venture, and (iii) Flextech will use its available
resources to subscribe for any outstanding loan stock of the Principal
Joint Venture, if and to the extent required by TINTA at any time
after December 31, 2011.
As a result of the issuance of shares by Flextech in connection with
Flextech's acquisition of all of the share capital of UKLL and UKGL
which Flextech did not already own, and the associated dilution of the
Company's ownership interest in Flextech, the Company recorded a
$151.6 million increase to the carrying value of its investment in
Flextech, a $98.5 million increase to "Additional paid-in capital" and
a $53.1 million increase to "Deferred income tax liability." No gain
was recognized in the statement of operations due primarily to TINTA's
contingent obligations under the Standby Commitment.
On July 7, 1997, TINTA purchased from certain officers of Flextech
748,435 Flextech Ordinary Shares for a per share price of
(Pounds)6.225 ($10.29 at the applicable exchange rate) and on
September 29, 1997, TINTA purchased 800,000 Flextech Ordinary Shares
for a per share price of (Pounds)6.05 ($9.76 at the applicable
exchange rate). As a result of such purchases, TINTA's ownership
interest in the issued and outstanding share capital of Flextech
increased from 35.9% to 36.3% on July 7, 1997 and from 36.3% to 36.8%
on September 29, 1997.
(b) MultiThematiques
On December 13, 1995, TINTA invested 123.1 million French francs
("FF") ($24.7 million at the applicable exchange rate) in
MultiThematiques, a European programming company that is one-third
owned by each of the Company and two French media companies, (the
"MultiThematiques Transaction"). In addition, TINTA contributed to
MultiThematiques FF105.0 million ($20.4 million at the applicable
exchange rate) and FF100.0 million ($19.5 million at the applicable
exchange rate) on December 13, 1996 and February 13, 1997,
respectively. TINTA has agreed to contribute an additional FF164.0
million ($27.7 million) by no later than December 13, 1997.
(continued)
I-18
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
TINTA's obligation to make the above-described additional FF369.1
million in contributions 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 of such contributions (using a discount rate of 10%) prior to
their payment to MultiThematiques has been reflected as a liability
(the "MultiThematiques Obligation") in the accompanying consolidated
balance sheets. During the nine months ended September 30, 1997 and
1996, the Company experienced unrealized foreign currency transaction
gains of $1.6 million and $3.4 million, respectively, with respect to
the MultiThematiques Obligation.
The Company has entered into a forward contract that allows the
Company to purchase FF164.0 million at a price of FF5.5367 per U.S.
dollar ($29.6 million) on December 13, 1997. For accounting purposes,
the Company is treating this contract as a hedge of its December 13,
1997 contribution obligation.
(c) Liberty/TINTA LLC
TINTA may make additional cash contributions totaling approximately
$16 million to the limited liability company (the "LLC") owned in
equal parts by subsidiaries of TINTA and Liberty Media Corporation
("Liberty") to fund the operations of the joint venture between TINTA,
News Corporation Limited ("News Corp.") and Liberty ("Fox Sports
International").
On April 19, 1996, TINTA, Torneos y Competencias S.A. ("Torneos"), an
entity that is 35%-owned by Fox Sports International, and certain
unaffiliated 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. The rights under the TINTA/Torneos Sports Agreement have
been assigned to Fox Sports International.
(continued)
I-19
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
During the third quarter of 1997, Fox Sports International distributed
(i) its 35% interest in Torneos to the LLC and (ii) certain Australian
sports rights to News Corp. On October 2, 1997 TINTA purchased a 5%
direct interest in Torneos from an unaffiliated third party for $12
million.
(d) Jupiter
Through September 30, 1997, the Company had made aggregate
contributions to Jupiter of (Yen)11.1 billion ($101.2 million at the
applicable exchange rates). In addition, on March 31, 1997 the Company
paid (Yen)200 million ($1.6 million at the applicable exchange rate)
to Sumitomo Corporation ("Sumitomo"). The Company anticipates that
Jupiter will require additional funding, which could be significant,
for the acquisition of franchises and the development of its network.
The Company anticipates that such 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 operating affiliates.
The Company had entered into an option agreement whereby the Company
was entitled to sell (Yen)1.6 billion in exchange for $17.5 million on
April 4, 2002. The option was treated as a hedge of the Company's
foreign currency risk with respect to its existing investment in
Jupiter. On May 2, 1997, the Company sold such option for $1.8
million.
(e) Flextech Affiliates
Due to the January 1, 1997 deconsolidation of Flextech described in
note 1, Flextech's equity method affiliates (the "Flextech
Affiliates") are no longer included with the Other Affiliates, but are
included with Flextech.
Other
DMX, Inc.
Prior to May 1996, the Company owned 49% of the outstanding stock of DMX
Europe N.V. ("DMX Europe"). DMX, Inc. ("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. 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 had no obligation to provide any additional funding.
(continued)
I-20
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
On July 11, 1997, TCI, DMX and TCI Music, Inc. ("TCI Music"), a subsidiary
of TCI, consummated the merger of DMX into TCI Music (the "Merger").
Following the Merger, TINTA owned approximately 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, and TCI owned
shares of TCI Music common stock (including shares of TCI Music Series A
Common Stock owned by TINTA) representing approximately 89.6% of TCI
Music's issued and outstanding common stock, and 98.7% of the voting
interests attributable to such issued and outstanding common stock. In
consideration of TCI's overall percentage interest in TCI Music, the
Company accounts for TCI Music using the equity method.
TCID of New Zealand, Inc.
On September 26, 1997, the Company sold its interest in TCID of New
Zealand, Inc. for cash proceeds of $53.0 million. The Company recognized a
gain on such sale of $58.4 million.
