<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
(Amendment No. 1)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____ to ____
Commission File No. 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, par value $1.00 per share
Class B common stock, par value $1.00 per share
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _____
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 aggregate market value of the voting stock held by nonaffiliates
of the Registrant, computed by reference to the last sales price of such stock,
as of the close of trading on February 1, 1994, was $11,190,678,971.
The number of shares outstanding of the Registrant's common stock (net
of shares held in treasury), as of February 1, 1994, was:
Class A common stock - 402,504,309 shares; and
Class B common stock - 47,258,787 shares.
<PAGE> 2
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 23, 1994 By: /s/ Gary K. Bracken
___________________________
Gary K. Bracken, Controller
and Senior Vice President
(Principal Financial Officer
and Chief Accounting Officer)
<PAGE> 3
TELE-COMMUNICATIONS, INC.
1993 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
----
PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . I-16
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . I-17
Item 4. Submission of Matters to a Vote of Security Holders . . . . I-19
PART II
Item 5. Market for Registrant's Common Euity and
Related Stockholder Matters . . . . . . . . . . . . . . . II-1
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . II-4
Item 8. Financial Statements and Supplementary Data . . . . . . . . II-12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . II-12
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . III-1
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . III-4
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . III-11
Item 13. Certain Relationships and Related Transactions . . . . . . . III-16
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . IV-1
<PAGE> 4
PART I.
Item 1. Business.
(a) General Development of Business
Tele-Communications, Inc. ("TCI" or the "Company", which terms, as
used herein, include its consolidated subsidiaries unless the context indicates
otherwise) was incorporated in Delaware on August 20, 1968. The Company and
its predecessors have been engaged in the cable television business since the
early 1950's.
On January 31, 1994, TCI announced that TCI and Liberty Media
Corporation ("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.
(b) Financial Information about Industry Segments
The Company operates in the cable television industry. The Company
sold its motion picture theatre business and certain theatre-related real
estate assets in 1992. Amounts related to the motion picture theatre business
and certain theatre-related real estate assets are discontinued operations and
are set forth separately in the financial statements and related notes included
in Part II of this Report.
I-1
<PAGE> 5
(c) Narrative Description of Business
General. Cable television systems receive video, audio and data
signals transmitted by nearby television and radio broadcast stations,
terrestrial microwave relay services and communications satellites. Such
signals are then amplified and distributed by coaxial cable and optical fiber
to the premises of customers who pay a fee for the service. In many cases,
cable television systems also originate and distribute local programming.
Service Charges. The Company reconfigured its service offerings as
contemplated by the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act"). The Company offers a limited "basic service"
(primarily comprised of local broadcast signals and public, educational and
governmental access channels) and a broader "expanded" tier (primarily
comprised of specialized programming services, in such areas as health, family
entertainment, religion, news, weather, public affairs, education, shopping,
sports and music). The monthly fee for "basic" generally ranges from $8.00 to
$11.00, and the monthly service fee for the "expanded" tier generally ranges
from $10.00 to $12.00. The Company offers "premium services" (referred to in
the cable television industry as "Pay-TV" or "pay-per-view") to its customers.
Such services consist principally of feature films, as well as live and taped
sports events, concerts and other programming. The Company offers Pay-TV
services for a monthly fee generally ranging from $12.00 to $14.00 per service,
except for certain movie or sports services (such as various regional sports
networks and certain pay-TV channels) and pay-per-view movies offered
separately at $1.00 to $5.00 per month or per movie and certain pay-per-view
events offered separately at $10.00 to $40.00 per event. Charges are usually
discounted when multiple Pay-TV services are ordered. The Company does not
generally require basic subscribers to "buy-through" the "expanded" service to
receive a Pay-TV service in its systems.
The Company does not charge for additional outlets in a subscriber's
home. As further enhancements to their cable services, customers may generally
rent converters, with or without a remote control device, for a monthly charge
ranging from $0.50 to $3.00 each, as well as purchase a channel guide for a
monthly charge ranging from $0.85 to $2.00. Also a nonrecurring installation
charge (which is based upon the newly regulated hourly service charges for each
individual cable system) of up to $60.00 is usually charged.
Monthly fees for basic and Pay-TV services to commercial customers
vary widely depending on the nature and type of service. Except under the
terms of certain contracts to provide service to commercial accounts, customers
are free to discontinue service at any time without penalty. As noted below,
the Company's service offerings and rates were affected by rate regulations
issued by the Federal Communications Commission ("FCC") in the spring of 1993
and are expected to be further affected by revised regulations in 1994. See
Federal Regulation below.
I-2
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Subscriber Data. TCI operates its cable television systems either
directly through its regional operating divisions or indirectly through certain
subsidiaries or affiliated companies. Basic and Pay-TV customers served by TCI
and its consolidated subsidiaries are summarized as follows (amounts in
millions):
<TABLE>
<CAPTION>
Basic subscribers at December 31,
----------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Managed through the Company's
regional operating divisions (1) 9.8 9.4 6.4 5.1 4.2
TKR Cable II, Inc. and
TKR Cable III, Inc. (2) .3 .3 -- -- --
United Artists
Entertainment Company ("UAE") (3) -- -- 2.3 2.2 2.0
Other subsidiaries .6 .5 .2 1.2 1.6
---- ---- ---- ---- ----
10.7 10.2 8.9 8.5 7.8
==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Pay TV subscribers at December 31,
----------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Managed through the Company's
regional operating divisions (1) 9.5 8.8 6.1 3.3 3.2
TKR Cable II, Inc. and
TKR Cable III, Inc. (2) .2 .3 -- -- --
UAE (3) -- -- 2.2 1.8 1.6
Other subsidiaries .6 .5 .1 .7 1.0
---- ---- ---- ---- ----
10.3 9.6 8.4 5.8 5.8
==== ==== ==== ==== ====
</TABLE>
(1) In December of 1992, SCI Holdings, Inc. ("SCI") consummated a
transaction (the "Split-Off") that resulted in the ownership of its
cable television systems being split between its two stockholders,
which stockholders were Comcast Corporation and the Company. The
Split-Off was effected by the distribution of approximately 50% of the
net assets of SCI to three holding companies formed by the Company
(the "Holding Companies"). Immediately following the Split-Off, the
Company owned a majority of the common stock of the Holding Companies.
As such, the Company, which previously accounted for its investment in
SCI using the equity method, now consolidates its investment in the
Holding Companies. One of the Holding Companies, TKR Cable I, Inc.,
is managed through the Company's regional operating divisions.
(2) Management of the remaining two Holding Companies was assumed by an
affiliated company of TCI in December of 1992.
(3) Management assumed by the Company's regional operating divisions in
January of 1992.
I-3
<PAGE> 7
As noted above, TCI operates substantially all of its consolidated cable
television systems through five regional operating divisions -- Central, East,
Great Lakes, Southeast and West. The following table sets forth certain
statistical data of TCI's regional operating divisions as of December 31, 1993:
<TABLE>
<CAPTION>
Homes Basic Basic Pay-TV Pay
Division passed subscribers penetration (1) subscriptions (2) penetration (3)
- - -------- ------ ----------- --------------- ----------------- ---------------
(amounts in millions, except for percentages)
<S> <C> <C> <C> <C> <C>
Central (4) 3.7 2.0 54% 2.0 100%
East (5) 3.1 1.9 61% 2.0 105%
Great Lakes (6) 3.6 2.0 56% 1.8 90%
Southeast (7) 3.0 1.6 53% 1.5 94%
West (8) 4.0 2.3 58% 2.2 96%
---- ---- ----
Total 17.4 9.8 56% 9.5 97%
==== ==== ====
</TABLE>
(1) Calculated by dividing the number of basic subscribers by the number
of homes passed.
(2) A basic customer may subscribe to one or more Pay-TV services and the
number of Pay-TV subscriptions reflected represents the total number
of such subscriptions to Pay-TV services.
(3) Calculated by dividing the number of Pay-TV subscriptions by the
number of basic subscribers.
(4) Central includes cable television systems located in Colorado, Kansas,
Nebraska, New Mexico, North Dakota, Oklahoma, South Dakota, Texas and
Wyoming.
(5) East includes cable television systems located in Connecticut,
Delaware, District of Columbia, Maine, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, Pennsylvania, Puerto Rico, Rhode
Island and Vermont.
(6) Great Lakes includes cable television systems located in Illinois,
Indiana, Kentucky, Michigan, Minnesota, Ohio and West Virginia.
(7) Southeast includes cable television systems located in Alabama,
Arkansas, Florida, Georgia, Iowa, Louisiana, Mississippi, Missouri,
North Carolina, South Carolina, Tennessee and Virginia.
(8) West includes cable television systems located in Arizona, California,
Idaho, Nevada, Montana, Oregon, Utah and Washington.
At December 31, 1993, the Company's Central, East, Great Lakes, Southeast and
West divisions operated approximately 53,000, 33,000, 47,000, 43,000 and 44,000
miles, respectively, of coaxial and fiber optic cable distribution systems.
I-4
<PAGE> 8
This subscriber information does not include any amounts related to
cable television systems in which the Company has an investment accounted for
by the equity method or cost method. A basic customer may subscribe to one or
more Pay-TV services and the number of Pay-TV subscribers reflected represents
the total number of such subscriptions to Pay-TV services. TCI, its
subsidiaries and affiliates operate cable television systems throughout the
continental United States and Hawaii and, through certain joint ventures
accounted for under the equity method, have cable television systems and
investments in the United Kingdom and other parts of Europe.
Programming. Generally, the Company does not currently produce any of
the programming for the premium motion picture services or for the specialized
basic cable television channels carried by its cable systems, but does hold
interests in certain cable programming entities, including Turner Broadcasting
System, Inc. (CNN, TBS and TNT), Liberty (Encore and certain regional sports
networks), Discovery Communications, Inc. (Discovery Channel and The Learning
Channel) and Reiss Media Enterprises, Inc. (Request-TV - a pay-per-view
service provider).
Additionally, during 1993, Encore QE Programming Corp. ("QEPC"), a
wholly-owned subsidiary of Encore Media Corporation ("EMC") entered into a
limited partnership agreement with TCI STARZ, Inc. ("TCIS"), a wholly-owned
subsidiary of TCI, for the purpose of developing, operating and distributing
STARZ!, a first-run premium programming service launched in 1994. QEPC is the
general partner and TCIS is the limited partner. Losses are allocated 1% to
QEPC and 99% to TCIS. Profits are allocated 1% to QEPC and 99% to TCIS until
certain defined criteria are met. Subsequently, profits are allocated 20% to
QEPC and 80% to TCIS. TCIS has the option, exercisable at any time and without
payment of additional consideration, to convert its limited partnership
interest to an 80% general partnership interest with QEPC's partnership
interest simultaneously converting to a 20% limited partnership interest. In
addition, during specified periods commencing April 1999 and April 2001,
respectively, QEPC may require TCIS to purchase, or TCIS may require QEPC to
sell, the partnership interest of QEPC in the partnership for a formula-based
price. EMC manages the service and has agreed to provide the limited
partnership with certain programming under a programming agreement whereby the
partnership will pay its pro rata share of the total costs incurred by EMC for
such programming.
The Company has entered into a joint venture with Time Warner
Entertainment Company, L.P. and Sega of America to produce and distribute The
Sega Channel, which would provide 50 video games per month to subscribers, of
which at least five would be educational in nature. The release pattern of
such games would be similar to the film industry, with its traditional cycle of
theatrical, pay-per-view, home video and Pay-TV. In the case of The Sega
Channel, a minimum number of video games would be available soon after they are
released for retail sale, but in limited form. Consumer testing of The Sega
Channel will be conducted in 12 test markets beginning in April of 1994.
I-5
<PAGE> 9
On February, 1994, United Artists European Holdings, Ltd. ("UAEH"), a
wholly-owned subsidiary of the Company, merged all of the issued share capital
and loan stock of each of the following of its wholly-owned subsidiaries into
Flextech p.l.c. ("Flextech"), a United Kingdom cable programming corporation:
Bravo Classic Movies Limited, United Artists Limited (Children's Channel),
United Artists Investments Limited and United Artists Entertainment Limited
(Programming) (collectively, "The European Programming Assets"). In addition
to the European Programming Assets, UAEH agreed to make available to Flextech
an additional L.36.5 million in working capital. The working capital will be
provided as needed and will be used to fund Flextech's programming interests
through the early stages of their development. Flextech's shares trade
publicly on the Unlisted Securities Market of the London Stock Exchange. In
the Merger, UAEH received 52,356,707 ordinary shares of Flextech stock,
representing an approximate 60% interest in Flextech subsequent to the closing
of the Merger.
The Company has entered into long-term agreements with substantially
all of its program suppliers in order to obtain favorable rates for programming
and to protect the Company from unforeseen future increases in the Company's
cost of programming.
Local Franchises. Cable television systems generally are constructed
and operated under the authority of nonexclusive permits or "franchises"
granted by local and/or state governmental authorities. Federal law, including
the Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the 1992
Cable Act, limits the power of the franchising authorities to impose certain
conditions upon cable television operators as a condition of the granting or
renewal of a franchise.
Franchises contain varying provisions relating to construction and
operation of cable television systems, such as time limitations on commencement
and/or completion of construction; quality of service, including (in certain
circumstances) requirements as to the number of channels and broad categories
of programming offered to subscribers; rate regulation; provision of service to
certain institutions; provision of channels for public access and commercial
leased-use; and maintenance of insurance and/or indemnity bonds. The Company's
franchises also typically provide for periodic payments of fees, generally
ranging from 3% to 5% of revenue, to the governmental authority granting the
franchise. Franchises usually require the consent of the franchising authority
prior to a transfer of the franchise or a transfer or change in ownership or
operating control of the franchisee.
Subject to applicable law, a franchise may be terminated prior to its
expiration date if the cable television operator fails to comply with the
material terms and conditions thereof. Under the 1984 Cable Act, if a
franchise is lawfully terminated, and if the franchising authority acquires
ownership of the cable television system or effects a transfer of ownership to
a third party, such acquisition or transfer must be at an equitable price or,
in the case of a franchise existing on the effective date of the 1984 Cable
Act, at a price determined in accordance with the terms of the franchise, if
any.
I-6
<PAGE> 10
In connection with a renewal of a franchise, the franchising authority
may require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the 1984
Cable Act and other applicable Federal, state and local law. The 1984 Cable
Act, as supplemented by the renewal provisions of the 1992 Cable Act,
establishes an orderly process for franchise renewal which protects cable
operators against unfair denials of renewals when the operator's past
performance and proposal for future performance meet the standards established
by the 1984 Cable Act. The Company believes that its cable television systems
generally have been operated in a manner which satisfies such standards and
allows for the renewal of such franchises; however, there can be no assurance
that the franchises for such systems will be successfully renewed as they
expire.
Most of the Company's present franchises had initial terms of
approximately 10 to 15 years. The duration of the Company's outstanding
franchises presently varies from a period of months to an indefinite period of
time. Approximately 1,400 of the Company's franchises expire within the next
five years. This represents approximately thirty-five percent of the
franchises held by the Company and involves approximately 3.8 million basic
subscribers.
Technological Changes. Cable operators have traditionally used
coaxial cable for transmission of television signals to subscribers. Optical
fiber is a technologically advanced transmission medium capable of carrying
cable television signals via light waves generated by a laser. The Company is
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 systems, which facilitate
digital transmission of television signals as discussed below, will have
optical fiber to the neighborhood nodes with coaxial cable distribution
downstream from that point.
Compressed digital video technology converts as many as ten analog
signals (now used to transmit video and voice) into a digital format and
compresses such signals (which is accomplished primarily by eliminating the
redundancies in television imagery) into the space normally occupied by one
analog signal. The digitally compressed signal will be uplinked to a
satellite, which will send the signal back down to a cable system's headend to
be distributed, via optical fiber and coaxial cable, to the customers home. At
the home, a set-top terminal will convert the digital channel back into analog
channels that can be viewed on a normal television set. The Company is
establishing a national center to uplink, encrypt and authorize the reception
of compressed digital television services. The Company intends to begin
offering such technology to its cable subscribers as the set-top terminals
become available for distribution. The Company is currently negotiating with
cable programmers to allow for the Company to digitize, encrypt and authorize
their signals although there can be no assurance that the terms will be
favorable to the Company.
