<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998
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 April 30, 1998, was:
Series A common stock - 103,615,680 shares;
and Series B common stock - 11,700,000
shares.
<PAGE> 2
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
Assets amounts in thousands
<S> <C> <C>
Cash and cash equivalents (note 3) $ 685 --
Trade and other receivables, net 4,072 5,065
Investment in Telewest Communications plc ("Telewest"), accounted for under the
equity method (note 6) 297,839 324,417
Investment in Cablevision S.A. ("Cablevision"), accounted for under
the equity method (note 5) 235,984 239,379
Investment in other affiliates, accounted for
under the equity method, and related
receivables (note 7) 598,427 602,325
Other investments (note 8) 33,853 33,012
Property and equipment, at cost:
Land 415 415
Distribution systems 80,523 78,185
Support equipment and buildings 11,754 11,269
---------- ----------
92,692 89,869
Less accumulated depreciation 34,317 32,348
---------- ----------
58,375 57,521
---------- ----------
Franchise costs and other intangible assets 76,890 76,890
Less accumulated amortization 11,977 11,494
---------- ----------
64,913 65,396
---------- ----------
Deferred income tax asset 76,737 54,547
Deferred financing costs and other assets,
net of amortization 10,858 12,338
---------- ----------
$1,381,743 1,394,000
========== ==========
</TABLE>
(continued)
I-1
<PAGE> 3
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
Liabilities and Stockholders' Equity amounts in thousands,
except share amounts
<S> <C> <C>
Cash overdraft $ -- 1,003
Accounts payable 1,276 672
Accrued liabilities 14,590 19,490
Debt (note 9) 390,037 390,042
Other liabilities 22,024 18,482
----------- -----------
Total liabilities 427,927 429,689
----------- -----------
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
106,997,880 106,998 106,998
Series B Common Stock, $1 par value
Authorized 12,000,000 shares, issued
11,700,000 shares 11,700 11,700
Additional paid-in capital 1,285,904 1,285,904
Accumulated deficit (363,814) (325,805)
Accumulated other comprehensive earnings, net of taxes (note 1) 6,796 5,640
----------- -----------
1,047,584 1,084,437
Treasury stock, at cost, 3,382,200 shares and 3,370,000
shares of Series A Common Stock in 1998 and 1997 (42,216) (42,014)
Due from related parties (note 10) (51,552) (78,112)
----------- -----------
Total stockholders' equity 953,816 964,311
----------- -----------
Commitments and contingencies
(notes 6, 7, 8, 10 and 11)
$ 1,381,743 1,394,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 4
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------------
1998 1997
-------------------------
amounts in thousands,
except per share amounts
<S> <C> <C>
Revenue $ 12,544 65,611
Operating costs and expenses:
Operating:
Charges from related parties (note 10) 1,466 5,280
Other 5,728 32,405
Corporate general and administrative:
Allocated from related parties (note 10) 4,908 356
Other 5,697 2,438
Depreciation and amortization 2,476 15,713
-------- -------
20,275 56,192
-------- -------
Operating income (loss) (7,731) 9,419
Other income (expense):
Share of losses of Telewest (note 6) (30,219) (41,708)
Share of losses of Cablevision (note 5) (3,205) --
Share of losses of other affiliates (note 7) (22,534) (22,446)
Interest expense:
Related parties (note 10) (188) (580)
Other (5,555) (8,858)
Interest income:
Related parties (note 10) 1,230 2,446
Other 636 716
Gain on disposition of assets (note 8) 9,165 --
Foreign currency transaction gains 284 1,395
Other, net 753 (144)
-------- -------
(49,633) (69,179)
-------- -------
Loss before income taxes (57,364) (59,760)
Income tax benefit 19,355 26,305
-------- -------
Net loss $(38,009) (33,455)
======== ========
Basic and diluted net loss per common share (note 2) $ (.33) (.28)
======== ========
Comprehensive loss (note 1) $(36,853) (54,387)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE> 5
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Consolidated Statement of Stockholders' Equity
Three months ended March 31, 1998
(unaudited)
<TABLE>
<CAPTION>
Accumulated
other
comprehensive
Common Stock Additional earnings, Treasury Due from Total
Preferred ------------------ paid-in Accumulated net of stock, related Stockholders'
stock Series A Series B capital deficit taxes at cost parties equity
--------- -------- -------- ---------- ----------- ----------- -------- -------- ------------
amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $ -- 106,998 11,700 1,285,904 (325,805) 5,640 (42,014) (78,112) 964,311
Net loss -- -- -- -- (38,009) -- -- -- (38,009)
Repurchase of
common shares -- -- -- -- -- -- (202) -- (202)
Foreign currency
translation
adjustment -- -- -- -- -- 1,156 -- -- 1,156
Change in due from
related parties
(note 10) -- -- -- -- -- -- -- 26,560 26,560
------ ------- ------ --------- -------- ----- ------- ------- -------
Balance at March 31, 1998 $ -- 106,998 11,700 1,285,904 (363,814) 6,796 (42,216) (51,552) 953,816
====== ======= ====== ========= ======== ===== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE> 6
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1998 1997
-------- --------
amounts in thousands
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(38,009) (33,455)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,476 15,713
Stock compensation 7,982 (34)
Payment of obligation relating to stock compensation (4,272) --
Share of losses of Telewest 30,219 41,708
Share of losses of Cablevision 3,205 --
Share of losses of other affiliates 22,534 22,446
Gain on disposition of assets (9,165) --
Unrealized foreign currency transaction gains (284) (2,653)
Other non-cash charges -- 966
Deferred income tax benefit (21,011) (27,099)
Intercompany tax allocation 1,642 (3,586)
Changes in operating assets and liabilities, net of the effect of the
deconsolidation of Flextech p.l.c.:
Change in receivables 993 1,869
Change in payables, accruals, other liabilities and the cash
intercompany account included
in due from related parties (5,004) (4,207)
-------- --------
Net cash provided by (used in) operating activities $ (8,694) 11,668
======== ======
</TABLE>
(continued)
I-5
<PAGE> 7
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows, continued
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1998 1997
--------- --------
amounts in thousands
(see note 3)
<S> <C> <C>
Cash flows from investing activities:
Investments in and loans to affiliates and others $(31,142) (11,699)
Proceeds from disposition of assets 10,000 --
Capital expended for property and equipment (2,818) (12,875)
Repayments received on loans to affiliates 9,221 12,662
Effect of the deconsolidation of Flextech p.l.c. on
cash and cash equivalents -- (38,142)
Other, net (128) 5,062
-------- --------
Net cash used in investing activities (14,867) (44,992)
-------- --------
Cash flows from financing activities:
Repayments received on loan to related party 25,456 42,010
Borrowings of debt -- 29,872
Repayments of debt (5) (69,070)
Repurchases of common stock (202) (6,798)
Change in cash overdraft (1,003) --
-------- --------
Net cash provided by (used in) financing activities 24,246 (3,986)
-------- --------
Net increase (decrease) in cash and
cash equivalents 685 (37,310)
Cash and cash equivalents:
Beginning of period -- 44,192
-------- --------
End of period $ 685 6,882
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-6
<PAGE> 8
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
March 31, 1998
(unaudited)
(1) Basis of Presentation
Tele-Communications International, Inc. ("TINTA" or the "Company"), a
majority-owned subsidiary of Tele-Communications, Inc. ("TCI"),
operates multi-channel video and telecommunications distribution
networks in, and provides diversified programming services to, selected
markets outside the United States.
