<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Numbers 0-20421 and 0-5550
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC.
----------------------------------------------------------
(Exact name of Registrants as specified in their charters)
State of Delaware 84-1260157 and 84-0588868
------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Nos.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: (303) 267-5500
TCI Communications, Inc. meets the conditions set forth in General
Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with
the reduced disclosure format.
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of shares held in treasury), as of May 1, 1995, was:
Class A common stock - 571,489,713 shares; and
Class B common stock - 84,864,800 shares.
<PAGE> 2
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1995 1994 *
------ ---------- ------------
amounts in millions
<S> <C> <C>
Cash $ 56 74
Trade and other receivables, net 293 301
Inventories, net 112 121
Investments in affiliates, accounted for
under the equity method, and related
receivables (note 4) 1,484 1,285
Investment in Turner Broadcasting System, Inc.
("TBS") (note 5) 701 660
Property and equipment, at cost:
Land 91 91
Distribution systems 8,652 7,705
Support equipment and buildings 1,164 1,085
Computer and broadcast equipment 61 61
---------- -------
9,968 8,942
Less accumulated depreciation 3,264 3,066
---------- -------
6,704 5,876
---------- -------
Franchise costs 13,150 11,152
Less accumulated amortization 1,779 1,708
---------- -------
11,371 9,444
---------- -------
Other assets, at cost, net of amortization 1,733 1,556
---------- -------
$ 22,454 19,317
========== =======
</TABLE>
* Restated - see note 4.
(continued)
I-1
<PAGE> 3
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and Stockholders' Equity 1995 1994 *
------------------------------------ ---------- ------------
amounts in millions
<S> <C> <C>
Accounts payable $ 311 201
Accrued interest 152 183
Other accrued expenses 701 809
Debt (note 7) 11,371 11,162
Deferred income taxes 4,397 3,524
Other liabilities 183 160
--------- -------
Total liabilities 17,115 16,039
--------- -------
Minority interests in equity
of consolidated subsidiaries 373 429
Redeemable preferred stock (note 8) 303 --
Stockholders' equity (note 9):
Series Preferred Stock, $.01 par value -- --
Class B 6% Cumulative Redeemable
Exchangeable Junior Preferred Stock,
$.01 par value -- --
Convertible Preferred Stock, Series C,
$.01 par value -- --
Class A common stock, $1 par value
Authorized 1,100,000,000 shares;
issued 659,323,499 shares in 1995
and 576,979,498 shares in 1994 659 577
Class B common stock, $1 par value
Authorized 150,000,000 shares;
issued 89,037,429 shares in 1995
and 89,287,429 shares in 1994 89 89
Additional paid-in capital 4,687 2,959
Cumulative foreign currency
translation adjustment 21 (4)
Unrealized holding gains for
available-for-sale securities 160 126
Accumulated deficit (333) (288)
--------- -------
5,283 3,459
Treasury stock, at cost (86,030,994 and
86,030,992 shares of Class A common
stock in 1995 and 1994 and 4,172,629 shares
of Class B common stock in 1995 and 1994) (620) (610)
--------- -------
Total stockholders' equity 4,663 2,849
--------- -------
Commitments and contingencies (note 10)
$ 22,454 19,317
========= =======
</TABLE>
* Restated - see note 4.
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 4
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months
ended
March 31,
-------------------------
1995 1994
-------- --------
amounts in millions,
except per share amounts
<S> <C> <C>
Revenue:
From cable and programming services $ 1,281 1,060
Net sales from home shopping services 243 --
-------- ------
1,524 1,060
-------- ------
Operating costs and expenses:
Operating 465 315
Cost of sales 161 --
Selling, general and administrative 434 295
Adjustment to compensation relating to
stock appreciation rights (3) (19)
Depreciation 201 163
Amortization 86 72
-------- ------
1,344 826
-------- ------
Operating income 180 234
Other income (expense):
Interest expense (240) (178)
Interest and dividend income 7 10
Share of earnings of Liberty Media
Corporation ("Liberty") -- 14
Share of losses of other affiliates,
net (note 4) (29) (9)
Gain on disposition of assets 8 --
Loss on early extinguishment of debt -- (2)
Minority interests in losses (earnings) of
consolidated subsidiaries, net 11 (2)
Other, net (1) (4)
-------- ------
(244) (171)
-------- ------
Earnings (loss) before income taxes (64) 63
Income tax benefit (expense) 19 (31)
-------- ------
Net earnings (loss) (45) 32
Dividend requirements on
preferred stocks (8) --
-------- ------
Net earnings (loss) attributable
to common shareholders $ (53) 32
======== ======
Primary and fully diluted earnings (loss)
attributable to common shareholders
per common and common equivalent
share (note 2) $ (.08) .07
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE> 5
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three months ended March 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Cumulative
foreign
Class B Series C Common stock Additional currency
Preferred Preferred ------------------ paid-in translation
Stock Stock Class A Class B capital adjustment
--------- --------- ------- ------- ---------- -----------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ -- -- 577 89 2,959 (4)
Net loss -- -- -- -- -- --
Issuance of common stock in
public offering -- -- 20 -- 381 --
Issuance of common stock in
private offering -- -- 1 -- 28 --
Issuance of common stock for
acquisitions and investments (note 6) -- -- 61 -- 1,324 --
Issuance of Class A common stock
to subsidiary of TCI in
Reorganization -- -- -- -- 10 --
Accreted dividends on all classes of
preferred stock -- -- -- -- (8) --
Accreted dividends on all classes of
preferred stock not subject
to mandatory redemption
requirements -- -- -- -- 5 --
Payment of preferred stock dividends -- -- -- -- (12) --
Foreign currency translation
adjustment -- -- -- -- -- 25
Change in unrealized holding gains for
available-for-sale securities -- -- -- -- -- --
----- ---- ---- ----- ----- ----
Balance at March 31, 1995 $ -- -- 659 89 4,687 21
===== ==== ==== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
Unrealized
holding
gains for
available- Total
for-sale Accumulated Treasury stockholders'
securities * deficit * stock equity
------------ ----------- -------- -------------
amounts in millions
<S> <C> <C> <C> <C>
Balance at January 1, 1995 126 (288) (610) 2,849
Net loss -- (45) -- (45)
Issuance of common stock in
public offering -- -- -- 401
Issuance of common stock in
private offering -- -- -- 29
Issuance of common stock for
acquisitions and investments (note 6) -- -- -- 1,385
Issuance of Class A common stock
to subsidiary of TCI in
Reorganization -- -- (10) --
Accreted dividends on all classes of
preferred stock -- -- -- (8)
Accreted dividends on all classes of
preferred stock not subject
to mandatory redemption
requirements -- -- -- 5
Payment of preferred stock dividends -- -- -- (12)
Foreign currency translation
adjustment -- -- -- 25
Change in unrealized holding gains for
available-for-sale securities 34 -- -- 34
---- ---- ---- -----
Balance at March 31, 1995 160 (333) (620) 4,663
==== ==== ==== =====
</TABLE>
* Restated - see note 4.
See accompanying notes to consolidated financial statements.
I-4
<PAGE> 6
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1995 1994
-------- ------
amounts in millions
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (45) 32
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 287 235
Adjustment to compensation relating to stock
appreciation rights (3) (19)
Share of earnings of Liberty -- (14)
Share of losses of other affiliates 29 9
Deferred income tax expense (benefit) (20) 13
Minority interests in earnings (losses) (11) 2
Loss on early extinguishment of debt -- 2
Gain on disposition of assets (8) --
Noncash interest and dividend income (2) (2)
Other noncash charges 1 1
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables 19 7
Change in inventories 9 --
Change in accrued interest (35) (26)
Change in other accruals and payables (23) 86
-------- -------
Net cash provided by operating activities 198 326
-------- -------
Cash flows from investing activities:
Cash paid for acquisitions (21) (10)
Capital expended for property and equipment (346) (243)
Proceeds from disposition of assets 13 8
Additional investments in and
loans to affiliates and others (224) (97)
Repayment of loans by affiliates and others 6 31
Return of capital from affiliates 8 --
Other investing activities (75) (71)
-------- ------
Net cash used in investing activities (639) (382)
-------- ------
Cash flows from financing activities:
Borrowings of debt 1,064 1,296
Repayments of debt (1,059) (1,188)
Preferred stock dividends of subsidiaries -- (2)
Preferred stock dividends (12) --
Issuance of common stock 430 --
-------- ------
Net cash provided by financing activities 423 106
-------- ------
Net increase (decrease) in cash (18) 50
Cash at beginning of period 74 1
-------- ------
Cash at end of period $ 56 51
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE> 7
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(unaudited)
(1) General
The accompanying 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.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto contained in TCI's Annual Report on Form
10-K, as amended, for the year ended December 31, 1994.
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive merger agreement to combine the
two companies (the "TCI/Liberty Combination"). The transaction was
consummated on August 4, 1994 and was 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. In connection with the TCI/Liberty
Combination, Old TCI changed its name to TCI Communications, Inc.
("TCIC") and TCI/Liberty Holding Company changed its name to
Tele-Communications, Inc. Old TCI shareholders received one share of
TCI for each of their shares. Liberty common shareholders received
0.975 of a share of TCI for each of their common shares. Upon
consummation of the TCI/Liberty Combination, certain subsidiaries of
TCIC exchanged their shares of Old TCI Class A common stock for shares
of TCI Class A common stock. Additionally, subsidiaries of TCI
exchanged their shares of Liberty Class A common stock for TCI Class A
common stock and Liberty exchanged its shares of Old TCI Class A and
Class B common stock for like shares of TCI common stock. Such
ownership is reflected as treasury stock at such entities' historical
cost in the accompanying consolidated financial statements. Also,
subsidiaries of TCI exchanged their shares of various preferred stock
issuances of Liberty for preferred stock of TCI. Such preferred stock
of TCI eliminates in consolidation.
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and
other related party considerations, TCIC accounted for its investment
in Liberty under the equity method. Accordingly, TCIC had not
recognized any income relating to dividends, including preferred stock
dividends, and TCIC recorded the earnings or losses generated by
Liberty (by recognizing 100% of Liberty's earnings or losses before
deducting preferred stock dividends) through the date the TCI/Liberty
Combination was consummated.
(continued)
I-6
<PAGE> 8
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the fourth quarter of 1994, the Company was reorganized based
upon four lines of business: Domestic Cable and Communications;
Programming; International Cable and Programming; and
Technology/Venture Capital (the "Reorganization"). Upon
Reorganization, certain of the assets of TCIC and Liberty were
transferred to the other operating units. In the first quarter of
1995, TCIC transferred additional assets to the International Cable
and Programming unit.
Certain amounts have been reclassified for comparability with the 1995
presentation.
(2) Earnings (Loss) Per Common and Common Equivalent Share
Primary earnings per common and common equivalent share attributable
to common shareholders was computed by dividing net earnings
attributable to common shareholders by the weighted average number of
common and common equivalent shares outstanding (491.9 million for the
three months ended March 31, 1994).
Fully diluted earnings per common and common equivalent share
attributable to common shareholders was computed by dividing earnings
attributable to common shareholders by the weighted average number of
common and common equivalent shares outstanding (491.9 million for the
three months ended March 31, 1994).
The loss per common share for March 31, 1995 was computed by dividing
net loss by the weighted average number of common shares outstanding
during the period (634.5 million). Common stock equivalents were not
included in the computation of weighted average shares outstanding
because their inclusion would be anti-dilutive.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $275 million and $204 million for the three
months ended March 31, 1995 and 1994, respectively. Also, during
these periods, cash paid for income taxes was not material.
(continued)
I-7
<PAGE> 9
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1995 1994
-------- ------
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 2,791 10
Liabilities assumed (279) --
Deferred tax liability recorded
in acquisitions (875) --
Minority interests in equity of
acquired entities (4) --
Common stock issued in acquisitions (1,312) --
Redeemable preferred stock issued
in acquisition (300) --
-------- -----
Cash paid for acquisitions $ 21 10
======== =====
Conversion of debt into additional
minority interest in consolidated subsidiary $ 14 --
======== =====
Common stock issued to subsidiaries in
Reorganization reflected as
treasury stock $ 10 --
======== =====
Common stock issued in exchange for
cost investment $ 73 --
======== =====
Effect of foreign currency translation
adjustment on book value of foreign
equity investments $ 25 1
======== =====
Change in unrealized gains, net of deferred
income taxes, on available-for-sale
securities $ 34 113
======== =====
Unrealized gains, net of deferred taxes,
on available-for-sale securities
as of January 1, 1994 $ -- 304
======== =====
Noncash exchange of equity investments
and consolidated subsidiaries for
consolidated subsidiary $ -- 38
======== =====
Common stock issued upon conversion of
redeemable preferred stock $ -- 18
======== =====
Accrued preferred stock dividends $ 3 --
======== =====
</TABLE>
(continued)
I-8
<PAGE> 10
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Investments in Affiliates
Summarized unaudited results of operations for affiliates, other than
Liberty, accounted for under the equity method are as follows:
<TABLE>
<CAPTION>
Three months
ended
Combined Operations March 31,
------------------- ----------------------
1995 1994
------- --------
amounts in millions
<S> <C> <C>
Revenue $ 748 195
Operating expenses (602) (173)
Depreciation and amortization (111) (31)
------- --------
Operating income (loss) 35 (9)
Interest expense (54) (9)
Other, net (43) (20)
------- --------
Net loss $ (62) (38)
======= ========
</TABLE>
The Company has various investments accounted for under the equity
method. Some of the more significant investments held by the Company
at March 31, 1995 are TeleWest Communications plc (carrying value of
$462 million), Discovery Communications, Inc. (carrying value of $115
million) and Teleport Communications Group, Inc. (carrying value of
$144 million).