The Company and Microsoft Corporation ("Microsoft") announced that
they have agreed in principle to jointly conduct a technology trial and a
market trial of various broadband interactive network services using upgraded
TCI cable television systems and certain Microsoft computer systems to provide
the services. The technology trial, which will be conducted among TCI and
Microsoft employees in the greater Seattle area commencing in the fourth
quarter of 1994, will test the reliability and scalability of Microsoft's
software architecture for interactive broadband networking and its operating
system software. The market trial will be conducted with TCI residential cable
customers in the Seattle and Denver areas, commencing in 1995, and will test
consumer reaction to and interaction with the system and service features.
I-7
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The Company and three other cable operators own Teleport
Communications Group, Inc. ("Teleport"). Teleport and its owners currently are
negotiating with another cable operator the terms upon which it would acquire
an interest in Teleport. Teleport provides local telecommunications services
to businesses over fiber optic networks in 18 metropolitan areas throughout the
United States, including New York and San Francisco.
Competition. Cable television competes for customers in local markets
with other providers of entertainment, news and information. The competitors
in these markets include broadcast television and radio, newspapers, magazines
and other printed material, motion picture theatres, video cassettes and other
sources of information and entertainment including directly competitive cable
television operations. The passage of the 1992 Cable Act was designed to
increase competition in the cable television industry.
There are alternative methods of distribution of the same or similar
video programming offered by cable television systems. Further, these
technologies have been encouraged by Congress and the FCC to offer services in
direct competition with existing cable systems. In addition to broadcast
television stations, the Company competes in a variety of areas with other
service providers that offer Pay-TV and other satellite-delivered programming
to subscribers on a direct over-the-air basis. Multi-channel programming
services are distributed by communications satellites directly to home
satellite dishes ("HSDs"). Cable programmers have developed marketing efforts
directed to HSD owners and numerous companies, including a subsidiary of the
Company called Netlink USA (one of the larger distributors to HSD owners), make
programming packages available to these viewers. The Company estimates that
there are currently in excess of 3.5 million HSDs in the United States, most of
which are in the 6 to 10 foot range. Medium power and higher power
communications satellites ("DBS") using higher frequencies transmit signals
that can be received by dish antennas much smaller in size. The Company has an
interest in an entity, Primestar Partners, that distributes a multi-channel
programming service via a medium power communications satellite to HSDs of
approximately 3 feet in size. Such service currently serves an estimated
70,000 HSDs in the United States. Two other service providers plan to offer
multi-channel programming services to HSDs in 1994 via a high power
communications satellite that will require a dish antenna of only approximately
18 inches. Additionally, such DBS operators have acquired the right to
distribute all of the significant cable television services. The Company's
application for a license to launch and operate a high power direct broadcast
satellite was granted by the FCC in 1992 and the satellite is currently under
construction. Competition from both medium and high power DBS services could
become substantial as developments in technology continue to increase satellite
transmitter power, and decrease the cost and size of equipment needed to
receive these transmission.
DBS has advantages and disadvantages as an alternative means of
distribution of video signals to the home. Among the advantages are that the
capital investment (although initially high) for the satellite and uplinking
segment of a DBS system is fixed and does not increase with the number of
subscribers receiving satellite transmissions; that DBS is not currently
subject to local regulation of service and prices or required to pay franchise
fees; and that the capital costs for the ground segment of a DBS system (the
reception equipment) are directly related to and limited by the number of
service subscribers. DBS's disadvantages presently include the inability to
tailor the programming package to the interests of different geographic
markets, such as providing local news, other local origination services and
local broadcast stations; signal reception being subject to line of sight
angles; and intermittent interference from atmospheric conditions and
terrestrially generated radio frequency noise. The effect of competition from
these services cannot be predicted. The Company nonetheless assumes that such
competition could be substantial in the near future.
I-8
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The 1984 Cable Act, FCC rules and the 1982 Federal court Consent
Decree (which settled the 1974 antitrust suit against AT&T) prohibit telephone
companies from providing video programming and other information services
directly to subscribers in their telephone service areas (except in limited
circumstances in rural areas). In Chesapeake & Potomac Telephone Company of
Virginia v. United States, the United States District Court for the Eastern
District of Virginia held on August 24, 1993 that the cross-entry prohibition
in the 1984 Cable Act is unconstitutional as a violation of the telephone
company's First Amendment right to free expression. The Court's decision has
been appealed to the United States Court of Appeals for the Fourth Circuit.
Since the Court rendered its decision, however, other telephone companies have
filed a number of actions in courts throughout the United States, similarly
seeking to invalidate the cross-entry prohibition. Certain proposals are also
pending before the FCC and Congress which would eliminate or relax these
restrictions on telephone companies. If the current cross-entry restrictions
are removed or relaxed, the Company could face increased competition from
telephone companies which, in most cases, have greater financial resources than
the Company. Certain major telephone companies have announced plans to acquire
cable television systems or provide video services to the home through fiber
optic technology.
The FCC authorized the provision of so-called "video-dialtone"
services by which independent video programmers may deliver services to the
home over telephone-provided circuits, thereby by-passing the local cable
system or other video provider. Under the FCC decision, which is now the
subject of reconsideration and a federal appellate challenge, such services
would require no local franchise agreement or payment to the city or local
governmental authority. Although telephone companies providing
"video-dialtone" under the existing rules are allowed only a limited financial
interest in programming services and must limit their role largely to that of a
traditional "common carrier," the current status of these rules is uncertain
under the Chesapeake & Potomac Telephone Company decision. Telephone companies
have filed numerous applications with the FCC for authorization to construct
video-dialtone systems and provide such services. This alternative means of
distribution of video services to the consumer's home represents a direct
competitive threat to the Company.
Another alternative method of distribution is the multi-channel
multi-point distribution systems ("MMDS"), which deliver programming services
over microwave channels received by subscribers with a special antenna. MMDS
systems are less capital intensive, are not required to obtain local franchises
or pay franchise fees, and are subject to fewer regulatory requirements than
cable television systems. Although there are relatively few MMDS systems in
the United States that are currently in operation or under construction,
virtually all markets have been licensed or tentatively licensed. The FCC has
taken a series of actions intended to facilitate the development of wireless
cable systems as alternative means of distributing video programming, including
reallocating the use of certain frequencies to these services and expanding the
permissible use of certain channels reserved for educational purposes. The
FCC's actions enable a single entity to develop an MMDS system with a potential
of up to 35 channels, and thus compete more effectively with cable television.
Developments in compression technology have significantly increased the number
of channels that can be made available from other over-the-air technologies.
I-9
<PAGE> 13
Within the cable television industry, cable operators may compete with
other cable operators or others seeking franchises for competing cable
television systems at any time during the terms of existing franchises or upon
expiration of such franchises in expectation that the existing franchise will
not be renewed. The 1992 Cable Act promotes the granting of competitive
franchises. An increasing number of cities are exploring the feasibility of
owning their own cable systems in a manner similar to city-provided utility
services. Currently one of the Company's franchises is being over built by a
city and in another franchise the franchising authority granted a second cable
franchise to a competing cable operator. The Company believes that this type
of competitive threat may increase in the future.
The Company also competes with Master Antenna Television ("MATV")
systems and Satellite MATV ("SMATV") systems, which provide multi-channel
program services directly to hotel, motel, apartment, condominium and similar
multi-unit complexes within a cable television system's franchise area,
generally free of any regulation by state and local governmental authorities.
In addition to competition for subscribers, the cable television
industry competes with broadcast television, radio, the print media and other
sources of information and entertainment for advertising revenue. As the cable
television industry has developed additional programming, its advertising
revenue has increased. Cable operators sell advertising spots primarily to
local and regional advertisers.
The Company has no basis upon which to estimate the number of cable
television companies and other entities with which it competes or may
potentially compete. There are a large number of individual and multiple
system cable television operators in the United States but, measured by the
number of basic subscribers, the Company is the largest provider of cable
television services.
The full extent to which other media or home delivery services will
compete with cable television systems may not be known for some time and there
can be no assurance that existing, proposed or as yet undeveloped technologies
will not become dominant in the future.
Regulation and Legislation. The operation of cable television systems
is extensively regulated through a combination of Federal legislation and FCC
regulations, by some state governments and by most local government franchising
authorities such as municipalities and counties. The regulation of cable
television systems at the federal, state and local levels is subject to the
political process and has been in constant flux over the past decade. This
process continues in the context of legislative proposals for new laws and the
adoption or deletion of administrative regulations and policies. Further
material changes in the law and regulatory requirements must be anticipated and
there can be no assurance that the Company's business will not adversely be
affected by future legislation, new regulation or deregulation.
I-10
<PAGE> 14
Federal Regulation. The 1984 Cable Act established national policy
and, in some cases, governing standards regarding the regulation of cable
television in the areas of ownership (including the ownership of other media of
mass communications), channel usage, franchising, subscriber charges and
services, subscriber privacy, equal employment opportunity ("EEO"), technical
standards and comprehensive reporting requirements. Among other things, the
1984 Cable Act (a) requires cable television systems with 36 or more
"activated" channels to reserve a percentage of such channels for commercial
use by unaffiliated third parties; (b) permits franchise authorities to require
the cable operator to provide channel capacity, equipment and facilities for
public, educational and governmental access; (c) limits the amount of fees
required to be paid by the cable operator to franchise authorities to a maximum
of 5% of annual gross revenues; and (d) regulates the revocation and renewal of
franchises as described above.
On October 5, 1992, Congress enacted the 1992 Cable Act. The 1992
Cable Act greatly expands federal and local regulation of the cable television
industry. Certain of the more significant areas of regulation imposed by the
1992 Cable Act are discussed below.
Rate Regulation. 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 now under 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
new 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.
On February 22, 1994, the FCC announced that it had adopted revised
benchmark rate regulations pursuant to which those cable 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. Although the text of the FCC's revised benchmark
regulations has not been released, it is currently anticipated that the rules
will take effect on or about May 15, 1994.
The FCC has indicated that certain systems with relatively low rates
for Regulated Services (defined as systems whose rates would be below the
benchmark after subtracting 17% from their September 30, 1992 rates), and
systems owned by small operators (i.e. operators whose systems serve a total
of 15,000 or fewer subscribers) will not be required immediately to reduce
their regulated rates by the full 17 percent. However, to the extent that such
systems do not reduce regulated rates by the full 17 percent, such lesser rate
reductions will be offset against future inflation adjustments pending
completion of additional cost studies by the FCC.
The FCC's benchmark rate regulations permit cable operators to adjust
rates to account for inflation and increases in certain external costs,
including increases in programming costs and compulsory copyright fees, to the
extent such increases exceed the rate of inflation. However, these increases
may be required to be offset by a productivity factor.
I-11
<PAGE> 15
The revised rules adopted by the FCC on February 22, 1994 also modify
the regulation of packaged a-la-carte programming services. The FCC previously
had indicated that a-la-carte services (i.e. program services which are
available to subscribers on an individual basis rather than as part of a
regulated service tier) could be packaged without being regulated under certain
conditions. However, the FCC indicated that under its revised rules it will
examine such "packaged a la carte" offerings on a case- by-case basis to
determine whether they constitute evasions of its rate regulations.
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.
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. The FCC stated that under its interim
cost-of-service rules, a cable operator may recover through rates for Regulated
Services its normal operating expenses plus an interim rate of return equal to
11.25 percent, which rate may be subject to change in the future. However, the
FCC has presumptively excluded from the rate-base acquisition costs above the
book value of tangible assets and of allowable intangible assets at the time of
acquisition, has declined to prescribe depreciation rates and has suggested
that the rules will have limited usefulness for cable operators. The FCC also
adopted rules governing transactions between cost-of-service regulated cable
operators and their affiliates.
The texts of the FCC's revised benchmark and cost-of-service
regulations have not been released. In addition, key portions of these
regulations are subject to change during the course of ongoing rulemaking
proceedings before the FCC. Further, the revised rate regulations have been
challenged in court. However, based on the foregoing, the Company believes the
new rate regulations will have a material adverse effect on its net earnings.
The FCC also announced it intends to adopt an experimental incentive
plan which would provide cable operators with incentives to upgrade their
systems and offer new services.
I-12
<PAGE> 16
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act
granted broadcasters a choice of "must carry" rights or "retransmission
consent" rights. As of October of 1993, cable operators were required to
secure permission from broadcasters that elected retransmission consent rights
before retransmitting the broadcaster's signals. Established "superstations"
were not granted such rights. Local and distant broadcasters can require cable
operators to make payments as a condition to carriage of such broadcasters'
station on a cable system. The 1992 Cable Act imposed obligations to carry
"local" broadcast stations if such stations chose a "must carry" right as
distinguished from the "retransmission consent" right described above. The
rules adopted by the FCC provided for mandatory carriage by cable systems after
September 1, 1993, of all local full-power commercial television broadcast
signals (up to one-third of all channels) including the signals of stations
carrying home-shopping programming, and, depending on a cable system's channel
capacity, all non-commercial local television broadcast signals, or at the
option of commercial broadcasters after October 6, 1993, the right to deny such
carriage unless the broadcaster consented. Although similar "must carry"
regulations adopted by the FCC have been held unconstitutional by federal
appellate courts on two prior occasions and the Supreme Court declined review,
the "must carry" provisions of the 1992 Cable Act were upheld by a three-judge
panel of the United States District Court of Columbia in Turner Broadcasting
System, Inc. v. FCC on April 8, 1993. The Supreme Court granted certiorari on
September 28, 1993 to review the District Court's decision and oral argument
was held on January 12, 1994. It is anticipated a decision will be issued
later this year. The Company is currently retransmitting the signals of
broadcasters who chose a "must carry" right and the signals of broadcasters
electing negotiated "retransmission consent" rights.
Ownership Regulations. The 1992 Cable Act required the FCC to (i)
promulgate rules and regulations establishing reasonable limits on the number
of cable subscribers which may be served by a multiple systems cable operator;
(2) prescribe rules and regulations establishing reasonable limits on the
number of channels on a cable system that will be allowed to carry programming
in which the owner of such cable system has an attributable interest; and (3)
consider the necessity and appropriateness of imposing limitations on the
degree to which multichannel video programming distributors (including cable
operators) may engage in the creation or production of video programming. On
September 23, 1993, the FCC adopted regulations establishing a 30 percent limit
on the number of homes passed nationwide that a cable operator may reach
through cable systems in which it holds an attributable interest (attributable
for these purposes if its ownership interest therein is five percent or greater
or if there are any common directors) with an increase to 35 percent if the
additional cable systems are minority controlled. However, the FCC stayed the
effectiveness of its ownership limits pending the appeal of a September 16,
1993 decision by the United States District Court for the District of Columbia
which, among other things, found unconstitutional the provision of the 1992
Cable Act requiring the FCC to establish such ownership limits. If the
ownership limits are determined on appeal to be constitutional, they may affect
the Company's ability to acquire interests in additional cable systems in the
future.
I-13
<PAGE> 17
On September 23, 1993, the FCC also adopted regulations limiting
carriage by a cable operator of national programming services in which that
operator holds an attributable interest (using the same attribution standards
as were adopted for its limits on the number of homes passed nationwide that a
cable operator may reach through its cable systems) to 40 percent of the first
75 activated channels on each of the operator's systems. The rules provide for
the use of two additional channels or a 45 percent limit whichever is greater,
provided that the additional channels carry minority controlled programming
services. The regulations also grandfather existing carriage arrangements
which exceed the channel limits, but require new channel capacity to be devoted
to unaffiliated programming services until the system achieves compliance with
the regulations. Channels beyond the first 75 activated channels are not
subject to such limitations, and the rules do not apply to local or regional
programming services. These rules, which currently are subject to petitions
for reconsideration pending before the FCC, may limit carriage of programming
services in which the Company or Liberty has an interest on certain systems of
cable operators affiliated with the Company. As new affiliated programming is
proposed to be added in a particular system, the Company will be required to
analyze the channel limits specific to such system and, as a result of such
analysis, may be precluded from adding new affiliated programming.