TINTA's common stock, par value $1.00 per share is comprised of
Tele-Communications International Inc. Series A Common Stock ("Series A
Stock") and Tele-Communications International Inc. Series B Common
Stock ("Series B Stock" and together with Series A Stock, the "Common
Stock"). At March 31, 1998, TCI owned approximately 85% of the
aggregate issued and outstanding TINTA Common Stock and 92% of the
aggregate voting interest represented by the TINTA Common 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 Stock"), Tele-Communications, Inc. Series
A Liberty Media Group Common Stock, Tele-Communications, Inc. Series B
Liberty Media Group Common Stock, (collectively, the "Liberty Group
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 Stock").
The TCI Group Stock is intended to reflect the separate performance of
the "TCI Group," which is comprised of TCI's domestic cable and
communications business. The Liberty Group Stock is intended to reflect
the separate performance of the "Liberty Media Group," which is
comprised of TCI'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. The TCI Ventures Group 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.
(continued)
I-7
<PAGE> 9
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, 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 the 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 377,322,600 shares of Tele-Communications, Inc. Series A TCI
Ventures Group Common Stock and 32,532,800 shares of
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock in
exchange for 188,661,300 shares of Tele-Communications, Inc. Series A
TCI Group Common Stock and 16,266,400 shares of Tele-Communications,
Inc. Series B TCI Group Common Stock, respectively.
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). The Company has reclassified its
prior period consolidated balance sheet and consolidated statement of
operations to conform to the requirements of SFAS 130. SFAS 130
requires that all items which are components of comprehensive earnings
or losses be reported in a financial statement in the period in which
they are recognized. The Company has included cumulative foreign
currency translation adjustments in other comprehensive earnings that
are recorded directly in stockholders' equity. Pursuant to SFAS 130,
this item is reflected, net of related tax effects, as a component of
comprehensive losses in the Company's consolidated statements of
operations, and is included in accumulated other comprehensive earnings
in the Company's consolidated balance sheets and statement of
stockholders' equity.
During the three months ended March 31, 1998 and 1997, 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 "Puerto Rico Subsidiary"), and in Buenos Aires,
Argentina (through the October 1, 1997 deconsolidation of Cablevision,
see note 5).
(continued)
I-8
<PAGE> 10
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
As further described in note 10, 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, 1997 audited financial statements and notes thereto.
From time to time, the Company uses certain derivative financial
instruments to manage its foreign currency risks. Amounts receivable or
payable pursuant to derivative financial instruments that qualify as
hedges of existing assets, liabilities and firm commitments are
deferred and reflected as an adjustment of the carrying amount of the
hedged item. Market value changes in all other derivative financial
instruments are recognized currently in the consolidated statements of
operations. At March 31, 1998, the Company had no material deferred
hedging gains or losses and was not exposed to material near-term
losses in future earnings, fair values or cash flows resulting from
derivative financial instruments.
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
1998 presentation.
Unless otherwise indicated, convenience translations of foreign
currencies into U.S. dollars are calculated using the applicable spot
rate at March 31, 1998, as published in the Wall Street Journal.
(2) Loss Per Common Share
Basic earnings (loss) per share ("EPS") is measured as the income or
loss attributable to common stockholders divided by the weighted
average outstanding common shares for the period. Diluted EPS is
similar to basic EPS but presents the dilutive effect on a per share
basis of potential common shares as if they had been converted at the
beginning of the periods presented. Potential common shares that have
an anti-dilutive effect are excluded from diluted EPS.
(continued)
I-9
<PAGE> 11
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The basic and diluted loss attributable to TINTA stockholders per
common share was computed by dividing the net loss attributable to
TINTA stockholders by the weighted average number of common shares
outstanding of TINTA Common Stock for the three months ended March 31,
1998 and 1997 (115.3 million and 118.5 million, respectively).
Potential common shares were not included in the computation of
weighted average shares outstanding because their inclusion would be
anti-dilutive.
At March 31, 1998, there were 15.5 million potential common shares
consisting of fixed and nonvested performance awards and convertible
securities that could potentially dilute future earnings per share
calculations in periods of net income. Such potential common share
amount does not take into account the assumed number of shares that
would be repurchased by TINTA upon the exercise of the fixed and
nonvested performance awards and the conversion of TINTA's convertible
securities. No material changes in the weighted average outstanding
shares or potential common shares occurred after March 31, 1998.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $8.5 million and $10.6 million during the
three months ended March 31, 1998 and 1997, respectively. Cash paid for
income taxes was not significant during the three months ended March
31, 1998 and was $1.7 million during the three months ended March 31,
1997.
