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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q/A
(Amendment #1)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 0-5550
TELE-COMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
State of Delaware 84-0588868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_____
The number of shares outstanding of the Registrant's common stock (net
of shares held in treasury), as of May 1, 1993, was:
Class A common stock - 483,107,893 shares; and
Class B common stock - 47,258,787 shares.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELE-COMMUNICATIONS, INC.
Date: May 18, 1994 By: /s/ Gary K. Bracken
Gary K. Bracken, Controller
and Senior Vice President
(Principal Financial Officer
and Chief Accounting
Officer)
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(1) Material changes in financial condition:
On January 31, 1994, TCI announced that TCI and Liberty had entered
into a definitive agreement (the "TCI/Liberty Agreement"), dated as of
January 27, 1994 to combine the two companies. As previously
announced, the transaction will be structured as a tax free exchange
of Class A and Class B shares of both companies and preferred stock of
Liberty for like shares of a newly formed holding company, TCI/Liberty
Holding Company ("TCI/Liberty"). TCI shareholders will receive one
share of TCI/Liberty for each of their shares. Liberty common
shareholders will receive 0.975 of a share of TCI/Liberty for each of
their common shares. The transaction is subject to the approval of
both sets of shareholders as well as various regulatory approvals and
other customary conditions. Subject to timely receipt of such
approvals, which cannot be assured, it is anticipated the closing of
such transaction will take place during 1994.
The Company generally finances acquisitions and capital expenditures
through net cash provided by operating and financing activities.
Although amounts expended for acquisitions and capital expenditures
exceed net cash provided by operating activities, the borrowing
capacity resulting from such acquisitions, construction and internal
growth has been and is expected to continue to be adequate to fund the
shortfall. See the Company's consolidated statements of cash flows
included in the accompanying consolidated financial statements.
The Company has received full investment grade status by all
accredited rating agencies. Such ratings have added to the Company's
ability to sell publicly greater amounts of fixed-rate debt securities
with longer maturities. The increased maturities of the debt
securities sold by the Company and the use of the proceeds of such
sales to decrease bank borrowings are expected to improve the
Company's liquidity due to decreased principal payments required in
the next five years.
The Company had approximately $1.9 billion in unused lines of credit
at March 31, 1994, excluding amounts related to lines of credit which
provide availability to support commercial paper. Although the
Company was in compliance with the restrictive covenants contained in
its credit facilities at said date, additional borrowings under the
credit facilities are subject to the Company's continuing compliance
with the restrictive covenants (which relate primarily to the
maintenance of certain ratios of cash flow to total debt and cash flow
to debt service, as defined in the credit facilities) after giving
effect to such additional borrowings. See note 7 to the accompanying
consolidated financial statements for additional information regarding
the material terms of the Company's lines of credit.
(continued)
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
As security for borrowings under one of its credit facilities, the
Company pledged a portion of the common stock it holds of Turner
Broadcasting System, Inc. having a quoted market value of
approximately $488 million at March 31, 1994. Borrowings under this
credit facility (which amounted to $250 million at March 31, 1994) are
due in August of 1994. On or before such date, the Company expects to
repay these borrowings.
One measure of liquidity is commonly referred to as "interest
coverage". Interest coverage, which is measured by the ratio of
operating income before depreciation, amortization and other noncash
credits or charges ($450 million and $467 million for the three months
ended March 31, 1994 and 1993, respectively) to interest expense ($178
million and $181 million for the three months ended March 31, 1994 and
1993, respectively), is determined by reference to the consolidated
statements of operations. The Company's interest coverage ratio was
253% and 258% for the three months ended March 31, 1994 and 1993,
respectively. Management of the Company believes that the foregoing
interest coverage ratio is adequate in light of the consistent and
nonseasonal nature of its cable television operations and the relative
predictability of the Company's interest expense, more than half of
which results from fixed rate indebtedness.
The Company's various partnerships and other affiliates accounted for
under the equity method generally fund their acquisitions, required
debt repayments and capital expenditures through borrowings under and
refinancing of their own credit facilities (which are generally not
guaranteed by the Company) and through net cash provided by their own
operating activities.
Certain subsidiaries' loan agreements contain restrictions regarding
transfers of funds to the parent company in the form of loans,
advances or cash dividends. The amount of net assets of such
subsidiaries exceeds the Company's consolidated net assets. However,
net cash provided by operating activities of other subsidiaries which
are not restricted from making transfers to the parent company have
been and are expected to continue to be sufficient to enable the
parent company to meet its cash obligations.