In the same rulemaking, the FCC concluded that additional restrictions
on the ability of multichannel distributors to engage in the creation or
production of video programming presently are unwarranted.
Under the 1992 Cable Act and the FCC's regulations, cable operators
may not hold a license for an MMDS nor acquire a SMATV system within the same
geographic area in which it provides cable service. Additionally, cable
operators are prohibited, subject to certain exceptions, from selling a cable
system within 3 years of acquisition or construction of such cable system.
Buy-through Prohibition. The 1992 Cable Act prohibits cable systems
which have addressable converters or certain other security devices in place
from requiring cable subscribers to purchase service tiers above basic as a
condition to purchasing premium movie channels or pay-per-view. If cable
systems do not have such security devices in place, they are given up to 10
years to comply. The Company has, however, generally complied with the
provision in its systems, regardless of addressability.
Program Acquisition. On April 2, 1993, the FCC adopted regulations
implementing the program access provisions of the 1992 Cable Act. Essentially,
these regulations are designed to insure that video programming distributors
competing with cable operators have access to cable television programming
services at non-discriminatory prices and will limit unfair practices,
programming contracts, and discriminatory contract terms (including excessive
volume discounts).
The rules apply the prohibition against "unfair" practices to all
programmers whether vertically integrated or not. If a vertically integrated
program supplier is challenged for price discrimination, it must justify the
price differential based on several factors. New exclusive contracts involving
vertically integrated programmers will be prohibited in most cases unless the
FCC first determines the contract serves the public interest. However,
existing service contracts executed prior to June 1, 1990 granting exclusive
rights will remain in effect. The FCC allowed a transition period until the
fall of 1993 to bring other existing programming contracts into compliance with
the regulations.
Customer Service/Technical Standards. As required by the 1992 Cable
Act, the FCC has adopted comprehensive regulations establishing minimum
standards for customer service and technical system performance. Franchising
authorities are allowed to enforce stricter customer service requirements than
the FCC standards.
I-14
<PAGE> 18
The 1992 Cable Act contains numerous other regulatory provisions which
together with the 1984 Cable Act create a comprehensive regulatory framework.
Violation by a cable operator of the statutory provisions or the rules and
regulations of the FCC can subject the operator to substantial monetary
penalties and other significant sanctions such as suspension of licenses and
authorizations, issuance of cease and desist orders and imposition of penalties
that could be of severe consequence to the conduct of a cable operator's
business.
Many of the specific obligations imposed on the operation of cable
television systems under these laws and regulations are complex, burdensome and
increase the Company's costs of doing business. Numerous petitions have been
filed with the FCC seeking reconsideration of various aspects of the
regulations implementing the Cable Act. Petitions for judicial review of
regulations adopted by the FCC, as well as other court challenges to the 1992
Cable Act and the FCC's regulations, also remain pending. The Company is
uncertain how the courts and/or FCC will ultimately rule or whether such
rulings will materially change any existing rules or statutory requirements.
Further, virtually all of these laws and regulations are subject to revision at
the discretion of the appropriate governmental authority.
The Company has two-way communications stations, microwave relay
stations and receive-only earth stations for reception of satellite signals,
which are individually licensed by the FCC for a specific term. Such licenses
are essential to the conduct of the Company's business and must periodically be
renewed by the Company. No assurance can be given that such renewals will be
granted by the FCC.
Pursuant to lease agreements with local public utilities, the cable
facilities in most of the Company's cable television systems are generally
attached to utility poles or are in underground ducts controlled by the utility
owners. The rates and conditions imposed on the Company for such attachments
or occupation of utility space are generally subject to regulation by the FCC
or, in some instances, by state agencies, and are subject to change.
Copyright Regulations. The Copyright Revision Act of 1976 (the
"Copyright Act") provides cable television operators with a compulsory license
for retransmission of broadcast television programming without having to
negotiate with the stations or individual copyright owners for retransmission
consent for the programming. However, see Regulation of Carriage of Broadcast
Stations regarding the imposition of retransmission consent for broadcast
stations. The availability of the compulsory license is conditioned upon the
cable operators' compliance with applicable FCC regulations, certain reporting
requirements and payment of appropriate license fees, including interest
charges for late payments, pursuant to the schedule of fees established by the
Copyright Act and regulations promulgated thereunder. The Copyright Act also
empowers the Copyright Office to periodically review and adjust copyright
royalty rates based on inflation and/or petitions for adjustments due to
modifications of FCC rules. The FCC has recommended to Congress the abolition
of the compulsory license for cable television carriage of broadcast signals, a
proposal that has received substantial support from members of Congress. Any
material change in the existing statutory copyright scheme could significantly
increase the costs of programming and could have an adverse effect on the
business interests of the Company.
I-15
<PAGE> 19
State and Local Regulation. Cable television systems are generally
licensed or "franchised" by local municipal or county governments and, in some
cases, by centralized state authorities with such franchises being given for
fixed periods of time subject to extension or renewal largely at the discretion
of the issuing authority. The specific terms and conditions of such franchises
vary significantly depending on the locality, population, competitive services,
and a host of other factors. While this variance takes place even among
systems of essentially the same size in the same state, franchises generally
are comprehensive in nature and impose requirements on the cable operator
relating to all aspects of cable service including franchise fees, technical
requirements, channel capacity, consumer service standards, "access" channel
and studio facilities, insurance and penalty provisions and the like. Local
franchise authorities generally control the sale or transfer of cable systems
to third parties and, although the 1992 Cable Act sought to limit such transfer
review, the transfer process still affords local governmental officials some
power to affect the disposition of the cable property as well as to obtain
other concessions from the operator. The franchising process, like the federal
regulatory climate, is highly politicized and no assurances can be given that
the Company's franchises will be extended or renewed or that other problems
will not be engendered at the local level. There appears to be a growing trend
for local authorities to impose more stringent requirements on cable operators
often increasing the costs of doing business. The 1984 Cable Act grants
certain protective procedures in connection with renewal of cable franchises,
which procedures were further clarified by the renewal provisions of the 1992
Cable Act.
GENERAL
Legislative, administrative and/or judicial action may change all or
portions of the foregoing statements relating to competition and regulation.
The Company has not expended material amounts during the last three
fiscal years on research and development activities.
There is no one customer or affiliated group of customers to whom
sales are made in an amount which exceeds 10% of the Company's consolidated
revenue.
Compliance with Federal, state and local provisions which have been
enacted or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.
At December 31, 1993, the Company had approximately 24,000 employees.
Of these employees, approximately 500 were located in its corporate
headquarters and most of the balance were located at the Company's various
facilities in the communities in which the Company owns and/or operates cable
television systems.
(d) Financial Information about Foreign & Domestic Operations and Export
Sales
The Company has neither material foreign operations nor export sales.
Item 2. Properties.
The Company owns its executive offices in a suburb of Denver,
Colorado. It leases most of its regional and local operating offices. The
Company owns many of its head-end and antenna sites. Its physical cable
television properties, which are located throughout the United States, consist
of system components, motor vehicles, miscellaneous hardware, spare parts and
other components.
I-16
<PAGE> 20
The Company's cable television facilities are, in the opinion of
management, suitable and adequate by industry standards. Physical properties
of the Company are not held subject to any major encumbrance.
Item 3. Legal Proceedings.
There are no material pending legal proceedings to which the Company
is a party or to which any of its property is subject, except as follows:
Viacom International, Inc. v. Tele-Communications, Inc., Liberty Media
Corporation, Satellite Services, Inc., Encore Media Corporation, NetLink USA,
Comcast Corporation, and QVC Network, Inc. This suit was filed on September
23, 1993 in the United States District Court for the Southern District of New
York, and the complaint was amended on November 9, 1993. The amended complaint
alleges that the Company violated the antitrust laws of the United States and
the State of New York, violated the 1992 Cable Act, breached an affiliation
agreement, and tortiously interfered with the Viacom Inc.-Paramount
Communications, Inc. ("Paramount") merger agreement and with plaintiff's
prospective business advantage. The amended complaint further alleges that
even if plaintiff is ultimately successful in its bid to acquire Paramount, its
competitive position will still be diminished because the Company, through
Liberty, will have forced plaintiff to expend additional financial resources to
consummate the acquisition. Plaintiff is seeking permanent injunctive relief
and actual and punitive or treble damages of an undisclosed amount. Plaintiff
claims that the Company, along with Liberty, has conspired to use its monopoly
power in cable television markets to weaken unaffiliated programmers and deny
access to essential facilities necessary for distributing programming to cable
television systems. Plaintiff also alleges that the Company has conspired to
deny essential technology necessary for distributing programming to owners of
home satellite dishes. Plaintiff claims that the Company is engaging in these
alleged conspiracies in an attempt to monopolize alleged national markets for
non-broadcast television programming and distribution. Based upon the facts
available, management believes that, although no assurance can be given as to
the outcome of this action, the ultimate disposition should not have a material
adverse effect upon the financial condition of the Company.
Ranlee Communications, Inc. v. United Artists Telecommunications, Inc.
and United Artists Communications, Inc. This matter was filed in the United
States District Court for the Eastern District of New York in September of
1989. Plaintiff alleges that defendant United Artists Telecommunications,
Inc., by and through its parent United Artists Communications, Inc., the
predecessor company of UAE (now a wholly-owned subsidiary of TCI), entered into
an agreement with plaintiff wherein plaintiff was engaged as a manager to
order, install and supervise telephone switching systems throughout the United
States, and to order, install and supervise pay telephones in the Greater New
York Metropolitan area, and that the defendants did wrongfully and in bad faith
terminate the contract. Plaintiff seeks damages in excess of $100 million.
Discovery has been completed. The defendants have filed a motion for summary
judgement which is pending. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of this
action, the ultimate disposition should not have a material adverse effect upon
the financial condition of the Company.
I-17
<PAGE> 21
On November 10, 1992, a complaint, captionedThe City of Chicago
Heights, Illinois and Walter J. Pietrucha v. Nick Lobue, et. al., was filed in
the Circuit Court of Cook County, Illinois. The complaint named numerous
defendants including former public officials of the City of Chicago Heights and
various companies that entered into contracts with the City during the period
from 1976 to 1991, and alleged that such contracts were procured or maintained
in violation of Illinois state law through a series of bribes, kickbacks and
breaches of fiduciary duties. With respect to the Company, the complaint
alleged that an unidentified attorney obtained a 15-year cable television
franchise for the City of Chicago Heights on behalf of a subsidiary of the
Company in 1981 as a result of bribes and illegal kickbacks made to certain of
the public officials named as defendants in the action. Effective December 30,
1993, a settlement agreement was executed which resolved all claims against the
Company. Pursuant to that settlement agreement, plaintiffs' claims against the
Company were dismissed with prejudice on January 27, 1994. This represents the
final resolution of this matter and, accordingly, this case will not be
reported in future filings.
Tyrone Belgrave, et al., vs. Tele-Communications, Inc., et al. On
February 8, 1994, Tyrone Belgrave and 26 other current or former employees of
United Cable Television of Baltimore Limited Partnership filed suit in the
Circuit Court for Baltimore City against Tele-Communications, Inc., TCI East,
Inc., UCTC of Baltimore, Inc., and United Cable Television of Baltimore Limited
Partnership. The action alleges, inter alia, false imprisonment, assault,
employment defamation, intentional infliction of emotional distress, invasion
of privacy, wrongful discharge, and discrimination on the basis of race. The
complaint also seeks divestiture of the Baltimore City cable franchise from the
Company. Six counts in the complaint each seek compensatory damages of
$1,000,000 per plaintiff, and punitive damages of $5,000,000 per plaintiff.
Three other counts in the complaint each seek compensatory damages of
$1,000,000 per plaintiff and punitive damages of $5,000,000 per plaintiff per
defendant. The Company intends to contest the case. Based upon the facts
available, management believes that, although no assurance can be given as to
the outcome of this action, the ultimate disposition should not have a material
adverse effect upon the financial condition of the Company.
Euan Fannell v. Tele-Communications, Inc., et al. On February 8,
1994, Euan Fannell, the former general manager of UCTC of Baltimore, Inc. filed
suit in the Circuit Court for Baltimore City against Tele-Communications, Inc.,
TCI East, Inc., UCTC of Baltimore, Inc., and United Cable Television of
Baltimore Limited Partnership. The suit alleges, inter alia, employment
defamation, intentional infliction of emotional distress, invasion of privacy,
breach of contract, and discrimination on the basis of race. The complaint
also seeks divestiture of the Baltimore City cable franchise of the Company.
The plaintiff seeks $10,000,000 in compensatory damages and $50,000,000 in
punitive damages with respect to the intentional infliction of emotional
distress claim; and $10,000,000 in compensatory damages and $50,000,000 in
punitive damages with respect to each of five other counts. The Company
intends to contest the case. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of this
action, the ultimate disposition should not have a material adverse effect upon
the financial condition of the Company.
I-18
<PAGE> 22
Leonie Palumbo, et al. v. Tele-Communications, Inc., et al. On
February 8, 1994, Leonie Palumbo, a former employee of TCI East, Inc., filed a
class action suit in the United States District Court for the District of
Columbia against Tele-Communications, Inc., John Malone, and J.C. Sparkman.
The action alleges, on behalf of a class of past, present and future black
employees of the Company, and all past, present and future black applicants for
employment with the Company, discrimination on the basis of race. The
complaint seeks unspecified compensation and punitive damages as well as
injunctive relief for these violations. The Company intends to contest the
action. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of this action, the ultimate
disposition should not have a material adverse effect upon the financial
condition of the Company.
Les Dunnaville v. United Artists Cable, et al. On February 9, 1994,
Les Dunnaville and Jay Sharrieff, former employees of United Cable Television
of Baltimore Limited Partnership, filed an amended complaint in the Circuit
Court for Baltimore City against United Cable Television of Baltimore Limited
Partnership, TCI Cablevision of Maryland, Tele-Communications, Inc. and three
company employees, Roy Harbert, Tony Peduto, and Richard Bushie (the suit was
initially filed on December 3, 1993, but the parties agreed on December 30,
1993 that no responsive pleading would be due pending filing of an amended
complaint). The action alleges, inter alia, intentional interference with
contract, tortious interference with prospective advantage, defamation, false
light, invasion of privacy, intentional infliction of emotional distress, civil
conspiracy, violation of Maryland's Fair Employment Practices Law, and
respondeat superior with respect to the individual defendants. Six counts in
the complaint each seek compensatory damages of $1,000,000 and punitive damages
of $1,000,000; the intentional infliction of emotional distress count seeks
compensatory damages of $1,000,000 and punitive damages of $2,000,000; and the
count which alleges violation of Maryland's Fair Employment Practices Law seeks
damages of $500,000. The Company intends to contest the action. Based upon
the facts available, management believes that, although no assurance can be
given as to the outcome of this action, the ultimate disposition should not
have a material adverse effect upon the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
I-19
<PAGE> 23
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Shares of the Company's Class A and Class B common stock are traded in
the over-the-counter market on the Nasdaq National Market under the symbols
TCOMA and TCOMB, respectively. The following table sets forth the range of
high and low sales prices of shares of Class A and Class B common stock for the
periods indicated as furnished by Nasdaq. The prices have been rounded up to
the nearest eighth, and do not include retail markups, markdowns, or
commissions.
<TABLE>
<CAPTION>
Class A Class B
-------------- --------------
High Low High Low
---- --- ---- ---
1992:
---
<S> <C> <C> <C> <C>
First quarter 18-1/8 15-3/8 17-3/4 15-1/2
Second quarter 20 16-1/8 19-1/2 16-1/4
Third quarter 20-7/8 16-3/4 20-3/4 17
Fourth quarter 22 16-1/2 21-3/4 16-1/2
1993:
---
First quarter 25-1/2 20-3/4 25-1/2 21
Second quarter 24 17-1/2 24 18-3/8
Third quarter 26-3/4 21-5/8 27 22
Fourth quarter 33-1/4 24-7/8 40 25-1/2
</TABLE>
As of January 31, 1994, there were 7,663 holders of record of the
Company's Class A common stock and 692 holders of record of the Company's Class
B common stock (which amounts do not include the number of shareholders whose
shares are held of record by brokerage houses but include each brokerage house
as one shareholder).