The effects of changing the method of accounting for the Company's
ownership interest in Flextech p.l.c. ("Flextech"), effective January
1, 1997, from the consolidation method to the equity method (see note
7) 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>
(continued)
I-10
<PAGE> 12
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(4) 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 9.
(5) 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. (together with CEI, the
"Buyers") for cash proceeds of $120.0 million. In addition, on October
9, 1997, Cablevision issued 3,541,829 shares of stock in the aggregate
to the Buyers for $80.0 million in cash and notes receivable with an
aggregate principal amount of $240.0 million, plus accrued interest at
London Interbank Offered Rate ("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%. Pending its use by TINTA, $102
million of proceeds from the Cablevision Sale were loaned to TCI
pursuant to an unsecured promissory note. See note 10. TINTA recognized
a gain of $48.8 million (excluding related tax expense of $17.1
million) on the Cablevision Sale. TINTA continues to manage Cablevision
(pursuant to a renewable five-year management contract that was entered
into in connection with the Cablevision Sale), and certain material
corporate transactions of Cablevision will require TINTA's approval, so
long as TINTA maintains at least a 16% interest in Cablevision. As a
result of the Cablevision Sale, effective October 1, 1997, TINTA ceased
to consolidate Cablevision and began to account for Cablevision using
the equity method of accounting.
(continued)
I-11
<PAGE> 13
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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, 1997, the Company would have allocated an additional $3.5
million during the three months ended March 31, 1997 of Cablevision's
net earnings to the minority interest.
Summarized unaudited results of operations of Cablevision for the three
months ended March 31, 1998 are as follows (amounts in thousands):
<TABLE>
<S> <C>
Revenue $ 62,341
Operating, selling, general and administrative
expenses (38,772)
Depreciation and amortization (13,077)
---------
Operating income 10,492
Interest expense, net (17,893)
Other, net 2,752
---------
Net loss $ (4,649)
=========
</TABLE>
(6) Investment in Telewest
At March 31, 1998, the Company indirectly owned, through its 50%
ownership interest in TW Holdings, L.L.C., 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 L.0.91 ($1.52) per
share at March 31, 1998.
On April 15, 1998, it was announced that Telewest and General Cable PLC
("General Cable") had agreed to the terms of a proposed merger (the
"Merger Offer") in which holders of General Cable will be offered 1.243
new Telewest shares and L.0.65 ($1.09) in cash for each share of
General Cable. In addition, holders of American Depository Shares of
General Cable ("General Cable ADSs") (each representing five General
Cable shares) will be offered 6.215 new Telewest shares and L.3.25
($5.43) in cash for each share of General Cable ADSs. Based upon
Telewest's closing share price of L.0.89 ($1.49) on April 14,
1998, the Merger Offer is valued at approximately L.649 million
($1.1 billion).
(continued)
I-12
<PAGE> 14
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The cash portion of the Merger Offer will be financed through an offer
to qualifying Telewest shareholders for the purchase of approximately
261 million new Telewest shares at a price of L.0.925 ($1.55) per
share. U S WEST, Inc. ("U S WEST"), TINTA and Cox Communications, Inc.
("Cox") have agreed to subscribe for their full allocation of new
Telewest shares (approximately 69 million shares in the case of TINTA)
and to subscribe on a pro rata basis for any new Telewest shares not
subscribed for by other Telewest shareholders. Together, U S WEST,
TINTA and Cox held 67.9% of the issued and outstanding Telewest
ordinary shares at March 31, 1998. In addition, it is anticipated that
U S WEST, TINTA, Cox and SBC Communications, Inc. ("SBC") will convert
their entire respective holdings of Telewest convertible preference
shares into new Telewest shares. Following the issuance of new Telewest
shares with respect to the above transactions, and assuming the
exercise of all options under General Cable's share option schemes, it
is anticipated that existing Telewest shareholders would hold 79% and
existing General Cable shareholders would hold 21% of the then issued
ordinary share capital of the combined group.
Consummation of the merger is subject to (i) approval by the boards of
directors of Telewest and General Cable, (ii) regulatory approval and
(iii) other conditions. There can be no assurance that such merger will
be consummated or consummated on the terms contemplated by the parties.
As a result of Telewest's 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 three months ended March 31, 1998 and 1997, Telewest
experienced foreign currency transaction gains (losses) of L.6.6
million ($10.9 million using the applicable exchange rate) and
L.(24.1 million) ($40.5 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 1.6500
to 1 and 1.6459 to 1 during the three months ended March 31, 1998 and
1997, respectively. The spot rate used to translate the Company's share
of Telewest's net assets from UK pounds to U.S. dollars was 1.6713 to 1
and 1.6508 to 1 at March 31, 1998 and December 31, 1997, respectively.
(continued)
I-13
<PAGE> 15
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Summarized unaudited results of operations of Telewest are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1998 1997
---------- ---------
amounts in thousands
<S> <C> <C>
Revenue $ 182,200 147,876
Operating, selling, general and
administrative expenses (139,697) (135,983)
Depreciation and amortization (87,983) (72,014)
--------- ---------
Operating loss (45,480) (60,121)
Share of losses of affiliates (11,062) (8,144)
Interest expense, net (68,690) (45,656)
Foreign currency transaction gain (loss)
10,940 (40,525)
Other, net 891 (126)
--------- ---------
Net loss $(113,401) (154,572)
========= =========
</TABLE>
(7) Investments in Other Affiliates
The Company's affiliates other than Telewest and Cablevision 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 has guaranteed notes payable and other obligations of
certain of the Other Affiliates (the "Guaranteed Obligations"). At
March 31, 1998, the U.S. dollar equivalent of the amounts borrowed
pursuant to the Guaranteed Obligations aggregated approximately $98
million.
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 has
guaranteed the performance of the Company's subsidiary that directly
holds the related investment.