Approximately thirty-five percent of the franchises held by the
Company, involving approximately 3.8 million basic subscribers, expire
within five years. There can be no assurance that the franchises for
the Company's systems will be renewed as they expire although the
Company believes that its cable television systems generally have been
operated in a manner which satisfies the standards established by the
Cable Communications Policy Act of 1984 for franchise renewal.
However, in the event they are renewed, the Company cannot predict the
impact of any new or different conditions that might be imposed by the
franchising authorities in connection with such renewals.
(continued)
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
The Company is obligated to pay fees for the license to exhibit
certain qualifying films that are released theatrically by various
motion picture studios from January 1, 1993 through December 31, 2002
(the "Film License Obligations"). The aggregate minimum liability
under certain of the license agreements is approximately $105 million.
The aggregate amount of the Film License Obligations under other
license agreements is not currently estimable because such amount is
dependent upon the number of qualifying films produced by the motion
picture studios, the amount of United States theatrical film rentals
for such qualifying films, and certain other factors. Nevertheless,
the Company's aggregate payments under the Film License Obligations
could prove to be significant.
The Company believes that it has complied in all material respects
with the provisions of the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act"), including its rate
setting provisions. However, the Company's rates for regulated
services are subject to review. If, as a result of this process, a
system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund
the excess portion of rates received since September 1, 1993. The
amount of refunds, if any, which could be payable by the Company in
the event that systems' rates are successfully challenged by
franchising authorities is not currently estimable.
The Company is upgrading and installing optical fiber in its cable
systems at a rate such that in three years TCI anticipates that it
will be serving the majority of its customers with state-of-the-art
fiber optic cable systems. The Company's capital budget for 1994 is
$1.2 billion to provide for the continued rebuilding of its cable
systems. The Company has suspended $500 million of its 1994 capital
spending pending further clarification of the Federal Communications
Commission's ("FCC") February 22, 1994 revised benchmark regulations
and the FCC's announced intention to adopt an experimental incentive
plan which would provide cable operators with incentives to upgrade
their systems and offer new services.
Management believes that net cash provided by operating activities,
the Company's ability to obtain additional financing (including its
available lines of credit and its access to public debt markets as an
investment grade debt security issuer) and proceeds from disposition
of assets will provide adequate sources of short-term and long-term
liquidity in the future.
(continued)
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations:
On October 5, 1992, Congress enacted the 1992 Cable Act. In 1993, the
FCC adopted certain rate regulations required by the 1992 Cable Act
and imposed a moratorium on certain rate increases. Such rate
regulations became effective on September 1, 1993. The rate increase
moratorium, which began on April 5, 1993, continues in effect through
May 15, 1994 for franchise areas not subject to regulation. As a
result of such actions, the Company's basic and tier service rates and
its equipment and installation charges (the "Regulated Services") are
subject to the jurisdiction of local franchising authorities and the
FCC. Basic and tier service rates are evaluated against competitive
benchmark rates as published by the FCC, and equipment and
installation charges are based on actual costs. Any rates for
Regulated Services that exceeded the benchmarks were reduced as
required by the 1993 rate regulations. The rate regulations do not
apply to the relatively few systems which are subject to "effective
competition" or to services offered on an individual service basis,
such as premium movie and pay-per-view services.
The Company's new rates for Regulated Services, which were implemented
September 1, 1993, are subject to review by the FCC if a complaint has
been filed or the appropriate local franchising authority if such
authority has been certified. The Company estimated that, on an
annualized basis, implementation of the 1993 rate regulations would
result in a reduction to revenue ranging from $140 million to $160
million. The Company experienced an approximate $35 million revenue
reduction during the three months ended March 31, 1994.
On February 22, 1994, the FCC announced that it had adopted revised
benchmark rate regulations which will apply to rates and charges for
Regulated Services on and after May 15, 1994. The text of such
revised benchmark rate regulations was released on March 30, 1994.
After its initial review of the effect of the FCC further rate
reductions, the Company estimated that its revenue could be further
decreased by approximately $144 million on an annualized basis. The
estimate was based upon the FCC Executive Summary dated February 22,
1994 which stated that those cable television systems electing not to
make a cost-of-service showing will be required to set their rates for
Regulated Services at a level equal to the higher of the FCC's revised
benchmark rates or the operator's September 30, 1992 rates minus 17
percent. Thus, the revised benchmarks may result in additional rate
reductions of up to 7 percent beyond the maximum reductions
established under the FCC's initial benchmark regulations. The actual
reduction in revenue may differ depending on the completion of a more
detailed analysis of the new rate regulations and the Company's rates
and services.
