<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 5, 1996
Date of Earliest Event Reported: July 31, 1996
TCI COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charters)
State of Delaware
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(State or other jurisdiction of incorporation)
0-5550 84-0588868
- ------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
5619 DTC Parkway
Englewood, Colorado 80111
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On July 31, 1996, pursuant to certain agreements entered into among TCI
Communications, Inc. ("TCIC" or the "Company"), Tele-Communications,
Inc. ("TCI"), Viacom International Inc. and Viacom, Inc. ("Viacom"),
TCIC acquired all of the common stock of a subsidiary of Viacom ("VII
Cable") which, at the time of such acquisition, owned Viacom's cable
systems and related assets (the "VII Cable Acquisition").
The transaction was structured as a tax-free reorganization in which
VII Cable transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to a new subsidiary
of Viacom ("New Viacom Sub"). VII Cable also transferred to New
Viacom Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan
facility (the "Loan Facility") arranged by TCIC, TCI and VII Cable.
Following these transfers, VII Cable retained cable assets with a
value at closing of approximately $2.326 billion and the obligation to
repay the Loan Proceeds borrowed under the Loan Facility. Neither
Viacom nor New Viacom Sub has any obligation with respect to repayment
of the Loan Proceeds.
Prior to the consummation of the VII Cable Acquisition, Viacom offered
to the holders of shares of Viacom Class A Common Stock and Viacom
Class B Common Stock (collectively, "Viacom Common Stock") the
opportunity to exchange (the "Exchange Offer") a portion of their
shares of Viacom Common Stock for shares of Class A Common Stock, par
value $100 per share, of VII Cable ("VII Cable Class A Stock").
Immediately following the completion of the Exchange Offer, TCIC
acquired from VII Cable shares of VII Cable Class B Common Stock (the
"Share Issuance") in exchange for $350 million (which was used to
reduce VII Cable's obligations under the Loan Facility). At the time
of the Share Issuance, the VII Cable Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted
into 5% Class A Senior Cumulative Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock") of VII Cable with a stated value of
$100 per share (the "Stated Value"). The terms of the Exchangeable
Preferred Stock, including its dividend, redemption and exchange
features, were designed to cause the Exchangeable Preferred Stock, in
the opinion of two investment banks, to initially trade at the Stated
Value. The Exchangeable Preferred Stock is exchangeable, at the option
of the holder commencing after the fifth anniversary of the date of
issuance, for shares of Series A TCI Group common stock ("Parent Common
Stock") at an initial exchange rate of 4.81 shares of Parent Common
Stock for each share of Exchangeable Preferred Stock exchanged. The
Exchangeable Preferred Stock is subject to redemption, at the option of
VII Cable, after the fifth anniversary of the date of issuance,
initially at a redemption price of $102.50 per share and thereafter at
prices declining ratably annually to $100 per share on and after the
eighth anniversary of the date of issuance, plus accrued and unpaid
dividends to the date of redemption. The Exchangeable Preferred Stock
is also subject to mandatory redemption on the tenth anniversary of the
date of issuance at a price equal to the Stated Value per share plus
accrued and unpaid dividends. Amounts payable by VII Cable in
satisfaction of its optional or mandatory redemption obligations with
respect to the Exchangeable Preferred Stock may be made in cash or, at
the election of VII Cable, in shares of Parent Common Stock, or any
combination of the foregoing.
Historical financial statements of VII Cable for the three months ended
March 31, 1996 and the year ended December 31, 1995 were previously
filed under Item 7 of the Company's Current Report on Form 8-K dated
June 19, 1996.
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements
None.
(b) Pro Forma Financial Information
Condensed Pro Forma Combined Balance Sheet,
March 31, 1996 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Three months ended March 31, 1996 (unaudited)
Condensed Pro Forma Combined Statement of Operations,
Year ended December 31, 1995 (unaudited)
Notes to Condensed Pro Forma Combined Financial Statements,
March 31, 1996 (unaudited)
(c) Exhibits
(2) Parents Agreement, dated as of July 24, 1995, among Viacom,
Inc., Tele-Communications, Inc. and TCI Communications,
Inc.
Subscription Agreement, dated as of July 24, 1995, among
Viacom International, Inc., Tele- Communications, Inc. and
TCI Communications, Inc.
Implementation Agreement, dated as of July 24, 1995, between
Viacom International, Inc. and Viacom International
Services, Inc.
