<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-5550
TCI COMMUNICATIONS, INC.
--------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-0588868
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
- --------------------------------------- ---------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant (1) 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_____
----
All of the Registrant's common stock is owned by Tele-Communications, Inc.
The number of shares outstanding of the Registrant's common stock as of October
31, 1996, was:
Class A common stock - 811,655 shares; and
Class B common stock - 94,447 shares.
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -----------
Assets amounts in millions
- ------
<S> <C> <C>
Cash $ 7 --
Trade and other receivables, net 274 262
Investments in affiliates, accounted for under the
equity method, and related receivables (note 3)
1,472 1,062
Property and equipment, at cost:
Land 72 63
Distribution systems 10,998 9,325
Support equipment and buildings 1,522 1,147
------- ------
12,592 10,535
Less accumulated depreciation 4,224 3,547
------- ------
8,368 6,988
------- ------
Franchise costs 16,925 13,618
Less accumulated amortization 2,301 2,055
------- ------
14,624 11,563
------- ------
Other assets, at cost, net of amortization 560 489
------- ------
$25,305 20,364
======= ======
</TABLE>
(continued)
I-1
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------- -------------
Liabilities and Common Stockholder's Equity amounts in millions
- -------------------------------------------
<S> <C> <C>
Accounts payable $ 63 176
Accrued interest 168 226
Accrued programming expense 279 209
Other accrued expenses 869 856
Debt (note 5) 14,491 12,635
Deferred income taxes 5,491 4,261
Other liabilities 69 66
------- ------
Total liabilities 21,430 18,429
------- ------
Minority interests in equity of consolidated
subsidiaries 821 206
Redeemable preferred stock 232 --
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts ("Trust
Securities") holding solely subordinated debt
securities of the Company (note 6) 1,000 --
Common stockholder's equity:
Class A common stock, $1 par value. Authorized
910,553 shares; issued and outstanding
811,655 shares 1 1
Class B common stock, $1 par value. Authorized
94,447 shares; issued and outstanding 94,447
shares -- --
Additional paid-in capital 3,679 3,122
Unrealized holding gains for available-for-sale
securities, net of taxes 4 7
Accumulated deficit (630) (370)
------- -----
3,054 2,760
Investment in Tele-Communications, Inc. ("TCI")
(note 1) (1,143) (1,143)
Intercompany payable (receivable) (note 7) (89) 112
------- -----
Total common stockholder's equity 1,822 1,729
------- -----
Commitments and contingencies (note 8)
$25,305 20,364
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------- -------------------
1996 1995 1996 1995
---------- -------- --------- --------
amounts in millions
<S> <C> <C> <C> <C>
Revenue (notes 4 and 7) $1,648 1,310 4,554 3,741
Operating costs and expenses:
Operating 532 406 1,482 1,155
Selling, general and administrative 525 378 1,430 1,045
Compensation relating to stock
appreciation rights -- 2 -- 7
Adjustment to compensation relating to
stock appreciation rights (8) -- (12) --
Depreciation 247 211 728 620
Amortization 112 91 311 254
------ ----- ----- -----
1,408 1,088 3,939 3,081
------ ----- ----- -----
Operating income 240 222 615 660
Other income (expense):
Interest expense (267) (249) (760) (713)
Interest income (note 7) 12 8 31 25
Share of losses of affiliates, net (note 3) (47) (10) (150) (34)
Loss on early extinguishment of debt
(note 5) (7) -- (73) --
Minority interests in losses (earnings) of
consolidated subsidiaries, net (28) (1) (43) 4
Gain on sale of stock by equity investee
(note 3) 12 -- 12 --
Gain (loss) on disposition of assets 6 (1) 18 (2)
Other, net -- (10) (3) (15)
------ ----- ----- -----
(319) (263) (968) (735)
------ ----- ----- -----
Loss before income taxes (79) (41) (353) (75)
Income tax benefit 7 15 93 25
------ ----- ----- -----
Net loss (note 4) (72) (26) (260) (50)
Preferred stock dividend requirements (3) -- (7) --
------ ----- ----- -----
Net loss attributable to common
stockholder $ (75) (26) (267) (50)
====== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statement of Common Stockholder's Equity
Nine Months Ended September 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Unrealized
holding
gains for
available- Total
Additional for-sale Investment Intercompany common
Common stock paid-in securities, Accumulated in payable stockholder's
-------------------
Class A Class B capital net of taxes deficit TCI (receivable) equity
------- ------- ------------ ------------ ----------- ---------- ------------ ------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 1 -- 3,122 7 (370) (1,143) 112 1,729
Net loss -- -- -- -- (260) -- -- (260)
TCI Group common stock
issued and debt assumed
and subsequently repaid
by TCI on behalf of the
Company for acquisition
reflected as contribution -- -- 564 -- -- -- -- 564
Accreted dividends on
redeemable preferred stock -- -- (7) -- -- -- -- (7)
Change in unrealized
holding gains for
available-for-sale
securities, net of taxes -- -- -- (3) -- -- -- (3)
Intercompany liability
assumed by TCI
Communications, Inc. upon
contribution of
subsidiaries from TCI -- -- -- -- -- -- 137 137
Change in intercompany
payable/ receivable
-- -- -- -- -- -- (338) (338)
------ ------ ----- ---- ------ ------ ----- ------
Balance at September 30, 1996 $ 1 -- 3,679 4 (630) (1,143) (89) 1,822
====== ====== ===== ==== ====== ====== ===== ======
</TABLE>
I-4
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
--------------------
1996 1995
-------- --------
amounts in millions
(see note 2)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (260) (50)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,039 874
Compensation relating to stock appreciation rights -- 7
Adjustment to compensation relating to stock
appreciation rights (12) --
Share of losses of affiliates 150 34
Loss on early extinguishment of debt 73 --
Deferred income tax benefit (95) (32)
Minority interests in earnings (losses) 43 (4)
Gain on sale of stock by equity investee (12) --
Loss (gain) on disposition of assets (18) 2
Other noncash credits (5) (6)
Changes in operating assets and liabilities, net of the
effect of acquisitions:
Change in receivables 11 14
Change in accrued interest (59) (20)
Change in other accruals and payables (72) 35
------- -------
Net cash provided by operating activities 783 854
------- -------
Cash flows from investing activities:
Cash paid for acquisitions (35) (40)
Capital expended for property and equipment (1,433) (1,123)
Cash proceeds from disposition and exchanges of assets 139 25
Additional investments in and loans to affiliates and others (569) (736)
Repayment of loans by affiliates and others 318 8
Other investing activities (58) (62)
------- -------
Net cash used in investing activities (1,638) (1,928)
------- -------
Cash flows from financing activities:
Borrowings of debt 6,783 6,738
Repayments of debt (6,669) (5,523)
Prepayment penalties (60) --
Issuance of redeemable preferred stock 223 --
Issuance of Trust Securities 971 --
Payment of redeemable preferred stock dividends (5) --
Payment of dividends on subsidiary preferred stock and
Trust Securities (51) --
Change in intercompany payable/receivable (330) (147)
------- -------
Net cash provided by financing activities 862 1,068
------- -------
Net increase (decrease) in cash 7 (6)
Cash at beginning of period -- 6
------- -------
Cash at end of period $ 7 --
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
September 30, 1996
(unaudited)
(1) General
-------
The accompanying consolidated financial statements include the accounts of
TCI Communications, Inc. ("TCIC" or the "Company") and those of all
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. TCI owns 100% of the
Company's common stock.
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 for the year ended December 31, 1995.
TCIC, through its subsidiaries and affiliates, is principally engaged in
the construction, acquisition, ownership, and operation of cable television
systems. TCIC operates its cable television systems throughout the
continental United States and Hawaii through its four regional operating
divisions -- Central, Great Lakes, Southeast and West.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue
and expenses during the reporting period. Actual results could differ from
those estimates.