The following table reflects the Company's share of losses of the Other
Affiliates:
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------------------
1997 1996
----------------------- ---------------------
amounts in thousands
<S> <C> <C>
Jupiter $(17,173) (8,237)
JPC (12,614) --
Liberty/TINTA LLC (11,364) (3,733)
MultiThematiques (9,337) (4,730)
ABN (9,314) (7,039)
Bresnan International Partners (Chile), L.P. (2,871) (5,347)
Bresnan International Partners (Poland), L.P. (1,504) (3,210)
Flextech Affiliates -- (9,689)
DMX -- (7,188)
Other (10,328) (5,624)
-------- -------
$(74,505) (54,797)
======== =======
</TABLE>
(continued)
I-21
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
Summarized unaudited results of operations of the Other Affiliates by
geographic region for the periods in which the Company used the equity
method to account for its investments in the Other Affiliates are as
follows:
<TABLE>
<CAPTION>
Nine months ended September 30, 1997
-----------------------------------------------------------------
Latin America
Asia and and the
Europe (a) Australia Caribbean (b) Total
-------------- --------------- ---------------- ------------
amounts in thousands
Combined Operations
---------------------------------
<S> <C> <C> <C> <C>
Revenue $ 208,824 216,128 6,559 431,511
Operating, selling, general and
administrative expenses (256,946) (231,808) (5,375) (494,129)
Depreciation and amortization (17,779) (13,851) (4,723) (36,353)
--------- -------- ------- --------
Operating loss (65,901) (29,531) (3,539) (98,971)
Interest income (expense), net 2,551 (13,128) (4,410) (14,987)
Other, net (4,415) (29,118) (20,569) (54,102)
--------- -------- ------- --------
Net loss $ (67,765) (71,777) (28,518) (168,060)
========= ======== ======= ========
Nine months ended September 30, 1997
-----------------------------------------------------------------
Latin America
Asia and and the
Europe (a) Australia Caribbean (b) Total
-------------- --------------- ---------------- ------------
amounts in thousands
Combined Operations
-------------------
Revenue $ 258,681 116,642 28,199 403,522
Operating, selling, general and
administrative expenses (272,591) (128,535) (36,305) (437,431)
Depreciation and amortization (8,040) (22,978) (2,796) (33,814)
--------- -------- ------- --------
Operating loss (21,950) (34,871) (10,902) (67,723)
Interest expense, net (11,405) (8,656) (9,463) (29,524)
Other, net (7,673) (1,832) (5,354) (14,859)
--------- -------- ------- --------
Net loss $ (41,028) (45,359) (25,719) (112,106)
========= ======== ======= ========
</TABLE>
--------------
(a) As a result of the January 1, 1997 deconsolidation of Flextech
described in note 1, the summarized combined operations for the nine
months ended September 30, 1997 include the results of operations of
Flextech but exclude the results of operations of the
Flextech Affiliates. The summarized combined operations for the nine
months ended September 30, 1996 include the results of the Flextech
Affiliates. See related discussion above.
(continued)
I-22
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(b) The summarized operating results of Caguas are included in the combined
operations through May 1, 1997, the date that the Company acquired the
50% ownership in Caguas which the Company did not already own. See
note 3.
(c) The summarized operating results of Torneos are included in the
combined operations through April 29, 1996, the date of TINTA's
contribution of its 35% ownership interest in Torneos to the Sports
Venture.
(7) Other Investments
-----------------
The components of other investments are set forth below:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -----------------
amounts in thousands
<S> <C> <C>
DTH Ventures $25,760 17,945
Other 1,834 2,928
------- ------
$27,594 20,873
======= ======
</TABLE>
TINTA has formed strategic partnerships with News Corp., Organizacoes Globo
and Grupo Televisa S.A. to develop and operate a direct-to-home satellite
service for Latin America, Mexico, and various Central and South American
countries (collectively, the "DTH Ventures"). It is anticipated that TINTA
could be required to make cash contributions totaling approximately $39
million over the next three years in connection with the DTH Ventures.
(8) Debt
----
The components of debt are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------------- -------------------
TINTA: amounts in thousands
------
<S> <C> <C>
Convertible Subordinated
Debentures (a) $345,000 345,000
Cablevision promissory notes -- 13,013
-------- -------
345,000 358,013
-------- -------
Subsidiaries:
-------------
Flextech -- 1,000
-------- -------
Cablevision:
Bank loans (b) 158,046 104,556
OCC Notes -- 46,418
Other 5,249 1,141
-------- -------
163,295 152,115
-------- -------
Puerto Rico Subsidiary (c) 45,000 --
-------- -------
$553,295 511,128
======== =======
</TABLE>
(continued)
I-23
<PAGE>
TELE-COMMUNICATION INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(a) On February 8, 1996, TINTA 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"). 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 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. See note 9.
(b) Represents Cablevision's bank debt, which is denominated in U.S.
dollars, and bears interest at fixed rates. Including value added
tax, the weighted average rate of Cablevision's bank debt at September
30, 1997 was 6.98%.
(c) The Puerto Rico Bank Facility is unsecured and provides for maximum
borrowing commitments of $100 million. The availability of such
commitments for borrowing is subject to the Puerto Rico Subsidiary's
compliance with applicable financial covenants and other customary
conditions. Commencing March 31, 2000, the maximum commitments will
be reduced quarterly through March 31, 2006. Borrowings under the
Puerto Rico Bank Facility bear interest at variable rates (6.16% at
September 30, 1997). In addition, the Puerto Rico Subsidiary is
required to pay a commitment fee equal to 0.375% on the average daily
unused portion of the maximum borrowing commitments, payable quarterly
in arrears and at maturity. The Puerto Rico Bank Facility contains
restrictive covenants which require, among other things, the
maintenance of certain financial ratios (primarily the ratios of cash
flow to total debt and cash flow to debt service, as defined), and
includes certain limitations on indebtedness, investments, guarantees,
acquisitions, dispositions, dividends, liens and encumbrances, and
transactions with affiliates. If TCI's ownership interest in TINTA
were to fall below 50.1%, borrowings under the Puerto Rico Bank
Facility would be secured by the assets of the Puerto Rico Subsidiary
and the variable interest rates on such borrowings would be increased.
With the exception of the Debentures, which had a fair value of $291
million at September 30, 1997, the Company believes that the fair value and
the carrying value of the Company's debt were approximately equal at
September 30, 1997.