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 of that partnership in the event liabilities of that partnership
were to exceed its assets.
Pursuant to an Agreement and Plan of Merger dated as of August 4,
1994, as amended (the "QVC Merger Agreement"), QVC Programming
Holdings, Inc. (the "Purchaser"), a corporation which is jointly owned
by Comcast Corporation ("Comcast") and Liberty, commenced an offer
(the "QVC Tender Offer") to purchase all outstanding shares of common
stock and preferred stock of QVC, Inc. ("QVC").
The QVC Tender Offer expired at midnight, New York City time, on
February 9, 1995, the Purchaser accepted for payment all shares of QVC
which had been tendered in the QVC Tender Offer. Following
consummation of the QVC Tender Offer, the Purchaser was merged with
and into QVC with QVC continuing as the surviving corporation. The
Company owns an approximate 43% interest of the post-merger QVC.
A credit facility entered into by the Purchaser is secured by
substantially all of the assets of QVC. In addition, Comcast and
Liberty have pledged their shares of QVC pursuant to such credit
facility.
(continued)
I-9
<PAGE> 11
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
TCI's ownership of QVC was received in the TCI/Liberty Combination.
Liberty began accounting for its investment in QVC under the cost
method in May 1994, upon its determination to remain outside of the
previous QVC shareholders agreement. Prior to such determination,
Liberty had accounted for its investment in QVC under the equity
method.
Upon consummation of the aforementioned QVC transactions, the Company
is deemed to exercise significant influence over QVC and, as such,
adopted the equity method of accounting. As a result, TCI restated
its investment in QVC, its unrealized gain on available-for-sale
securities, its deferred taxes and accumulated deficit by $211 million,
$127 million, $89 million and $5 million, respectively, at December
31, 1994. The restatement did not affect the Company's results of
operations for the three months ended March 31, 1994 as QVC was
accounted for under the equity method during that period.
(5) Investment in Turner Broadcasting System, Inc.
The Company owns shares of a class of preferred stock of TBS which has
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. 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.
(6) Acquisitions
As of January 26, 1995, TCI, TCIC, a wholly-owned subsidiary of TCI,
and TeleCable Corporation ("TeleCable") consummated a transaction,
whereby TeleCable was merged into TCIC, a wholly-owned subsidiary of
TCI. The aggregate $1.6 billion purchase price was satisfied by
TCIC's assumption of approximately $300 million of TeleCable's net
liabilities and the issuance to TeleCable's shareholders of
approximately 42 million shares of TCI Class A common stock and 1
million shares of Convertible Preferred Stock, Series D (the "Series D
Preferred") with an aggregate initial liquidation value of $300
million (see note 8).
(continued)
I-10
<PAGE> 12
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The acquisition of TeleCable was accounted for by the purchase method.
Accordingly, the results of operations of such acquired entity have
been consolidated with those of the Company since its date of
acquisition. On a pro forma basis, the Company's revenue would have
been increased by $25 million, net loss would have been reduced
by $1 million, loss attributable to common shareholders and loss per
share would have remained unchanged for the three months ended
March 31, 1995, had such acquired entity been consolidated with the
Company on January 1, 1994. On a pro forma basis, revenue would have
increased by $73 million, net earnings would have been increased by
$2 million, earnings attributable to common shareholders would have
been reduced by $2 million and earnings per share would have been
reduced by $.01 for the three months ended March 31, 1994, had such
acquired entity been consolidated with the Company on January 1, 1994.
The foregoing unaudited pro forma financial information was based
upon historical results of operations adjusted for acquisition costs
and, in the opinion of management, is not necessarily indicative of
the results had the Company operated the acquired entity since
January 1, 1994.
Comcast Corporation ("Comcast") had the right, through December 31,
1994, to require TCI to purchase or cause to be purchased from Comcast
all shares of Heritage Communications, Inc. ("Heritage") directly or
indirectly owned by Comcast for either cash or assets or, at TCI's
election shares of TCI common stock. On October 24, 1994, the Company
and Comcast entered into a purchase agreement whereby the Company
would repurchase the entire 19.9% minority interest in Heritage owned
by Comcast for an aggregate consideration of approximately $290
million, the majority of which is payable in shares of TCI Class A
common stock. Such acquisition was consummated in the first quarter
of 1995.
(7) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
amounts in millions
<S> <C> <C>
Senior notes $ 5,382 5,412
Bank credit facilities 4,225 4,045
Commercial paper 527 445
Notes payable 1,013 1,024
Convertible notes (a) 44 45
Other debt 180 191
--------- --------
$ 11,371 11,162
========= ========
</TABLE>
(a) These convertible notes, which are stated net of unamortized
discount of $186 million at March 31, 1995 and December 31,
1994, 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. At March 31, 1995, the notes were
convertible, at the option of the holders, into an aggregate
of 38,707,574 shares of Class A common stock.
(continued)
I-11
<PAGE> 13
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The subsidiaries of 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/or dividend payments.
As security for borrowings under one of its credit facilities, TCIC
pledged a portion of the common stock (with a quoted market value of
approximately $512 million at March 31, 1995) it holds of TBS.
In order to achieve the desired balance between variable and fixed
rate indebtedness, the Company has entered into various interest rate
exchange agreements pursuant to which it pays (i) fixed interest rates
(the "Fixed Rate Agreements") ranging from 7.2% to 9.9% on notional
amounts of $550 million at March 31, 1995 and (ii) variable interest
rates (the "Variable Rate Agreements") on notional amounts of $2,605
million at March 31, 1995. During the three months ended March 31,
1995 and 1994, the Company's net receipts pursuant to the Fixed Rate
Agreements were $5.1 million and $2.1 million, respectively; and the
Company's net receipts pursuant to the Variable Rate Agreements were
$1.4 million and $19.6 million, respectively.
The Company's Fixed Rate Agreements and Variable Rate Agreements
expire as follows (amounts in millions, except percentages):
<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
--------------------- ------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
-------------- ------------- ------ -------------- -------------- ------
<S> <C> <C> <C> <C> <C>
August 1995 7.2% $ 10 April 1995 6.4% $ 75
April 1996 9.9% 30 August 1995 7.7% 10
May 1996 8.3% 50 April 1996 6.8% 50
July 1996 8.2% 10 July 1996 8.2% 10
August 1996 8.2% 10 August 1996 8.2% 10
November 1996 8.9% 150 September 1996 4.6% 150
October 1997 7.2%-9.3% 60 April 1997 7.0% 200
December 1997 8.7% 230 September 1998 4.8%-5.2% 300
------ April 1999 7.4% 100
$ 550 September 1999 7.2%-7.4% 300
====== February 2000 5.8%-6.6% 650
March 2000 5.8%-6.0% 675
September 2000 5.1% 75
-------
$ 2,605
=======
</TABLE>
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 that it will incur any
material credit losses because it does not anticipate nonperformance
by the counterparties.
(continued)
I-12
<PAGE> 14
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In order to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate
hedge agreements on notional amounts of $325 million which fix the
maximum variable interest rates at 11%. Such agreements expire during
the third and fourth quarters of 1995.
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 March 31, 1995, taking into consideration current
interest rates and the current creditworthiness of the counterparties.
The Company would be required to pay $121 million at March 31, 1995 to
terminate the agreements.
The fair value of the subsidiaries 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 subsidiaries of the Company for debt
of the same remaining maturities. The fair value of debt, which has a
carrying value of $11,371 million, was $11,434 million at March 31,
1995.
Certain of TCI's subsidiaries are required to maintain unused
availability under bank credit facilities to the extent of outstanding
commercial paper.
(8) Redeemable Preferred Stock
Convertible Preferred Stock, Series D. The Company issued 1,000,000
shares of a series of TCI Series Preferred Stock designated
"Convertible Preferred Stock, Series D", par value $.01 per share, as
partial consideration for the merger between TCIC and TeleCable (see
note 6).
The holders of the Series D Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of
unrestricted funds legally available therefor, cumulative dividends,
in preference to dividends on any stock that ranks junior to the
Series D Preferred Stock (currently the Class A common stock, the
Class B common stock and the Class B Preferred Stock), that shall
accrue on each share of Series D Preferred stock at the rate of
5-1/2% per annum of the liquidation value ($300 per share). Dividends
are cumulative, and in the event that dividends are not paid in full
on two consecutive dividend payment dates or in the event that TCI
fails to effect any required redemption of Series D Preferred Stock,
accrue at the rate of 10% per annum of the liquidation value. The
Series D Preferred Stock ranks on parity with the Class A Preferred
Stock, the Series C Preferred Stock and the Series E Preferred Stock.
Each share of Series D Preferred Stock is convertible into 10 shares
of TCI Class A common stock, subject to adjustment upon certain events
specified in the certificate of designation establishing Series D
Preferred Stock. To the extent any cash dividends are not paid on any
dividend payment date, the amount of such dividends will be deemed
converted into shares of TCI Class A common stock at a conversion rate
equal to 95% of the then current market price of TCI Class A common
stock, and upon issuance of TCI Class A common stock to holders of
Series D Preferred Stock in respect of such deemed conversion, such
dividend will be deemed paid for all purposes.
(continued)
I-13
<PAGE> 15
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Shares of Series D Preferred Stock are redeemable for cash at the
option of the holder at any time after the tenth anniversary of the
issue date at a price equal to the liquidation value in effect as of
the date of the redemption. Shares of Series D Preferred Stock may
also be redeemed for cash at the option of TCI after the fifth
anniversary of the issue date at such redemption price or after the
third anniversary of the issue date if the market value per share of
TCI Class A common stock shall have exceeded $37.50 for periods
specified in the certificate of designation.
If TCI fails to effect any required redemption of Series D Preferred
Stock, the holders thereof will have the option to convert their
shares of Series D Preferred Stock into TCI Class A common stock at a
conversion rate of 95% of the then current market value of TCI Class A
common stock, provided that such option may not be exercised unless
the failure to redeem continues for more than a year.
Except as required by law, holders of Series D Preferred Stock are not
entitled to vote on any matters submitted to a vote of the
shareholders of TCI.
(9) 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.
Stock Options
The Company has adopted the Tele-Communications, Inc. 1994 Stock
Incentive Plan (the "Plan"). The Plan provides for awards to be made
in respect of a maximum of 16 million shares of TCI Class A common
stock. Awards may be made as grants of stock options, stock
appreciation rights, restricted shares, stock units or any combination
thereof. Pursuant to the TCI/Liberty Merger Agreement and certain
assumption agreements, stock options and/or stock appreciation rights
granted (or assumed) by Old TCI and stock options and/or stock
appreciation rights granted by Liberty were assumed by the Company and
new options and/or stock appreciation rights were substituted under
the Plan. The following descriptions represent the terms of the
assumed options and/or stock appreciation rights.
Stock options to acquire 162,228 shares of TCI Class A common stock at
adjusted purchase prices ranging from $8.83 to $18.63 per share were
outstanding at March 31, 1995. During the three months ended March
31, 1995, no options were exercised and no options were canceled.
Options to acquire 19,428 shares of TCI Class A common stock expire
August 14, 1995. Options to acquire 142,800 shares of TCI Class A
common stock expire December 15, 1998.
(continued)
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<PAGE> 16
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Stock options in tandem with stock appreciation rights to purchase
3,963,000 shares of Class A common stock at a purchase price of $16.75
per share were outstanding at March 31, 1995. Such options become
exercisable and vest evenly over five years, first became exercisable
beginning November 11, 1993 and expire on November 11, 2002.
Stock options in tandem with stock appreciation rights to purchase
1,940,000 shares of TCI Class A common stock at a purchase price of
$16.75 per share were outstanding at March 31, 1995. Such options
become exercisable and vest evenly over four years, first became
exercisable beginning October 12, 1994 and expire on October 12, 2003.
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 were outstanding at March 31, 1995. On November 12,
1993, 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.
Stock options in tandem with stock appreciation rights to acquire
54,600 share of TCI Class A common stock at an adjusted purchase price
of $19.56 were outstanding at March 31, 1995. The options vest in
five equal annual installments commencing June 3, 1994 and expire in
June 2003.
Stock appreciation rights with respect to 1,423,500 shares of TCI
Class A common stock were outstanding at March 31, 1995. These rights
have an adjusted strike price of $0.82 per share, become exercisable
and vest evenly over seven years, beginning March 28, 1992. Stock
appreciation rights expire on March 28, 2001.