The Company has not paid cash dividends on its Class A or Class B
common stock and has no present intention of so doing. Payment of cash
dividends, if any, in the future will be determined by the Company's Board of
Directors in light of the Company's earnings, financial condition and other
relevant considerations. Certain loan agreements contain provisions that limit
the amount of dividends, other than stock dividends, that the Company may pay
(see note 6 to the consolidated financial statements). See also related
discussion under the caption Management's Discussion and Analysis of Financial
Condition and Results of Operations.
II-1
<PAGE> 24
Item 6. Selected Financial Data.
The following tables present selected information relating to the
financial condition and results of operations of the Company for the past five
years.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1993 1992 * 1991 * 1990 * 1989 *
------ ------ ------ ------ ------
amounts in millions
<S> <C> <C> <C> <C> <C>
Summary Balance
Sheet Data:
- - ---------------
Property and
equipment, net $ 4,935 4,562 4,081 4,156 3,692
Franchise
costs, net $ 9,197 9,300 8,104 7,348 6,811
Net assets of
discontinued
operations $ -- -- 242 54 580
Total assets $16,520 16,310 15,166 14,106 13,560
Debt $ 9,900 10,285 9,455 8,922 8,007
Stockholders' equity $ 2,112 1,726 1,570 748 840
Shares outstanding
(net of treasury shares):
Class A common stock 403 382 370 310 305
Class B common stock 47 48 49 48 48
</TABLE>
(continued)
II-2
<PAGE> 25
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1993 1992* 1991 * 1990 * 1989 *
------ ------ ------ ------ ------
amounts in millions, except per share data
<S> <C> <C> <C> <C> <C>
Summary of
- - ----------
Operations Data:
---------------
Revenue $ 4,153 3,574 3,214 2,940 2,358
Operating income $ 916 864 674 546 455
Earnings (loss) from:
Continuing operations $ (7) 7 (78) (191) (262)
Discontinued operations -- (15) (19) (63) (3)
------- ------ ------ ------ ------
(7) (8) (97) (254) (265)
Dividend requirement on
redeemable preferred
stocks (2) (15) -- -- --
------- ----- ------ ------ ------
Net loss attributable
to common shareholders $ (9) (23) (97) (254) (265)
======= ====== ====== ====== ======
Loss attributable to
common shareholders
per common share:
Continuing operations $ (.02) (.01) (.22) (.54) (.74)
Discontinued operations -- (.04) (.05) (.18) (.01)
------- ------ ------ ------ ------
$ (.02) (.05) (.27) (.72) (.75)
======= ====== ====== ====== ======
Weighted average common
shares outstanding 433 424 360 355 353
</TABLE>
____________________
* Restated and reclassified - see notes to consolidated financial statements
included in Part II of this Report.
II-3
<PAGE> 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Summary of Operations
The following table sets forth, for the periods indicated, the
percentage relationship that certain items bear to revenue and the percentage
increase or decrease of the dollar amount of such items as compared to the
prior period. This summary provides trend data relating to the Company's normal
recurring operations. Other items of significance are discussed separately
under the captions "Other Income and Expense", "Income Taxes" and "Net Loss"
below. Amounts set forth below reflect the Company's motion picture theatre
exhibition industry segment as discontinued operations. Additionally, amounts
set forth below have been restated to reflect the Company's implementation of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement No. 109").
<TABLE>
<CAPTION>
Relationship to Period to Period
Revenue Increase
Years ended Years ended
December 31, December 31,
------------------------ -----------------
1993 1992 1991 1992-93 1991-92
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Revenue 100.0% 100.0% 100.0% 16.2% 11.2%
Operating costs and
expenses before
depreciation and
amortization 56.0 54.4 55.5 19.5% 9.1%
Depreciation and amortization 21.9 21.4 23.5 19.2% 1.1%
----- ----- -----
Operating income 22.1% 24.2% 21.0% 6.0% 28.2%
===== ===== =====
</TABLE>
Revenue increased by approximately 16.2% from 1992 to 1993. Such
increase was the result of an acquisition in late 1992 (10%), growth in
subscriber levels within the Company's cable television systems (4%) and
increases in prices charged for cable services (3%), net of a decrease in
revenue (1%) due to rate reductions required by rate regulation implemented
pursuant to the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act"). Revenue increased 11.2% from 1991 to 1992.
Approximately 3% to 5% of such increase resulted from growth in subscriber
levels within the Company's cable television systems and additional services
sold to existing customers and 5% to 7% resulted from increases in prices
charged for cable services. 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. See related discussion below.
Operating costs and expenses have historically remained relatively
constant as a percentage of revenue. However, operating costs and expenses
increased in 1993 primarily as a result of an acquisition in late 1992.
Additionally, in 1993, the Company incurred certain one-time direct charges
relating to the implementation of the new Federal Communications Commission
("FCC") regulations, as further described below. The Company made several
separate grants (in 1992 and 1993) of stock options issued in tandem with stock
appreciation rights. The Company recorded compensation relating to such stock
appreciation rights of $31 million and $1 million in 1993 and 1992,
respectively.
II-4
<PAGE> 27
In 1992, the Company experienced an improvement in its operating costs
and expenses due primarily to certain efficiencies and cost savings arising
from the integration of the operations and management of United Artists
Entertainment Company ("UAE") upon TCI's acquisition in late 1991 of the
remaining minority interests in the equity of UAE. Additionally, during 1992,
the Company streamlined its operating structure through the consolidation of
three of its regional operating divisions into two divisions. In connection
with the consolidation of these divisional offices, the Company incurred
restructuring charges of approximately $8 million which are reflected in the
accompanying consolidated financial statements for the year ended December 31,
1992.
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.
Effective April 1, 1993, based upon changes in FCC regulations, the
Company revised its estimate of the useful lives of certain distribution
equipment to correspond to the Company's anticipated remaining period of
ownership of such equipment. The revision resulted in a decrease in net
earnings of approximately $12 million (or $.03 per share) for the year ended
December 31, 1993.
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 a $44 million
revenue reduction during the four months ended December 31, 1993 and incurred
$21 million in one-time direct expenses in connection with the implementation
of the FCC's regulations.
II-5
<PAGE> 28
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 the effective date of these rules. 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. Although the text of the FCC's revised benchmark
regulation has not been released, it is currently anticipated that the rules
will take effect on or about May 15, 1994. The actual reduction in revenue may
differ depending on the terms of the final regulations and the completion of a
more detailed analysis of the new rate regulations and the Company's rates and
services.
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 benchmark rate regulations permit cable operators to adjust
rates to account for inflation and increases in certain external costs,
including increases in programming costs and compulsory copyright fees, to the
extent such increases exceed the rate of inflation. However, these 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.
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 Services, 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.
Other Income and Expense
The Company's weighted average interest rate on borrowings was 7.2%,
7.6% and 9.0% during 1993, 1992 and 1991, respectively. At December 31, 1993,
after considering the net effect of various interest rate hedge and exchange
agreements (see note 6 to the consolidated financial statements) aggregating
$1,322 million, the Company had $5,123 million (or 52%) of fixed-rate debt with
a weighted average interest rate of 9.0% and $4,777 million (or 48%) of
variable-rate debt with interest rates approximating the prime rate (6% at
December 31, 1993).
II-6
<PAGE> 29
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 1993 and 1992 amounted to $47 million and $37 million, respectively,
including $3 million and $6 million in 1993 and 1992, respectively, resulting
from foreign currency transaction losses. 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 December 31, 1993, the Company's
stockholders' equity includes a cumulative foreign currency translation loss of
$29 million.
The Company sold certain investments and other assets for an aggregate
net pre-tax gain of $42 million, $9 million and $43 million in 1993, 1992 and
1991, respectively.
During 1993, 1992 and 1991, the Company recorded losses of $17
million, $67 million and $7 million, respectively, from early extinguishment of
debt during such periods. Included in the 1992 amount was $52 million from the
extinguishment of the SCI Holdings, Inc. ("SCI") indebtedness (see note 4 to
the consolidated financial statements). There may be additional losses
associated with early extinguishments of debt in the future.
Interest and dividend income was $34 million, $69 million and $53
million in 1993, 1992 and 1991, respectively. Included in the 1992 and 1991
amounts was $30 million and $26 million, respectively, earned on the preferred
stock investment that was repurchased by a subsidiary of SCI in 1992 (see note
4 to the consolidated financial statements). In connection with such
repurchase, the Company received a premium amounting to $14 million which has
been separately reflected in the accompanying consolidated statements of
operations.
Income Taxes
The Company has adopted Statement No. 109. Statement No. 109 changed
the Company's method of accounting for income taxes from the deferred method to
the asset and liability method. The Company restated its financial statements
for the years beginning January 1, 1986 through December 31, 1992. The effect
of the implementation of Statement No. 109 at December 31, 1992 was a $2
million decrease in receivables, $48 million net increase in investments, $178
million net increase in property and equipment, $2,901 million net increase in
franchise costs, $2 million increase in other assets, $34 million increase in
other liabilities, $2,865 million increase in deferred taxes payable and $228
million decrease in accumulated deficit. Under Statement No. 109, the effect
on deferred taxes of a change in tax rates is recognized in the consolidated
statement of operations in the period that includes the enactment.
New tax legislation was enacted in the third quarter of 1993 which,
among other matters, increased the corporate Federal income tax rate from 34%
to 35%. The Company has reflected the tax rate change in its consolidated
statements of operations in accordance with the treatment prescribed by
Statement No. 109. Such tax rate change resulted in an increase of $76 million
to the Company's income tax expense and deferred income tax liability.
II-7
<PAGE> 30
Net Loss
The Company's loss (before preferred stock dividends) of $7 million
for the year ended December 31, 1993 represented a decrease of $14 million as
compared to the Company's earnings from continuing operations of $7 million for
the corresponding period of 1992. Such decline was due primarily to an
increase in income tax expense arising from the aforementioned tax rate change
enacted in the third quarter of 1993, an increase in compensation relating to
stock appreciation rights and the reduction of interest and dividend income
resulting from the disposition at the end of 1992 of a preferred stock
investment, net of an increase in gain on disposition of assets, a reduction in
loss from early extinguishment of debt and a reduction in minority interest in
earnings of consolidated subsidiaries attributable to the repurchase of certain
preferred stock of a consolidated subsidiary.
The Company's earnings from continuing operations (before preferred
stock dividends) for 1992 of $7 million represented an improvement as compared
to the Company's loss from continuing operations of $78 million for the
corresponding period of 1991 due primarily to improved operating results by the
Company in its cable television business. Also, the general decline in
interest rates had a positive impact on the Company's net results.
On March 28, 1991, the Company contributed its interests in certain of
its cable television programming businesses and cable television systems to
Liberty Media Corporation ("Liberty") in exchange for several different classes
and series of preferred stock of Liberty. On that same date, Liberty issued
shares of its common stock to TCI shareholders (certain of whom were TCI
officers and directors) who tendered shares of TCI Class A and Class B common
stock pursuant to an exchange offer (see note 3 to the accompanying
consolidated financial statements). Due to the significant economic interest
held by TCI through its ownership of Liberty preferred stock and Liberty common
stock and other related party considerations, TCI has accounted for its
investment in Liberty under the equity method. The Company does not recognize
any income relating to dividends, including preferred stock dividends, and the
Company has continued to record earnings or losses generated by the interests
contributed to Liberty (by recognizing 100% of Liberty's earnings or losses
before deducting preferred stock dividends). Consequently, the contribution of
such assets to Liberty has had no effect on the net reported results of the
Company. For a discussion of the proposed merger of Liberty and TCI, see
Liquidity and Capital Resources below.
On May 12, 1992, the Company sold its motion picture theatre business
and certain theatre-related real estate assets (see note 12 to the accompanying
consolidated financial statements). Accordingly, the operations of the
Company's motion picture theatre exhibition industry segment have been
reclassified and reflected as "discontinued operations" in the accompanying
consolidated financial statements.
Inflation has not had a significant impact on the Company's results of
operations during the three-year period ended December 31, 1993.
Recent Accounting Pronouncements
In November of 1992, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("Statement No. 112"). As the
Company's present accounting policies generally are in conformity with the
provisions of Statement No. 112, the Company does not believe that Statement
No. 112 will have a material effect on the Company. Statement No. 112 is
effective for years beginning after December 31, 1994.
II-8
<PAGE> 31
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("Statement No. 114"). As the Company's present accounting policies generally
are in conformity with the provisions of Statement No. 114, the Company does
not expect that Statement No. 114 will have a material effect on the Company's
consolidated financial statements. Statement No. 114 is effective for years
beginning after December 15, 1994.
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," effective for fiscal years beginning after December 15, 1993.
Under the new rules, debt securities that the Company has both the positive
intent and ability to hold to maturity are carried at amortized cost. Debt
securities that the Company does not have the positive intent and ability to
hold to maturity and all marketable equity securities are classified as
available-for-sale or trading and carried at fair value. Unrealized holding
gains and losses on securities classified as available- for sale are carried as
a separate component of shareholders' equity. Unrealized holding gains and
losses on securities classified as trading are reported in earnings.
The Company holds no material debt securities. Marketable equity
securities are currently reported by the Company at the lower of cost or market
("LOCOM") and net unrealized losses are reported in earnings. The Company will
apply the new rules starting in the first quarter of 1994. Application of the
new rules will result in an estimated increase of approximately $300 million in
stockholders' equity as of January 1 1994, representing the recognition of
unrealized appreciation, net of taxes, for the Company's investment in equity
securities determined to be available-for-sale, previously carried at LOCOM.
Liquidity and Capital Resources
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.
II-9
<PAGE> 32
The Company had approximately $2.2 billion in unused lines of credit
at December 31, 1993, 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 such 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). Based upon preliminary calculations,
the Company believes that the aforementioned 1993 and 1994 rate regulations
will not materially impact the availability under its lines of credit or its
ability to repay indebtedness as it matures. See note 6 to the accompanying
consolidated financial statements for additional information regarding the
material terms of the Company's lines of credit.
In October of 1992, the Company received full investment grade status
by all accredited rating agencies. Such ratings 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.
During the year ended December 31, 1993, the Company sold $3 billion
of publicly-placed fixed-rate senior notes with interest rates ranging from
4.81% to 9.25% and maturity dates ranging from 1995 to 2023. The proceeds from
the sale of these notes were used to repay variable-rate bank debt.
On October 28, 1993, the Company called for redemption all of its
remaining Liquid Yield OptionTM Notes. In connection with such call for
redemption, Notes aggregating $405 million were converted into 18,694,377
shares of Class A common stock and Notes aggregating less than $1 million were
redeemed together with accrued interest to the redemption date. Prior to the
aforementioned redemption, Notes aggregating $6 million were converted into
259,537 shares of TCI Class A common stock during 1993.
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 non-cash operating expenses
($1,858 million, $1,637 million and $1,430 million in 1993, 1992 and 1991,
respectively) to interest expense ($731 million, $718 million and $826 million
in 1993, 1992 and 1991, respectively), is determined by reference to the
consolidated statements of operations. The Company's interest coverage ratio
was 254%, 228% and 173% for 1993, 1992 and 1991, respectively. Management of
the Company believes that the foregoing interest coverage ratio is adequate in
light of the consistency 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
improved operating results in 1993 and 1992 and a general decline in interest
rates during 1992 led to an improvement in the Company's interest coverage
ratio.
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 value of approximately $643 million at December 31, 1993.
Borrowings under this credit facility (which amounted to $250 million at
December 31, 1993) are due in August of 1994. On or before such date, the
Company expects to repay these borrowings.
II-10
<PAGE> 33
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.
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 made capital expenditures of $947 million in 1993 and 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 FCC's 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.
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 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'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.