Certain amounts have been reclassified for comparability with the 1996
presentation.
In June 1996, TCIC announced its intention to pursue a tax-free spin-off
(the "Satellite Spin-Off") of its direct broadcast satellite subsidiary,
TCI Satellite Entertainment, Inc. ("SatCo"), to the holders of TCI Group
Stock. At the time of the Satellite Spin-Off, SatCo's assets and operations
will include TCIC's interest in PRIMESTAR Partners, L.P. ("Primestar") and
TCIC's business of distributing Primestar programming. Although there is no
assurance, the Satellite Spin-Off is anticipated to be completed in the
fourth quarter of 1996. Upon completion of the Satellite Spin-Off, SatCo's
operations will no longer be consolidated with TCIC's.
(continued)
I-6
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
On August 3, 1995, the TCI stockholders authorized the TCI Board of
Directors to issue a new class of stock ("Liberty Group Stock") which is
intended to reflect the separate performance of TCI's business unit which
produces and distributes cable television programming services,
("Liberty"). While the Liberty Group Stock constitutes common stock of
TCI, the issuance of the Liberty Group Stock did not result in any transfer
of assets or liabilities of TCI or any of its subsidiaries or affect the
rights of holders of TCI's or any of its subsidiaries' debt. On August 10,
1995, TCI distributed Liberty Group Stock representing one hundred percent
of the equity value attributable to Liberty to its security holders of
record on August 4, 1995. Additionally, the stockholders of TCI approved
the redesignation of the previously authorized TCI Class A and Class B
common stock into Series A TCI Group and Series B TCI Group common stock
("TCI Group Stock").
TCIC owns an aggregate of 189,867 shares of TCI Convertible Redeemable
Participating Preferred Stock, Series F ("Series F Preferred Stock"). Each
share of Series F Preferred Stock is convertible into 1,287.51 shares of
Series A TCI Group Stock. In addition, TCIC owns 100,524,364 shares of
Series A TCI Group Stock. Such ownership of Series F Preferred Stock and
Series A TCI Group Stock is reflected as investment in TCI in the
accompanying consolidated balance sheets.
In March of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement
No. 121"), effective for fiscal years beginning after December 15, 1995.
Statement No. 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement No. 121 effective January 1, 1996. Such adoption
did not have a significant effect on the financial position or results of
operations of the Company.
Pursuant to Statement No. 121, the Company periodically reviews the
carrying amount of its long-lived assets, franchise costs and certain other
assets to determine whether current events or circumstances warrant
adjustments to such carrying amounts. The Company considers historical and
expected future net operating losses to be its primary indicators of
potential impairment. Assets are grouped and evaluated for impairment at
the lowest level for which there are identifiable cash flows that are
largely independent of the cash flows of other groups of assets ("Assets").
The Company deems Assets to be impaired if the Company is unable to recover
the carrying value of such Assets over their expected remaining useful life
through a forecast of undiscounted future operating cash flows directly
related to the Assets. If Assets are deemed to be impaired, the loss is
measured as the amount by which the carrying amount of the Assets exceeds
their fair value. The Company generally measures fair value by considering
sales prices for similar assets or by discounting estimated future cash
flows. Considerable management judgment is necessary to estimate discounted
future cash flows. Accordingly, actual results could vary significantly
from such estimates.
(continued)
I-7
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
-----------------------------------------------------------------
Cash paid for interest was $819 million and $733 million for the nine
months ended September 30, 1996 and 1995, respectively. Also during these
periods, cash paid for income taxes was $6 million and $8 million,
respectively.