(continued)
I-24
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(9) Related Party Transactions
--------------------------
Due from related parties
The components of "Due from (to) related parties" are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
amounts in thousands
TCI Note Receivable (a) $ 27,256 176,501
TVG LLC Promissory Note (b) (20,532) (23,262)
TVG LLC Credit Facility (c) -- --
Non-Cash Intercompany Account (d) 1,350 14,955
Cash Intercompany Account (e) (4,121) (8,053)
-------- -------
$ 3,953 160,141
======== =======
</TABLE>
(a) Amounts outstanding under the note receivable from TCI (the "TCI Note
Receivable") bear interest at variable rates based on TCI's weighted
average cost of bank borrowings of similar maturities (6.4% at
September 30, 1997). Principal and interest is due and payable as
mutually agreed from time to time by TCI and TINTA. During the nine
months ended September 30, 1997 and 1996, interest income related to
the TCI Note Receivable aggregated $4.3 million and $10.8 million,
respectively.
(b) During 1996, TCI Communications, Inc. ("TCIC"), a subsidiary of TCI,
transferred, subject to regulatory approval, certain distribution
equipment to a subsidiary of TINTA in exchange for a (Pounds)14,950,000
($23.3 million using the applicable exchange rate) principal amount
promissory note (the "TVG LLC Promissory Note"). The TVG LLC Promissory
Note was contributed by TCIC to TVG LLC in connection with the
September 10, 1997 consummation of the Exchange Offer. The TVG LLC
Promissory Note is due in semi-annual installments through July 31,
2001 and bears interest at 7% compounded semi-annually. During the nine
months ended September 30, 1997, the U.S. dollar equivalent of interest
expense incurred with respect to the TVG LLC Promissory Note was $1.2
million. The distribution equipment was subsequently leased back to
TCIC over a 5 year term with semi-annual payments of (Pounds)998,000
($1.6 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 nine months ended September 30, 1997, the U.S.
dollar equivalent of the lease revenue under the above-described lease
agreement aggregated $3.2 million. During the nine months ended
September 30, 1997, the Company experienced unrealized foreign currency
transaction gains of $1.2 million with respect to the TVG LLC
Promissory Note.
(continued)
I-25
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(c) The revolving subordinated credit agreement with TVG LLC, as creditor,
and TINTA, as borrower, (the "TVG LLC Credit Facility") is a
subordinated unsecured revolving credit facility that provided for
loans from TCI to the Company in an aggregate outstanding principal
amount of up to $200 million. As of September 10, 1997, TCI assigned
all of its rights, interests and obligations in and to the TVG LLC
Credit Facility to TVG LLC. At the time of such assignment, no
borrowings were outstanding under the TVG LLC Credit Facility. In
connection with the assignment, the parties agreed to extend the
maturity date of the TVG LLC Credit Facility to September 10, 2002, at
which time all borrowings, together with all accrued interest thereon,
will be payable and the parties reduced the interest rate on TVG LLC
Credit Facility from 13% to 10%. If at any time TVG LLC 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, TVG LLC may
terminate its obligation to make further loans under the TVG LLC
Credit Facility upon two business days prior notice to TINTA. There
were no borrowings outstanding pursuant to the TVG LLC Credit Facility
at September 30, 1997 and December 31, 1996. The TVG LLC 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 $563,000 during each of the nine month
periods ended September 30, 1997 and 1996.
(d) At September 30, 1997, the non-cash intercompany account (the "Non-
Cash Intercompany Account") with TVG LLC was comprised of $6.7 million
due to TVG LLC 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 $5.3 million due from
TVG LLC with respect to the allocation of current intercompany income
tax benefits pursuant to a tax sharing agreement as described below.
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. As described below, changes
in the TCI Compensation Liability have been included in the
accompanying consolidated statements of operations. Amounts included
in the Non-Cash Intercompany Account are non-interest bearing.
(e) Amounts included in the cash intercompany account (the "Cash
Intercompany Account") with TVG LLC are required to be settled within
30 days following notification. Any payable amounts that remain
outstanding after such 30-day period generally are treated as
adjustments of the outstanding borrowings pursuant to the TVG LLC
Credit Facility. Amounts included in the Cash Intercompany Account
are non-interest bearing.
(continued)
I-26
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
Other Related Party Transactions
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 accompanying consolidated
statements of operations, 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 increases (decreases) to TINTA's share of TCI's stock
compensation liability of $6.7 million and $(1.8 million) for the nine
months ended September 30, 1997 and 1996, respectively. Such compensation
adjustments are included in "General and administrative - Allocated from
TCI" in the accompanying consolidated statements of operations.
Corporate expenses are allocated to TINTA based upon the estimated cost of
general and administrative services provided. Through September 9, 1997,
such corporate expenses were allocated pursuant to a services agreement
between TINTA and TCI. In connection with the September 10, 1997
consummation of the Exchange Offer, TCI assigned its rights and obligations
under such services agreement to TVG LLC. The amounts allocated to the
Company for the nine months ended September 30, 1997 and 1996 aggregated
$1.3 and $2.4 million, respectively.
The Puerto Rico Subsidiary purchases 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 Puerto Rico
Subsidiary, aggregated $4.9 million and $3.4 million during the nine months
ended September 30, 1997 and 1996, respectively. Such programming charges
are included in "Operating costs and expenses - Cable" in the accompanying
consolidated 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 nine months
ended September 30, 1997 and 1996, such charges aggregated $11.8 million
and $9.0 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 $2.3 million and $3.1 million
during each of the nine month periods ended September 30, 1997 and 1996,
respectively. The above-described programming and general and
administrative charges are included in "Operating costs and expenses -
Cable" in the accompanying consolidated statements of operations.
(continued)
I-27
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
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.
A tax sharing agreement (the "Old Tax Sharing Agreement") among TCI, TINTA
and certain other subsidiaries of TCI was implemented effective July 1,
1995. The Old Tax Sharing Agreement formalized 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. Under the Old Tax Sharing Agreement, TINTA was
responsible to TCI for its share of consolidated income tax liabilities
(computed as if TCI were not liable for the alternative minimum tax)
determined in accordance with the Old Tax Sharing Agreement, and TCI was
responsible to TINTA to the extent that the income tax attributes generated
by the TINTA Tax Group were utilized by TCI to reduce its consolidated
income tax liabilities (computed as if TCI were not liable for the
alternative minimum tax). The tax liabilities and benefits of such entities
so determined are charged or credited to an intercompany account between
TCI and TINTA. Such intercompany account is required to be settled only
upon the date that an entity ceases to be a member of TCI's consolidated
group for federal income tax purposes. Under the Old Tax Sharing Agreement,
TCI retains the burden of any alternative minimum tax and has the right to
receive the tax benefits from an alternative minimum tax credit
attributable to any tax period beginning on or after July 1, 1995 and
ending on or before October 1, 1997.