II-11
<PAGE> 34
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.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company are filed under
this Item, beginning on Page II-13. The financial statement schedules required
by Regulation S-X are filed under Item 14 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-12
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tele-Communications, Inc.:
We have audited the accompanying consolidated balance sheets of
Tele-Communications, Inc. and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1993. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of
Tele-Communications, Inc. and subsidiaries as of December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in notes 1 and 10 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick
Denver, Colorado
March 21, 1994
II-13
<PAGE> 36
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1993 and 1992
<TABLE>
<CAPTION>
Assets 1993 1992*
- - ------ ------ ------
amounts in millions
<S> <C> <C>
Cash $ 1 34
Trade and other receivables, net 232 201
Investment in Liberty Media Corporation
("Liberty") (note 3) 489 432
Investment in other affiliates, accounted for under
the equity method, and related receivables (note 4) 645 721
Investment in Turner Broadcasting System, Inc.
(note 5) 491 491
Property and equipment, at cost:
Land 73 71
Distribution systems 6,629 6,075
Support equipment and buildings 818 712
------- ------
7,520 6,858
Less accumulated depreciation 2,585 2,296
------- ------
4,935 4,562
------- ------
Franchise costs 10,620 10,467
Less accumulated amortization 1,423 1,167
------- ------
9,197 9,300
------- ------
Other assets, at cost, net of amortization 530 569
------- ------
$16,520 16,310
======= ======
*Reclassified and restated - see notes 1, 3 and 10.
</TABLE>
(continued)
II-14
<PAGE> 37
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets, continued
<TABLE>
<CAPTION>
1993 1992*
------ ------
Liabilities and Stockholders' Equity amounts in millions
- - ------------------------------------
<S> <C> <C>
Accounts payable $ 124 99
Accrued interest 157 94
Other accrued expenses 500 465
Debt (note 6) 9,900 10,285
Deferred income taxes (note 10) 3,310 3,164
Other liabilities 114 87
------- ------
Total liabilities 14,105 14,194
------- ------
Minority interests in equity
of consolidated subsidiaries 285 280
Redeemable preferred stocks (note 7) 18 110
Stockholders' equity (note 8):
Preferred stock, $1 par value.
Authorized 10,000,000 shares, issued
and outstanding 6,201 and 4,778,595
shares of redeemable preferred stocks
in 1993 and 1992 -- --
Class A common stock, $1 par value.
Authorized 1,000,000,000 shares;
issued 481,837,347 shares in 1993
and 461,722,382 shares in 1992 482 462
Class B common stock, $1 par value.
Authorized 100,000,000 shares;
issued 47,258,787 shares in 1993
and 47,708,677 shares in 1992 47 48
Additional paid-in capital 2,293 1,909
Cumulative foreign currency translation adjustment (29) (19)
Accumulated deficit (348) (341)
------- ------
2,445 2,059
Treasury stock, at cost (79,335,038
shares of Class A common stock) (333) (333)
------- ------
Total stockholders' equity 2,112 1,726
------- ------
Commitments and contingencies (note 11)
$16,520 16,310
======= ======
</TABLE>
*Restated and reclassified - see notes 1, 3 and 10.
See accompanying notes to consolidated financial statements.
II-15
<PAGE> 38
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 * 1991 *
------ ------ ------
amounts in millions,
except per share amounts
<S> <C> <C> <C>
Revenue (note 3) $4,153 3,574 3,214
Operating costs and expenses:
Operating (note 3) 1,190 1,028 1,021
Selling, general and administrative (note 4) 1,105 909 763
Compensation relating to stock
appreciation rights (note 8) 31 1 --
Restructuring charge -- 8 --
Depreciation 622 512 529
Amortization 289 252 227
------ ----- -----
3,237 2,710 2,540
------ ----- -----
Operating income 916 864 674
Other income (expense):
Interest expense (731) (718) (826)
Interest and dividend income 34 69 53
Share of earnings of Liberty (note 3) 4 22 40
Share of losses of other affiliates (note 4) (76) (105) (60)
Gain on disposition of assets, net 42 9 43
Premium received on redemption of
preferred stock investment (note 4) -- 14 --
Loss on early extinguishment of debt
(notes 4 and 6) (17) (67) (7)
Minority interests in earnings
of consolidated subsidiaries, net (5) (41) (24)
Other, net (6) (2) (1)
------ ----- -----
(755) (819) (782)
------ ----- -----
Earnings (loss) from continuing
operations before income taxes 161 45 (108)
Income tax benefit (expense) (note 10) (168) (38) 30
------ ----- -----
Earnings (loss) from continuing operations (7) 7 (78)
Loss from discontinued operations,
net of income taxes (note 12) -- (15) (19)
------ ----- -----
Net loss (7) (8) (97)
Dividend requirement on redeemable
preferred stocks (2) (15) --
------- ----- -----
Net loss attributable to
common shareholders $ (9) (23) (97)
====== ===== =====
Loss attributable to common shareholders
per common share (note 1):
Continuing operations $ (.02) (.01) (.22)
Discontinued operations -- (.04) (.05)
------ ----- -----
$ (.02) (.05) (.27)
====== ===== =====
</TABLE>
*Restated and reclassified - see notes 1, 3 and 10.
See accompanying notes to consolidated financial statements.
II-16
<PAGE> 39
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Cumulative
foreign
Common stock Additional currency Total
------------ paid-in translation Accumulated Treasury stockholders'
Class A Class B capital adjustment deficit * stock equity *
------- ------- ---------- ----------- --------- -------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1991 $ 310 48 626 -- (436) -- 548
Restatement for change in
accounting principle for
income taxes -- -- -- -- 200 -- 200
----- -- ----- ---- ---- ---- -----
Balance at January 1, 1991,
as restated 310 48 626 -- (236) -- 748
Net loss -- -- -- -- (97) -- (97)
Issuance of common stock upon
conversion of debentures -- -- 4 -- -- -- 4
Issuance of common stock upon
exercise of options -- 2 3 -- -- -- 5
Income tax effect of stock option
deduction -- -- 7 -- -- -- 7
Retirement of common stock upon
redemption of Liberty preferred
stock (5) -- (86) -- -- -- (91)
Issuance of shares of Class A
common stock for an acquisition 1 -- 10 -- -- -- 11
Issuance of common stock
upon acquisition of remaining
minority interest in United
Artists Entertainment Company
("UAE") 143 -- 1,190 -- -- (333) 1,000
Acquisition and retirement
of common stock -- (1) (16) -- -- -- (17)
----- -- ----- ---- ---- ---- -----
Balance at December 31, 1991 449 49 1,738 -- (333) (333) 1,570
Net loss -- -- -- -- (8) -- (8)
Conversion of public debentures
(note 6) 7 -- 105 -- -- -- 112
Issuance of common stock upon
exercise of options 1 -- 13 -- -- -- 14
Issuance of Class A common stock
for acquisition and
investment 5 -- 93 -- -- -- 98
Dividends on redeemable
preferred stocks -- -- (15) -- -- -- (15)
Foreign currency translation
adjustment -- -- -- (19) -- -- (19)
Acquisition and retirement
of common stock -- (1) (25) -- -- -- (26)
----- --- ----- ---- ---- ---- -----
Balance at December 31, 1992 462 48 1,909 (19) (341) (333) 1,726
Net loss -- -- -- -- (7) -- (7)
Issuance of common stock
upon conversion of notes
(note 6) 20 -- 383 -- -- -- 403
Issuance of common stock upon
exercise of options -- -- 7 -- -- -- 7
Dividends on redeemable
preferred stocks -- -- (2) -- -- -- (2)
Foreign currency translation
adjustment -- -- -- (10) -- -- (10)
Acquisition and retirement
of common stock -- (1) (4) -- -- -- (5)
----- --- ----- ---- ---- ---- -----
Balance at December 31, 1993 $ 482 47 2,293 (29) (348) (333) 2,112
===== === ===== ==== ==== ==== =====
</TABLE>
*Restated - see notes 1, 3 and 10.
See accompanying notes to consolidated financial statements.
II-17
<PAGE> 40
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 * 1991 *
------ ------ ------
amounts in millions
(see note 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7) (8) (97)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Discontinued operations -- 15 19
Restructuring charge -- 8 --
Payment of restructuring charge (8) -- --
Depreciation and amortization 911 764 756
Share of earnings of Liberty (4) (22) (40)
Share of losses of other affiliates 76 105 60
Gain on disposition of assets (42) (9) (43)
Premium received on preferred stock
investment redemption -- (14) --
Payment of premium received on preferred
stock investment redemption 14 -- --
Loss on early extinguishment of debt 17 67 7
Compensation relating to
stock appreciation rights 31 1 --
Payment for stock appreciation rights -- (80) (45)
Minority interests in earnings 5 41 24
Deferred income tax expense (benefit) 139 28 (39)
Amortization of debt discount 27 27 16
Noncash interest and dividend income (7) (40) (28)
Other noncash charges -- -- (2)
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables (32) (3) (36)
Change in accrued interest 63 -- (14)
Change in other accruals and payables 68 77 45
------- ----- -----
Net cash provided by
operating activities 1,251 957 583
------- ----- -----
Cash flows from investing activities:
Cash paid for acquisitions (158) (1,256) (399)
Capital expended for property and equipment (947) (526) (566)
Cash proceeds from disposition of assets 149 66 103
Cash proceeds from disposition of
discontinued operations -- 220 --
Discontinued operations -- 9 31
Additional investments in and loans to
affiliates and others (361) (205) (192)
Payment received on preferred stock
investment redemption 183 -- --
Return of capital from affiliates 1 1 34
Repayment of loans by affiliates and others 62 32 35
Other investing activities (99) (155) (138)
------- ----- -----
Net cash used in
investing activities (1,170) (1,814) (1,092)
------- ----- -----
</TABLE>
(continued)
II-18
<PAGE> 41
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 * 1991 *
------ ------ ------
amounts in millions
(see note 2)
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings of debt 6,305 5,354 5,918
Repayments of debt (6,321) (4,435) (5,412)
Borrowings of short-term notes to affiliate -- -- 22
Repayment of short-term notes to affiliate -- (22) --
Sales of equity securities of subsidiaries -- -- 9
Preferred stock dividends of subsidiaries (6) (6) (19)
Preferred stock dividends (2) (15) --
Repurchase of preferred stock (92) (5) --
Issuances of common stock 6 7 2
Repurchases of common stock (4) (19) (9)
------- ----- -----
Net cash provided (used) by
financing activities (114) 859 511
------- ----- -----
Net increase (decrease) in cash (33) 2 2
Cash at beginning of year 34 32 30
------- ----- -----
Cash at end of year $ 1 34 32
======= ===== =====
</TABLE>
*Restated and reclassified - see notes 1, 3 and 10.
See accompanying notes to consolidated financial statements.
II-19
<PAGE> 42
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992 and 1991
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Tele-Communications, Inc. and those of all majority-owned subsidiaries
("TCI" or the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Restated Financial Statements for Implementation of Statement of
Financial Accounting Standards No. 109, "Accounting fo Income Taxes"
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("Statement No. 109"), "Accounting for
Income Taxes" and has applied the provisions of Statement No. 109
retroactively to January 1, 1986. The accompanying 1992 and 1991
consolidated financial statements and related notes have been restated
to reflect the implementation of Statement No. 109. See note 10.
Receivables
Receivables are reflected net of an allowance for doubtful accounts.
Such allowance at December 31, 1993 and 1992 was not material.
Investments
Investments in which the ownership interest is less than 20% are
generally carried at cost. Investments in marketable equity
securities are carried at the lower of aggregate cost or market and
any declines in value which are other than temporary are reflected as
a reduction in the Company's carrying value of such investment. For
those investments in affiliates in which the Company's voting interest
is 20% to 50%, the equity method of accounting is generally used.
Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's share of the net earnings or
losses of the affiliates as they occur rather than as dividends or
other distributions are received, limited to the extent of the
Company's investment in, advances to and guarantees for the investee.
The Company's share of net earnings or losses of affiliates includes
the amortization of purchase adjustments.
Property and Equipment
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including
interest during construction and applicable overhead, are capitalized.
During 1993, 1992 and 1991, interest capitalized was not material.
(continued)
II-20
<PAGE> 43
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 15 years for distribution systems and 3 to 40
years for support equipment and buildings. Beginning in April of
1993, based upon changes in Federal Communications Commission ("FCC")
regulations, the Company revised its estimate of useful lives of
certain distribution equipment to correspond to the Company's
anticipated remaining period of ownership of such equipment. This
revision resulted in a decrease to net earnings of approximately $12
million ($.03 per share) for the year ended December 31, 1993.
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales
or other dispositions of property, the original cost and cost of
removal of such property are charged to accumulated depreciation, and
salvage, if any, is credited thereto. Gains or losses are only
recognized in connection with the sales of properties in their
entirety. However, recognition of gains on sales of properties to
affiliates accounted for under the equity method is deferred in
proportion to the Company's ownership interest in such affiliates.
Franchise Costs
Franchise costs include the difference between the cost of acquiring
cable television systems and amounts assigned to their tangible
assets. Such amounts are generally amortized on a straight-line basis
over 40 years. Costs incurred by the Company in obtaining franchises
are being amortized on a straight-line basis over the life of the
franchise, generally 10 to 20 years.
Minority Interests
Recognition of minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests'
allocable portion of the common equity of those consolidated
subsidiaries. Further, the minority interests' share of losses is not
recognized if the minority holders of common equity of consolidated
subsidiaries have the right to cause the Company to repurchase such
holders' common equity.
Included in minority interests in equity of consolidated subsidiaries
are $50 million and $46 million at December 31, 1993 and 1992,
respectively, of preferred stocks (and accumulated dividends thereon)
of certain subsidiaries. The current dividend requirements on these
preferred stocks aggregate $6 million per annum and such dividend
requirements are reflected as minority interests in the accompanying
consolidated statements of operations.
Foreign Currency Translation
All balance sheet accounts of foreign investments are translated at
the current exchange rate as of the end of the accounting period.
Statement of operations items are translated at average currency
exchange rates. The resulting translation adjustment is recorded as a
separate component of stockholders' equity.
(continued)
II-21
<PAGE> 44
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Loss Per Common Shares
The loss per common share for 1993, 1992 and 1991 was computed by
dividing net loss by the weighted average number of common shares
outstanding during such periods (432.6 million, 424.1 million and
359.9 million for 1993, 1992 and 1991, respectively). Common stock
equivalents were not included in the computation of weighted average
shares outstanding because their inclusion would be anti-dilutive.
Reclassification
Certain amounts have been reclassified for comparability with the 1993
presentation.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $641 million, $689 million and $829 million
for 1993, 1992 and 1991, respectively. Also, during these years, cash
paid for income taxes was not material.
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1993 1992 1991
---- ---- ----
amounts in millions
<S> <C> <C> <C>
Acquisitions:
Fair value of assets acquired $ 172 1,231 1,877
Liabilities assumed, net of current assets (7) 21 (12)
Deferred tax asset (liability)
recorded in acquisitions (7) 7 (337)
Minority interests in equity
of acquired entities -- -- (3)
Value of TCI preferred stock issued
in acquisitions -- -- (115)
Value of TCI common stock issued
in acquisitions -- (3) (1,011)
----- ----- -----
Cash paid for acquisitions $ 158 1,256 399
====== ===== =====
Value of TCI Class A common stock issued
as part of purchase price of equity
investment $ -- 95 --
====== ===== =====
Note received upon disposition of assets $ -- 15 --
====== ===== =====
Contribution of certain interests
to Liberty in exchange for
preferred stock (see note 3) $ -- -- 530
====== ===== =====
Common stock received upon
redemption of preferred stock
of Liberty (see note 3) $ -- -- 91
====== ===== =====
</TABLE>
(continued)
II-22
<PAGE> 45
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1993 1992 1991
---- ---- ----
amounts in millions
<S> <C> <C> <C>
Receipt of notes receivable upon
disposition of Liberty common stock
and preferred stock (note 3) $ 182 -- --
====== ===== =====
Noncash capital contribution to
Community Cable Television ("CCT")
(note 3) $ 22 -- --
====== ===== =====
Noncash exchange of equity investment
for consolidated subsidiary and
equity investment $ 22 -- --
====== ===== =====
Contribution of assets to an affiliate $ -- -- 108
====== ===== =====
Effect of foreign currency translation
adjustment on book value of
foreign equity investments $ 10 19 --
====== ===== =====
Common stock issued upon conversion
of notes (with accrued
interest through conversion) $ 403 112 4
====== ===== =====
Common stock surrendered in lieu
of cash upon exercise of
stock options $ 1 7 3
====== ===== =====
Note payable issued for
repurchase of common stock $ -- -- 5
====== ===== =====
Exchange of preferred stock investment
for marketable equity securities $ -- -- 156
====== ===== =====
Deferred tax liability resulting from
stock option deduction $ -- -- 7
====== ===== =====
</TABLE>
(3) Investment in Liberty
As of January 27, 1994, TCI and Liberty entered into a definitive
agreement to combine the two companies. 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.