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1996 1995
-------- --------
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $4,249 2,784
Liabilities assumed, net of current assets (1,714) (266)
Deferred tax liability recorded in acquisitions (1,310) (920)
Minority interests in equity of acquired entities (626) 47
Common stock issued and debt assumed and
subsequently repaid by TCI on behalf of TCIC for
acquisition reflected as a contribution to TCIC (564) --
Common stock of TCI issued in acquisition
contributed to TCIC -- (234)
Increase in intercompany payable resulting
from common stock of TCI issued in acquisition -- (1,371)
------ ------
Cash paid for acquisitions $ 35 40
====== ======
Exchange of consolidated subsidiaries for
equity investment $ 274 --
====== ======
Change in unrealized gains, net of deferred
taxes, on available-for-sale securities $ 3 17
====== ======
Turner Broadcasting System, Inc. stock received
in acquisition transferred to Liberty $ -- 7
====== ======
Net assets of TCIC transferred in the
reorganization of TCI (the "Reorganization") in
exchange for TCI common stock reflected as
investment in TCI $ -- 12
====== ======
Net assets of TCIC transferred in the
Reorganization through intercompany $ -- 68
====== ======
Retirement of TCI Class A common stock
received in Reorganization $ -- 38
====== ======
Increase in deferred tax liability due to
implementation of Tax Sharing Agreement (see
note 7) $ -- 76
====== ======
</TABLE>
(continued)
I-8
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(3) Investments in Affiliates
-------------------------
Summarized unaudited results of operations for affiliates accounted for
under the equity method are as follows:
<TABLE>
<CAPTION>
Nine months ended
Combined Operations September 30,
------------------- -------------------
1996 1995
------ ------
amounts in millions
<S> <C> <C>
Revenue $ 540 329
Operating expenses (644) (303)
Depreciation and amortization (73) (61)
----- -----
Operating loss (177) (35)
Interest expense (29) (22)
Other, net (31) (6)
----- -----
Net loss $(237) (63)
===== =====
</TABLE>
TCIC has various investments accounted for under the equity method. The
most significant investment held by TCIC at September 30, 1996 was its
investment in a partnership ("Sprint Spectrum"), formed by TCIC, Comcast
Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and Sprint
Corporation ("Sprint") (carrying value of $783 million). See note 8.
Additionally, TCIC has investments in Intermedia Capital Partners IV L.P.
(carrying value of $287 million) and Teleport Communications Group, Inc.
("TCG") (carrying value of $277 million).
TCG, a competitive local exchange carrier, conducted an initial public
offering (the "TCG IPO") on July 2, 1996 in which it sold 27,025,000 shares
of Class A common stock at $16.00 per share to the public for aggregate net
proceeds of approximately $410,000,000. As a result of the TCG IPO, TCIC's
ownership interest in TCG was reduced from approximately 35% to
approximately 31%. Accordingly, TCIC recognized a gain amounting to $12
million (before deducting deferred income tax expense of approximately $5
million).
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) Acquisition
-----------
On July 31, 1996, pursuant to certain agreements entered into among TCIC,
TCI, Viacom International, Inc. and Viacom, Inc. ("Viacom"), TCIC acquired
all of the common stock of a subsidiary of Viacom ("Cable Sub") which owned
Viacom's cable systems and related assets (the "Viacom Acquisition").
(continued)
I-9
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The transaction was structured as a tax-free reorganization in which Cable
Sub 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"). Cable Sub 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 Cable Sub. Following these transfers,
Cable Sub 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 Viacom 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 Cable Sub
("Cable Sub Class A Stock"). Immediately following the completion of the
Exchange Offer, TCIC acquired from Cable Sub shares of Cable Sub Class B
Common Stock (the "Share Issuance") for $350 million (which was used to
reduce Cable Sub's obligations under the Loan Facility). At the time of
the Share Issuance, the Cable Sub 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 Cable Sub with a stated value of $100 per share (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 Stock.