(continued)
I-28
<PAGE>
TELE-COMMUNICAITONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
Effective October 1, 1997, (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement, as amended by the
First Amendment thereto (the "New Tax Sharing Agreement"), which governs
the allocation and sharing of income taxes by the TCI Group, the Liberty
Media Group and the TCI Ventures Group (each a "Group"). TINTA and its
subsidiaries are members of the TCI Ventures Group for purposes of the New
Tax Sharing Agreement. Effective for periods on and after the Effective
Date, federal income taxes will be computed based upon the type of tax paid
by TCI (on a regular tax or alternative minimum tax basis) on a separate
basis for each Group. Based upon these separate calculations, an
allocation of tax liabilities and benefits will be made such that each
Group will be required to make cash payments to TCI based on its allocable
share of TCI's consolidated federal income tax liabilities (on a regular
tax or alternative minimum tax basis, as applicable) attributable to such
Group and actually used by TCI in reducing its consolidated federal income
tax liability. Tax attributes and tax basis in assets would be inventoried
and tracked for ultimate credit to or charge against each Group.
Similarly, in each taxable period that TCI pays alternative minimum tax,
the federal income tax benefits of each Group, computed as if such Group
were subject to regular tax, would be inventoried and tracked for payment
to or payment by each Group in years that TCI utilizes the alternative
minimum tax credit associated with such taxable period. The Group
generating the utilized tax benefits would receive a cash payment only if,
and when, the unutilized taxable losses of the other Group are actually
utilized. If the unutilized taxable losses expire without ever being
utilized, the Group generating the utilized tax benefits will never receive
payment for such benefits. Pursuant to the New Tax Sharing Agreement,
state and local income taxes are calculated on a separate return basis for
each Group (applying provisions of state and local tax law and related
regulations as if the Group were a separate unitary or combined group for
tax purposes), and TCI's combined or unitary tax liability is allocated
among the Groups based upon such separate calculation.
Notwithstanding the foregoing, items of income, gain, loss, deduction or
credit resulting from certain specified transactions that are consummated
after the Effective Date pursuant to a letter of intent or agreement that
was entered into prior to the Effective Date will be shared and allocated
pursuant to the terms of the Old Tax Sharing Agreement as amended.
The intercompany tax account existing between TCI and TINTA for the period
beginning July 1, 1995 and ending September 30, 1997 will be required to be
settled between the TCI Ventures Group and TINTA if and when TINTA ceases
to be a member of TCI's consolidated group for federal income tax purposes.
A tax sharing arrangement between the TCI Ventures Group and TINTA covering
periods subsequent to September 30, 1997 is currently being negotiated.
As further described in note 6, 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)
I-29
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Notes to Consolidated Financial Statements
(10) Commitments and Contingencies
-----------------------------
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 $47 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 million. If the
Company's net worth (as defined) were to fall below $150 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 notes 6 and 7.
As described in note 6, the Company has significant contingent obligations
with respect to certain credit enhancements that were provided by the
Company upon the closing of the BBC Joint Ventures and related
transactions.
I-30
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Management's Discussion and Analysis of Financial Condition and
- ---------------------------------------------------------------
Results of Operations
---------------------
General
- -------
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements, included elsewhere herein, and the
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations included in the Company's Annual Report on Form 10-K for the year
- ----------
ended December 31, 1996. With respect to trends, risks and uncertainties
affecting the Company's results of operations and financial condition, the
following discussion addresses only changes in such matters that have occurred
during 1997 through the date of this Quarterly Report on Form 10-Q.
Certain statements included in this Quarterly Report on Form 10-Q 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 multi-channel 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 Quarterly Report on Form 10-Q. 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.
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 consolidated financial statements.
I-31
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Results of Operations
- -----------------------------------------
As further described in note 4 to the accompanying consolidated financial
statements, on October 9, 1997 the Company sold a portion of its 51% interest in
Cablevision to CEI and Telefonica for cash proceeds of $120 million. In
addition, on October 9, 1997, Cablevision issued 3,541,829 shares of stock in
the aggregate to CEI and Telefonica. The Cablevision Sale reduced the Company's
interest in Cablevision to 26.24%. Cash proceeds received by TINTA of $120
million were based on a negotiated value of $210 million for approximately one-
half of TINTA's 51% interest in Cablevision. As a result of the Cablevision
Sale, the Company, effective October 1, 1997, will cease to consolidate
Cablevision and will begin to account for Cablevision using the equity method of
accounting.
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 (dollar amounts in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30,
1997 (1) 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Revenue $ 173,517 100% $133,323 100%
Operating costs and expenses before
depreciation and amortization (105,351) (60%) (79,239) (59%)
--------- ---- -------- ----
Operating Cash Flow (2) 68,166 40% 54,084 41%
Depreciation and amortization (40,882) (23%) (27,831) (21%)
--------- ---- -------- ----
Operating income $ 27,284 17% $ 26,253 20%
========= ==== ======== ====
</TABLE>
__________________
(1) On October 1, 1996, Cablevision acquired 99.9% of the issued and
outstanding stock of OCC. In accordance with the purchase method of
accounting OCC has been included in Cablevision's consolidated financial
statements since the October 1, 1996 acquisition date. The following table
sets forth summary information with respect to OCC's results of operations
included with those of Cablevision for the nine months ended September 30,
1997 (amounts in thousands):
<TABLE>
<S> <C>
Revenue $ 24,295
Operating costs and expenses
before depreciation and
amortization (10,468)
--------
Operating Cash Flow 13,827
Depreciation and amortization (2,427)
--------
Operating income $ 11,400
========
</TABLE>
(2) "Operating Cash Flow," which represents income before depreciation and
amortization, is a commonly used measure of value and borrowing capacity.