The Company's Board of Directors has approved, subject to stockholder
approval of the Director Stock Option Plan, the grant effective as of
November 16, 1994, to each person that as of that date was a member of
the Board of Directors and was not an employee of the Company or any
of its subsidiaries, of options to purchase 50,000 shares of Class A
common stock. Such options have an exercise price of $22.00 per share
and will vest and become exercisable over a five-year period,
commencing on November 16, 1995 and will expire on November 16, 2004.
Estimated compensation relating to stock appreciation rights has been
recorded through March 31, 1995, but is subject to future adjustment
based upon market value, and ultimately, on the final determination of
market value when the rights are exercised.
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)
I-15
<PAGE> 17
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At March 31, 1995, there were 68,520,802 shares of TCI Class A common
stock reserved for issuance under exercise privileges related to
options and convertible debt securities. In addition, one share of
Class A common stock is reserved for each share of Class B common
stock.
(10) Commitments and Contingencies
During 1994, subsidiaries of the Company, Comcast, Cox Communications,
Inc. ("Cox") and Sprint Corporation ("Sprint") formed a partnership
("WirelessCo") to engage in the business of providing wireless
communications services on a nationwide basis. Through WirelessCo,
the partners have been participating in auctions ("PCS Auctions") of
broadband personal communications services ("PCS") licenses being
conducted by the Federal Communications Commission ("FCC"). In the
first round auction, which concluded during the first quarter of 1995,
WirelessCo was the winning bidder for PSC licenses for 29 markets,
including New York, San Francisco- Oakland-San Jose, Detroit,
Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and
Miami-Fort Lauderdale. The aggregate license cost for these licenses
is approximately $2.1 billion.
WirelessCo has also invested in American PSC, L.P. ("APC"), which
holds a PCS license granted under the FCC's pioneer preference program
for the Washington-Baltimore market. WirelessCo acquired its 49%
limited partnership interest in APC for $23 million and has agreed to
make capital contributions to APC equal to 49/51 of the cost of APC's
PCS license. Additional capital contributions may be required in the
event APC is unable to finance the full cost of its PCS license.
WirelessCo may also be required to finance the build-out expenditures
for APC's PCS system. Cox, which holds a pioneer preference PCS
license for the Los Angeles-San Diego market, and WirelessCo have also
agreed on the general terms and conditions upon which Cox (with a 60%
interest) and WirelessCo (with a 40% interest) would form a
partnership to hold and develop a PCS system using the Los Angeles-San
Diego license. APC and the Cox partnership would affiliate their PCS
systems with WirelessCo and be part of WirelessCo's nationwide
integrated network, offering wireless communications services under
the "Sprint" brand. The Company owns a 30% interest in WirelessCo.
During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3%
interest. PhillieCo was the winning bidder in the first round auction
for a PCS license for the Philadelphia market at a license cost of $85
million. To the extent permitted by law, the PCS system to be
constructed by PhillieCo would also be affiliated with WirelessCo's
nationwide network.
WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful
bidders. The capital that WirelessCo will require to fund the
construction of the PCS systems, in addition to the license costs and
investments described above, will be substantial.
(continued)
I-16
<PAGE> 18
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At the end of the first quarter of 1995, subsidiaries of the Company,
Comcast, Cox and Sprint formed two new partnerships, of which the
principal partnership is MajorCo, L.P. ("MajorCo"), to which they
contributed their respective interests in WirelessCo and through which
they formed another partnership, NewTelco, L.P. ("NewTelco") to
engage in the business of providing local wireline communications
services to residences and businesses on a nationwide basis. NewTelco
will serve its customers primarily through the cable television
facilities of cable television operators that affiliate with NewTelco
in exchange for agreed-upon compensation. The modification of
existing regulations and laws governing the local telephony market
will be necessary in order for NewTelco to provide its proposed
services on a competitive basis in most states. Subject to agreement
upon a schedule for upgrading its cable television facilities in
selected markets and certain other matters, the Company has agreed to
affiliate certain of its cable systems with NewTelco. The capital
required for the upgrade of the Company's cable facilities for the
provision of telephony services is expected to be substantial.
Subsidiaries of the Company, Cox and Comcast, together with
Continental Cablevision, Inc. ("Continental"), own Teleport
Communications Group, Inc. and TCG Partners (collectively, "TCG"),
which is one of the largest competitive access providers in the United
States in terms of route miles. The Company, Cox and Comcast have
entered into an agreement with MajorCo and NewTelco to contribute
their interests in TCG and its affiliated entities to NewTelco. The
Company currently owns an approximate 29.9% interest in TCG. The
closing of this contribution is subject to the satisfaction of certain
conditions, including the receipt of necessary regulatory and other
consents and approvals. In addition, the Company, Comcast and Cox
intend to negotiate with Continental, which owns a 20% interest in
TCG, regarding their acquisition of Continental's TCG interest. If
such agreement cannot be reached, they will need to obtain
Continental's consent to certain aspects of their agreement with
Sprint.
Subject to agreement upon an initial business plan, the MajorCo
partners have committed to make cash capital contributions to MajorCo
of $4.0 to $4.4 billion in the aggregate over a three- to five-year
period, which amount includes the approximately $500 million already
contributed by the partners to WirelessCo. The partners intend for
MajorCo and its subsidiary partnerships to be the exclusive vehicles
through which they engage in the wireless and wireline telephony
service businesses, subject to certain exceptions.
At March 31, 1995, the Company was liable for a $720 million letter of
credit which guarantees contributions to WirelessCo. The Company
pledged 56,656,584 shares of TCI Class A common stock held by
subsidiaries of the Company as collateral for the letter of credit.
During the first quarter of 1995, an initial borrowing aggregating $95
million was made pursuant to the letter of credit. Subsequent to
March 31, 1995, 19,638,508 shares of TCI Class A common stock held by
subsidiaries of the Company were pledged as additional collateral for
the letter of credit.
(continued)
I-17
<PAGE> 19
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In
1993, the FCC adopted certain rate regulations required by the 1992
Cable Act and imposed a moratorium on certain rate increases. 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 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 by the FCC, if a complaint has been filed, or the
appropriate franchise authority, if such authority has been certified.
If, as a result of the review 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. Any refunds of the excess portion of tier service rates
would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be
retroactive to the later of September 1, 1993 or one year prior to the
certification date of the applicable franchise authority. 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 considered to be material.
The Company is obligated to pay fees for the license to exhibit
certain qualifying films that are released theatrically by various
motion picture studios through December 31, 2006 (the "Film License
Obligations"). The aggregate minimum liability under certain of the
license agreements is approximately $387 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 also has guaranteed the obligation of an
Australian affiliate to pay similar fees for the license to exhibit
certain films through the year 2000. If the Company failed to fulfill
its obligation under this guarantee, the beneficiaries have the right
to demand an aggregate payment from the Company of $67 million.
Although the aggregate amount of the Australian affiliate's film
license fee obligations is not currently estimable, the Company
believes that the aggregate payments pursuant to such affiliate's
obligations could be significant.
(continued)
I-18
<PAGE> 20
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of
approximately $250 million at March 31, 1995. Although there can be
no assurance, management of the Company believes that it will not be
required to meet its obligations under such guarantees, or if it is
required to meet any of such obligations, that they will not be
material to the Company.
The Company has also committed to provide additional debt or equity
funding to certain of its affiliates. At March 31, 1995, such
commitments aggregated $174 million.
In 1993, the President of Home Shopping Network, Inc. ("HSN") received
stock appreciation rights with respect to 984,876 shares of HSN's
common stock at an exercise price of $8.25 per share. These rights
vest over a four year period and are exercisable until February 23,
2003. The stock appreciation rights will vest upon termination of
employment other than for cause and will be exercisable for up to one
year following the termination of employment. In the event of a
change in ownership control of HSN, all unvested stock appreciation
rights will vest immediately prior to the change in control and shall
remain exercisable for a one year period. Stock appreciation rights
not exercised will expire to the extent not exercised. These rights
may be exercised for cash or, so long as HSN is a public company, for
shares of HSN's common stock equal to the excess of the fair market
value of each share of common stock over $8.25 at the exercise date.
The stock appreciation rights also will vest in the event of death or
disability. Estimated compensation related to stock appreciation
rights has been recorded through March 31, 1995, but it is subject to
future adjustment based upon market value, and ultimately on the final
determination of market value when the rights are exercised.
The Company has contingent liabilities related to legal proceedings
and other matters arising in the ordinary course of business. In the
opinion of management, it is expected that amounts, if any, which may
be required to satisfy such contingencies will not be material in
relation to the accompanying consolidated financial statements.
I-19
<PAGE> 21
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(1) Material changes in financial condition:
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive merger agreement to combine the two
companies (the "TCI/Liberty Combination"). The transaction was consummated on
August 4, 1994 and was 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. In connection with
the TCI/Liberty Combination, Old TCI changed its name to TCI Communications,
Inc. ("TCIC") and TCI/Liberty Holding Company changed its name to
Tele-Communications, Inc. Old TCI shareholders received one share of TCI for
each of their shares. Liberty common shareholders received 0.975 of a share of
TCI for each of their common shares. Upon consummation of the TCI/Liberty
Combination, certain subsidiaries of TCIC exchanged their shares of Old TCI
Class A common stock for shares of TCI Class A common stock. Additionally,
subsidiaries of TCI exchanged their shares of Liberty Class A common stock for
TCI Class A common stock and Liberty exchanged its shares of Old TCI Class A
and Class B common stock for like shares of TCI common stock. Such ownership
is reflected as treasury stock at such entities' historical cost in the
accompanying consolidated financial statements. Also, subsidiaries of TCI
exchanged their shares of various preferred stock issuances of Liberty for
preferred stock of TCI. Such preferred stock of TCI eliminates in
consolidation.
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and other related
party considerations, TCIC accounted for its investment in Liberty under the
equity method. Accordingly, TCIC had not recognized any income relating to
dividends, including preferred stock dividends, and TCIC recorded the earnings
or losses generated by Liberty (by recognizing 100% of Liberty's earnings or
losses before deducting preferred stock dividends) through the date the
TCI/Liberty Combination was consummated.
The TCI/Liberty Combination was accounted for using predecessor cost
due to the aforementioned related party considerations.
During the fourth quarter of 1994, the Company was reorganized based
upon four lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital (the
"Reorganization"). The Company reorganized its structure to provide for
financial and operational independence in the four operating units, each under
the direction of its own chief executive officer, while maintaining the
synergies and scale economies provided by a common corporate parent. While
neither the International Cable and Programming unit nor the Technology/Venture
Capital unit is currently significant to the Company as a whole, the Company
believes each unit has growth potential and each unit is unique enough in
nature to warrant separate focus.
(continued)
I-20
<PAGE> 22
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
The Board of Directors of TCI has adopted a proposal which, if
approved by the stockholders, would authorize the Board to issue a new class of
stock ("Liberty Group Common Stock") which corresponds to TCI's Programming
unit ("Liberty Media Group"). The programming services include the production,
acquisition and distribution of globally branded entertainment, education and
information programming services and software for distribution through all
available formats and media; and home shopping via television and other
interactive media, direct marketing, advertising sales, infomercials and
transaction processing. While the Liberty Group Common Stock would constitute
common stock of TCI, it is intended to reflect the separate performance of such
programming services. TCI intends to distribute to its security holders one
hundred percent of the equity value of TCI attributable to Liberty Media Group.
During 1994, subsidiaries of the Company, Comcast, Cox and Sprint
formed WirelessCo to engage in the business of providing wireless
communications services on a nationwide basis. Through WirelessCo, the
partners have been participating in PCS Auctions of PCS licenses being
conducted by the FCC. In the first round auction, which concluded during the
first quarter of 1995, WirelessCo was the winning bidder for PSC licenses for
29 markets, including New York, San Francisco-Oakland-San Jose, Detroit,
Dallas-Fort Worth, Boston-Providence, Minneapolis-St. Paul and Miami-Fort
Lauderdale. The aggregate license cost for these licenses is approximately
$2.1 billion.
WirelessCo has also invested in APC, which holds a PCS license granted
under the FCC's pioneer preference program for the Washington-Baltimore market.
WirelessCo acquired its 49% limited partnership interest in APC for $23 million
and has agreed to make capital contributions to APC equal to 49/51 of the cost
of APC's PCS license. Additional capital contributions may be required in the
event APC is unable to finance the full cost of its PCS license. WirelessCo
may also be required to finance the build-out expenditures for APC's PCS
system. Cox, which holds a pioneer preference PCS license for the Los
Angeles-San Diego market, and WirelessCo have also agreed on the general terms
and conditions upon which Cox (with a 60% interest) and WirelessCo (with a 40%
interest) would form a partnership to hold and develop a PCS system using the
Los Angeles-San Diego license. APC and the Cox partnership would affiliate
their PCS systems with WirelessCo and be part of WirelessCo's nationwide
integrated network, offering wireless communications services under the
"Sprint" brand. The Company owns a 30% interest in WirelessCo.
During 1994, subsidiaries of Cox, Sprint and the Company also formed
PhillieCo, in which the Company owns a 35.3% interest. PhillieCo was the
winning bidder in the first round auction for a PCS license for the
Philadelphia market at a license cost of $85 million. To the extent permitted
by law, the PCS system to be constructed by PhillieCo would also be affiliated
with WirelessCo's nationwide network.
WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful bidders.
The capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial. The Company anticipates funding its portion of WirelessCo's
capital requirements through borrowings under a new credit facility.
(continued)
I-21
<PAGE> 23
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
At the end of the first quarter of 1995, subsidiaries of the Company,
Comcast, Cox and Sprint formed two new partnerships, of which the principal
partnership is MajorCo, to which they contributed their respective interests in
WirelessCo and through which they formed another partnership, NewTelco, to
engage in the business of providing local wireline communications services to
residences and businesses on a nationwide basis. NewTelco will serve its
customers primarily through the cable television facilities of cable television
operators that affiliate with NewTelco in exchange for agreed-upon
compensation. The modification of existing regulations and laws governing the
local telephony market will be necessary in order for NewTelco to provide its
proposed services on a competitive basis in most states. Subject to agreement
upon a schedule for upgrading its cable television facilities in selected
markets and certain other matters, the Company has agreed to affiliate certain
of its cable systems with NewTelco. The capital required for the upgrade of
the Company's cable facilities for the provision of telephony services is
expected to be substantial.
Subsidiaries of the Company, Cox and Comcast, together with
Continental, own Teleport Communications Group, Inc. and TCG Partners, which is
one of the largest competitive access providers in the United States in terms
of route miles. The Company, Cox and Comcast have entered into an agreement
with MajorCo and NewTelco to contribute their interests in TCG and its
affiliated entities to NewTelco. The Company currently owns an approximate
29.9% interest in TCG. The closing of this contribution is subject to the
satisfaction of certain conditions, including the receipt of necessary
regulatory and other consents and approvals. In addition, the Company, Comcast
and Cox intend to negotiate with Continental, which owns a 20% interest in TCG,
regarding their acquisition of Continental's TCG interest. If such agreement
cannot be reached, they will need to obtain Continental's consent to certain
aspects of their agreement with Sprint.
Subject to agreement upon an initial business plan, the MajorCo
partners have committed to make cash capital contributions to MajorCo of $4.0
to $4.4 billion in the aggregate over a three- to five-year period, which
amount includes the approximately $500 million already contributed by the
partners to WirelessCo. The partners intend for MajorCo and its subsidiary
partnerships to be the exclusive vehicles through which they engage in the
wireless and wireline telephony service businesses, subject to certain
exceptions.
At March 31, 1995, the Company was liable for a $720 million letter of
credit which guarantees contributions to WirelessCo. The Company pledged
56,656,584 shares of TCI Class A common stock held by subsidiaries of the
Company as collateral for the letter of credit. During the first quarter of
1995, an initial borrowing aggregating $95 million was made pursuant to the
letter of credit. Subsequent to March 31, 1995, 19,638,508 shares of TCI Class
A common stock held by subsidiaries of the Company were pledged as additional
collateral for the letter of credit.
(continued)
I-22
<PAGE> 24
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
As of January 26, 1995, TCI, TCIC, a wholly-owned subsidiary of TCI,
and TeleCable consummated the TeleCable Merger. The aggregate $1.6 billion
purchase price was satisfied by TCIC's assumption of approximately $300 million
of TeleCable's net liabilities and the issuance to TeleCable's shareholders of
approximately 42 million shares of TCI Class A common stock and 1 million
shares of the Series D Preferred Stock with an aggregate initial liquidation
value of $300 million. The Series D Preferred Stock, which accrues dividends
at a rate of 5.5% per annum, is convertible into 10 million shares of TCI Class
A common stock. The Series D Preferred Stock is redeemable for cash at the
option of TCI after five years and at the option of either TCI or the holder
after ten years. The amount of net liabilities assumed by TCIC and the number
of shares of TCI Class A common stock issued to TeleCable's shareholders are
subject to post- closing adjustments.
Pursuant to the QVC Merger Agreement, the Purchaser, a corporation
which is jointly owned by Comcast and Liberty, commenced the QVC Tender Offer
to purchase all outstanding shares of common stock and preferred stock of QVC.
The QVC Tender Offer expired at midnight, New York City time, on
February 9, 1995, at which time the Purchaser accepted for payment all shares
of QVC which had been tendered in the QVC Tender Offer. Following consummation
of the QVC Tender Offer, the Purchaser was merged with and into QVC with QVC
continuing as the surviving corporation. The Company owns an approximate 43%
interest of the post-merger QVC.
In connection with the financing of the QVC merger, the Purchaser
entered into a credit facility. The credit facility is secured by
substantially all of the assets of QVC. In addition, Comcast and Liberty have
pledged their shares of QVC (as the surviving corporation following the QVC
merger) pursuant to the credit facility. Neither Liberty nor Comcast has
provided any guarantees of the credit facility.
In connection with the transactions contemplated under a stockholders
agreement entered into among Comcast, Liberty and the Purchaser, TCI has
undertaken to cause Liberty to comply with each of its representations,
warranties, covenants, agreements and obligations under the stockholders
agreement. All such undertakings will terminate at such time as equity
securities of Liberty or the Liberty Group Common Stock have been distributed
and such securities impute a market capitalization of Liberty in excess of $2
billion.
Upon consummation of the aforementioned QVC transactions, the Company
is deemed to exercise significant influence over QVC and, as such, adopted the
equity method of accounting. As a result, TCI restated its investment in QVC,
its unrealized gain on available-for-sale securities, its deferred taxes and
retained earnings by $211 million, $127 million, $89 million and $5 million,
respectively, at December 31, 1994. No restatement to the Company's results of
operations for the three months ended March 31, 1994 was required as QVC was
only accounted for under the cost method from May of 1994 through February 9,
1995.
Pursuant to an underwritten public offering, the Company sold
19,550,000 shares of TCI Class A common stock in February of 1995. The Company
received net proceeds of approximately $401 million. Such proceeds were
immediately used to reduce outstanding indebtedness under credit facilities.
(continued)
I-23
<PAGE> 25
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
The Company's assets consist primarily of investments in its
subsidiaries. The Company's rights, and therefore the extent to which the
holders of the Company's preferred stocks will be able to participate in the
distribution of assets of any subsidiary upon the latter's liquidation or
reorganization, will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent that the Company may itself be
a creditor with recognized claims against such subsidiary (in which case the
claims of the Company would still be subject to the prior claims of any secured
creditor of such subsidiary and of any holder of indebtedness of such
subsidiary that is senior to that held by the Company).
The Company's ability to pay dividends on any classes or series of
preferred stock is dependent upon the ability of the Company's subsidiaries to
distribute amounts to the Company in the form of dividends, loans or advances
or in the form of repayment of loans and advances from the Company. The
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay the dividends on any class or series of
preferred stock of TCI or to make any funds available therefor, whether by
dividends, loans or their payments. The payment of dividends, loans or
advances to the Company by its subsidiaries may be subject to statutory or
regulatory restrictions, is contingent upon the cash flows generated by those
subsidiaries and is subject to various business considerations. Further,
certain of the Company's subsidiaries are subject to loan agreements that
prohibit or limit the transfer of funds by such subsidiaries to the Company in
the form of dividends, loans, or advances and require that such subsidiaries'
indebtedness to the Company be subordinate to the indebtedness under such loan
agreements. The amount of net assets of subsidiaries subject to such
restrictions exceeds the Company's consolidated net assets. The Company's
subsidiaries currently have the ability to transfer funds to the Company in
amounts exceeding the Company's dividend requirement on any class or series of
preferred stock. Net cash provided by operating activities of 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.
Subsidiaries of the Company had approximately $2.5 billion in unused
lines of credit at March 31, 1995, excluding amounts related to lines of credit
which provide availability to support commercial paper. Although such
subsidiaries of the Company were in compliance with the restrictive covenants
contained in their credit facilities at said date, additional borrowings under
the credit facilities are subject to the subsidiaries' continuing compliance
with the restrictive covenants (which relate primarily to the maintenance of
certain ratios of cash flow to total debt and cash flow to debt service, as
defined in the credit facilities) after giving effect to such additional
borrowings. See note 7 to the accompanying consolidated financial statements
for additional information regarding the material terms of the subsidiaries'
lines of credit.
(continued)
I-24
<PAGE> 26
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization and other non-cash
operating credits or charges)($464 million and $450 million for the three
months ended March 31, 1995 and 1994, respectively) to interest expense ($240
million and $178 million for the three months ended March 31, 1995 and 1994,
respectively), is determined by reference to the consolidated statements of
operations. The Company's interest coverage ratio was 193% and 253% for the
three months ended March 31, 1995 and 1994, 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,
almost half of which results from fixed rate indebtedness. Operating Cash Flow
is a measure of value and borrowing capacity within the cable television
industry and is not intended to be a substitute for cash flows provided by
operating activities, a measure of performance prepared in accordance with
generally accepted accounting principles, and should not be relied upon as
such. Operating Cash Flow, as defined, does not take into consideration
substantial costs of doing business, such as interest expense, and should not
be considered in isolation to other measures of performance.
Another measure of liquidity is net cash provided by operating
activities, as reflected in the accompanying consolidated statements of cash
flows. Net cash provided by operating activities ($198 million and $326
million for the three months ended March 31, 1995 and 1994, respectively)
reflects net cash from the operations of the Company available for the
Company's liquidity needs after taking into consideration the aforementioned
additional substantial costs of doing business not reflected in Operating Cash
Flow. Amounts expended by the Company for its investing activities exceed net
cash provided by operating activities. However, management believes that net
cash provided by operating activities, the ability of the Company and its
subsidiaries to obtain additional financing (including the subsidiaries
available lines of credit and access to public debt markets), issuances and
sales of the Company's equity or equity of its subsidiaries, proceeds from
disposition of assets will provide adequate sources of short-term and long-
term liquidity in the future. See the Company's consolidated statements of
cash flows included in the accompanying consolidated financial statements.
(continued)
I-25
<PAGE> 27
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
In order to achieve the desired balance between variable and fixed
rate indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements and interest rate hedge agreements. Pursuant to the interest rate
exchange agreements, the Company pays (i) fixed interest rates ranging from
7.2% to 9.9% on notional amounts of $550 million at March 31, 1995 and (ii)
variable interest rates on notional amounts of $2,605 million at March 31,
1995. During the three months ended March 31, 1995 and 1994, the Company's net
receipts pursuant to its fixed rate exchange agreements were $5.1 million and
$2.1 million, respectively. During the three months ended March 31, 1995 and
1994, the Company's net receipts pursuant to its variable rate exchange
agreements were $1.4 million and $19.6 million, respectively. The Company's
interest rate hedge agreements fix the maximum variable interest rates on
notional amounts of $325 million at 11%. The Company is exposed to credit
losses for the periodic settlements of amounts due under the interest rate
exchange agreements in the event of nonperformance by the other parties to the
agreements. However, the Company does not anticipate that it will incur any
material credit losses because it does not anticipate nonperformance by the
counterparties.
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 (the "1984 Cable Act"), as supplemented by the renewal provisions of the
1992 Cable Act, 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 the
renewals. To date they have not varied significantly from the original terms.
The Company competes with operators who provide, via alternative
methods of distribution, the same or similar video programming as that offered
by the Company's cable systems. Technologies competitive with cable television
have been encouraged by Congress and the FCC. One such technology is direct
broadcast satellite ("DBS"). DBS services are offered directly to subscribers
owning home satellite dishes that vary in size depending upon the power of the
satellite; two DBS operators recently began offering nationwide video services
that can be received by a satellite that measures approximately eighteen inches
in diameter. DBS operators can acquire the right to distribute over satellite
all of the significant cable television programming currently available on the
Company's cable systems. As the cost of equipment needed to receive these
transmissions declines, the Company expects that it will experience increased
and substantial competition from DBS operators.
(continued)
I-26
<PAGE> 28
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
The 1984 Cable Act and FCC rules prohibit telephone companies from
offering video programming directly to subscribers in their telephone service
areas (except in limited circumstances in rural areas). However, a number of
Federal Court decisions have held 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. In addition, certain proposals are also
pending before the FCC and Congress which would eliminate or relax these
restrictions on telephone companies. As the current cross-entry restrictions
are removed or relaxed, the Company will face increased competition from
telephone companies which, in most cases, have greater financial resources than
the Company. All major telephone companies have announced plans to acquire
cable television systems or provide video services to the home through fiber
optic technology.
The Company's entertainment and information programming services
subsidiaries and 50% owned affiliates lease satellite transponders as follows:
6 full time leases and one shared lease on a "protected" or "transponder
protected" basis, and 15 full time "unprotected" leases for an aggregate of 21
transponders on 10 domestic and 2 international communications satellites.
Domestic communications satellite transponders may be leased full or part time
on a "protected", "transponder protected" or "unprotected" basis. When the
carrier provides services to a customer on a "protected" basis, replacement
transponders are reserved on board the satellite for use in the event the
"protected" transponder fails. Should there be no reserve transponders
available, the "protected" customer will displace an "unprotected" transponder
customer on the same satellite. In certain cases, the carrier also maintains a
protection satellite and should a satellite fail completely, all lessors'
"protected" transponders would be moved to the protection satellite. The
customer who leases an "unprotected" transponder has no reserve transponders
available, and may have its service interrupted for an indefinite period when
its transponder is required to restore a "protected" service.