(continued)
I-14
<PAGE> 16
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The following table reflects the Company's carrying value (including
receivables) of the Other Affiliates:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- ------------
amounts in thousands
<S> <C> <C>
Flextech (a) $259,091 261,453
Liberty/TINTA LLC
("Liberty/TINTA")(b) 133,541 127,574
MultiThematiques S.A
("MultiThematiques") 69,419 68,335
Jupiter Telecommunications Co., Ltd.
("Jupiter") 48,337 49,197
Bresnan International Partners (Poland), L.P. 25,196 26,110
United International Investments 23,744 26,966
Bresnan International Partners (Chile), L.P. 18,626 22,863
Jupiter Programming Co., Ltd. ("JPC") 16,162 15,582
Other 4,311 4,245
-------- --------
$598,427 602,325
======== ========
</TABLE>
(a) Flextech
At March 31, 1998, the Company owned 57,889,032 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
L.5.40 ($9.03) per share closing price at March 31, 1998
of the Flextech Ordinary Shares on the London Stock Exchange,
the Flextech Ordinary Shares owned by the Company had an
aggregate market value of L.313 million ($523 million) at
March 31, 1998.
(continued)
I-15
<PAGE> 17
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, 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
"Principal Joint Venture" and the "Second Joint Venture", collectively,
the "BBC Joint Ventures") and entered into certain related
transactions. 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. 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.
Flextech has undertaken to finance the working capital requirements of
the Principal Joint Venture, and is obligated to provide the Principal
Joint Venture with a primary credit facility of L.88 million ($147
million) and, subject to certain restrictions, a standby credit
facility of L.30 million ($50 million). Flextech has also agreed
to make available to the Second Joint Venture, if required, funding of
up to L.10 million ($17 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").
If BBC Worldwide requires the Company to perform Flextech's funding
obligations pursuant to the Standby Commitment, then the Company will
acquire Flextech's entire equity interest in the Principal Joint
Venture for L.1.00, and will replace Flextech's directors on the
board of the Principal Joint Venture with representatives of the
Company. Flextech will pay commitment and standby fees to the Company
for its undertaking under the Standby Commitment. If Flextech repays to
the Company all loans 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 L.1.00. The Company may also, within
the same period, require Flextech to reacquire its interest on the same
terms. The Standby Commitment will terminate on the earliest of (i) the
date on which Flextech has met all of its required financial
obligations to the Principal Joint Venture under the primary and
standby credit facilities, or (ii) the date on which Flextech delivers
a bank guarantee of all of its funding obligations to the Principal
Joint Venture.
(continued)
I-16
<PAGE> 18
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, 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.
(b) Liberty/TINTA LLC
Subsidiaries of TINTA and Liberty Media Corporation ("Liberty") own
equal parts of Liberty/TINTA. During 1996, Liberty/TINTA and News
Corporation Limited ("News Corp.") formed a joint venture including a
number of partnerships or other entities under common ownership, ("Fox
Sports International"), to operate currently existing sports services
in Latin America and Australia and a variety of new sports services
throughout the world, excluding the United States, Canada and certain
other defined geographic areas.
During the third quarter of 1997, Fox Sports International distributed
(i) its 35% interest in Torneos y Competencias S.A. ("Torneos") to
Liberty/TINTA 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. As of March 31, 1998,
TINTA had made cash contributions to Torneos on the behalf of
Liberty/TINTA of $48 million. It is anticipated that Liberty's portion
of such capital calls will be repaid to TINTA either in cash or other
economic consideration to be determined at some future date.
Other
Asia Business News (Singapore) PTE Ltd.
On December 31, 1997, the Company surrendered all of its shares of Asia Business
News (Singapore) PTE Ltd. ("ABN") in exchange for a $25 million unsecured note
receivable from ABN (the "ABN Note"). The ABN Note is due on December 31, 2012.
Interest accrues on the ABN Note beginning December 31, 1999 at the rate of 7%
per annum. Due to uncertainty regarding collection of the ABN Note, the Company
recorded the ABN Note at an amount equal to its investment in ABN as of the date
of conversion. No gain was recognized on the above transaction. The ABN Note has
been included with "Other investments" in the accompanying consolidated balance
sheets.
(continued)
I-17
<PAGE> 19
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The following table reflects the Company's share of losses of the Other
Affiliates:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1998 1997
--------------------
amounts in thousands
<S> <C> <C>
Jupiter $ 5,626 4,098
MultiThematiques 5,112 2,225
JPC 3,262 3,081
Liberty/TINTA 2,943 3,218
ABN -- 3,457
Other 5,591 6,367
------- -------
$22,534 22,446
======= ======
</TABLE>
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>
Three months ended March 31, 1998
----------------------------------------------------
Latin America
Asia and and the
Europe Australia(a) Caribbean (b) Total
-------- -------------- --------------- -------
amounts in thousands
Combined Operations
<S> <C> <C> <C> <C>
Revenue $ 84,934 45,911 -- 130,845
Operating, selling, general and
administrative expenses (95,197) (59,957) (196) (155,350)
Depreciation and amortization (5,945) (763) (85) (6,793)
-------- -------- -------- --------
Operating loss (16,208) (14,809) (281) (31,298)
Interest income (expense), net 1,474 (635) (1,361) (522)
Other, net (12,318) 1,245 (4,749) (15,822)
-------- -------- -------- --------
Net loss $(27,052) (14,199) (6,391) (47,642)
======== ======== ======== ========
</TABLE>
(continued)
I-18
<PAGE> 20
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Three months ended March 31, 1997
---------------------------------------------------
Latin America
Asia and and the
Europe Australia(a) Caribbean (b) Total
-------- ------------- --------------- -------
amounts in thousands
Combined Operations
<S> <C> <C> <C> <C>
Revenue $ 60,499 50,837 3,484 114,820
Operating, selling, general and
administrative expenses (77,551) (56,652) (2,086) (136,289)
Depreciation and amortization (6,457) (10,186) (856) (17,499)
-------- -------- -------- --------
Operating income (loss) (23,509) (16,001) 542 (38,968)
Interest expense, net (558) (2,883) (1,918) (5,359)
Other, net 276 (966) (6,797) (7,487)
-------- -------- -------- --------
Net loss $(23,791) (19,850) (8,173) (51,814)
======== ======== ======== ========
</TABLE>
- ----------
(a) The summarized operating results of ABN are included in the combined
operations through December 31, 1997, the date the Company surrendered
all of its shares of ABN in exchange for the ABN Note. See related
discussion above. The summarized operating results of Sky Network
Television New Zealand, Ltd. ("Sky") are included in the combined
operations through September 26, 1997, the date that the Company sold
its interest in Sky.