(continued)
II-23
<PAGE> 46
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
TCI owns 3,477,778 shares of Liberty Class A common stock (after
giving effect to the repurchase by Liberty during the year ended
December 31, 1993 of 927,900 shares of Class A common stock) and
55,070 shares of Liberty Class E, 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock received in January of 1993 upon
conversion of the Liberty Class A Redeemable Convertible Preferred
Stock. Such common shares represent less than 5% of the outstanding
Class A common stock of Liberty.
Of the remaining classes of preferred stock of Liberty held by the
Company, one class entitles TCI to elect a number of members of
Liberty's board of directors equal to no less than 11% of the total
number of directors and another class is exchangeable for TCI common
stock.
Due to the significant economic interest held by TCI through its
ownership of Liberty preferred stock and Liberty common stock and
other related party considerations, TCI has accounted for its
investment in Liberty under the equity method. Accordingly, the
Company has not recognized any income relating to dividends, including
preferred stock dividends, and the Company has continued to record the
earnings or losses generated by the interests contributed to Liberty
(by recognizing 100% of Liberty's earnings or losses before deducting
preferred stock dividends).
On December 30, 1991, TCI Liberty, Inc. ("TCIL"), a wholly-owned
subsidiary of TCI, entered into a Commercial Paper Purchase Agreement
with Liberty whereby TCIL could from time to time sell short-term
notes to Liberty from TCIL of up to an aggregate amount of $100
million. TCIL borrowed $22 million from Liberty on December 31, 1991,
pursuant to the Commercial Paper Purchase Agreement. The full amount,
including interest, was repaid on January 15, 1992. Interest rates on
the short-term notes were determined by the parties by reference to
prevailing money-market rates. This agreement was terminated on March
23, 1993.
During 1992, the Company and Liberty formed CCT, a general partnership
created for the purpose of acquiring and operating cable television
systems with Tele-Communications of Colorado, Inc. ("TCIC"), an
indirect wholly-owned subsidiary of TCI, owning a 49.999% interest and
Liberty Cable Partner, Inc. ("LCP"), an indirect wholly-owned
subsidiary of Liberty, owning a 50.001% interest.
Pursuant to an amendment to the CCT General Partnership Agreement (the
"Amendment"), certain non-cash contributions previously made to CCT
were rescinded, TCIC contributed to CCT a $10,590,000 promissory note
of TCI Development Corporation ("TCID") as of the date of the
originally contributed assets, and LCP agreed to contribute its equity
and debt interests in Daniels & Associates Partners Limited ("DAPL"),
a general partner of Mile Hi Cablevision Associates, Ltd. ("Mile Hi"),
to CCT immediately prior to the closing of the acquisition of Mile Hi
described below which closed on March 15, 1993. TCIC also agreed to
contribute, at the time of the contribution by LCP of its DAPL
interests, a TCID promissory note in the amount of $66,900,000.
(continued)
II-24
<PAGE> 47
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On March 12, 1993, the CCT General Partnership Agreement was further
amended (the "Second Amendment"). Under the Second Amendment, LCP
agreed to contribute its Mile Hi partnership interest but not a loan
receivable from Mile Hi in the amount of $50 million (including
accrued interest) (the "Mile Hi Note") (both of which it received upon
the liquidation of DAPL on March 12, 1993 as described below) to CCT
in exchange for 50.001% of a newly created Class B partnership
interest in CCT. TCIC agreed to contribute a $21,795,000 promissory
note from TCID in exchange for 49.999% of the Class B partnership
interests in place of the $66,900,000 note which was to be contributed
under the Amendment. On March 15, 1993, each party made its
respective contribution required by the Second Amendment.
On June 3, 1993, Liberty and TCI completed the transactions
contemplated by a recapitalization agreement (the "Recapitalization
Agreement"). Pursuant to the Recapitalization Agreement, Liberty
repurchased 927,900 shares of Liberty Class A common stock owned by
TCI and repurchased all of the outstanding shares of the Liberty
Class C Redeemable Exchangeable Preferred Stock. The total purchase
price of $194 million was paid through the delivery of cash amounting
to $12 million and promissory notes of Liberty in the aggregate
principal amount of $182 million.
In connection with the Recapitalization Agreement, TCIC and LCP
entered into an Option-Put Agreement (the "Option-Put Agreement"),
which was amended on November 30, 1993. Under the amended Option-Put
Agreement, between June 30, 1994 and September 28, 1994, and between
January 1, 1996 and January 31, 1996, TCIC will have the option to
purchase all of LCP's interest in CCT and the Mile Hi Note for an
amount equal to $77 million plus interest accruing at the rate of
11.6% per annum on such amount from June 3, 1993. Between April 1,
1995 and June 29, 1995, and between January 1, 1997 and January 31,
1997, LCP will have the right to require TCIC to purchase LCP's
interest in CCT and the Mile Hi Note for an amount equal to $77
million plus interest on such amount accruing at the rate of 11.6% per
annum from June 3, 1993.
Under a separate agreement, on June 3, 1993, TCI Holdings, Inc.
("TCIH"), a wholly-owned subsidiary of TCI, purchased a 16% limited
partnership interest in Intermedia Partners from LCP and all of LCP's
interest in a special allocation of income and gain of $7 million
under the partnership agreement of Intermedia Partners for a purchase
price of approximately $9 million. TCIH also received an option to
purchase LCP's remaining 6.37% limited partnership interest in
Intermedia Partners prior to December 31, 1995 for a price equal to $4
million plus interest at 8% per annum from June 3, 1993.
(continued)
II-25
<PAGE> 48
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In September of 1993, Encore QE Programming Corp. ("QEPC"), a
wholly-owned subsidiary of Encore Media Corporation ("EMC"), a 90%
owned subsidiary of Liberty, entered into a limited partnership
agreement with TCI Starz, Inc. ("TCIS"), a wholly-owned subsidiary of
TCI, for the purpose of developing, operating and distributing STARZ!,
a first-run movie premium programming service launched in 1994. QEPC
is the general partner and TCIS is the limited partner. Losses are
allocated 1% to QEPC and 99% to TCIS. Profits are allocated 1% to
QEPC and 99% to TCIS until certain defined criteria are met.
Subsequently, profits are allocated 20% to QEPC and 80% to TCIS. TCIS
has the option, exercisable at any time and without payment of
additional consideration, to convert its limited partner interest to
an 80% general partner interest with QEPC's partnership interest
simultaneously converting to a 20% limited partnership interest. In
addition, during specific periods commencing April 1999 and April
2001, respectively, QEPC may require TCIS to purchase, or TCIS may
require QEPC to sell, the partnership interest of QEPC in the
partnership for a formula-based price. EMC is paid a management fee
equal to 20% of "managed costs" as defined, in order to manage the
service. EMC manages the service and has agreed to provide the
limited partnership with certain programming under a programming
agreement whereby the partnership will pay its pro rata share of the
total costs incurred by EMC for such programming. The Company
accounts for the partnership as a consolidated subsidiary.
(See note 11).
On March 15, 1993, Mile Hi Cable Partners, L.P. ("New Mile Hi")
acquired all the general and limited interests in Mile Hi, the owner
of the cable television system serving Denver, Colorado. New Mile Hi
is a limited partnership formed among CCT (78% limited partnership
interest), Daniels Cablevision, Inc. ("DCI") (1% limited partner) and
P & B Johnson Corp. ("PBJC") (21% general partnership interest), a
corporation controlled by Robert L. Johnson, a member of Liberty's
board of directors. As a result of the acquisition, New Mile Hi is a
consolidated subsidiary of Liberty for financial reporting purposes.
Prior to the acquisition, LCP indirectly owned a 32.175% interest in
Mile Hi through its ownership of a limited partnership interest in
DAPL, one of Mile Hi's general partners. The other partners in Mile
Hi were Time Warner Entertainment Company, L.P., various individual
investors and Mile Hi Cablevision, Inc., a corporation in which all
the other partners in Mile Hi were the shareholders.
DAPL was liquidated on March 12, 1993, at which time LCP received a
liquidating distribution consisting of its proportionate interest in
DAPL's partnership interest in Mile Hi, representing the
aforementioned 32.175% interest in Mile Hi. The subsidiary of Liberty
also received the Mile Hi Note in novation of a loan receivable from
DAPL in an equal amount.
(continued)
II-26
<PAGE> 49
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The total value of the acquisition was approximately $180 million. Of
that amount, approximately $70 million was in the form of Mile Hi debt
paid at the closing. Another $50 million was in the form of the Mile
Hi Note, which debt was assumed by New Mile Hi and then by CCT. Of
the remaining $60 million, approximately $40 million was paid in cash
to partners in Mile Hi in exchange for their partnership interests.
The remaining $20 million of interest in Mile Hi was acquired by New
Mile Hi through the contribution by Liberty's subsidiary to CCT and by
CCT to New Mile Hi of the 32.175% interest in Mile Hi received in the
DAPL liquidation and by DCI's contribution to New Mile Hi of a 0.4%
interest in Mile Hi.
Of the estimated $110 million in cash required by New Mile Hi to
complete the transaction, $105 million was loaned to New Mile Hi by
CCT and $5 million was provided by PBJC as a capital contribution to
New Mile Hi. Of the $5 million contributed by PBJC, approximately $4
million was provided by CCT through loans to Mr. Johnson and trusts
for the benefit of his children. CCT funded its loans to New Mile Hi
and the Johnson interests by borrowing $93 million under its revolving
credit facility and by borrowing $16 million from TCIC in the form of
a subordinated note.
Liberty's investment in Mile Hi, which was previously accounted for
under the cost method, was received from TCI in the March 28, 1991
transaction whereby TCI contributed its interests in certain
programming businesses and cable television systems in exchange for
several different classes and series of preferred stock of Liberty.
Liberty adopted Statement No. 109 in 1993 and has applied the
provisions of Statement No. 109 retroactively to March 28, 1991.
During the year ended December 31, 1992, Liberty increased its
economic and voting interest in Lenfest Communications, Inc. ("LCI")
to 50% and, accordingly, adopted the equity method of accounting.
Liberty's investment in LCI, which was previously accounted for under
the cost method, was received from TCI in March of 1991.
Additionally, LCI adopted Statement No. 109 in 1993 and has applied
its provisions on a retroactive basis.
As a result of the aforementioned acquisition of Mile Hi and the
implementation of Statement No. 109 by Liberty and LCI, the Company
restated the carrying amount of its investment in Liberty preferred
stock at December 31, 1992 through an increase of $19 million.
Included in the restated balance is the recognition of previously
reserved interest income on the Mile Hi Note. These restatements
resulted in an increase of $6 million to the Company's results of
operations for the year ended December 31, 1992, a decrease of $2
million for the year ended December 31, 1991 and an increase of $7
million for prior years.
(continued)
II-27
<PAGE> 50
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Also, during the year ended December 31, 1992, Liberty increased its
economic and voting interest in Columbia Associates, L.P. ("Columbia")
to 39.609% and, accordingly, adopted the equity method of accounting.
Liberty's investment in Columbia, which was previously accounted for
under the cost method, was received from TCI in March of 1991.
On December 31, 1992, Liberty sold certain notes receivable of
Intermedia Partners to TCI for $36,300,000 in cash.
The Company purchases sports and other programming from certain
subsidiaries of Liberty. Charges to TCI (which are based upon
customary rates charged to others) for such programming were $44
million, $44 million and $25 million for the years ended December 31,
1993 and 1992 and the period from March 29, 1991 through December 31,
1991 respectively. Such amounts are included in operating expenses in
the accompanying consolidated statements of operations. Certain
subsidiaries of Liberty purchase from TCI, at TCI's cost plus an
administrative fee, certain pay television and other programming. In
addition, a consolidated subsidiary of Liberty pays a commission to
TCI for merchandise sales to customers who are subscribers of TCI's
cable systems. Aggregate commission and charges for such programming
were $11 million, $3 million and $2 million for the years ended
December 31, 1993 and 1992 and the period from March 29, 1991 through
December 31, 1991, respectively. Such amounts are recorded in revenue
in the accompanying consolidated statements of operations.
Summarized unaudited financial information of Liberty as of December
31, 1993 and 1992 and for the years ended December 31, 1993 and 1992
and the period from March 29, 1991 through December 31, 1991 is as
follows:
<TABLE>
<CAPTION>
December 31,
------------
Consolidated Financial Position 1993 1992
------------------------------- ---- ----
amounts in millions
<S> <C> <C>
Cash and cash equivalents $ 91 96
Investment in TCI common stock 104 104
Receivable from TCI -- 5
Other investments and related receivables 372 453
Other assets, net 870 172
------ ----
Total assets $1,437 830
====== ====
Debt $ 446 167
Deferred income taxes 2 15
Other liabilities 307 54
Minority interests 175 10
Redeemable preferred stocks 155 155
Stockholders' equity 352 429
----- ----
Total liabilities and stockholders' equity $1,437 830
====== ====
</TABLE>
(continued)
II-28
<PAGE> 51
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Consolidated Operations 1993 1992 1991
----------------------- ---- ---- ----
amounts in millions
<S> <C> <C> <C>
Revenue $ 1,153 157 85
Operating expenses (1,105) (144) (74)
Depreciation and amortization (49) (16) (10)
------- ----- ----
Operating income (loss) (1) (3) 1
Interest expense (31) (7) (5)
Other, net 36 32 44
------- ---- ----
Net earnings $ 4 22 40
======= ==== ====
</TABLE>
(4) Investments in Other Affiliates
Investments in affiliates, other than Liberty (see note 3), accounted
for under the equity method, amounted to $567 million and $650 million
at December 31, 1993 and 1992, respectively.
On December 2, 1992, SCI Holdings, Inc. ("SCI") consummated a
transaction (the "Split-Off") that resulted in the ownership of its
cable systems being split between its two stockholders, which
stockholders were Comcast Corporation ("Comcast") and the Company.
Prior to the Split-Off, the Company had an investment in the common
stock of SCI and the preferred stock of its wholly-owned subsidiary,
Storer Communications, Inc. ("Storer").
The Split-Off, which permitted refinancing of substantially all of the
publicly held debt of SCI and the preferred stock of SCI's
wholly-owned subsidiary, Storer, was effected by the distribution of
approximately 50% of the net assets of SCI to three holding companies
formed by the Company (the "Holding Companies").
Prior to the Split-off, the Company contributed its SCI common stock
to the Holding Companies in exchange for 100% of such Holding
Companies' common stock. The amount of SCI common stock contributed
to each of the Holding Companies was based upon the proportionate
value of net assets to be received by each of the Holding Companies in
the Split-Off. SCI then merged into Storer and the SCI common stock
held by the Holding Companies was converted into Storer common stock.
(continued)
II-29
<PAGE> 52
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Also prior to the Split-Off, (i) the Holding Companies incurred
long-term debt aggregating approximately $1.1 billion and contributed
substantially all of the resulting proceeds to Storer and (ii) a
consolidated subsidiary of TCI redeemed approximately $476 million of
its debt securities held by Storer with proceeds of its separate
financing, and an affiliate of Comcast redeemed approximately $274
million of its debt securities held by Storer. In turn, Storer
utilized substantially all of the proceeds of such contributions and
redemptions to repurchase its preferred stock and extinguished all of
its debt. The Company's share of Storer's loss on early
extinguishment of debt was $52 million and such amount is included in
loss on early extinguishment of debt in the accompanying consolidated
statements of operations. Additionally, the Company received a
premium, amounting to $14 million, on the repurchase of the Storer
preferred stock. Such amount is reflected separately in the
accompanying consolidated financial statements.