Although the Company believes it has taken reasonable steps to ensure
its continued satellite transmission capability, there can be no assurance that
termination or interruption of satellite transmissions will not occur. Such a
termination or interruption of service by one or more of these satellites could
have a material adverse effect on the results of operations and financial
condition of the programming group.
(continued)
I-27
<PAGE> 29
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
The availability of replacement satellites and transponder time beyond
current leases is dependent on a number of factors over which the Company has
no control, including competition among prospective users for available
transponders and the availability of satellite launching facilities for
replacement satellites. Many of the commercial satellites now in orbit will
have to be replaced in the next few years. The federal government has placed
restrictions on the launching of commercial satellites by means of the space
shuttle, causing manufacturers of commercial satellites to rely on alternative
delivery systems to place these satellites in orbit. Additional commercial
launching facilities are being developed currently, but there can be no
assurance that the launch systems currently in place, or to be developed, will
be able to replace the domestic communications satellites as their useful lives
end.
The Company is currently the sole satellite carrier of WTBS, a 24-hour
independent UHF television station originated by TBS to cable television system
operators and operators of other non-broadcast distribution media who receive
the signal on their earth stations and offer the service to their subscribers.
Other independent television stations are transmitted by other carriers. The
Company's satellite carrier of WTBS, Southern Satellite Systems, Inc.
("Southern"), does not have an agreement with TBS with respect to the
retransmission of the WTBS signal and there are no specific statutory or
regulatory restrictions that would prevent any satellite carrier from
transmitting the WTBS signal so long as the carrier meets the passive carrier
requirements of the Copyright Revision Act of 1976, as amended and any
applicable requirements of the Communications Act of 1934, as amended, or, if
the carrier serves home satellite dish owners, so long as the carrier meets the
requirements of the Satellite Home Viewer Act of 1988. Further, Southern has
no control over the programming on such station. TBS produces and distributes
other cable programming services, and TBS has and may be expected to continue
to give priority to the programming needs of such services in allocating
programming owned by it or to which it has national distribution rights.
Southern's business could be adversely affected by any change in the type, mix
or quality of the programming on WTBS that results in the service being less
desirable to cable operators and their subscribers. TBS derives significant
revenue from the sale of advertising time on WTBS, however, and the Company
therefore believes that TBS has an economic incentive to maintain the audience
appeal of WTBS's programming.
The Company is upgrading and installing optical fiber in its cable
systems at a rate such that in two 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 $1,264 million in 1994 and
the Company expects to expend similar amounts in 1995, among other things, to
provide for the continued rebuilding of its cable systems. However, such
proposed expenditures are subject to reevaluation based upon changes in the
Company's liquidity, including those resulting from rate regulation.
(continued)
I-28
<PAGE> 30
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
The Company is obligated to pay fees for the license to exhibit certain
qualifying films that are released theatrically by various motion picture
studios through December 31, 2006. The aggregate minimum liability under
certain of the license agreements is approximately $387 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 also has guaranteed the obligation of an Australian
affiliate to pay similar fees for the license to exhibit certain films through
the year 2000. If the Company failed to fulfill its obligation under this
guarantee, the beneficiaries have the right to demand an aggregate payment from
the Company of $67 million. Although the aggregate amount of the Australian
affiliate's film license fee obligations is not currently estimable, the
Company believes that the aggregate payments pursuant to such affiliate's
obligation could be significant.
The Company has committed to provide additional debt or equity funding
to certain of its affiliates. At March 31, 1995, such commitments aggregated
$174 million.
The Company also intends to continue to develop its entertainment and
information programming services and has made certain financial commitments
related to the acquisition of programming. The Company's obligation for
certain sports program rights contracts as of March 31, 1995 was $214 million.
It is expected that sufficient cash will be generated by the programming
services to satisfy these commitments. However, the continued development of
such services may require additional financing and it cannot be predicted
whether the Company will obtain such financing on terms acceptable to the
Company.
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
adjustment upon review, as described above. If, as a result of the review
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. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Generally, any
refunds of the excess portion of all other Regulated Services rates would be
retroactive to the later of September 1, 1993, or one year prior to the
implementation of the rate reduction. The amount of refunds, if any, which
could be payable by the Company in the event that any system's rates were to be
successfully challenged, is not considered to be material.
The Company believes that the FCC's comprehensive system of rate
regulation, including regulation of the changes in rates when programming
services are added or deleted from service tiers, also may have an adverse
effect on the programming services in which the Company has an ownership
interest by limiting the carriage of such services and/or the ability and
willingness of cable operators to pay the rights fees for such carriage.
(continued)
I-29
<PAGE> 31
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
The FCC has adopted rules providing 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 after October 6, 1993, and,
depending on a cable system's channel capacity, non- commercial television
broadcast signals. Alternatively, after October 6, 1993, commercial
broadcasters have the right to deny such carriage unless they grant
retransmission consent. The "must-carry" statutory provisions and regulations
remain in effect pending the outcome of ongoing judicial proceedings to resolve
challenges to their constitutionality. TCI believes that, by requiring such
carriage of broadcast signals, these regulations may adversely affect the
ability of TCI's programming services to obtain carriage on cable systems with
limited channel capacity. To the extent that carriage is thereby limited, the
subscriber and advertising revenues available to TCI's programming services
also will be limited. However, as discussed above, such regulations have
resulted in expanded cable distribution of Home Shopping Network, Inc. ("HSN"),
which is carried by a number of full-power commercial broadcast television
stations.
The FCC has adopted regulations limiting carriage by a cable operator
of national programming services in which that operator holds an attributable
interest 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
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 pending petitions for reconsideration before the FCC,
may limit carriage of the Company's programming services on certain cable
systems of cable operators in which TCI has ownership interests.
On September 23, 1993, the FCC also adopted regulations establishing a
30% limit on the number of homes passed nationwide that a cable operator may
reach through cable systems in which it holds an attributable interest, with an
increase to 35% 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. Under the FCC regulations, if the ownership limits are determined to
be constitutional, they may limit TCI's future ability to acquire interests in
additional cable systems.
A number of petitions for reconsideration of various aspects of the
regulations implementing the 1992 Cable Act remain pending before the FCC.
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 the FCC
ultimately will rule or whether such rulings will materially change any
existing rules or statutory requirements.
(continued)
I-30
<PAGE> 32
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(1) Material changes in financial condition (continued):
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.
(2) Material changes in results of operations:
On October 5, 1992, Congress enacted the 1992 Cable Act. In 1993 and
1994, the FCC adopted certain rate regulations required by the 1992 Cable Act
and imposed a moratorium on certain rate increases. As a result of such
actions, the Company's Regulated Services are subject to the jurisdiction of
local franchising authorities and the FCC.
The Company estimates that the FCC's 1993 and 1994 rate regulations
will result in an aggregate annualized reduction of revenue and operating
income ranging from $280 million to $300 million based upon rates charged prior
to implementation of such rate regulations. The estimated annualized reduction
in revenue assumes that the FCC will not require further reductions beyond the
current regulations and is 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.
Cable operators may justify rates higher than the benchmark rates
established by the FCC through demonstrating higher costs based upon a
cost-of-service showing. Under this methodology, cable operators may be
allowed to recover through the rates they charge for Regulated Services, their
normal operating expenses plus an interim rate of return of 11.25% on the rate
base, as defined, which rate may be subject to change in the future.
The FCC rate regulations govern changes in the rates which cable
operators may charge when adding or deleting a service from a regulated tier of
service. Such regulations allow an increase of either (i) the sum of a
prescribed channel addition factor, the license fee expense and a 7.5% markup,
or (ii) a flat fee increase per added channel and an aggregate limit on such
increases with an additional license fee reserve. For systems with more than
one tier of cable service, the methodology described in (ii) is not available
for the basic level of service. The FCC's rate regulations also permit cable
operators to "pass through" increases in programming costs and certain other
external costs which exceed the rate of inflation. However, a cable operator
may pass through increases in the cost of programming services affiliated with
such cable operator to the extent such costs exceed the rate of inflation only
if the price charged by the programmer to the affiliated cable operator
reflects prevailing prices offered in the marketplace by the programmer to
unaffiliated third parties or the fair market value of the programming.
(continued)
I-31
<PAGE> 33
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations (continued):
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
adjustment upon review, as described above. If, as a result of the review
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. Any refunds of the excess portion of tier
service rates would be retroactive to the date of complaint. Any refunds of
the excess portion of all other Regulated Service rates would be retroactive to
one year prior to the implementation of the rate reductions. The amount of
refunds, if any, which could be payable by the Company in the event that any
system's rates were to be successfully challenged, is not considered to be
material.
Based on the foregoing, the Company believes that the 1993 and 1994
rate regulations have had and will continue to have a material adverse effect
on its results of operations.
Revenue increased by approximately 44% for the three months ended
March 31, 1995 compared to the corresponding period of 1994. Such increase was
the result of the TCI/Liberty Combination (34%), the growth in subscriber
levels within the Company's cable television systems (5%) and the effect of
certain acquisitions, including TeleCable (9%), net of a decrease in revenue
(4%) due to rate reductions required by rate regulation implemented pursuant
to the 1992 Cable Act.
Net sales from home shopping services reflects the results of HSN which
became a consolidated subsidiary of the Company in the TCI/Liberty Combination.
Net sales from HSN represented $244 million or 23% of the increase in revenue
from the TCI/Liberty Combination. HSN believes that future levels of net
sales will be dependent, in large part, on program carriage, market
penetration and merchandising management. Program carriage is defined as the
number of cable systems and broadcast television stations that carry HSN
programming. Market penetration represents the level of active purchasers
within a market.
Cable television systems and affiliated broadcast television stations
broadcast HSN programming under affiliation agreements with varying original
terms. HSN seeks to increase the number of cable television systems and
broadcast television stations that televise HSN programming while evaluating
the expected profitability of each contract.
Revenue of TCI's consolidated entertainment and information programming
services ("Other Programming Services") represented $66 million or 6% of the
increase in revenue from the TCI/Liberty Combination. Such increase in revenue
compared to the corresponding period of 1994 was attributable to subscription
and advertising revenue at TCI's consolidated sport programming businesses ($47
million), revenue from Netlink USA, a marketer and distributor of programming
to the United States home satellite dish subscriber market ($5 million) and
subscription revenue generated by Southern and Encore Media Corporation ($14
million). The remainder of the increase in revenue from the TCI/Liberty
Combination is due primarily to revenue generated by the cable television
systems which were acquired in the combination.
(continued)
I-32
<PAGE> 34
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations (continued):
The 1992 Cable Act contains "must carry" provisions which mandate that
cable companies within a broadcast television station's reach retransmit its
signal, subject to certain limitations on this obligation depending upon a
cable system's channel capacity. The FCC adopted rules which extend such "must
carry" provisions to broadcast television stations with shop-at-home formats
effective October 6, 1993. As a result of the mandatory carriage of stations
carrying home-shopping programming, HSN has experienced growth in cable
carriage. However, the constitutionality of the "must carry" provisions of the
1992 Cable Act has been challenged in the courts. Although the "must carry"
provisions were upheld as constitutional by a three-judge panel of the United
States District Court for the District of Columbia, the Supreme Court vacated
the District Court's decision because genuine issues of material fact remain
unresolved. The "must-carry" statutory provisions and regulations remain in
effect pending the outcome of the ongoing proceedings before the District
Court. During the past year, HSN has aggressively pursued and obtained long
term carriage commitments from a number of cable operators. As a result of
HSN's success in obtaining such commitments, the exposure to loss of revenue
should the "must-carry" rules be declared unconstitutional has been largely
mitigated.
Operating costs and expenses have increased by 63% for the three
months ended March 31, 1995 compared to the corresponding period of 1994. The
TCI/Liberty Combination resulted in an increase of $424 million or 51% in
operating, selling, general and administrative expenses. Due to the
aforementioned program to upgrade and install optical fiber in its cable
systems, the Company's capital expenditures and depreciation expense have
increased. The Company cannot determine whether and to what extent increases
in the cost of programming will affect its operating costs. However, such
programming costs have increased at a greater percentage than increases in
revenue of Regulated Services.
Cost of sales of HSN represented $187 million or 23% of the increase
resulting from the TCI/Liberty Combination. HSN expects that certain of its
costs will increase in the future. Management believes that selling and
marketing expenses will be at higher levels in future periods as HSN maintains
its efforts to increase the number of cable systems carrying HSC programming,
increase market penetration and develop new electronic opportunities. In
addition, these expenses will increase if program carriage increases.
Broadcast expenses are expected to increase in future periods. "Must carry"
legislation, as discussed above, is expected to result in increases in certain
operating expenses related to cable and broadcast carriage in dollars.
However, as a percentage of sales, the effect is not currently determinable.
(continued)
I-33
<PAGE> 35
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations (continued):
HSN believes that seasonality does impact its business, but not to the
same extent it impacts the retail industry in general.