(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 4.
(continued)
I-19
<PAGE> 21
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(8) Other Investments
The components of other investments are set forth below:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
amounts in thousands
<S> <C> <C>
DTH Ventures (a) $26,484 24,933
Other (b) 7,369 8,079
------- -------
$33,853 33,012
======= =======
</TABLE>
(a) DTH Ventures
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"). Through March 31, 1998,
TINTA had contributed $26.5 million to the DTH Ventures. It is
anticipated that TINTA could be required to make additional
cash contributions to the DTH Ventures. In addition, as of
March 31, 1998, TINTA had guaranteed $16.8 million of the DTH
Ventures' financial obligations.
(b) Other
On January 16, 1998, the Company sold its interest in
TeleCable Nacional, CXA for cash proceeds of $10.0 million.
The Company recognized a gain on such sale of $9.2 million.
(9) Debt
The components of debt are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- ------------
TINTA: amounts in thousands
<S> <C> <C>
Convertible Subordinated
Debentures (a) $345,000 345,000
Subsidiary:
Puerto Rico Subsidiary (b) 45,037 45,042
-------- --------
$390,037 390,042
======== ========
</TABLE>
(continued)
I-20
<PAGE> 22
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, 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. 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 initially loaned to TCI pursuant to an unsecured
promissory note. See note 10.
(b) At March 31, 1998, the Puerto Rico Subsidiary had amounts
outstanding under the Puerto Rico Bank Facility of $45.0
million. 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 (6.75% at
March 31, 1998). 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 $310.5
million at March 31, 1998, the Company believes that the fair value and
the carrying value of the Company's debt were approximately equal at
March 31, 1998.
(continued)
I-21
<PAGE> 23
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(10) Related Party Transactions
Due from related parties
The components of "Due from (to) related parties" are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
amounts in thousands
<S> <C> <C>
TVG LLC Note Receivable (a) $ 63,251 88,707
TVG LLC Credit Facility (b) -- --
Non-Cash Intercompany Account (c) (6,723) (4,823)
Cash Intercompany Account (d) (4,976) (5,772)
-------- --------
$ 51,552 78,112
======== ========
</TABLE>
(a) Proceeds from the Debentures and the Cablevision Sale were
loaned to TCI pursuant to a note receivable pending their use
by TINTA. In December 1997, amounts outstanding under such
note receivable from TCI were assigned to TVG LLC (the "TVG
LLC Note Receivable"). The TVG LLC Note Receivable bears
interest at variable rates (6.2% at March 31, 1998). Principal
and interest is due and payable as mutually agreed from time
to time by TVG LLC and TINTA. During the three months ended
March 31, 1998 and 1997, interest income related to the TVG
LLC Note Receivable aggregated $1.2 million and $2.4 million,
respectively.
(b) 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 initially 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 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 March 31, 1998 and December 31,
1997. 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 $188,000 during each of the three
month periods ended March 31, 1998 and 1997.
(continued)
I-22
<PAGE> 24
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(c) At March 31, 1998, the non-cash intercompany account (the
"Non-Cash Intercompany Account") with TVG LLC was comprised of
$12.8 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 $6.1 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 liability, 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.
(d) 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.
Other Related Party Transactions
Certain key employees of TINTA hold stock options with tandem stock
appreciation rights ("SARs") with respect to certain common stock of
TCI. Estimates of the compensation expense relating to SARs have been
included in the accompanying consolidated statements of operations, but
are subject to future adjustment based upon the vesting and 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 SARs resulted in
increases (decreases) to TINTA's share of TCI's stock compensation
liability of $4.4 million and $(60,000) for the three months ended
March 31, 1998 and 1997, respectively. Such compensation adjustments
are included in corporate general and administrative costs and expenses
in the accompanying consolidated statements of operations. In addition,
for the three months ended March 31, 1998, TINTA made cash payments
relating to its share of TCI's stock compensation obligations of $4.2
million.
Corporate expenses are allocated to TINTA based upon the 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 attributed its rights and
obligations under such services agreement to TVG LLC. The amounts
allocated to the Company for the three months ended March 31, 1998 and
1997 aggregated $498,000 and $416,000, respectively.
(continued)
I-23
<PAGE> 25
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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 $1.5 million and $1.3 million during
the three months ended March 31, 1998 and 1997, respectively. Such
programming charges are included in operating costs and expenses in the
accompanying consolidated statements of operations.
As further described in note 5, effective October 1, 1997, the Company
ceased to consolidate Cablevision and began to account for Cablevision
under the equity method of accounting. 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 three months ended March
31, 1997, such charges aggregated $3.3 million. 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
$700,000 during the three months ended March 31, 1997. The
above-described programming and general and administrative charges are
included in operating costs and expenses in the accompanying
consolidated statements of operations.
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 (pound)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 distribution
equipment was subsequently leased back to TCIC over a five year term
with semi-annual payments of (pound)998,000 ($1.7 million), plus
expenses. Effective October 1, 1997, such distribution equipment was
transferred back to TCIC and the related lease and the TVG LLC
Promissory Note were canceled. During the three months ended March 31,
1997, (i) the U.S. dollar equivalent of interest expense incurred with
respect to the TVG LLC Promissory Note was $392,000, (ii) the U.S.
dollar equivalent of the lease revenue under the above-described lease
agreement aggregated $859,000, and (iii) the Company experienced
foreign currency transaction gains of $922,000 with respect to the TVG
LLC Promissory Note.
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.
(continued)
I-24
<PAGE> 26
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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.