In the Split-Off, Storer redeemed its common stock held by the Holding
Companies in exchange for 100% of the capital stock of certain
operating subsidiaries of Storer.
Immediately following the Split-Off, the Company owned a majority of
the common stock of the Holding Companies and Comcast owned 100% of
the common stock of Storer. As such, the Company, which previously
accounted for its investment in SCI using the equity method, now
consolidates its investment in the Holding Companies. The tangible
assets of the Holding Companies were recorded at predecessor cost.
In connection with the Company's 1988 acquisition of an equity
interest in SCI, a subsidiary of the Company issued certain debt and
equity securities to Storer for $650 million. Such debt securities
were redeemed and the equity securities were received by one of the
Holding Companies in the Split-Off. Interest charges and preferred
stock dividend requirements on these debt and equity securities, prior
to the Split-Off, aggregated $81 million and $89 million for the
period ended December 2, 1992 and the year ended December 31, 1991.
The Company's share of losses of SCI, prior to the Split-Off for the
period ended December 2, 1992 and the year ended December 31, 1991
amounted to $51 million and $54 million, as adjusted for the effect of
interest and dividends accounted for by Storer as capital transactions
due to their related party nature.
The Company had a management consulting agreement with Storer which
provided for the operational management of certain of Storer's cable
television systems by TCI. This agreement provided for a management
fee based on 3.5% of the revenue of those cable television systems
managed by the Company. The Company also entered into a programming
service agreement with Storer whereby the Company, for a fee, managed
Storer's purchases of programming. The total management fees under
the consulting and programming service agreements, prior to the
Split-Off, amounted to $7 million in each of the period from January 1
1992 through December 2, 1992 and the year ended December 31, 1991
(which amounts are recorded as a reduction of selling, general and
administrative expenses in the accompanying consolidated statements of
operations).
(continued)
II-30
<PAGE> 53
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company is a partner in certain joint ventures, accounted for
under the equity method, which have operations in the United Kingdom
and other parts of Europe. These joint ventures, which are currently
operating and constructing cable television and telephone systems,
have generated losses to the Company in 1993 and 1992 amounting to $47
million and $37 million, including $3 million and $6 million in 1993
and 1992, respectively, resulting from foreign currency transaction
losses.
Summarized unaudited financial information for affiliates other than
Liberty (including those contributed to Liberty through March 28,
1991), is as follows:
<TABLE>
<CAPTION>
December 31,
--------------
1993 1992
---- ----
Combined Financial Position amounts in millions
---------------------------
<S> <C> <C>
Property and equipment, net $1,059 757
Franchise costs, net 266 211
Other assets, net 727 467
------ ------
Total assets $2,052 1,435
====== ======
Debt $ 593 661
Due to TCI 78 71
Other liabilities 338 185
Owners' equity 1,043 518
------ ------
Total liabilities and equity $2,052 1,435
====== ======
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1993 1992 1991
---- ---- ----
Combined Operations amounts in millions
-------------------
<S> <C> <C> <C>
Revenue $ 713 1,224 1,461
Operating expenses (648) (786) (993)
Depreciation and amortization (127) (303) (329)
------ ------ ------
Operating income (loss) (62) 135 139
Interest expense (37) (295) (374)
Other, net 98 (234) (47)
----- ------ ------
Net loss $ (1) (394) (282)
====== ====== ======
</TABLE>
Certain of the Company's affiliates are general partnerships and any
subsidiary of the Company that is a general partner in a general
partnership is, as such, liable as a matter of partnership law for all
debts (other than non-recourse debts) of that partnership in the event
liabilities of that partnership were to exceed its assets.
(continued)
II-31
<PAGE> 54
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Investment in Turner Broadcasting System, Inc.
In 1987, the Company and several other cable television operators
purchased shares of two classes of preferred stock of Turner
Broadcasting System, Inc. ("TBS"). During 1991, TBS made an offer to
exchange shares of one class of its preferred stock (and accrued
dividends thereon) for shares of TBS common stock and, as a result,
the Company received common shares valued at $178 million. Shares of
the other class of preferred stock have voting rights and are
convertible into shares of TBS common stock. The holders of those
preferred shares, as a group, are entitled to elect seven of fifteen
members of the board of directors of TBS, and the Company appoints
three such representatives. However, voting control over TBS
continues to be held by its chairman of the board and chief executive
officer (an unrelated third party). The Company's total holdings of
TBS common and preferred stocks represent an approximate 12% voting
interest for those matters for which preferred and common stock vote
as a single class.
The Company's investment in TBS common stock had an aggregate market
value of $803 million and $628 million (which exceeded cost by $485
million and $310 million) at December 31, 1993 and 1992, respectively.
In addition, the Company's investment in TBS preferred stock had an
aggregate market value of $954 million and $746 million, based upon
the common market value, (which exceeded cost by $781 million and $573
million) at December 31, 1993 and 1992, respectively.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," effective for fiscal years
beginning after December 15, 1993. Under the new rules, debt
securities that the Company has both the positive intent and ability
to hold to maturity are carried at amortized cost. Debt securities
that the Company does not have the positive intent and ability to hold
to maturity and all marketable equity securities are classified as
available-for-sale or trading and carried at fair value. Unrealized
holding gains and losses on securities classified as available-for
sale are carried as a separate component of shareholders' equity.
Unrealized holding gains and losses on securities classified as
trading are reported in earnings.
The Company holds no material debt securities. Marketable equity
securities are currently reported by the Company at the lower of cost
or market ("LOCOM") and net unrealized losses are reported in
earnings. The Company will apply the new rules starting in the first
quarter of 1994. Application of the new rules will result in an
estimated increase of approximately $300 million in stockholders'
equity as of January 1 1994, representing the recognition of
unrealized appreciation, net of taxes, for the Company's investment in
equity securities determined to be available-for-sale, previously
carried at LOCOM.
(continued)
II-32
<PAGE> 55
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted-average December 31,
interest rate at ----------------
December 31, 1993 1993 1992
----------------- ------ ------
amounts in millions
<S> <C> <C> <C>
Parent company debt:
Senior notes 8.6% $ 5,052 1,960
Liquid Yield OptionTM Notes (a) -- -- 386
Bank credit facilities 6.0% 80 500
Commercial paper 4.1% 44 50
Other debt 2 1
------- ------
5,178 2,897
Debt of subsidiaries:
Bank credit facilities 4.6% 3,264 5,526
Commercial paper -- -- 12
Notes payable 10.3% 1,321 1,732
Convertible notes (b) 9.5% 47 48
Other debt 90 70
------- ------
$ 9,900 10,285
======= ======
</TABLE>
(a) These subordinated notes, which were stated net of unamortized
discount of $764 million at December 31, 1992, were issued
through a public offering. On October 28, 1993, the Company
called for redemption all of its remaining Liquid Yield
OptionTM Notes. In connection with such call for redemption,
Notes aggregating $405 million were converted into 18,694,377
shares of Class A common stock and Notes aggregating less than
$1 million were redeemed together with accrued interest to the
redemption date. Prior to the aforementioned redemption,
Notes aggregating $6 million were converted into 259,537
shares of TCI Class A common stock during 1993.
(b) These convertible notes, which are stated net of unamortized
discount of $197 million and $201 million on December 31, 1993
and 1992, respectively, mature on December 18, 2021. The
notes require (so long as conversion of the notes has not
occurred) an annual interest payment through 2003 equal to
1.85% of the face amount of the notes. During the year ended
December 31, 1993, certain of these notes were converted into
819,000 shares of Class A common stock. At December 31, 1993,
the notes were convertible, at the option of the holders, into
an aggregate of 41,060,990 shares of Class A common stock.
During the year ended December 31, 1992, TCI called for redemption all
of its 7% convertible subordinated debentures. Debentures aggregating
$114 million were converted into 6,636,881 shares of Class A common
stock and the remaining debentures were redeemed at 104.2% of the
principal amount together with accrued interest to the redemption
date.
(continued)
II-33
<PAGE> 56
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company's bank credit facilities and various other debt
instruments generally contain restrictive covenants which require,
among other things, the maintenance of certain earnings, specified
cash flow and financial ratios (primarily the ratios of cash flow to
total debt and cash flow to debt service, as defined), and include
certain limitations on indebtedness, investments, guarantees,
dispositions, stock repurchases and dividend payments.
As security for borrowings under one of its credit facilities, the
Company pledged a portion of the common stock (with a quoted market
value of approximately $643 million at December 31, 1993) it holds of
TBS.
In order to provide interest rate protection on a portion of its
variable rate indebtedness, the Company has entered into various
interest rate exchange agreements pursuant to which it pays fixed
interest rates, ranging from 7.7% to 9.9%, on notional amounts of $608
million. The Company has also entered into various other exchange
agreements, pursuant to which it pays variable interest rates on
notional amounts of $2,275 million. The Company is exposed to credit
losses for the periodic settlements of amounts due under these
interest rate exchange agreements in the event of nonperformance by
the other parties to the agreements. However, the Company does not
anticipate nonperformance by the counterparties and, in any event,
such amounts were not material at December 31, 1993.
The Company has also entered into various interest rate hedge
agreements on notional amounts of $345 million which fix the maximum
variable interest rates, at rates ranging from 10% to 11%. The term
of such agreements is approximately two years.
TCI and certain of its subsidiaries are required to maintain unused
availability under bank credit facilities to the extent of outstanding
commercial paper. Also, TCI and certain of its subsidiaries pay fees,
ranging from 1/4% to 1/2% per annum, on the average unborrowed portion
of the total amount available for borrowings under bank credit
facilities.
The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The
fair value of debt, which has a carrying value of $9,900 million, was
$10,572 million at December 31, 1993.
The fair value of the interest rate exchange agreements is the
estimated amount that the Company would pay or receive to terminate
the agreements at December 31, 1993, taking into consideration current
interest rates and assuming the current creditworthiness of the
counterparties. The Company would receive $13 million at December 31,
1993 upon termination of the agreements.
(continued)
II-34
<PAGE> 57
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Annual maturities of debt for each of the next five years are as
follows:
<TABLE>
<CAPTION>
Parent Total
------ -----
amounts in millions
<S> <C> <C>
1994 $ 69* 927*
1995 212 705
1996 210 993
1997 151 885
1998 349 799
</TABLE>
* Includes $44 million of commercial paper.
(7) Redeemable Preferred Stocks
<TABLE>
<CAPTION>
December 31,
-----------------
1993 1992
------ ------
amounts in millions
<S> <C> <C>
12-7/8% Cumulative Compounding
Preferred Stock, Series A;
issued and outstanding 4,772,394
shares in 1992 (a) $ -- 92
6-3/4% Convertible Preferred Stock,
Series B; issued and outstanding
6,201 shares at December 31, 1992 (b) -- 18
4-1/2% Convertible Preferred Stock,
Series C; issued and outstanding
6,201 shares at December 31, 1993 (b) 18 --
---- ----
$ 18 110
==== ===
</TABLE>
(a) The 12-7/8% Cumulative Compounding Preferred Stock was stated
at its redemption value of $19.25 per share. Dividends were
cumulative and accrued at 12-7/8% of the redemption value. In
October of 1992, the Company acquired and retired 250,000
shares of this preferred stock in the open market for a
purchase price of $19.56 per share. All remaining outstanding
shares of such preferred stock were redeemed on February 1,
1993 for a redemption price of $19.25 per share plus all
unpaid dividends accrued thereon.
(continued)
II-35
<PAGE> 58
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) The 4-1/2% Convertible Preferred Stock is stated at its
redemption value of $3,000 per share, and each share is
convertible into 204 shares of TCI Class A common stock. In
1993, the Company designated this Series C Convertible
Preferred Stock with all of the same attributes of the Series
B Convertible Preferred Stock except that dividends on each
share of the Series C stock accrued on a daily basis at the
rate of 4-1/2% per annum instead of 6-3/4% per annum, and such
Series C stock was not subject to optional redemption by the
Company until after January 10, 1994. During the year ended
December 31, 1993, the shares so designated were exchanged for
the existing Series B shares. Subsequent to December 31,
1993, all of the Series C shares were converted into 1,265,004
shares of TCI Class A common stock.
(8) Stockholders' Equity
Common Stock
The Class A common stock has one vote per share and the Class B common
stock has ten votes per share. Each share of Class B common stock is
convertible, at the option of the holder, into one share of Class A
common stock.
Employee Benefit Plans
The Company has an Employee Stock Purchase Plan ("ESPP") to provide
employees an opportunity for ownership in the Company and to create a
retirement fund. Terms of the ESPP provide for employees to
contribute up to 10% of their compensation to a trust for investment
in TCI common stock. The Company, by annual resolution of the Board
of Directors, contributes up to 100% of the amount contributed by
employees. Certain of the Company's subsidiaries have their own
employee benefit plans. Contributions to all plans aggregated $16
million, $13 million and $12 million for 1993, 1992 and 1991,
respectively.
(continued)
II-36
<PAGE> 59
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock Options
Two officers (one of whom is also a director) each held an option to
acquire 200,000 shares of Class A common stock at an adjusted purchase
price of $10.00 per share. One of such officers received payment of
$550,000 from the Company in December of 1991 upon cancellation of a
portion of his option covering 100,000 shares. The amount paid was
based on the then market value of Class A common stock of $15.50 per
share. The same officer received payments of $512,500 and $569,000
from the Company (based on the then market value of Class A common
stock of $20.25 and $21.375 per share) in July and December of 1992,
respectively, in cancellation of the remainder of his option covering
100,000 shares of TCI Class A common stock. The other officer
received payment of $2,276,000 from the Company in December of 1992
upon cancellation of his option covering 200,000 shares of TCI Class A
common stock. The amount paid was based on the then market value of
Class A common stock of $21.375 per share.
The Company had an Incentive Stock Option Plan ("ISOP") which has
expired. Options granted under the ISOP (prior to its expiration)
have an option price equal to the fair market value on the date of
grant, are all currently exercisable and expire five years from the
date of grant. Options to purchase 217,008 shares of TCI Class A
common stock are outstanding at December 31, 1993, with a price of
$17.25 per share. During the years ended December 31, 1993, 1992 and
1991, options to acquire 96,242, 321,406 and 78,642 shares,
respectively were exercised at prices ranging from $10.00 to $17.25
per share and options for 25,000, 12,000 and 15,000 shares,
respectively, were cancelled.
TCI assumed certain stock options previously granted by UAE to certain
of its employees. These options, which are currently exercisable,
represent the right, as of December 31, 1993, to acquire 167,328
shares of TCI Class A common stock at adjusted purchase prices ranging
from $8.83 to $18.63 per share. During the year ended December 31,
1993, no options were exercised or cancelled. No additional options
may be granted by UAE.
(continued)
II-37
<PAGE> 60
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has adopted the 1992 Stock Incentive Plan (the "Plan").
The Plan provides for awards to be made with respect to a maximum of
10 million shares of Class A common stock. Awards may be made as
grants of stock options, stock appreciation rights, restricted shares,
stock units or any combination thereof. On November 11, 1992, stock
options in tandem with stock appreciation rights to purchase 4,020,000
shares of Class A common stock were granted pursuant to the Plan to
certain officers and other key employees at a purchase price of $16.75
per share. Such options become exercisable and vest evenly over five
years, first became exercisable beginning November 11, 1993 and expire
on November 11, 2002. During the year ended December 31, 1993, stock
options covering 50,000 shares of Class A common stock were cancelled
upon termination of employment. On October 12, 1993, stock options in
tandem with stock appreciation rights to purchase 1,355,000 shares of
TCI Class A common stock were granted pursuant to the Plan to certain
officers and other key employees at a purchase price of $16.75 per
share. On November 12, 1993, an additional grant of stock options in
tandem with stock appreciation rights to purchase 600,000 shares of
TCI Class A common stock were granted to two officers at a purchase
price of $16.75 per share. Such options become exercisable and vest
evenly over four years, first become exercisable beginning October 12,
1994 and expire on October 12, 2003. Separately from the Plan, an
additional grant of stock options in tandem with stock appreciation
rights to purchase 2,000,000 shares of TCI Class A common stock at a
purchase price of $16.75 per share was made on November 12, 1993 to an
individual who thereafter became a director of the Company. Twenty
percent of such options vested and became exercisable immediately and
the remainder become exercisable evenly over 4 years. The options
expire October 12, 1998. Estimates of the compensation relating to
these grants have been recorded through December 31, 1993, but are
subject to future adjustment based upon market value and, ultimately,
on the final determination of market value when the rights are
exercised.