Programming expenses represented $65 million or 8% of the increase in
total operating expenses (excluding cost of sales). Additionally, the Company
incurred $11 million of programming and marketing costs associated with the
launch in February of 1994 of a new premium programming service to its
subsidiaries. The Company's Other Programming Services will continue to
reflect losses associated with the new premium service as the Company's
programming costs are reflected in the operations of the Programming group and
the revenue from the subscribers of such service are reflected in the Company's
Domestic Cable and Communications group. However, although there can be no
assurance, as the Domestic Cable and Communications group increases its
distribution of this service to its subscribers, management of the Company
believes that the consolidated impact from such premium service should be
positive.
The Company has an ownership interest of approximately 38% in TeleWest
Communications plc ("TeleWest Communications"), a company that is currently
operating and constructing cable television and telephone systems in the United
Kingdom ("UK"). TeleWest Communications, which is accounted for under the
equity method, had a carrying value at March 31, 1995 of $462 million and
comprised $11 million of the Company's share of its affiliates' losses during
the three months ended March 31, 1995. In addition, the Company has other less
significant equity method investments in video distribution and programming
businesses located in the UK, other parts of Europe, Asia, Latin America and
certain other foreign countries. In the aggregate, such other equity method
investments had a carrying value of $164 million at March 31, 1995 and
accounted for $8 million of the Company's share of its affiliates' losses in
1995.
(continued)
I-34
<PAGE> 36
TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
(2) Material changes in results of operations (continued):
TeleWest Communications, which is currently constructing broadband
cable television and telephony networks in the UK, has incurred net losses
since its inception. At December 31, 1994, TeleWest Communications had
completed approximately 37% of its network construction and, it is expected
that TeleWest Communications' network construction will be substantially
complete within the next five years. Although there is no assurance, the
Company believes (i) that the continued expansion of TeleWest Communications'
networks ultimately will provide TeleWest Communications with a revenue base
that will exceed its expenses, (ii) that TeleWest Communications' present and
future sources of liquidity (including the L.401.3 million ($630.0 million
using the November 23, 1994 exchange rate) of net proceeds from TeleWest
Communications' November 23, 1994 initial public offering and certain bank
credit facilities) will be sufficient to meet TeleWest Communications'
liquidity requirements. The Company has no present intention to make
significant loans to or investments in TeleWest Communications.
In connection with its investments in the above-described foreign
entities, the Company is exposed to unfavorable and potentially volatile
fluctuations of the U.S. dollar against the UK pound sterling ("L."), the
Japanese yen ("Y.") and various other foreign currencies
that are the functional currencies of the Company's foreign subsidiaries and
affiliates. Any increase (decrease) in the value of the U.S. dollar against
any foreign currency that is the functional currency of an operating subsidiary
or affiliate of International will cause the Company to experience unrealized
foreign currency translation losses (gains) with respect to amounts already
invested in such foreign currencies. The Company is also exposed to foreign
currency risk to the extent that the Company or its foreign subsidiaries and
affiliates enter into transactions denominated in currencies other than their
respective functional currencies. Because the Company generally views its
foreign operating subsidiaries and affiliates as long-term investments, the
Company generally does not attempt to hedge existing investments in its foreign
affiliates and subsidiaries. With respect to funding commitments that are
denominated in currencies other than the U.S. dollar, the Company historically
has sought to reduce its exposure to short-term (generally no more than 90
days) movements in the applicable exchange rates once the timing and amount of
such funding commitments becomes fixed. Although the Company monitors foreign
currency exchange rates with the objective of mitigating its exposure to
unfavorable fluctuations in such rates, the Company believes that it is not
possible or practical to completely eliminate the Company's exposure to
unfavorable fluctuations in foreign currency exchange rates.
The Company's net loss (before preferred stock dividends) of $45
million for the three months ended March 31, 1995 represented a decrease of $77
million as compared to the Company's net earnings of $32 million for the
corresponding period of 1994. Such decrease is principally the result of the
effect of the aforementioned reduction in rates charged for Regulated Services,
operating losses incurred by certain programming services including the new
premium programming service launched in 1994, an increase in interest expense
due to an increase in interest rates, net of the increase in operating income
from the acquisition of TeleCable.
I-35
<PAGE> 37
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1995 1994
------ ---------- ------------
amounts in millions
<S> <C> <C>
Cash $ 14 6
Trade and other receivables, net 193 198
Investments in affiliates, accounted for
under the equity method, and related
receivables (note 3) 495 341
Property and equipment, at cost:
Land 68 68
Distribution systems 8,493 7,589
Support equipment and buildings 985 921
---------- ---------
9,546 8,578
Less accumulated depreciation 3,170 2,999
---------- ---------
6,376 5,579
---------- ---------
Franchise costs 12,935 10,994
Less accumulated amortization 1,760 1,697
---------- ---------
11,175 9,297
---------- ---------
Other assets, at cost, net of amortization 475 459
---------- ---------
$ 18,728 15,880
========== =========
</TABLE>
(continued)
I-36
<PAGE> 38
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and Stockholder's Equity 1995 1994
------------------------------------ --------- ------------
amounts in millions
<S> <C> <C>
Accounts payable $ 156 74
Accrued interest 147 179
Other accrued expenses 563 603
Debt (note 5) 10,879 10,712
Deferred income taxes 4,153 3,299
Other liabilities 119 96
--------- --------
Total liabilities 16,017 14,963
--------- --------
Minority interests in equity
of consolidated subsidiaries 216 271
Stockholder's equity (note 6):
Class A common stock, $1 par value.
Authorized 904,000 shares in 1995 and
1994; issued 811,655 in 1995 and 1994 1 1
Class B common stock, $1 par value.
Authorized 96,000 shares in 1995 and
1994; issued 94,447 shares in 1995
and 1994 -- --
Additional paid-in capital 3,076 2,842
Unrealized holding gains for
available-for-sale securities, net of taxes 2 2
Accumulated deficit (252) (256)
--------- --------
2,827 2,589
Investment in TCI (note 1) (1,106) (1,096)
Due to (from) TCI 774 (847)
--------- --------
Total stockholder's equity 2,495 646
--------- --------
Commitments and contingencies (note 7)
$ 18,728 15,880
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-37
<PAGE> 39
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months
ended
March 31,
---------------------------
1995 1994
---------- ----------
amounts in millions
<S> <C> <C>
Revenue $ 1,169 1,060
Operating costs and expenses:
Operating 355 315
Selling, general and administrative 317 295
Adjustment to compensation relating to
stock appreciation rights (1) (19)
Depreciation 192 163
Amortization 76 72
---------- ---------
939 826
---------- ---------
Operating income 230 234
Other income (expense):
Interest expense (232) (178)
Interest and dividend income 8 10
Share of earnings of Liberty -- 14
Share of losses of other affiliates,
net (note 3) (9) (9)
Gain on disposition of assets 11 --
Loss on early extinguishment of debt -- (2)
Minority interests in losses (earnings)
of consolidated subsidiaries, net 3 (2)
Other, net (3) (4)
---------- ---------
(222) (171)
---------- ---------
Earnings before income taxes 8 63
Income tax expense (4) (31)
---------- ---------
Net earnings $ 4 32
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
I-38
<PAGE> 40
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Three months ended March 31, 1995
(unaudited)
<TABLE>
<CAPTION>
Unrealized
holding
gains for
Common stock Additional available- Investment Due Total
----------------- paid-in for-sale Accumulated in to (from) stockholder's
Class A Class B capital securities deficit TCI TCI equity
------- ------- --------- ---------- ----------- ---------- --------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 1 -- 2,842 2 (256) (1,096) (847) 646
Net earnings -- -- -- -- 4 -- -- 4
Effect of Reorganization -- -- -- -- -- (10) 70 60
TCI Class A common stock issued
in acquisition of remaining
minority interest of Heritage
contributed to TCIC (note 4) -- -- 234 -- -- -- 58 292
Issuance of TCI Class A common
stock and TCI preferred stock
in TeleCable acquisition (note 4) -- -- -- -- -- -- 1,311 1,311
Proceeds from issuance of TCI
Class A common stock to public
utilized to repay TCIC
indebtedness -- -- -- -- -- -- 401 401
Proceeds from issuance of TCI
Class A common stock in
private offering -- -- -- -- -- -- 29 29
Change in due to TCI -- -- -- -- -- -- (248) (248)
----- ----- ------ ---- ----- -------- ----- -----
Balance at March 31, 1995 $ 1 -- 3,076 2 (252) (1,106) 774 2,495
===== ===== ===== ==== ===== ====== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
I-39
<PAGE> 41
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1995 1994
--------- ---------
amounts in millions
(see note 2)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 4 32
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 268 235
Adjustment to compensation relating to stock
appreciation rights (1) (19)
Share of earnings of Liberty -- (14)
Share of losses of other affiliates 9 9
Deferred income tax expense (benefit) (10) 13
Minority interests in earnings (losses) (3) 2
Loss on early extinguishment of debt -- 2
Gain on disposition of assets (11) --
Noncash interest and dividend income (2) (2)
Other noncash charges -- 1
Changes in operating assets and liabilities,
net of the effect of acquisitions:
Change in receivables 20 7
Change in accrued interest (36) (26)
Change in other accruals and payables 10 86
--------- -------
Net cash provided by operating activities 248 326
--------- -------
Cash flows from investing activities:
Cash paid for acquisitions (9) (10)
Capital expended for property and equipment (325) (243)
Proceeds from disposition of assets 13 8
Additional investments in and
loans to affiliates and others (161) (97)
Repayment of loans by affiliates and others 1 31
Other investing activities (16) (71)
--------- -------
Net cash used in investing activities (497) (382)
--------- -------
Cash flows from financing activities:
Borrowings of debt 880 1,296
Repayments of debt (930) (1,188)
Change in due from TCI 307 --
Preferred stock dividends of subsidiaries -- (2)
--------- -------
Net cash provided by financing activities 257 106
--------- -------
Net increase in cash 8 50
Cash at beginning of period 6 1
--------- -------
Cash at end of period $ 14 51
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-40
<PAGE> 42
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1995
(unaudited)
(1) General
The accompanying consolidated financial statements include the
accounts of Old TCI and those of all majority- owned subsidiaries
("TCIC"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto contained in TCIC's Annual Report on Form
10-K, as amended, for the year ended December 31, 1994.
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc.) and Liberty entered into a definitive
merger agreement to combine the two companies. The transaction was
consummated on August 4, 1994 and was 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. In connection with the TCI/Liberty
Combination, Old TCI changed its name to TCI Communications, Inc.
and TCI/Liberty Holding Company changed its name to
Tele-Communications, Inc. Old TCI shareholders received one share of
TCI for each of their shares. Liberty common shareholders received
0.975 of a share of TCI for each of their common shares. Upon
consummation of the TCI/Liberty Combination, certain subsidiaries of
TCIC exchanged their shares of Old TCI Class A common stock for shares
of TCI Class A common stock. Additionally, subsidiaries of TCI
exchanged their shares of Liberty Class A common stock for TCI Class A
common stock. Also, subsidiaries of TCI exchanged their shares of
various preferred stock issuances of Liberty for preferred stock of
TCI. Such common stock and preferred stock of TCI is reflected as
investment in TCI at such entities' historical cost in the
accompnaying consolidated financial statements.
(continued)
I-41
<PAGE> 43
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and
other related party considerations, TCIC accounted for its investment
in Liberty under the equity method. Accordingly, TCIC had not
recognized any income relating to dividends, including preferred stock
dividends, and TCIC recorded the earnings or losses generated by
Liberty (by recognizing 100% of Liberty's earnings or losses before
deducting preferred stock dividends) through the date the TCI/Liberty
Combination was consummated.
During the fourth quarter of 1994, TCI was reorganized based upon four
lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital
(the "Reorganization"). Upon Reorganization, certain of the assets of
TCIC were transferred to the other operating units. The most
significant transfers were as follows: (i) TBS and Discovery
Communications, Inc. were transferred to the Programming unit and (ii)
TCI/US WEST Cable Communications Group ("TeleWest UK") was transferred
to the International Cable and Programming unit. In the first quarter
of 1995, TCIC transferred certain additional assets to the
International Cable and Programming unit.
Certain amounts have been reclassified for comparability with the 1995
presentation.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $268 million and $204 million for the
three months ended March 31, 1995 and 1994, respectively. Also,
during these periods, cash paid for income taxes was not material.