(continued)
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations (continued):
The estimated reductions in revenue resulting from the FCC's actions
in 1993 and 1994 are prior to any possible mitigating factors (none of
which is assured) such as (i) the provision of alternate service
offerings (ii) the implementation of rate adjustments to non-regulated
services and (iii) the utilization of cost-of-service methodologies,
as described below.
The FCC's rate regulations permit cable operators to adjust rates to
account for inflation (except in cable systems that were not required
to reduce their rates a full 17 percent) and increases in certain
external costs, including increases in programming costs and
compulsory copyright fees. However, the FCC is currently proposing
that inflation increases may be required to be offset by a
productivity factor.
The revised benchmark regulations also provide a mechanism for
adjusting rates when regulated tiers are affected by channel additions
or deletions. The FCC has indicated that cable operators adding or
deleting channels on a regulated tier will be required to adjust the
per-channel benchmark for that tier based on the number of channels
offered after the addition or deletion. The FCC also stated that the
additional programming costs resulting from channel additions will be
accorded the same external treatment as other program cost increases,
and that cable operators will be permitted to recover a mark-up on
their programming expenses of up to 7.5 percent.
On February 22, 1994, the FCC also adopted interim "cost-of-service"
rules governing attempts by cable operators to justify higher than
benchmark rates based on unusually high costs. Under this
methodology, cable operators may recover, through the rates they
charge for Regulated Service, their normal operating expenses plus an
interim rate of return of 11.25%, which rate may be subject to change
in the future.
Based on the foregoing, the Company believes that the 1993 and 1994
rate regulations will have a material adverse effect on its results of
operations.
Revenue increased by approximately 4% from 1993 to 1994. Such
increase was the result of growth in subscriber levels within the
Company's cable television systems (4%), the effect of certain
acquisitions made subsequent to March 31, 1993 (1%) and certain new
services and price increases in nonregulated services (2%), net of a
decrease in revenue (3%) due to rate reductions required by rate
regulation implemented pursuant to the 1992 Cable Act. In 1994,
the Company anticipates that it will experience a decrease in the
price charged for those services that are subject to rate regulation
under the 1992 Cable Act.
(continued)
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TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations (continued):
Operating costs and expenses have historically remained relatively
constant as a percentage of revenue. However, due to the
aforementioned program to upgrade and install optical fiber in its
cable systems, the Company's capital expeditures and depreciation
expense have increased. Additionally, the Company incurred $11
million in costs associated with the launch of a new premium
programming service to its subscribers. The Company recorded an
adjustment of $19 million in 1994 to its liability for compensation
relating to stock appreciation rights resulting from a decline in the
market price of the Company's Class A common stock. The Company cannot
determine whether and to what extent increases in the cost of
programming will effect its operating costs. Additionally, the
Company cannot predict how these increases in the cost of programming
will affect its revenue but intends to recover additional costs to the
extent allowed by the FCC's rate regulations as described below.
The Company is a partner in certain joint ventures that are currently
operating and constructing cable television and telephone systems in
the United Kingdom and other parts of Europe. These joint ventures,
which are accounted for under the equity method, have generated losses
of which the Company's share in 1994 and 1993 amounted to $7 million
and $10 million, respectively. In contrast to the Company's domestic
operations, the Company's results of operations in the United Kingdom
and Europe will continue to be subject to fluctuations in the
applicable foreign currency exchange rates. At March 31, 1994, the
Company's stockholders' equity includes a cumulative foreign currency
translation loss of $28 million.
The Company's net earnings of $32 million for the three months ended
March 31, 1994 represented a decrease of $21 million as compared to
the Company's net earnings (before preferred stock dividends) of $53
million for the corresponding period of 1993. Such decrease is
principally the result of the aforementioned increases in operating
costs in 1994 and a decrease in gain on disposition of assets, net of
the increase in revenue and the adjustment to compensation relating
to stock appreciation rights.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TELE-COMMUNICATIONS, INC.
Date: May 13, 1994 By: /s/ JOHN C. MALONE
_____________________________
John C. Malone
President, and Chief
Executive Officer
Date: May 13, 1994 By: /s/ DONNE F. FISHER
_____________________________
Donne F. Fisher
Executive Vice President
Date: May 13, 1994 By: /s/ GARY K. BRACKEN
_____________________________
Gary K. Bracken, Controller
and Senior Vice President
(Principal Financial Officer
and Chief Accounting
Officer)
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