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.
I-32
<PAGE>
TELE-COMMUNCIATIONS INTERNATIONAL, INC.
Material Changes in Results of Operations (continued)
- -----------------------------------------------------
As described in note 6 to the accompanying consolidated financial statements,
the Company, effective January 1, 1997, discontinued using the consolidation
method to account for its ownership interest in Flextech. As a result, the
Company's consolidated financial statements as of and for the nine months ended
September 30, 1997 do not include Flextech's financial position and results of
operations on a consolidated basis. The following table sets forth summary
information with respect to the operating results of Flextech that were included
in the Company's consolidated financial statements for the nine months ended
September 30, 1996 (dollar amounts in thousands):
<TABLE>
<S> <C>
Revenue $ 67,593
Operating costs and expenses before
depreciation and amortization (88,169)
Depreciation and amortization (5,372)
--------
Operating loss (25,948)
Other, net 12,031
--------
Net loss $(13,917)
========
</TABLE>
Revenue
-------
Cable revenue increased $20.9 million and $54.3 million or 41% and 36% during
the three and nine month periods ended September 30, 1997, respectively, as
compared to the corresponding prior year periods. Such increases are primarily
attributable to increases in Cablevision's revenue of $14.2 million and $40.2
million or 31% and 30% during the three and nine month periods ended September
30, 1997, respectively. Cablevision's revenue increased as a result of the OCC
Acquisition and a 5% increase in the average number of Cablevision's basic
subscribers (exclusive of the basic subscribers acquired in the OCC
Acquisition). As described in note 4 to the accompanying consolidated financial
statements, effective October 1, 1997, the Company will cease to consolidate
Cablevision. Revenue of the Puerto Rico Subsidiary increased $5.1 million and
$9.3 million or 81% and 49% during the three and nine month periods ended
September 30, 1997, respectively, as compared to the corresponding prior year
periods. Such increases are due primarily to the Caguas Acquisition ($3.8
million and $6.2 million for the three and nine month periods ended September
30, 1997, respectively) and a 9% increase in the average number of the Puerto
Rico Subsidiary's basic subscribers (exclusive of the basic subscribers
acquired in the Caguas Acquisition). An increase in basic rates in February 1997
also contributed to the increases in cable revenue of the Puerto Rico
Subsidiary.
I-33
<PAGE>
TELE-COMMUNICAITONS INTERNATIONAL, INC.
Material Changes in Results of Operations (continued)
- -----------------------------------------------------
Operating Costs and Expenses
----------------------------
Cable operating costs and expenses increased $11.8 million and $30.8 million
or 35% and 33% during the three and nine month periods ended September 30, 1997,
respectively, as compared to the corresponding prior year periods. Such
increases are primarily attributable to increases in Cablevision's operating
costs and expenses of $9.3 million and $26.1 million or 33% and 33% during the
three and nine month periods ended September 30, 1997. Cablevision's operating
costs and expenses increased as a result of the OCC Acquisition and an increase
in programming costs. Such increased programming costs are attributable to a
higher number of subscribers and higher programming rates. See related
discussion below. Operating costs and expenses of the Puerto Rico Subsidiary
increased $2.6 million and $4.5 million during the three and nine months ended
September 30, 1997, respectively, as compared to the corresponding prior year
periods. Such increases are due primarily to the Caguas Acquisition ($2.3
million and $3.3 million for the three and nine month periods ended September
30, 1997, respectively) and increased programming costs.
Cablevision and the Puerto Rico Subsidiary 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 Puerto Rico Subsidiary.
TINTA incurred corporate, general and administrative expenses of $8.7 million
and $1.3 million during the three months ended September 30, 1997 and 1996,
respectively, of which $5.3 million and $57,000 were allocated from related
parties. TINTA incurred corporate, general and administrative expenses of $16.4
million and $6.1 million during the nine months ended September 30, 1997 and
1996, respectively, of which $7.9 million and $592,000 were allocated from
related parties. General and administrative allocations from related parties
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 $5.5 million and $(1.6 million) during the three months ended
September 30, 1997 and 1996, respectively, and include increases (decreases) in
the Company's share of TCI's stock compensation liability of $4.8 million and
$(815,000), respectively. Such estimated increases (decreases) aggregated $7.4
million and $(3.2 million) during the nine months ended September 30, 1997 and
1996, respectively, and include increases (decreases) in the Company's share of
TCI's stock compensation liability of $6.6 million and $(1.8 million),
respectively. 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.
The $3.7 million and $11.6 million or 26% and 30% increases in depreciation
and amortization expense during the three and nine month periods ended September
30, 1997, as compared to the corresponding prior year periods, are the result of
net increases in the Company's assets that are subject to depreciation and
amortization. The increases in such assets attributable to the OCC Acquisition,
Caguas Acquisition and capital expenditures more than offset the decrease
attributable to the deconsolidation of Flextech, as described in note 6 to the
accompanying consolidated financial statements.
I-34
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Results of Operations (continued)
- -----------------------------------------------------
Other Income and Expense
------------------------
Telewest has incurred losses since its inception. The Company's share of
Telewest's net losses increased $8.9 million and $12.1 million or 31% and 12%
during the three and nine month periods ended September 30, 1997, respectively,
as compared to the corresponding prior year periods. Such changes are primarily
attributable to (i) increases in depreciation and amortization and interest
expense and (ii) changes in foreign currency transaction losses. In connection
with a previous merger transaction, Telewest issued the Telewest Debentures.
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 losses of (Pounds)8.5 million ($14.5 million using the applicable
exchange rate) and (Pounds)7.6 million ($11.8 million using the applicable
exchange rate) during the three months ended September 30, 1997 and 1996,
respectively. Telewest experienced unrealized foreign currency transaction
losses of (Pounds)32.8 million ($54.5 million using the applicable exchange
rate) and (Pounds)55.2 million ($84.6 million using the applicable exchange
rate) during the nine months ended September 30, 1997 and 1996, 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 the Other Affiliates increased $7.8
million and $19.7 million or 43% and 36% during the three and nine month periods
ended September 30, 1997, as compared to the corresponding prior year periods.