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1995 1994
------ ------
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 2,769 10
Liabilities assumed (279) --
Deferred tax liability recorded
in acquisitions (875) --
Minority interests in equity of
acquired entities (3) --
Common stock of TCI issued in
acquisition contributed to TCIC (234) --
Increase in amounts due to TCI resulting
from common stock of TCI issued in
acquisition (1,369) --
------- -----
Cash paid for acquisitions $ 9 10
======= =====
Common stock issued upon conversion
of redeemable preferred stock $ -- 18
======= =====
Effect of foreign currency translation
adjustment on book value of foreign
equity investments $ -- 1
======= =====
Unrealized gains, net of deferred taxes,
on available-for-sale securities as
of January 1, 1994 $ -- 304
======= =====
Change in unrealized gains, net of
deferred taxes, on available-for-sale
securities $ -- 113
======= =====
Net assets of TCIC transferred in the
Reorganization in exchange for TCI
common stock reflected as investment
in TCI $ 10 --
======= =====
Net assets of TCIC transferred in the
Reorganization through due to TCI $ 60 --
======= =====
Noncash exchange of equity investments
and consolidated subsidiaries for
consolidated subsidiary $ -- 38
======= =====
</TABLE>
(continued)
I-42
<PAGE> 44
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Investments in Other Affiliates
Summarized unaudited results of operations for affiliates, other than
Liberty, accounted for under the equity method are as follows:
<TABLE>
<CAPTION>
Three months
ended
Combined Operations March 31,
------------------- ----------------------
1995 1994
------- ------
amounts in millions
<S> <C> <C>
Revenue $ 52 195
Operating expenses (49) (173)
Depreciation and amortization (9) (31)
------- ------
Operating loss (6) (9)
Interest expense (2) (9)
Other, net (3) (20)
------- ------
Net loss $ (11) (38)
======= ======
</TABLE>
Certain of TCIC's affiliates are general partnerships and any
subsidiary of TCIC that is a general partner in a general partnership
is, as such, liable as a matter of partnership law for all debts of
that partnership in the event liabilities of that partnership were to
exceed its assets.
(4) Acquisitions
As of January 26, 1995, TCI, TCIC and TeleCable consummated a
transaction, whereby TeleCable was merged into TCIC. The aggregate
$1.6 billion purchase price was satisfied by TCIC's assumption of
approximately $300 million of TeleCable's net liabilities and the
issuance to TeleCable's shareholders of approximately 42 million
shares of TCI Class A common stock and 1 million shares of Series D
Preferred Stock with an aggregate initial liquidation value of $300
million. The amount of net liabilities assumed by TCIC and the number
of shares of TCI Class A common stock issued to TeleCable's
shareholders are subject to post-closing adjustments.
The acquisition of TeleCable was accounted for by the purchase method.
Accordingly, the results of operations of such acquired entity have
been consolidated with those of TCIC since its date of acquisition.
On a pro forma basis, TCIC's revenue would have been increased by
$25 million and $73 million and net earnings would have been increased
by $1 million and $2 million for the three months ended March 31, 1995
and 1994, respectively, had such acquired entity been consolidated
with TCIC on January 1, 1994. The foregoing unaudited pro forma
financial information was based upon historical results of operations
adjusted for acquisition costs and, in the opinion of management, is
not necessarily indicative of the results had TCIC operated the
acquired entity since January 1, 1994.
(continued)
I-43
<PAGE> 45
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Comcast had 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. On October 24, 1994,
TCI and Comcast entered into a purchase agreement whereby TCI would
repurchase the entire 19.9% minority interest in Heritage owned by
Comcast for an aggregate consideration of approximately $290 million,
the majority of which is payable in shares of TCI Class A common
stock. Such acquisition was consummated in the first quarter of 1995.
(5) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
amounts in millions
<S> <C> <C>
Parent company debt:
Senior notes $ 5,382 5,412
Bank credit facilities 1,094 869
Commercial paper 516 445
Other debt 2 2
--------- --------
6,994 6,728
Debt of subsidiaries:
Bank credit facilities 2,780 2,828
Commercial paper 11 --
Notes payable 1,013 1,024
Convertible notes (a) 44 45
Other debt 37 87
--------- --------
$ 10,879 10,712
========= ========
</TABLE>
(a) These convertible notes, which are stated net of unamortized
discount of $186 million at March 31, 1995 and December 31,
1994, 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. At March 31, 1995, the notes were
convertible, at the option of the holders, into an aggregate
of 38,707,574 shares of TCI Class A common stock.
TCIC'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/or dividend payments.
(continued)
I-44
<PAGE> 46
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In order to achieve the desired balance between variable and fixed
rate indebtedness, TCIC has entered into various interest rate
exchange agreements pursuant to which it pays (i) fixed interest rates
(the "Fixed Rate Agreements") ranging from 7.2% to 9.9% on notional
amounts of $550 million at March 31, 1995 and (ii) variable interest
rates (the "Variable Rate Agreements") on notional amounts of $2,605
million at March 31, 1995. During the three months ended March 31,
1995 and 1994, TCIC's net receipts pursuant to the Fixed Rate
Agreements were $5.1 million and $2.1 million, respectively; and
TCIC's net receipts pursuant to the Variable Rate Agreements were $1.4
million and $19.6 million, respectively.
TCIC's Fixed Rate Agreements and Variable Rate Agreements expire as
follows:
<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
--------------------- ------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
-------------- ------------- ------ -------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
August 1995 7.2% $ 10 April 1995 6.4% $ 75
April 1996 9.9% 30 August 1995 7.7% 10
May 1996 8.3% 50 April 1996 6.8% 50
July 1996 8.2% 10 July 1996 8.2% 10
August 1996 8.2% 10 August 1996 8.2% 10
November 1996 8.9% 150 September 1996 4.6% 150
October 1997 7.2%-9.3% 60 April 1997 7.0% 200
December 1997 8.7% 230 September 1998 4.8%-5.2% 300
------ April 1999 7.4% 100
$ 550 September 1999 7.2%-7.4% 300
====== February 2000 5.8%-6.6% 650
March 2000 5.8%-6.0% 675
September 2000 5.1% 75
-------
$ 2,605
=======
</TABLE>
TCIC 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,
TCIC does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.
The fair value of the interest rate exchange agreements is the
estimated amount that TCIC would pay or receive to terminate the
agreements at March 31, 1995, taking into consideration current
interest rates and assuming the current creditworthiness of the
counterparties. TCIC would pay an estimated $121 million at March 31,
1995 to terminate the agreements.
In order to diminish its exposure to extreme increases in variable
interest rates, TCIC has also entered into various interest rate hedge
agreements on notional amounts of $325 million which fix the maximum
variable interest rates at 11%. Such agreements expire during the
third and fourth quarters of 1995.
(continued)
I-45
<PAGE> 47
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of TCIC's debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered
to TCIC for debt of the same remaining maturities. The fair value of
debt, which has a carrying value of $10,879 million, was $10,942
million at March 31, 1995.
TCIC is required to maintain unused availability under bank credit
facilities to the extent of outstanding commercial paper. Also, TCIC
pays 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.
(6) 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.
Stock Options
TCIC had granted or assumed certain options and/or stock appreciation
rights. All such options and/or stock appreciation rights previously
granted by TCIC were assumed by TCI in conjunction with the Mergers.
Estimates of the compensation relating to the stock appreciation
rights granted to employees of TCIC have been recorded through March
31, 1995, but are subject to future adjustment based upon market value
and, ultimately, on the final determination of market value when the
rights are exercised.
(7) Commitments and Contingencies
During 1994, subsidiaries of TCI, Comcast, Cox and Sprint formed
WirelessCo to engage in the business of providing wireless
communications services on a nationwide basis. Through WirelessCo,
the partners have been participating in PCS Auctions of PCS licenses
being conducted by the FCC. In the first round auction, which
concluded during the first quarter of 1995, WirelessCo was the winning
bidder for PSC licenses for 29 markets, including New York, San
Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth,
Boston-Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale.
The aggregate license cost for these licenses is approximately $2.1
billion.
(continued)
I-46
<PAGE> 48
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
WirelessCo has also invested in APC, which holds a PCS license granted
under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited
partnership interest in APC for $23 million and has agreed to make
capital contributions to APC equal to 49/51 of the cost of APC's PCS
license. Additional capital contributions may be required in the
event APC is unable to finance the full cost of its PCS license.
WirelessCo may also be required to finance the build-out expenditures
for APC's PCS system. Cox, which holds a pioneer preference PCS
license for the Los Angeles-San Diego market, and WirelessCo have also
agreed on the general terms and conditions upon which Cox (with a 60%
interest) and WirelessCo (with a 40% interest) would form a
partnership to hold and develop a PCS system using the Los Angeles-San
Diego license. APC and the Cox partnership would affiliate their PCS
systems with WirelessCo and be part of WirelessCo's nationwide
integrated network, offering wireless communications services under
the "Sprint" brand. TCIC owns a 30% interest in WirelessCo.
During 1994, subsidiaries of Cox, Sprint and TCIC also formed
PhillieCo, in which TCIC owns a 35.3% interest. PhillieCo was the
winning bidder in the first round auction for a PCS license for the
Philadelphia market at a license cost of $85 million. To the extent
permitted by law, the PCS system to be constructed by PhillieCo would
also be affiliated with WirelessCo's nationwide network.
WirelessCo may bid in subsequent rounds of the PCS Auctions and may
invest in, affiliate with or acquire licenses from other successful
bidders. The capital that WirelessCo will require to fund the
construction of the PCS systems, in addition to the license costs and
investments described above, will be substantial.
At the end of the first quarter of 1995, subsidiaries of TCIC,
Comcast, Cox and Sprint formed two new partnerships, of which the
principal partnership is MajorCo, to which they contributed their
respective interests in WirelessCo and through which they formed
another partnership, NewTelco, to engage in the business of providing
local wireline communications services to residences and businesses on
a nationwide basis. NewTelco will serve its customers primarily
through the cable television facilities of cable television operators
that affiliate with NewTelco in exchange for agreed-upon compensation.
The modification of existing regulations and laws governing the local
telephony market will be necessary in order for NewTelco to provide
its proposed services on a competitive basis in most states. Subject
to agreement upon a schedule for upgrading its cable television
facilities in selected markets and certain other matters, TCIC has
agreed to affiliate certain of its cable systems with NewTelco. The
capital required for the upgrade of TCIC's cable facilities for the
provision of telephony services is expected to be substantial.
(continued)
I-47
<PAGE> 49
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Subsidiaries of TCIC, Cox and Comcast, together with Continental, own
Teleport Communications Group, Inc. and TCG Partners, which is one of
the largest competitive access providers in the United States in terms
of route miles. TCIC, Cox and Comcast have entered into an agreement
with MajorCo and NewTelco to contribute their interests in TCG and its
affiliated entities to NewTelco. TCIC currently owns an approximate
29.9% interest in TCG. The closing of this contribution is subject to
the satisfaction of certain conditions, including the receipt of
necessary regulatory and other consents and approvals. In addition,
TCIC, Comcast and Cox intend to negotiate with Continental, which owns
a 20% interest in TCG, regarding their acquisition of Continental's
TCG interest. If such agreement cannot be reached, they will need to
obtain Continental's consent to certain aspects of their agreement
with Sprint.
Subject to agreement upon an initial business plan, the MajorCo
partners have committed to make cash capital contributions to MajorCo
of $4.0 to $4.4 billion in the aggregate over a three- to five-year
period, which amount includes the approximately $500 million already
contributed by the partners to WirelessCo. The partners intend for
MajorCo and its subsidiary partnerships to be the exclusive vehicles
through which they engage in the wireless and wireline telephony
service businesses, subject to certain exceptions.
At March 31, 1995, TCIC was liable for a $720 million letter of credit
which guarantees contributions to WirelessCo. TCIC pledged 56,656,584
shares of TCI Class A common stock held by subsidiaries of TCIC as
collateral for the letter of credit. During the first quarter of
1995, an initial borrowing aggregating $95 million was made pursuant
to the letter of credit. Subsequent to March 31, 1995, 19,638,508
shares of TCI Class A common stock held by subsidiaries of TCIC were
pledged as additional collateral for the letter of credit.
On October 5, 1992, Congress enacted the 1992 Cable Act. In 1993 and
1994, the FCC adopted certain rate regulations required by the 1992
Cable Act and imposed a moratorium on certain rate increases. As a
result of such actions, TCIC's 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 and 1994 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.
(continued)
I-48
<PAGE> 50
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
TCIC believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including its rate setting
provisions. However, TCIC's rates for Regulated Services are subject
to review by the FCC, if a complaint has been filed, or the
appropriate franchise authority, if such authority has been certified.
If, as a result of the review 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. Any refunds of the excess portion of tier service rates
would be retroactive to the date of complaint. Any refunds of the
excess portion of all other Regulated Service rates would be
retroactive to the later of September 1, 1993 or one year prior to the
certification date of the applicable franchise authority. The amount
of refunds, if any, which could be payable by TCIC in the event that
systems' rates are successfully challenged by franchising authorities
is not considered to be material.
TCIC has guaranteed notes payable and other obligations of affiliated
and other companies without outstanding balances of approximately $192
million at March 31, 1995. Although there can be no assurance,
management of TCIC believes that it will not be required to meet its
obligations under such guarantees, or if it is required to meet any of
such obligations, that they will not be material to TCIC.
TCIC has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. In the opinion of
management, it is expected that amounts, if any, which may be required
to satisfy such contingencies will not be material in relation to the
accompanying consolidated financial statements.
I-49
<PAGE> 51
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Material changes in results of operation:
As of January 27, 1994, TCI Communications, Inc. (formerly
Tele-Communications, Inc. or "Old TCI") and Liberty Media Corporation
("Liberty") entered into a definitive merger agreement to combine the
two companies (the "TCI/Liberty Combination"). The transaction was
consummated on August 4, 1994 and was 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. In connection with the TCI/Liberty
Combination, Old TCI changed its name to TCI Communications, Inc.