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.
(continued)
I-25
<PAGE> 27
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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. The terms of such arrangement are
not expected to be significantly different than the terms contained in
the New Tax Sharing Agreement.
(11) 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
$42 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, 7 and 8.
As described in note 7, 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.
(continued)
I-26
<PAGE> 28
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). The
Federal Communications Commission ("FCC") adopted certain rate
regulations required by the 1992 Cable Act, and as a result, the Puerto
Rico Subsidiary's basic and tier service rates and its equipment and
installation charges (the "Regulated Services") could be subject to the
jurisdiction of local franchising authorities and the FCC. The
regulations established permissible rates that could be charged by
cable operators for Regulated Services. The regulations further provide
for the methodology for increasing rates generally allowing for
recovery of costs beyond the control of the cable operator (e.g.
inflation and programming costs).
On March 15, 1998, the Puerto Rico Telecommunications Regulatory Board,
the local franchising authority, notified the Puerto Rico Subsidiary
that it was certified to regulated rates for Regulated Services. The
Puerto Rico Subsidiary has submitted its initial rate forms. The board
has requested additional forms and the Puerto Rico Subsidiary has
applied for an extension for delivery of these additional forms. The
Puerto Rico Subsidiary anticipates justifying its rates for Regulated
Services using the cost of service methodology permitted under the
regulations. The rates for Regulated Services will be reviewed in two
franchise areas. By an Order from the FCC, released May 1, 1998,
twenty-one franchise areas served by the Puerto Rico Subsidiary are
subject to effective competition and, therefore, exempt from rate
regulation. If, as a result of the review process, the Puerto Rico
Subsidiary cannot substantiate its rates in the franchise areas being
reviewed, the Puerto Rico Subsidiary could be required to retroactively
reduce its rates in such franchise areas to the appropriate level and
refund the excess portion of rates received.
During the three months ended March 31, 1998, TCI continued its
enterprise-wide comprehensive review of its computer systems and
related software to ensure systems properly recognize the year 2000 and
continue to process business information. The systems being evaluated
include all internal use software and devices and those systems and
devices that manage the distribution of TINTA's products. TCI is
utilizing both internal and external resources to identify, correct or
reprogram, and test systems for year 2000 readiness.
As of March 31, 1998, TCI had inventoried substantially all of its
systems and began its assessment of the systems that will require
remediation or replacement. Inventoried systems include TINTA's
financial systems and related software, its business systems, data and
voice networks, engineering systems and facilities and related software
supporting the distribution of TINTA's products and other equipment and
systems potentially impacted by the year 2000. Additionally, TCI began
efforts to assess potential year 2000 issues of TINTA's affiliated
companies that are not managed by TINTA and continued to have formal
communications with its principal vendors to determine their year 2000
readiness.
(continued)
I-27
<PAGE> 29
TELE-COMMUNICATIONS INTERNATIONAL, INC.
(A Majority-Owned Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCI completed a preliminary assessment of its systems and related
software that support TINTA's financial applications. For those
financial systems and software which will continue to be utilized by
TINTA beyond the year 1999, TINTA has tentatively concluded that such
systems are capable of recognizing the year 2000 and therefore will not
require material remediation or replacement. One of Tinta's financial
applications is externally managed by a third party vendor and such
financial application will be replaced with software provided by such
vendor. No assurances can be given that as TCI completes its year 2000
assessment, additional internally managed systems will not be
identified as requiring remediation or replacement. TCI has completed
an initial assessment of its business systems, including networks,
engineering systems and facilities and related software supporting the
distribution of TINTA's products and has tentatively concluded that
certain portions of those systems will require remediation or
replacement. Although no assurance can be given, management of TCI
anticipates that such systems will be remediated or replaced prior to
the year 2000.
Significant third party vendors whose systems are critical to TINTA's
operations have been identified and/or surveyed and confirmations from
such parties have been received indicating that they are either year
2000 ready or have plans in place to ensure readiness. Management of
TCI intends to have further communication with primary vendors
identified as having systems that are not year 2000 compliant to assess
those vendors' plans for remediating their own year 2000 issues and to
assess the impact on TINTA if such vendors fail to remediate their year
2000 issues.
TCI's assessment of the impact of the year 2000 date change should be
complete by the end of 1998. TCI continues to evaluate the level of
validation it will require of third parties to ensure their year 2000
readiness. Management of TCI has not yet determined the cost associated
with its year 2000 readiness efforts and the related potential impact
on TINTA's results of operations. Amounts expended to date have not
been material, although there can be no assurance that costs ultimately
required to be paid to ensure TINTA's year 2000 readiness will not have
an adverse effect on TINTA's financial position. Additionally, there
can be no assurance that TINTA's systems or the systems of other
companies on which TINTA relies will be converted in time or that any
such failure to convert by TINTA or other companies will not have an
adverse effect on the its financial position.
I-28
<PAGE> 30
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 and financial statements included in Part II of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997. 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 1998 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
entities in which the Company has interests), or industry results, to differ
materially from future results, performance or achievements expressed or implied
by such forward-looking statements. Such risks, uncertainties and other factors
include, among others: the continued strength of multi-channel video and
telecommunication networks and the distribution and production of programming
for multi-channel video distribution; general economic and business conditions
and industry trends; uncertainties inherent in proposed business strategies and
development plans, rapid technological changes, 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; changes in exchange rates; changes in repatriation rights;
governmental upheaval; bribery and corruption; loss of control of operations;
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-29
<PAGE> 31
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Results of Operations
As further described in note 5 to the accompanying consolidated
financial statements, the October 9, 1997 sale of a portion of TINTA's 51%
interest in Cablevision reduced TINTA's interest in Cablevision to 26.24%. As a
result of the Cablevision Sale, the Company, effective October 1, 1997, ceased
to consolidate Cablevision and began 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 for the three months ended March 31, 1997
(dollar amounts in thousands):
<TABLE>
<S> <C>
Revenue $ 56,250
Operating costs and
expenses (33,046)
Depreciation and
amortization (12,780)
--------
Operating income $ 10,424
========
</TABLE>
Revenue
Revenue decreased $53.1 million or 81% during the three month period
ended March 31, 1998, as compared to the corresponding prior year period. Such
decrease is primarily attributable to the deconsolidation of Cablevision.