Incorporated herein by reference to the Registrant's
Current Report on Form 8-K dated July 26, 1995.
<PAGE> 4
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 hereunto duly authorized.
Date: August 5, 1996
TCI COMMUNICATIONS, INC.
(Registrant)
By:/s/ Stephen M. Brett
-------------------------------------
Stephen M. Brett
Senior Vice President
<PAGE> 5
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Financial Statements
March 31, 1996
(unaudited)
The following unaudited condensed pro forma combined balance sheet of
TCIC, dated as of March 31, 1996, assumes that the VII Cable Acquisition (see
note 1) and the proposed distribution (the "Distribution") by TCI to the
holders of shares of the TCI Group common stock of all of the issued and
outstanding common stock of TCI Satellite Entertainment, Inc. ("Satellite")
(see note 2) had occurred as of such date.
Additionally, the following unaudited condensed pro forma combined
statements of operations of TCIC for the three months ended March 31, 1996 and
the year ended December 31, 1995 assume that the VII Cable Acquisition and the
Distribution had occurred as of January 1, 1995.
The unaudited pro forma results do not purport to be indicative of the
results of operations that would have been obtained if the VII Cable
Acquisition and the Distribution had occurred as of January 1, 1995. These
condensed pro forma combined financial statements of TCIC should be read in
conjunction with the historical financial statements and the related notes
thereto of TCIC.
<PAGE> 6
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Balance Sheet
(unaudited)
<TABLE>
<CAPTION>
March 31, 1996
-------------------------------------------------------------------------------
Pro forma
TCIC VII Cable Adjustments Satellite TCIC
Historical Historical(1) (1) Distribution (2) Pro forma
---------- ------------- ----------- ---------------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C>
Assets
- ------
Cash and receivables $ 310 18 1,700 (3) (20) 308
(1,700) (4)
Note receivable from Satellite -- -- -- 642 642
Investment in affiliates
and related receivables 1,099 -- -- (21) 1,078
Property and equipment, net of
accumulated depreciation 7,324 422 (3) (4) (982) 6,761
Franchise costs and other assets,
net of amortization 12,713 625 (45) (4) -- 14,717
1,424 (5)
---------- ----- ------ ------ ------
$ 21,446 1,065 1,376 (381) 23,506
========== ===== ====== ====== ======
Liabilities and Stockholder's Equity
- ------------------------------------
Payables and accruals $ 1,469 80 (26) (4) (463) 1,060
Debt 12,298 57 (57) (4) -- 13,998
1,700 (3)
Deferred income taxes 4,490 62 -- (10) 4,542
Other liabilities 61 11 (12) (4) -- 60
---------- ----- ------ ------ ------
Total liabilities 18,318 210 1,605 (473) 19,660
---------- ----- ------ ------ ------
Minority interests 205 -- 626 (6) -- 831
Redeemable preferred stock 232 -- -- -- 232
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trust holding solely
subordinated debt securities of
the Company 508 -- -- -- 508
Common stockholder's equity:
Viacom equity investment -- 855 (855) (7) -- --
Class A common stock 1 -- -- -- 1
Class B common stock -- -- -- -- --
Additional paid-in capital 3,670 -- -- 92 3,762
Unrealized holding gains for
available-for-sale securities 4 -- -- -- 4
Accumulated deficit (415) -- -- -- (415)
Investment in TCI (1,143) -- -- -- (1,143)
Due to TCI 66 -- -- -- 66
---------- ----- ------ ------ ------
2,183 855 (855) 92 2,275
---------- ----- ------ ------ ------
$ 21,446 1,065 1,376 (381) 23,506
========== ===== ====== ====== ======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
<PAGE> 7
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended March 31, 1996
------------------------------------------------------------------------------------
TCIC VII Cable Pro forma Satellite TCIC
Historical Historical (1) Adjustments (1) Distribution (2) Pro forma
---------- -------------- --------------- ---------------- ---------
amounts in millions
<S> <C>> <C>> <C> <C> <C>
Revenue $ 1,402 116 -- (96) 1,422
Operating, selling, general and
administrative expenses and
compensation relating to stock
appreciation rights (896) (76) -- 91 (881)
Depreciation and amortization (332) (22) (9) (8) 25 (338)
---------- ------- ------- ------- -------
Operating income 174 18 (9) 20 203
Interest expense (246) (12) (19) (9) -- (277)