("TCIC") and TCI/Liberty Holding Company changed its name to
Tele-Communications, Inc. Old TCI shareholders received one share of
TCI for each of their shares. Liberty common shareholders received
0.975 of a share of TCI for each of their common shares. Upon
consummation of the TCI/Liberty Combination, certain subsidiaries of
TCIC exchanged their shares of Old TCI Class A common stock for shares
of TCI Class A common stock. Additionally, subsidiaries of TCIC
exchanged their shares of Liberty Class A common stock for TCI Class A
common stock. Also, subsidiaries of TCIC exchanged their shares of
various preferred stock issuances of Liberty for preferred stock of
TCI. Such common stock and preferred stock of TCI is reflected as
investment in TCI at such entities' historical cost in the accompanying
consolidated financial statements.
Due to the significant economic interest held by TCIC through its
ownership of Liberty preferred stock and Liberty common stock and
other related party considerations, TCIC accounted for its investment
in Liberty under the equity method. Accordingly, TCIC had not
recognized any income relating to dividends, including preferred stock
dividends, and TCIC recorded the earnings or losses generated by
Liberty (by recognizing 100% of Liberty's earnings or losses before
deducting preferred stock dividends) through the date the TCI/Liberty
Combination was consummated.
During the fourth quarter of 1994, TCI was reorganized based upon four
lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital
(the "Reorganization"). Upon Reorganization, certain of the assets of
TCIC were transferred to the other operating units. The most
significant transfers were as follows: (i) TBS and Discovery
Communications, Inc. were transferred to the Programming unit and (ii)
TCI/US WEST Cable Communications Group ("TeleWest UK") was transferred
to the International Cable and Programming unit. In the first quarter
of 1995, TCIC transferred certain additional assets to the
International Cable and Programming unit.
On October 5, 1992, Congress enacted the 1992 Cable Act. In 1993 and
1994, the FCC adopted certain rate regulations required by the 1992
Cable Act and imposed a moratorium on certain rate increases. As a
result of such actions, TCIC's Regulated Services are subject to the
jurisdiction of local franchising authorities and the FCC.
TCIC estimates that the FCC's 1993 and 1994 rate regulations will
result in an aggregate annualized reduction of revenue and operating
income ranging from $280 million to $300 million based upon rates
charged prior to implementation of such rate regulations. The
estimated annualized reduction in revenue assumes that the FCC will
not require further reductions beyond the current regulations and is
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.
(continued)
I-50
<PAGE> 52
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Material changes in results of operations (continued):
Cable operators may justify rates higher than the benchmark rates
established by the FCC through demonstrating higher costs based upon a
cost-of-service showing. Under this methodology, cable operators may
be allowed to recover through the rates they charge for Regulated
Services, their normal operating expenses plus an interim rate of
return of 11.25% on the rate base, as defined, which rate may be
subject to change in the future.
The FCC rate regulations govern changes in the rates which cable
operators may charge when adding or deleting a service from a
regulated tier of service. Such regulations allow an increase of
either (i) the sum of a prescribed channel addition factor, the
license fee expense and a 7.5% mark-up, or (ii) a flat fee increase
per added channel and an aggregate limit on such increases with an
additional license fee reserve. For systems with more than one tier
of cable service, the methodology described in (ii) is not available
for the basic level of service. The FCC's rate regulations also
permit cable operators to "pass through" increases in programming
costs and certain other external costs which exceed the rate of
inflation. However, a cable operator may pass through increases in
the cost of programming services affiliated with such cable operator
to the extent such costs exceed the rate of inflation only if the
price charged by the programmer to the affiliated cable operator
reflects prevailing prices offered in the marketplace by the
programmer to unaffiliated third parties or the fair market value of
the programming.
TCIC believes that it has complied, in all material respects, with the
provisions of the 1992 Cable Act, including its rate setting
provisions. However, TCIC's rates for Regulated Services are subject
to adjustment upon review, as described above. If, as a result of the
review 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. Any
refunds of the excess portion of tier service rates would be
retroactive to the date of complaint. Any refunds of the excess
portion of all other Regulated Service rates would be retroactive to
one year prior to the implementation of the rate reductions. The
amount of refunds, if any, which could be payable by TCIC in the event
that any system's rates were to be successfully challenged, is not
considered to be material.
Based on the foregoing, TCIC believes that the 1993 and 1994 rate
regulations have had and will continue to have a material adverse
effect on its results of operations.
Revenue increased by approximately 10% for the three months ended
March 31, 1995 compared to the corresponding period of 1994. Such
increase was the result of growth in subscriber levels within TCIC's
cable television systems (5%) and the effect of certain acquisitions,
including the acquisition of TeleCable (9%), net of a decrease in
revenue (4%) due to rate reductions required by rate regulation
implemented pursuant to the 1992 Cable Act.
(continued)
I-51
<PAGE> 53
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Material changes in results of operations (continued):
Operating costs and expenses have increased by 14% for the three
months ended March 31, 1995 compared to the corresponding period in
1994. Due to the aforementioned program to upgrade and install
optical fiber in its cable systems, the Company's capital expenditures
and depreciation expense have increased. Additionally, TCIC incurred
$11 million of programming and marketing costs associated with the
launch in February 1994 of a new premium programming service to its
subscribers. TCIC cannot determine whether and to what extent
increases in the cost of programming will affect its operating costs.
Additionally, TCIC 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 aforementioned FCC rate
regulations.
TCIC had an investment in TeleWest UK in 1994, a company that is
currently operating and constructing cable television and telephone
systems in the UK. TeleWest UK, which was accounted for under the
equity method comprised $40 million of TCIC's share of its affiliates'
losses in 1994. In addition, TCIC had other less significant
investments in video distribution and programming businesses located
in the UK, other parts of Europe, Asia, Latin America and certain
other foreign countries. In the aggregate, such other investments
accounted for $44 million of TCIC's share of its affiliates' losses in
1994. In connection with the Reorganization, TCIC's ownership in the
aforementioned entities was transferred to the International Cable and
Programming unit effective December 1, 1994, and TCIC is no longer
exposed to the risk associated with unfavorable fluctuations in
foreign currency exchange rates nor will it continue to incur the
aforementioned losses associated with such investments.
TCIC's net earnings of $4 million for the three months ended March 31,
1995 represented a decrease of $28 million as compared to TCIC's net
earnings of $32 million for the corresponding period of 1994. Such
decrease is principally the result of the effect of the aforementioned
reduction in rates charged for Regulated Services, an increase in
interest expense due to an increase in interest rates, net of the
increase in operating income from the acquisition of TeleCable.
I-52
<PAGE> 54
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no material legal proceedings instituted during the quarter
ended March 31, 1995 to which the Company or any of its consolidated
subsidiaries is a party or of which any of their property is the
subject, except as follows:
Tony Jeffreys, et al v. Tele-Communications, Inc. et al. On
February 7, 1995, Tony Jeffreys and 41 current and former
employees of United Cable Television of Baltimore Limited
Partnership filed a complaint in Circuit Court for Baltimore
City against Tele-Communications, Inc., UCT of Baltimore,
Inc., United Cable Television of Baltimore Limited
Partnership, UCTC of Baltimore, Inc. and TCI East, Inc. With
two exceptions, these plaintiffs are also parties to identical
claims asserted in the amended complaints filed on February
14, 1994 in the previously described Belgrave, Fannell and
Lewis actions. The action alleges, in part, that the
Companies engaged U.S. Corporate Investigations, Inc. and
Blackburn Associates and conspired to illegally terminate the
employment of management personnel and employees of the
Baltimore system which culminated in the October 26, 1993,
incident described in earlier reports. Plaintiffs seek
damages in connection with their claims of assault, civil
conspiracy to commit assault, battery, civil conspiracy to
commit battery, false imprisonment, civil conspiracy to commit
false imprisonment, intentional infliction of emotion
distress, civil conspiracy to intentionally inflict emotional
distress, invasion of privacy by intrusion, civil conspiracy
to commit invasion of privacy by intrusion, defamation as to
plaintiff Fannell, defamation as to all plaintiffs except
Fannell, civil conspiracy to defame, invasion of privacy by
false light, civil conspiracy to commit invasion of privacy by
false light, wrongful discharge, civil conspiracy to
wrongfully terminate, breach of contract as to plaintiff
Fannell, and loss of consortium. Each count seeks $1,000,000
in compensatory damages and $5,000,000 in punitive damages per
plaintiff. The Company intends to contest this 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.
Donald E. Watson v. Tele-Communications, Inc., et al.
On March 10, 1995, Donald Watson, doing business under the
name of Tri-County Cable, filed suit in Superior Court for the
District of Columbia against TCI, TCI East, Inc., District
Cablevision Limited Partnership, District Cablevision, Inc.,
TCI of D.C., Inc., TCI of Maryland, Inc., TCI Development
Corporation, United Cable Television of Baltimore Limited
Partnership, TCI of Pennsylvania, Inc. and two individuals,
Richard Bushey and Roy Harbert. The action alleges breach of
settlement agreement, intentional misrepresentations, tortious
interference with prospective advantage, tortious interference
with contract, tortious interference with economic relations,
and discrimination on the basis of race. Three counts in the
Complaint seek compensatory damages of $2,500,000 and punitive
damages of $25,000,000; one count seeks compensatory damages
of $2,500,000 and punitive damages of $40,000,000; and two
counts each seek compensatory damages of $20,000,000 and
punitive damages of $40,000,000. The Company intends to
contest this 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.
II-1
<PAGE> 55
TELE-COMMUNICATIONS, INC.
and
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
(27.1) Tele-Communications, Inc. Financial Data Schedule
(27.2) TCI Communications, Inc. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31,
1995:
<TABLE>
<CAPTION>
Date of Item
Report Reported Financial Statements Filed
------- -------- --------------------------
<S> <C> <C>
Tele-Communications, Inc.:
--------------------------
January 23, 1995 Item 5 None.
February 3, 1995, Item 2 QVC, Inc.
as amended by and Year ended January 31, 1994 and
Form 8-K/A Item 5 and nine months ended
October 31, 1994
February 13, 1995 Item 5 None.
February 15, 1995 Item 2 None.
TCI Communications, Inc:
-----------------------
January 23, 1995 Item 5 None.
February 3, 1995, Item 2 None.
as amended by
Form 8-K/A
</TABLE>
II-2
<PAGE> 56
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.
<TABLE>
<S> <C>
TELE-COMMUNICATIONS, INC.
(formerly TCI/Liberty Holding Company)
Date: May 12, 1995 By: /s/ John C. Malone
--------------------------------------------
John C. Malone
President, and Chief
Executive Officer
Date: May 12, 1995 By: /s/ Donne F. Fisher
-----------------------------------------------
Donne F. Fisher
Executive Vice President
(Principal Financial and
Accounting Officer)
TCI COMMUNICATIONS, INC.
(formerly Tele-Communications, Inc.)
Date: May 12, 1995 By: /s/ John C. Malone
---------------------------------------------
John C. Malone
President, and Chief
Executive Officer
Date: May 12, 1995 By: /s/ Donne F. Fisher
----------------------------------------------
Donne F. Fisher
Executive Vice President
Date: May 12, 1995 By: /s/ Gary K. Bracken
--------------------------------------------
Gary K. Bracken, Controller
and Senior Vice President
(Principal Financial Officer
and Chief Accounting
Officer)
</TABLE>
II-3
<PAGE> 57
EXHIBIT INDEX
The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:
(27.1) Tele-Communications, Inc. Financial Data Schedule
(27.2) TCI Communications, Inc. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TELE-COMMUNICATIONS, INC.'S QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<CIK> 0000925692
<NAME> TELE-COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 56
<SECURITIES> 0
<RECEIVABLES> 318
<ALLOWANCES> 25
<INVENTORY> 112
<CURRENT-ASSETS> 0
<PP&E> 9,968
<DEPRECIATION> 3,264
<TOTAL-ASSETS> 22,454
<CURRENT-LIABILITIES> 0
<BONDS> 11,371
<COMMON> 0
303
748
<OTHER-SE> 3,915
<TOTAL-LIABILITY-AND-EQUITY> 22,454
<SALES> 243
<TOTAL-REVENUES> 1,524
<CGS> 161
<TOTAL-COSTS> 1,344
<OTHER-EXPENSES> 244
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 240
<INCOME-PRETAX> (64)
<INCOME-TAX> (19)
<INCOME-CONTINUING> (45)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (45)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TCI COMMUNICATIONS, INC. QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000096903
<NAME> TCI COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 14
<SECURITIES> 0
<RECEIVABLES> 209
<ALLOWANCES> 16
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,546
<DEPRECIATION> 3,170
<TOTAL-ASSETS> 18,728
<CURRENT-LIABILITIES> 0
<BONDS> 10,879
<COMMON> 0
0
1
<OTHER-SE> 2,494
<TOTAL-LIABILITY-AND-EQUITY> 18,728
<SALES> 0
<TOTAL-REVENUES> 1,169
<CGS> 0
<TOTAL-COSTS> 939
<OTHER-EXPENSES> 222
<LOSS-PROVISION> 13
<INTEREST-EXPENSE> 232
<INCOME-PRETAX> 8
<INCOME-TAX> 4
<INCOME-CONTINUING> 4
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