Revenue of the Puerto Rico Subsidiary increased $4.8 million or 70% during the
three month period ended March 31, 1998, as compared to the corresponding prior
year period. Such increase is due primarily to the Caguas Acquisition ($4.0
million) and a 9% increase in the average number of the Puerto Rico Subsidiary's
basic customers (exclusive of the basic customers acquired in the Caguas
Acquisition).
Operating Costs and Expenses
Operating costs and expenses decreased $30.5 million or 81% during the
three month period ended March 31, 1998, as compared to the corresponding prior
year period. Such decrease is primarily attributable to the deconsolidation of
Cablevision. Operating costs and expenses of the Puerto Rico Subsidiary
increased $2.6 million or 57% during the three months ended March 31, 1998, as
compared to the corresponding prior year period. Such increase is due primarily
to the Caguas Acquisition ($2.2 million) and increased programming costs.
I-30
<PAGE> 32
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Results of Operations (continued)
The Puerto Rico Subsidiary purchases 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 the Puerto Rico Subsidiary.
TINTA incurred corporate, general and administrative expenses of $10.6
million and $2.8 million during the three months ended March 31, 1998 and 1997,
respectively, of which $4.9 million and $356,000 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 $8.0
million and $(34,000) during the three months ended March 31, 1998 and 1997,
respectively, and include increases (decreases) in the Company's share of TCI's
stock compensation liability of $4.4 million and $(60,000), 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.
Depreciation and amortization expense decreased $13.2 million or 84%
during the three month period ended March 31, 1998, as compared to the
corresponding prior year period. Such decrease is the result of the
deconsolidation of Cablevision, which was partially offset by an increase in
depreciation and amortization expense of the Puerto Rico Subsidiary. The
increase in depreciation and amortization expense of the Puerto Rico Subsidiary
is primarily the result of the Caguas Acquisition.
Other Income and Expense
Telewest has incurred losses since its inception. The Company's share
of Telewest's net losses decreased $11.5 million or 28% during the three month
period ended March 31, 1998, as compared to the corresponding prior year period.
Such decrease is primarily attributable to the net effects of (i) changes in
foreign currency transaction gains and losses, (ii) an increase in operating
cash flow resulting from revenue growth and (iii) an increase in interest
expense. 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 gains (losses) of (pound)6.6 million ($10.9 million using
the applicable exchange rate) and (pound)(24.1 million) ($40.5 million using the
applicable exchange rate) during the three months ended March 31, 1998 and 1997,
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.
I-31
<PAGE> 33
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Results of Operations (continued)
As described in note 5 to the accompanying consolidated financial
statements, effective October 1, 1997, TINTA ceased to consolidate Cablevision
and began to account for Cablevision using the equity method of accounting.
TINTA's share of Cablevision's net losses for the three months ended March 31,
1998 was $3.2 million.
The Company's share of losses of the Other Affiliates remained
relatively constant during the three month periods ended March 31, 1998 and
1997, as increased losses for MultiThematiques and Jupiter were partially offset
by a reduction in the Company's share of ABN's losses. As of December 31, 1997,
TINTA surrendered all of its shares of ABN in exchange for a $25 million
unsecured note receivable. Accordingly, effective December 31, 1997, TINTA no
longer accounts for ABN under the equity method of accounting. The Company
expects that the Other Affiliates will continue to incur losses as they continue
to expand their operations and/or launch new services. For additional
information concerning the Other Affiliates, see note 7 to the accompanying
consolidated financial statements.
Interest expense decreased $3.7 million or 39% during the three month
period ended March 31, 1998, as compared to the corresponding prior year period.
Such decrease is due to a reduction in interest expense that is attributable to
the deconsolidation of Cablevision and the payment in 1997 of all remaining
amounts due to MultiThematiques. Such decreases were partially offset by an
increase in interest expense attributable to the Puerto Rico Bank Facility.
Interest income decreased $1.3 million or 41% during the three month
period ended March 31, 1998, as compared to the corresponding prior year period.
Such decrease is due primarily to decreases in the outstanding balance of the
TVG LLC Note Receivable and a decrease in the Company's cash and cash
equivalents.
On January 16, 1998, the Company sold its interest in TeleCable
Nacional, CXA for cash proceeds of $10.0 million. The Company recognized a gain
on such sale of $9.2 million.
Income Taxes
The Company's income tax benefit was $19.4 million and $26.3 million
during the three months ended March 31, 1998 and 1997, respectively. The
effective tax rates associated with such benefits were 34% and 44%,
respectively. See note 10 to the accompanying consolidated financial statements.
Net Losses
The Company reported net losses of $38.0 million and $33.5 million
during the three months ended March 31, 1998 and 1997, respectively. 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 customer bases while maintaining pricing structures and
controlling costs. There can be no assurance that any such customer base
increases will occur.
I-32
<PAGE> 34
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Financial Condition
On April 15, 1998, it was announced that Telewest and General Cable had
agreed to the terms of a Merger Offer in which holders of General Cable will be
offered 1.243 new Telewest shares and (pound)0.65 ($1.09) in cash for each share
of General Cable. In addition, holders of General Cable ADSs (each representing
five General Cable shares) will be offered 6.215 new Telewest shares and
(pound)3.25 ($5.43) in cash for each share of General Cable ADSs. Based upon
Telewest's closing share price of (pound)0.89 ($1.49) on April 14, 1998, the
Merger Offer is valued at approximately (pound)649 million ($1.1 billion).