Interest and dividend income 7 -- -- -- 7
Share of losses of
affiliates, net (7) -- -- -- (7)
Other income, net 3 2 (8) (10) -- (3)
---------- ------- ------- ------- -------
Earnings (loss) before
income taxes (69) 8 (36) 20 (77)
Income tax benefit (expense) 24 (5) 8 (11) (6) 21
---------- ------- ------- ------- -------
Net earnings (loss) (45) 3 (28) 14 (56)
Preferred stock dividend
requirements (2) -- -- -- (2)
---------- ------- ------- ------- -------
Net earnings (loss)
attributable to common
stockholder $ (47) 3 (28) 14 (58)
========== ======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
<PAGE> 8
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Condensed Pro Forma Combined Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31, 1995
------------------------------------------------------------------------------------
TCIC VII Cable Pro forma Satellite TCIC
Historical Historical (1) Adjustments (1) Distribution (2) Pro forma
---------- -------------- --------------- ---------------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C>
Revenue $ 5,118 442 (2) (4) (211) 5,347
Operating, selling, general and
administrative expenses and
compensation relating to stock
appreciation rights (3,092) (279) -- 214 (3,157)
Depreciation and amortization (1,223) (82) (36) (8) 57 (1,284)
---------- -------- -------- -------- --------
Operating income 803 81 (38) 60 906
Interest expense (962) (48) (84) (9) -- (1,094)
Interest and dividend income 34 -- -- -- 34
Share of losses of other
affiliates, net (43) -- -- 9 (34)
Other income (expense), net (1) 34 (27) (4) --
(31) (10) (25)
---------- -------- -------- -------- --------
Earnings (loss) before
income taxes (169) 67 (180) 69 (213)
Income tax benefit (expense) 49 (33) 45 (11) (22) 39
---------- -------- -------- -------- --------
Net earnings (loss) $ (120) 34 (135) 47 (174)
========== ======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited condensed pro forma combined financial
statements.
<PAGE> 9
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
March 31, 1996
(unaudited)
(1) On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI, Viacom International Inc. and Viacom, TCIC acquired all of
the common stock of VII Cable which, at the time of such acquisition,
owned Viacom's cable systems and related assets.
The transaction was structured as a tax-free reorganization in which
VII Cable transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to New Viacom Sub.
VII Cable also transferred to New Viacom Sub the Loan Proceeds of the
Loan Facility arranged by TCIC, TCI and VII Cable. Following these
transfers, VII Cable retained cable assets with a value at closing of
approximately $2.326 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility. Neither Viacom nor New
Viacom Sub has any obligation with respect to repayment of the Loan
Proceeds.
Prior to the consummation of the VII Cable Acquisition, Viacom offered
to the holders of shares of Viacom Common Stock the opportunity to
exchange a portion of their shares of Viacom Common Stock for shares of
VII Cable Class A Stock. Immediately following the completion of the
Exchange Offer, TCIC acquired from VII Cable shares of VII Cable Class
B Common Stock in exchange for $350 million (which was used to reduce
VII Cable's obligations under the Loan Facility). At the time of the
Share Issuance, the VII Cable Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer automatically converted
into the Exchangeable Preferred Stock of VII Cable with a stated value
of $100 per share. The terms of the Exchangeable Preferred Stock,
including its dividend, redemption and exchange features, were designed
to cause the Exchangeable Preferred Stock, in the opinion of two
investment banks, to initially trade at the Stated Value.
The cost to acquire VII Cable was approximately $2.326 billion,
consisting of the Loan Proceeds and the $626 million aggregate par
value of the VII Cable Exchangeable Preferred Stock. The accompanying
unaudited pro forma condensed combined statements of operations do not
reflect potential cost savings attributable to (i) economics of scale
which may be realized in connection with purchases of programming and
equipment or (ii) consolidation of certain operating and
administrative functions including the elimination of duplicative
facilities and personnel.