Two officers (who are also directors) each held an option, expiring
December 31, 1991, to acquire 1,200,000 shares of Class B common stock
at an adjusted purchase price of $1.10 per share. In June of 1991,
one of the aforementioned officers exercised in full his option to
acquire 1,200,000 shares of Class B common stock by delivery of 80,000
shares of Class B common stock valued at $16.50 per share and, on the
same date, sold 400,000 of such option shares (at a price of $16.50
per share) to TCI for cash and a short-term note. In December of
1991, the other officer exercised his option to purchase 900,000
shares of Class B common stock by delivery of 63,871 shares of Class A
common stock valued at $15.50 per share. Such officer agreed to
forego exercising the balance of his option to purchase 300,000 shares
of Class B common stock in exchange for the payment by the Company of
$4,320,000 as compensation to be applied towards federal and state
income taxes withheld by the Company for his account.
Other
The excess of consideration received on debentures converted or
options exercised over the par value of the stock issued is credited
to additional paid-in capital.
(continued)
II-38
<PAGE> 61
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1993, there were 50,635,330 Class A shares of TCI
common stock reserved for issuance under exercise privileges related
to options and convertible debt securities described in this note 8
and in notes 6 and 7. In addition, one share of Class A common stock
is reserved for each share of Class B common stock.
(9) Transactions with Officers and Directors
On December 10, 1992, pursuant to a restricted stock award agreement,
an officer, who is also a director, of the Company was transferred the
right, title and interest in and to 124.03 shares (having a
liquidation value of $4 million) of the 12% Series B cumulative
compounding preferred stock of WestMarc Communications, Inc. (a
wholly-owned subsidiary of the Company) owned by the Company. Such
preferred stock is subject to forfeiture in the event of certain
circumstances from the date of grant through February 1, 2002,
decreasing by 10% on February 1 of each year.
On December 14, 1992, an officer, who is also a director, sold 100,000
shares of Class B common stock to the Company for $2,138,000.
(10) Income Taxes
TCI files a consolidated Federal income tax return with all of its 80%
or more owned subsidiaries. Consolidated subsidiaries in which the
Company owns less than 80% each file a separate income tax return.
TCI and such subsidiaries calculate their respective tax liabilities
on a separate return basis which are combined in the accompanying
consolidated financial statements.
The Financial Accounting Standards Board Statement No. 109 requires a
change from the deferred method of accounting for income taxes of APB
Opinion No. 11 to the asset and liability method of accounting for
income taxes. Under the asset and liability method of Statement No.
109, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered
or settled. Under Statement No. 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
The Company adopted Statement No. 109 in 1993 and has applied the
provisions of Statement No. 109 retroactively to January 1, 1986. The
Company restated its financial statements for the years beginning
January 1, 1986 through December 31, 1992. The effect of the
implementation of Statement No. 109 at December 31, 1992 was a $2
million decrease in receivables, $48 million net increase in
investments, $178 million net increase in property and equipment,
$2,901 million net increase in franchise costs, $2 million increase in
other assets, $34 million increase in other liabilities, $2,865
million increase in deferred taxes payable and $228 million decrease
in accumulated deficit.
(continued)
II-39
<PAGE> 62
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The financial statements for the years ended December 31, 1992 and
1991 have been restated to comply with the provisions of Statement No.
109. The following summarizes the impact of applying Statement No.
109 on net loss and loss per common share for the years ended December
31, 1992 and 1991:
<TABLE>
<CAPTION>
December 31,
--------------------
1992 1991
------- --------
amounts in millions
<S> <C> <C>
Net loss as previously reported $ (34) (103)
Effect of restatements:
Liberty, including the effects
of Mile Hi and LCI (note 3) 6 (2)
Statement No. 109 20 8
------- -------
As restated $ (8) (97)
======= =======
Per share amounts as previously reported $ (.12) (.29)
Effect of restatements:
Liberty, including the effects
of Mile Hi and LCI (note 3) .02 --
Statement No. 109
.05 .02
------- -------
As restated $ (.05) (.27)
======= =======
</TABLE>
Income tax benefit (expense) attributable to income or loss from
continuing operations for the years ended December 31, 1993, 1992 and
1991 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -------
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1993:
Federal $(14) (119) (133)
State and local (15) (20) (35)
---- ---- ----
$(29) (139) (168)
==== ==== ====
Year ended December 31, 1992:
Federal $ -- (24) (24)
State and local (10) (4) (14)
---- ---- ----
$(10) (28) (38)
==== ==== ====
Year ended December 31, 1991:
Federal $ (2) 33 31
State and local (7) 6 (1)
---- ---- ----
$ (9) 39 30
==== ==== ====
</TABLE>
(continued)
II-40
<PAGE> 63
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The significant components of deferred income tax benefit (expense)
for the years ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------
1993 1992 1991
----- ------ ------
amounts in millions
<S> <C> <C> <C>
Deferred tax benefit (expense)
(exclusive of effects of other
components listed below) $ (63) (28) 39
Adjustment to deferred tax assets and
liabilities for enacted change in
tax rates (76) -- --
----- ----- -----
$(139) (28) 39
===== ===== =====
</TABLE>
Income tax benefit (expense) attributable to income or loss from
continuing operations differs from the amounts computed by applying
the Federal income tax rate of 35% in 1993 and 34% in 1992 and 1991 as
a result of the following:
<TABLE>
<CAPTION>
Years ended
December 31,
-----------------------
1993 1992 1991
----- ------ ------
amounts in millions
<S> <C> <C> <C>
Computed "expected" tax benefit (expense) $ (56) (15) 37
Adjustment to deferred tax assets and
liabilities for enacted change in
Federal income tax rate (76) -- --
Dividends excluded for income tax purposes 4 10 13
Amortization not deductible for tax purposes (12) (8) (7)
Minority interest in earnings of
consolidated subsidiaries (1) (14) (13)
Recognition of losses of consolidated
partnership (8) -- --
State and local income taxes, net of Federal
income tax benefit (23) (9) 1
Other 4 (2) (1)
------ ------ ------
$ (168) (38) 30
====== ====== ======
</TABLE>
(continued)
II-41
<PAGE> 64
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Note to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1993 and 1992 are presented below:
<TABLE>
<CAPTION>
December 31,
---------------------
1993 1992
------ ------
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 590 665
Less - valuation allowance (90) (88)
Investment tax credit carryforwards 140 140
Less - valuation allowance (36) (34)
Alternative minimum tax credit
carryforwards 19 11
Investments in affiliates, due
principally to losses of affiliates
recognized for financial statement
purposes in excess of losses
recognized for income tax purposes 266 321
Future deductible amounts principally
due to non-deductible accruals 27 19
Other 13 5
------ ------
Net deferred tax assets 929 1,039
------ ------
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation 1,193 1,136
Franchise costs, principally due to
differences in amortization 2,784 2,720
Investment in affiliates, due
principally to undistributed
earnings of affiliates 256 332
Other 6 15
------ ------
Total gross deferred tax liabilities 4,239 4,203
------ ------
Net deferred tax liability $3,310 3,164
====== ======
</TABLE>
The valuation allowance for deferred tax assets as of December 31,
1993 was $126 million. Such balance increased by $4 million from
December 31, 1992. Subsequently recognized tax benefits relating to
the valuation allowance for deferred tax assets as of December 31,
1993 will be recorded as reductions of franchise costs.
At December 31, 1993, the Company had net operating loss carryforwards
for income tax purposes aggregating approximately $1,071 million of
which, if not utilized to reduce taxable income in future periods, $8
million expires through 1998, $17 million in 2001, $76 million in
2002, $153 million in 2003, $132 million in 2004, $384 million in 2005
and $301 million in 2006. Certain subsidiaries of the Company had
additional net operating loss carryforwards for income tax purposes
aggregating approximately $368 million and these net operating losses
are subject to certain rules limiting their usage.
(continued)
II-42
<PAGE> 65
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 1993, the Company had remaining available investment
tax credits of approximately $85 million which, if not utilized to
offset future Federal income taxes payable, expire at various dates
through 2005. Certain subsidiaries of the Company had additional
investment tax credit carryforwards aggregating approximately $55
million and these investment tax credit carryforwards are subject to
certain rules limiting their usage.
Certain of the Federal income tax returns of TCI and its subsidiaries
which filed separate income tax returns are presently under
examination by the Internal Revenue Service ("IRS") for the years 1979
through 1992. In the opinion of management, any additional tax
liability, not previously provided for, resulting from these
examinations, ultimately determined to be payable, should not have a
material adverse effect on the consolidated financial position of the
Company. The Company pursued a course of action on certain issues
(primarily the deductibility of franchise cost amortization) the IRS
had raised and such issues were argued before the United States Tax
Court. During 1990, the Company received a favorable decision
regarding these issues. The IRS appealed this decision but the
Company prevailed in the appeal. The IRS may further appeal the
decision to the Supreme Court until March 27, 1994.
New tax legislation was enacted in the third quarter of 1993 which,
among other matters, increased the corporate Federal income tax rate
from 34% to 35%. The Company has reflected the tax rate change in its
consolidated statements of operations in accordance with the treatment
prescribed by Statement No. 109. Such tax rate change resulted in an
increase of $76 million to income tax expense and deferred income tax
liability.
(11) Commitments and Contingencies
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (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. 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. Subsequent to September 1, 1993, any cable system charging
basic cable rates that exceed the FCC's benchmark rate may be required
to substantiate its rates by demonstrating its cost of providing basic
cable services to subscribers. 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.
(continued)
II-43
<PAGE> 66
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company believes that it has complied in all material respects
with the provisions of the 1992 Cable Act, including its rate setting
provisions. However, since the Company's rates for Regulated Services
are subject to review, the Company may be subject to a refund
liability. 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.
In connection with the acquisition from TCI of a 19.9% minority
interest in Heritage Communications, Inc. ("Heritage") by Comcast,
Comcast has the right, through December 31, 1994, to require TCI to
purchase or cause to be purchased from Comcast all shares of Heritage
directly or indirectly owned by Comcast for either cash or assets or,
at TCI's election, shares of TCI common stock. The purchase price of
the shares of Heritage directly or indirectly owned by Comcast will be
determined by external appraisal.
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 has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $237 million at December 31, 1993.
The Company leases business offices, has entered into pole rental
agreements and uses certain equipment under lease arrangements.
Minimum rental expense under such arrangements, net of sublease
rentals, amounted to $59 million, $57 million and $52 million for
1993, 1992 and 1991, respectively.
Future minimum lease payments under noncancellable operating leases
for each of the next five years are summarized as follows (amounts in
millions):
<TABLE>
<CAPTION>
Years ending
December 31,
------------
<S> <C>
1994 $16
1995 12
1996 9
1997 7
1998 6
</TABLE>
It is expected that, in the normal course of business, expiring leases
will be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less
than the amount shown for 1994.
(continued)
II-44
<PAGE> 67
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Discontinued Operations
The Company sold its motion picture theatre business and certain
theatre-related real estate assets on May 12, 1992. The selling price
(including liabilities assumed) was approximately $680 million. In
connection with the disposition, the Company paid $92.5 million for
certain preferred stock of the buyer. No gain or loss was recognized
in connection with this transaction as the net assets of discontinued
operations were reflected at their net realizable value.
Operating results for the theatre operations for the period from
January 1, 1992 through May 12, 1992 and the year ended December 31,
1991 are reported separately in the consolidated statements of
operations under the caption "Loss from discontinued operations" and
include:
<TABLE>
<CAPTION>
1992 1991
------ ------
amounts in millions
<S> <C> <C>
Revenue $ 211 613
Loss before income taxes $ (16) (18)
Income tax benefit (expense) $ 1 (1)
Net loss $ (15) (19)
</TABLE>
(continued)
II-45
<PAGE> 68
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions,
1993: except per share amounts
---
<S> <C> <C> <C> <C>
Revenue $1,018 1,042 1,044 1,049
Operating income:
As previously reported $ 247 255 248
Adjustment to revise estimate of useful
lives of certain distribution equipment -- (6) (6)
Adjustment to properly reflect compensation
relating to stock appreciation rights -- (3) (6)
----- ---- -----
As adjusted $ 247 246 236 187
====== ==== ===== ====
Gain (loss) on disposition of assets $ 40 5 4 (7)
Income tax benefit (expense):
As previously reported $ (38) (21) (116)
Adjustment to revise estimate of useful
lives of certain distribution equipment -- 3 3
Adjustment to properly reflect compensation
relating to stock appreciation rights -- 1 2
Adjustment to income taxes upon
revision of Statement No. 109 -- -- (3)
------ ---- ----
As adjusted $ (38) (17) (114) 1
====== ==== ==== ====
Net earnings (loss):
As previously reported $ 53 31 (55)
Adjustment to revise estimate of useful
lives of certain distribution equipment -- (3) (3)
Adjustment to properly reflect compensation
relating to stock appreciation rights -- (2) (4)
Adjustment to income taxes upon
revision of Statement No. 109 -- -- (3)
------ ---- ----
As adjusted $ 53 26 (65) (21)
====== ==== ==== ====
Primary and fully diluted earnings (loss)
attributable to common shareholder per
common and common equivalent share:
As previously reported $ .11 .07 (.13)
Adjustment to revise estimate of useful
lives of certain distribution equipment -- (.01) --
Adjustment to properly reflect compensation
relating to stock appreciation rights -- -- (.01)
Adjustment to income taxes upon revision
of Statement No. 109 -- -- --
------ ---- ----
As adjusted $ .11 .06 (.14) (.05)
====== ==== ==== ====
</TABLE>
(continued)
II-46
<PAGE> 69
TELE-COMMUNICATIONS, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions,
1992: except per share amounts
---
<S> <C> <C> <C> <C>
Revenue $ 856 879 896 943
Operating income:
As previously reported $ 197 225 242 226
Adjustment to depreciation and amortization
upon revision of Statement No. 109 (2) (1) -- (23)
----- ---- ---- ----
As adjusted $ 195 224 242 203
===== ==== ==== ====
Gain (loss) on disposition of assets $ 3 (3) (1) 10
Income tax benefit (expense):
As previously reported $ 1 (15) 6 (49)
Adjustment to income taxes for the
restatement of share of earnings
of Liberty (note 3) -- (3) (5) 3
Adjustment to revise/implement
Statement No. 109 1 -- -- 23
----- ---- ---- ----
As adjusted $ 2 (18) 1 (23)
===== ==== ==== ====
Earnings (loss) from continuing operations:
As previously reported $ (18) 9 63 (51)
Adjustment to restate share of earnings
of Liberty (note 3) -- 4 7 (5)
Adjustment to depreciation, amortization
and income taxes upon revision/
implementation of Statement No. 109 (1) (1) -- --
----- ---- ---- ----
As adjusted $ (19) 12 70 (56)
===== ==== ==== ====
Loss from discontinued operations $ -- (15) -- --
===== ==== ==== ====
Net earnings (loss):
As previously reported $ (18) (6) 63 (51)
Adjustment to restate share of earnings
of Liberty (note 3) -- 4 7 (5)
Adjustment to depreciation, amortization
and income taxes upon revision/
implementation of Statement No. 109 (1) (1) -- --
----- ---- ---- ----
As adjusted $ (19) (3) 70 (56)
===== ==== ==== ====
Primary and fully diluted earnings (loss)
attributable to common shareholders per
common and common equivalent share:
Continuing operations:
As previously reported $(.05) .01 .13 (.12)
Adjustment to restate share of earnings
of Liberty (note 3) -- .01 .01 (.01)
Adjustment to depreciation, amortization
and income taxes upon revision/
implementation of Statement No. 109 (.01) -- -- --
----- ---- ---- ----
As adjusted (.06) .02 .14 (.13)
Discontinued operations -- (.03) -- --
----- ----- ---- ----
$(.06) (.01) .14 (.13)
===== ==== ==== ====
</TABLE>
II-47