The cash portion of the Merger Offer will be financed through an offer
to qualifying Telewest shareholders for the purchase of approximately 261
million new Telewest shares at a price of (pound)0.925 ($1.55) per share. U S
WEST, TINTA and Cox have agreed to subscribe for their full allocation of new
Telewest shares (approximately 69 million shares in the case of TINTA) and to
subscribe on a pro rata basis for any new Telewest shares not subscribed for by
other Telewest shareholders. Together, U S WEST, TINTA and Cox hold 67.9% of the
issued and outstanding Telewest ordinary shares at March 31, 1998. In addition,
it is anticipated that U S WEST, TINTA, Cox and SBC will convert their entire
respective holdings of Telewest convertible preference shares into new Telewest
shares. Following the issuance of new Telewest shares with respect to the above
transactions, and assuming the exercise of all options under General Cable's
share option schemes, it is anticipated that existing Telewest shareholders
would hold 79% and existing General Cable shareholders would hold 21% of the
then issued ordinary share capital of the combined group.
Consummation of the merger is subject to (i) approval by the board of
directors of Telewest and General Cable, (ii) regulatory approval and (iii)
other conditions. There can be no assurance that such merger will be consummated
or consummated on the terms contemplated by the parties.
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
agreements to contribute capital or loan money to fund capital expenditures and
other capital requirements of certain affiliates. 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-33
<PAGE> 35
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 March, 31 1998, (i) $63 million due from TVG LLC pursuant
to the TVG LLC Note Receivable, (ii) $200 million of borrowing availability
pursuant to the TVG LLC Credit Facility and (iii) 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.
TINTA held cash and cash equivalents of $685,000 at March 31, 1998.
TINTA believes that such cash and cash equivalents, amounts due under the TVG
LLC Note Receivable, 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 fund the Company's (i)
commitments to its affiliates and (ii) 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-34
<PAGE> 36
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Financial Condition (continued)
The Company's consolidated operating activities provided (used) cash of
$(8.7 million) and $11.7 million during the three months ended March 31, 1998
and 1997, respectively. As discussed in note 5 to the accompanying consolidated
financial statements, effective October 1, 1997, Cablevision's cash flows are no
longer included in the Company's consolidated statements of cash flows. During
the three months ended March 31, 1997, Cablevision's operating activities
provided cash of $5.2 million.
During the three months ended March 31, 1998 and 1997, cash used by the
Company's investing activities aggregated $14.9 million and $45.0 million,
respectively. Such amounts include $31.1 million and $11.7 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 note 7 to the accompanying consolidated financial statements. See
also the consolidated statements of cash flows included in the accompanying
consolidated financial statements.
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.
Because TINTA generally views its foreign operating subsidiaries and
affiliates as long-term investments, TINTA generally does not attempt to hedge
existing investments in its foreign affiliates and subsidiaries. Although TINTA
monitors foreign currency exchange rates with the objective of mitigating its
exposure to unfavorable fluctuations in such rates, TINTA believes that, given
the nature of its business, it is not possible or practical to eliminate TINTA's
exposure to unfavorable fluctuations in foreign currency exchange rates. As of
March 31, 1998, TINTA was not exposed to material near-term losses in future
earnings, fair values or cash flows resulting from derivative financial
instruments.
At March 31, 1998, the Company had aggregate debt of $390.0 million, of
which $45.0 million (11.5%) bears interest at variable rates. Accordingly, in an
environment of rising interest rates, the Company would experience an increase
in interest expense. For additional information concerning the terms of such
debt, see note 9 to the accompanying consolidated financial statements.
I-35
<PAGE> 37
TELE-COMMUNICATIONS INTERNATIONAL, INC.
Material Changes in Financial Condition (continued)
On October 2, 1997, the Company purchased a 5% interest in Torneos for
$12 million. As of March 31, 1998 TINTA had made contributions to Torneos on
behalf of Liberty/TINTA of $48 million. It is anticipated that Liberty's portion
of such capital calls will be repaid to TINTA either in cash or other economic
consideration to be determined at some future date.
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 11 to the accompanying
consolidated financial statements.
During the three months ended March 31, 1998, the Puerto Rico
Subsidiary had capital expenditures of $2.8 million. 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 9 to the accompanying consolidated financial
statements.
On October 9, 1997, the Company sold a portion of its 51% interest in
Cablevision for cash proceeds of $120.0 million. The Cablevision Sale reduced
TINTA's interest in Cablevision to 26.4%. The Company recognized a $48.8 million
gain on the Cablevision Sale. As a result of the Cablevision Sale, effective
October 1, 1997, TINTA ceased to consolidate Cablevision and began to account
for Cablevision using the equity method of accounting.
Pending its use by TINTA, $102 million of proceeds from the Cablevision
Sale were loaned to TCI pursuant to an unsecured promissory note. In December
1997, amounts outstanding under such promissory note were assigned to TVG LLC.
Amounts outstanding under the TVG LLC Note Receivable ($63 million at March 31,
1998) bear interest at variable rates (6.2% at March 31, 1998). Principal and
interest are due and payable as mutually agreed from time to time by TVG LLC and
TINTA.
On January 16, 1998, the Company sold its interest in TeleCable
Nacional, CXA for cash proceeds of $10.0 million. The Company recognized a gain
on such sale of $9.2 million.
I-36
<PAGE> 38
TELE-COMMUNICATIONS INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K filed during quarter ended March 31, 1998 -
none
II-1
<PAGE> 39
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: May 14, 1998 By: /s/ David J. Evans
------------------------------------
David J. Evans
President and Chief Executive Officer
Date: May 14, 1998 By: /s/ Graham Hollis
------------------------------------
Graham Hollis
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
II-2
<PAGE> 40
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 685
<SECURITIES> 0
<RECEIVABLES> 4,072
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 92,692
<DEPRECIATION> 34,317
<TOTAL-ASSETS> 1,381,743
<CURRENT-LIABILITIES> 0
<BONDS> 390,037
0
0
<COMMON> 118,698
<OTHER-SE> 835,118
<TOTAL-LIABILITY-AND-EQUITY> 1,381,743
<SALES> 0
<TOTAL-REVENUES> 12,544
<CGS> 0
<TOTAL-COSTS> 7,194
<OTHER-EXPENSES> 2,476
<LOSS-PROVISION> 0
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</TABLE>