Such increases are primarily attributable to increased losses of JPC, Jupiter,
the LLC, MultiThematiques and ABN. The increased losses during the nine months
ended September 30, 1997 were partially offset by a $7.2 million decrease in the
Company's share of the losses of DMX. During the third quarter of 1996, the
Company's cumulative share of DMX's losses exceeded the Company's investment in
DMX. Since that time, the Company has not recorded its proportionate share of
DMX's losses as the Company has no obligation to provide any additional funding
to DMX. In addition, as described in note 1 to the accompanying consolidated
financial statements, the Company, effective January 1, 1997, ceased to
consolidate Flextech and began to account for Flextech using the equity method
of accounting. For additional information concerning the Other Affiliates, see
note 6 to the accompanying consolidated financial statements.
Interest income decreased $4.1 million and $10.2 million or 75% and 60% during
the three and nine month periods ended September 30, 1997, respectively, as
compared to the corresponding prior year periods. Such decreases are due
primarily to the decrease in the Company's cash and cash equivalents as a result
of the deconsolidation of Flextech as described in note 1 to the accompanying
consolidated financial statements and decreases in the outstanding balance of
the TCI Note Receivable.
I-35
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Results of Operations (continued)
- -----------------------------------------------------
Interest expense remained relatively constant during the three and nine month
periods ended September 30, 1997, as compared to the corresponding prior year
periods. Increases in interest expense attributable to (i) the OCC Notes, (ii)
the Debentures, (iii) the TVG LLC Note Payable and (iv) the Puerto Rico Bank
Facility were offset by a reduction in interest expense that is attributable to
the deconsolidation of Flextech.
On September 26, 1997, the Company sold its interest in TCID of New
Zealand, Inc. for cash proceeds of $53.0 million. The Company recognized a gain
on such sale of $58.4 million.
The minority interests' share of net losses in 1996 related entirely to
Flextech. As described in note 1 to the accompanying consolidated financial
statements, the Company, effective January 1, 1997, ceased to consolidate
Flextech and began to account for Flextech using the equity method of
accounting. Accordingly, the minority interests' share of net losses for
Flextech is no longer included in the Company's consolidated statement of
operations. The minority interests' share of net earnings in 1997 relates
entirely to Cablevision. Prior to the second quarter of 1997, none of
Cablevision's post-acquisition operating results had been allocated to
Cablevision's minority interest because (i) the minority interest had no
obligation to provide any funding to Cablevision and (ii) Cablevision's
liabilities exceeded the minority interest's historical cost basis in
Cablevision's assets. During the second quarter of 1997, Cablevision's post-
acquisition net earnings (exclusive of the effects of purchase accounting)
caused the minority interest's historical cost basis in Cablevision's net assets
to become positive. Accordingly, the Company began allocating 49% of such net
earnings to the minority interest during the second quarter of 1997. If the
minority interest's historical cost basis had been positive since January 1,
1996, the Company would have allocated an additional $4.3 million in 1997 and
$12.9 million in 1996 of Cablevision's net earnings (exclusive of the effect of
purchase accounting) to the minority interest.
The Company recognized realized and unrealized foreign currency transaction
gains (losses) of $(805,000) and $661,000 during the three months ended
September 30, 1997, and 1996, respectively. The Company recognized realized and
unrealized foreign currency transaction gains (losses) of $(206,000) and $4.1
million during the nine months ended September 30, 1997 and 1996, respectively.
During the nine months ended September 30, 1997 and 1996 the Company recognized
(i) unrealized gains of $1.6 million and $3.4 million, respectively, with
respect to the remeasurement into the U.S. dollar of the French franc-
denominated MultiThematiques Obligation, (ii) unrealized gains (losses) of $(2.1
million) and $262,000, respectively, with respect to the remeasurement
into the U.S. dollar of the UK pound-denominated debt owed by Flextech to an
indirect subsidiary of TINTA and (iii) an unrealized gain of $1.2 million in
1997 with respect to the TVG LLC Note Payable.
I-36
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Results of Operations (continued)
- -----------------------------------------------------
Income Taxes
------------
The Company's income tax benefit was $55.4 million and $42.4 million during
the nine months ended September 30, 1997 and 1996, respectively. The effective
tax rates associated with such benefits were 40% and 29%, respectively. The
higher effective tax rate during the 1997 period is primarily attributable to
the recognition of certain deferred tax assets in connection with the
deconsolidation of Flextech as described in note 1 to the accompanying
consolidated financial statements.
Net Losses
----------
The Company reported net losses of $81.6 million and $101.9 million during
the nine months ended September 30, 1997 and 1996, respectively. Such net
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 telecommunications 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 while maintaining pricing structures and controlling costs. There can be
no assurance that any such subscriber base increases will occur.
Material Changes in Financial Condition
- ---------------------------------------
TINTA expects to have substantial capital requirements for the foreseeable
future because its businesses and investments consist of entities which require
the acquisition, ownership, development and operation of broadband cable
television and telephony distribution networks and new programming services.
Many of TINTA's subsidiaries and affiliates are incurring substantial costs as
they build or rebuild their cable networks or develop and acquire programming.
Until such companies begin generating profits and positive cash flow from
operating activities, they will need additional capital to fund capital
expenditures and working capital requirements. TINTA and its consolidated
subsidiaries have commitments under various partnership and other funding
agreements to contribute capital or loan money to fund capital expenditures and
other capital requirements of certain affiliates. TINTA believes that its
actual future cash requirements in order to fund the capital expenditures and
working capital requirements of its subsidiaries and affiliates will exceed the
amounts that TINTA and its consolidated subsidiaries are currently 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 cost requirements are dependent upon a variety of factors.