(2) On June 19, 1996, TCI announced the Distribution by TCI to the
holders of shares of the TCI Group common stock of all of the issued
and outstanding common stock of Satellite. At the time of the
Distribution, Satellite will be a Delaware corporation and a direct
wholly owned subsidiary of TCI. The Distribution will be effected as a
tax-free dividend to, and will not involve the payment of any
consideration by, the holders of TCI Group common stock. Prior to the
Distribution, TCI will cause to be transferred to Satellite, or one or
more of Satellite's subsidiaries, certain assets and businesses (and
the related liabilities) of the TCI Group constituting all of TCI's
interests in the business of distributing multichannel programming
services in the United States direct to the home via medium power or
high power broadcast satellite, including the rental and sale of
customer premises equipment relating thereto.
(continued)
<PAGE> 10
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
In connection with the Distribution, it is anticipated that the
intercompany balance owed by Satellite to TCIC will be converted into
a note payable to TCIC the terms of which have not yet been
determined. The accompanying pro forma financial statements reflect
the assumed conversion of such intercompany balance as well as the
elimination of the estimated assets, liabilities, revenue and expenses
of Satellite. The intercompany balance is based upon historical
amounts. However, it is expected that TCIC will continue to make
capital expenditures on behalf of Satellite and, as such, the
intercompany balance can be expected to increase through the date of
the Distribution. The Satellite financial information is subject to
adjustment upon the finalization of the historical financial
statements of Satellite.
(3) Reflects the borrowing of the Loan Proceeds ($1.7 billion) under the
Loan Facility. Scheduled maturities of the Loan through December 31,
2000 are assumed to be $300 million (1996), none (1997), $30 million
(1998), $110 million (1999) and $135 million (2000).
(4) Reflects the conveyance to New Viacom Sub of the Loan Proceeds,
existing bank debt of $57 million and certain other nonmaterial
assets, liabilities and related results of operations of VII Cable,
including for the year ended December 31, 1995, a pre-tax gain of $27
million from the sale of marketable securities and a provision for
income taxes of $11 million.
(5) The cost to acquire VII Cable will be allocated to the assets and
liabilities acquired according to their respective fair values, with
any excess being treated as franchise costs. The valuations and other
studies which will provide the basis for the allocation of the cost to
acquire VII Cable have not yet been performed and, consequently, the
purchase accounting adjustments made in connection with the
development of the unaudited condensed pro forma combined financial
statements are preliminary. The entire purchase price in excess of
the book value of VII Cable's assets and liabilities has been
attributed to franchise costs. The approximately $1.4 billion pro
forma excess of unallocated acquisition costs as of March 31, 1996 is
being amortized over 40 years at a rate of $36 million per year. To
the extent that the excess purchase price over book value is allocated
to property and equipment or other assets, including identifiable
intangibles with lives of less than 40 years, depreciation and
amortization will increase and, on an after-tax basis, net loss will
increase. Although the Company cannot estimate the potential increase
in depreciation nor amortization, it may be significant. The Company
estimates the average useful life of property and equipment to be
approximately 12.5 years. In addition, the Company does not believe
that there are substantial intangible assets which will require
amortization over periods less that 12.5 years. As a result, the
Company does not believe that any allocation of purchase price to
other assets should be expected to result in an amortization period
less than 12.5 years. VII Cable has estimated, that for every $100
million allocated to property and equipment or to other assets
including identifiable intangibles, and assuming an average life of
12.5 years, depreciation and amortization would increase by $5.5
million per year over such 12.5 year period.
(6) Reflects the estimated aggregate par value of the VII Cable
Exchangeable Preferred Stock.
(7) Represents the elimination of VII Cable's historical equity.
(8) Represents amortization of VII Cable's allocated excess purchase
price, based upon a weighted average life of 40 years for franchise
costs.
(continued)
<PAGE> 11
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Condensed Pro Forma Combined Financial Statements
(9) Represents assumed additional interest expense (after taking into
consideration interest expense reflected in the historical VII Cable
operations) incurred by the Company on the borrowings of the Loan
Proceeds. Solely for the purposes of this presentation, the Company
has assumed an interest rate of 7.41% and 7.78% for the three months
ended March 31, 1996 and for the year ended December 31, 1995,
respectively, based upon historical interest rates adjusted for
anticipated terms of the Loan Facility.
(10) Reflects an assumed 5.0% cumulative annual dividend on the $626
million of VII Cable Exchangeable Preferred Stock included in minority
share of losses of consolidated subsidiaries.
(11) Reflects the estimated income tax effect of the pro forma adjustments.
The effective income tax rate on a pro forma basis is adversely
affected by the amortization of excess acquisition costs, which are
assumed not to be deductible for tax purposes.