I-37
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Financial Condition (continued)
- ---------------------------------------------------
TINTA's business strategy also requires that it have the ability to access
or raise sufficient funds to allow it to take advantage of new acquisition and
joint venture opportunities as they arise, which management of TINTA believes
will require the availability of substantial additional funds. Although TINTA
had, at September 30, 1997, (i) $48.5 million of cash and cash equivalents,
(ii) $27.3 million proceeds remaining from the sale of its Debentures (which
have been loaned to TCI pursuant to an unsecured promissory note pending the use
of such proceeds by TINTA), (iii) $200 million of borrowing availability
pursuant to the TVG LLC Credit Facility and (iv) the ability to access any
excess cash and borrowing availability of the Puerto Rico Subsidiary, TINTA's
ability to otherwise obtain financing to assist its operating companies and to
meet its capital obligations at other than the subsidiary level will be limited
because TINTA does not conduct any operations directly. 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 liquidity sources of the
Company's foreign subsidiaries and affiliates are generally intended to be
applied towards the respective liquidity requirements of such foreign
subsidiaries and affiliates, and accordingly, do not represent a direct source
of liquidity to TINTA. Accordingly, with the exception of any liquidity that may
be provided to TINTA by the Puerto Rico Subsidiary, no assurance can be given
that TINTA will have access to any cash generated by its foreign operating
subsidiaries and affiliates.
At September 30, 1997, $900,000 of the Company's cash and cash equivalents
were held by Cablevision. The cash and cash equivalent balances of Cablevision
are available to be applied toward the liquidity requirements of Cablevision.
Exclusive of amounts held by Cablevision, TINTA held cash and cash equivalents
of $48.5 million at September 30, 1997. TINTA believes that such cash and cash
equivalents, the remaining net cash proceeds from the sale of the Debentures,
borrowing availability pursuant to the TVG LLC Credit Facility and the Puerto
Rico Bank 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 seeks to make 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 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.
I-38
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Financial Condition (continued)
- ---------------------------------------------------
The Company's consolidated operating activities provided cash of $29.4
million and $14.3 million during the nine months ended September 30, 1997 and
1996, respectively. With the exception of cash provided by the Puerto Rico
Subsidiary ($7.3 million and $6.6 million during the nine months ended September
30, 1997 and 1996, respectively), cash provided by the Company's consolidated
operating activities does not presently represent a source of liquidity to TINTA
since the cash provided by Cablevision's operating activities ($40.0 million and
$42.7 million during the nine months ended September 30, 1997 and 1996,
respectively) is intended to be applied towards Cablevision's liquidity
requirements, and the Company's remaining consolidated operating activities are
expected to produce net cash flow deficits for the foreseeable future. In
addition, as discussed in note 4 to the accompanying consolidated financial
statements, effective October 1, 1997, Cablevision's cash flows will no longer
be included in the Company's consolidated statements of cash flows. The 1996
amount includes cash used in Flextech's operating activities of $33.1 million.
As discussed under note 6 to the accompanying consolidated financial statements,
effective January 1, 1997, Flextech's cash flows are no longer included in the
Company's consolidated statements of cash flows.
During the nine months ended September 30, 1997 and 1996, cash used by the
Company's investing activities aggregated $121.7 million and $109.3 million,
respectively. Such amounts include $107.6 million and $122.1 million,
respectively, that were used by the Company to fund investments in, and loans
to, affiliates. In addition, the 1997 amount includes a $38.1 million reduction
in the Company's cash and cash equivalents as a result of the deconsolidation of
Flextech. See notes 2 and 6 to the accompanying consolidated financial
statements. See also the consolidated statements of cash flows included in the
accompanying consolidated financial statements.
TINTA has invested in most of its subsidiaries and affiliates with
strategic and local partners, and financial and operational considerations, as
well as laws that limit foreign equity positions, will likely require TINTA to
continue to invest with partners. Many foreign countries limit foreign
investment to a minority equity position or require the board of directors to be
largely independent, which can result in TINTA having diminished ability to
implement strategies that TINTA may favor, or cause dividends or distributions
to be paid.
Certain of the countries in which TINTA has operating companies or in which
TINTA may operate in the future, may be subject to a substantially greater
degree of social, political and economic instability than is the case in other
countries. Risks associated with social, political and economic instability in
a particular country could materially adversely affect the results of operations
and financial condition of any subsidiary or affiliate of TINTA (and thereby
have a potentially material adverse effect on the results of operations or
financial condition of TINTA) and could result in the loss of TINTA's investment
in such subsidiary or affiliate or the loss by such subsidiary or affiliate of
its assets in such country.
Many of TINTA's interests in its subsidiaries and affiliates are governed
by partnership and other agreements that require it to contribute capital or
make loans to such subsidiaries or affiliates. The failure of TINTA to meet its
capital commitments to a particular operating company may have adverse
consequences to it and therefore to TINTA.
I-39
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Financial Condition (continued)
- ---------------------------------------------------
TINTA has formed strategic partnerships with News Corp., Organizacoes Globo
and Grupo Televisa S.A. to develop and operate a direct-to-home satellite
service for Latin America, Mexico, and various Central and South American
countries It is anticipated that TINTA could be required to make cash
contributions totaling approximately $39 million over the next three years in
connection with the DTH Ventures.
TINTA may make additional cash contributions totaling approximately $16
million to the LLC to fund the operations of Fox Sports International.
On April 19, 1996, TINTA, Torneos and the Torneos stockholders entered into
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. The rights under the
TINTA/Torneos Sports Agreement have been assigned to Fox Sports International.
The Company has significant contingent obligations with respect to guarantees,
credit enhancements and other contingent obligations arising from its ownership
interests in affiliates and other matters. The Company also has consummated
certain transactions and entered into certain agreements which have impacted or
may, in the future, impact the Company's liquidity and capital resources. For
additional information, see notes 6, 7 and 10 to the accompanying consolidated
financial statements.
During the nine months ended September 30, 1997, Cablevision and the Puerto
Rico Subsidiary accounted for $41.7 million and $6.2 million, respectively, of
the Company's aggregate capital expenditures of $47.9 million. As described
further in note 4 to the accompanying consolidated financial statements,
effective October 1, 1997, the capital expenditures and other cash flows of
Cablevision 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 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 the Puerto Rico Subsidiary generally
will be sufficient to satisfy its foreseeable capital expenditure requirements.
In this regard, the Puerto Rico Subsidiary entered into the Puerto Rico Bank
Facility in connection with the Caguas Acquisition. See note 8 to the
accompanying consolidated financial statements and related discussion below.
I-40
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Financial Condition (continued)
- ---------------------------------------------------
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. Through September 30, 1997, the Company had
repurchased 3,370,000 shares under such program for an aggregate purchase price
of $42.0 million (representing an average price per share of $12.47).
As a result of the April 1997 issuance of shares by Flextech in connection
with Flextech's acquisition of all of the share capital of UKLL and UKGL which
Flextech did not already own, and the associated dilution of the Company's
ownership interest in Flextech, the Company recorded a $151.6 million increase
to the carrying value of its investment in Flextech, a $98.5 million increase to
"Additional paid-in capital" and a $53.1 million increase to "Deferred income
tax liability." No gain was recognized due primarily to TINTA's contingent
obligations under the Standby Commitment.
On May 1, 1997, the Puerto Rico Subsidiary paid cash consideration of
approximately $12.0 million, and assumed aggregate indebtedness of $32.3
million, to acquire the 50% ownership interest in Caguas/Humacao Cable Systems
which the Company did not already own. In connection with the Caguas
Acquisition, the Puerto Rico Subsidiary entered into the Puerto Rico Bank
Facility and used borrowings of approximately $45 million thereunder to fund the
cash portion of the purchase price and to repay the assumed indebtedness. For a
description of the terms of the Puerto Rico Bank Facility, see note 8 to the
accompanying consolidated financial statements.
On September 26, 1997, the Company sold its interest in TCID of New
Zealand, Inc. for cash proceeds of $53.0 million. The Company recognized a gain
on such sale of $58.4 million.
On October 2, 1997, the Company purchased a 5% interest in Torneos for
$12.0 million.
On October 9, 1997, the Company sold a portion of its 51% interest in
Cablevision to CEI and Telefonica for cash proceeds of $120.0 million ($21.0
million of which was received during the third quarter of 1997). In addition, on
October 9, 1997, Cablevision issued 3,541,829 shares of stock in the aggregate
to the Buyers for $80 million in cash and notes receivable with an aggregate
principal amount of $240 million. The Cablevision Sale reduced TINTA's interest
in Cablevision to 26.4%. Cash proceeds received by TINTA of $120 million were
based on a negotiated value of $210 million for approximately one-half of
TINTA's 51% interest in Cablevision. As a result of such transactions, effective
October 1, 1997, TINTA will cease to consolidate Cablevision and will begin to
account for Cablevision using the equity method of accounting.
At September 30, 1997, the Company had aggregate debt of $553.3 million.
For additional information concerning the terms of such debt, see note 8 to the
accompanying consolidated financial statements. At September 30, 1997, such
debt included $163.3 million of debt related to Cablevision. As discussed in
note 4 to the accompanying consolidated financial statements, effective October
1, 1997, Cablevision's debt will no longer be included in the Company's
consolidated financial condition.
I-41
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 2. Changes in Securities
- ------- ---------------------
On September 1, 1997, TINTA issued 30,075 shares of Series A Common
Stock (valued at $500,000 based upon a price per share of $16.63)
to an executive officer of TINTA. The issuance was made in reliance
on the exemption from registration of a private placement offering
as afforded by Section 4(2) under the Securities Act of 1933.
Item 5. Other Events
- ------- ------------
On September 17, 1997, the Company received a wavier (the "Waiver")
under the Investment Company Act of 1940 (the "40 Act") that
clarifies the ability of the Company to conduct its operations
without registering as an investment company under the 40 Act.
Under the Waiver, in general, the Company may hold as little as a
10% economic or voting interest in a foreign tele-media venture,
provided the Company: (i) is materially involved in the creation,
development or operation of the ventures; (ii) provides material
managerial, advisory or operational services to the venture; or
(iii) provides significant input on material decisions affecting
the development or operations of the venture. Under the Waiver, a
"foreign tele-media venture" is any company, partnership, joint
venture or other form of organization whose business is primarily
conducted outside of the United States and which is engaged in any
of the following: communications; media; the creation, storage, and
transmission of voice, video, or data; programming, including
entertainment, news, information, and home shopping services; print
media; broadband and satellite distribution; over the air
broadcast; telecommunications; wireline or wireless distribution
and telephony; network construction; design, operation, and
ownership of related transport construction; and any and all
related or similar activities, services, and assets. The Company
may invest in a tele-media venture directly or through partnerships
that acquire interests in, and provide active developmental
assistance to, foreign tele-media ventures.
(continued)
II-1
<PAGE>
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits
10 - Material Contracts
Tax Sharing Agreement, effective for periods on and after
October 1, 1997, among TCI and certain entities
attributed to each of the TCI Group, the Liberty Media
Group and the TCI Ventures Group, as amended by the First
Amendment to the Tax Sharing Agreement, dated as of
October 1, 1997, among TCI and certain entities
attributed to each of the TCI Group, the Liberty Media
Group and the TCI Ventures Group.
Incorporated herein by reference to Exhibit 9(c)2 to
TCI's Schedule 13E-4/A (Amendment No. 2), Issuer
Tender Offer Statement, dated September 5, 1997
27 - Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended September 30, 1997
- none
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Date: November 13, 1997 By: /s/ Fred A. Vierra
-------------------------------------
Fred A. Vierra
Chief Executive Officer
Date: November 13, 1997 By: /s/ Graham Hollis
-------------------------------------
Graham Hollis
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
II-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarter ended September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 49,423
<SECURITIES> 0
<RECEIVABLES> 12,256
<ALLOWANCES> 0
<INVENTORY> 6,244
<CURRENT-ASSETS> 0
<PP&E> 305,252
<DEPRECIATION> 82,560
<TOTAL-ASSETS> 1,899,304
<CURRENT-LIABILITIES> 0
<BONDS> 553,295
0
0
<COMMON> 118,698
<OTHER-SE> 954,162
<TOTAL-LIABILITY-AND-EQUITY> 1,899,304
<SALES> 0
<TOTAL-REVENUES> 206,621
<CGS> 0
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<OTHER-EXPENSES> 50,658
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<INTEREST-EXPENSE> 27,630
<INCOME-PRETAX> (136,992)
<INCOME-TAX> (55,378)
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