The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of Cable Sub have been consolidated
with those of TCIC since the date of acquisition. On a pro forma basis,
TCIC's revenue and net loss would have been increased by $276 million and
$57 million, respectively, for the nine months ended September 30, 1996;
and revenue and net loss would have been increased by $327 million and $90
million, respectively, for the nine months ended September 30, 1995 had
Cable Sub been consolidated with TCIC on January 1, 1995. The foregoing
unaudited pro forma financial information is 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
Cable Sub since January 1, 1995.
(continued)
I-10
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(5) Debt
----
Debt is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- --------------
amounts in millions
<S> <C> <C>
Parent company debt:
Notes payable $ 8,055 6,713
Bank credit facilities -- 179
Commercial paper 1,179 1,440
Other debt -- 1
------- -------
9,234 8,333
Debt of subsidiaries:
Bank credit facilities 4,331 3,258
Notes payable 838 934
Convertible notes (a) 43 45
Commercial paper -- 29
Other debt 45 36
------- -------
$14,491 12,635
======= =======
</TABLE>
(a) These convertible notes, which are stated net of unamortized discount
of $181 million and $186 million at September 30, 1996 and December
31, 1995, respectively, mature on December 18, 2021. The notes require
(so long as conversion of the notes has not occurred) an annual
interest payment through 2003 equal to 1.85% of the face amount of the
notes. The notes are convertible, at the option of the holders, into
shares of Series A TCI Group Stock and Series A Liberty Group Stock.
During the nine months ended September 30, 1996, TCIC redeemed certain
notes payable which had an aggregate principle balance of $809 million and
fixed interest rates ranging from 8.67% to 10.44% (the "Redemption"). In
connection with the Redemption, TCIC recognized a loss on early
extinguishment of debt of $62 million. Such loss related to prepayment
penalties amounting to $60 million and the retirement of deferred loan
costs.
During the nine months ended September 30, 1996, TCIC terminated, at its
option, certain revolving bank credit facilities with aggregate commitments
of approximately $2 billion and refinanced certain other bank credit
facilities. In connection with such termination and refinancings, TCIC
recognized a loss on early extinguishment of debt of $11 million related to
the retirement of deferred loan costs.
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 dividend
payments.
As security for borrowings under one of TCIC's bank credit facilities, TCIC
has pledged 100,524,364 shares of Series A TCI Group Stock held by a
subsidiary of TCIC.
(continued)
I-11
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The fair value of TCIC's debt is estimated based on current 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 $14,491 million, was $14,888 million at September 30,
1996.
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 9.3% on notional amounts of $460
million at September 30, 1996 and (ii) variable interest rates (the
"Variable Rate Agreements") on notional amounts of $2,450 million at
September 30, 1996. During the nine months ended September 30, 1996 and
1995, TCIC's net payments pursuant to the Fixed Rate Agreements were $3
million and $1 million, respectively; and TCIC's net receipts pursuant to
the Variable Rate Agreements were $11 million and less than $1 million,
respectively.
TCIC's Fixed Rate Agreements and Variable Rate Agreements expire as follows
(dollar amounts in millions):
<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>
November 1996 8.9% $150 April 1997 7.0% $ 200
October 1997 7.2%-9.3% 80 September 1998 4.8%-5.4% 450
December 1997 8.7% 230 April 1999 7.4% 100
----
September 1999 7.2%-7.4% 300
$460 February 2000 5.8%-6.6% 650
====
March 2000 5.8%-6.0% 675
September 2000 5.1% 75
------
$2,450
======
</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
September 30, 1996, taking into consideration current interest rates and
assuming the current creditworthiness of the counterparties. TCIC would
pay an estimated $33 million at September 30, 1996 to terminate the
agreements.
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.
(continued)
I-12
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(6) Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
---------------------------------------------------------------------------
Trusts Holding Solely Subordinated Debt Securities of the Company
-----------------------------------------------------------------
In January 1996, TCI Communications Financing I ("Trust I"), a wholly-owned
subsidiary of the Company, issued $16 million in common securities to the
Company and issued $500 million of 8.72% Trust Originated Preferred
Securitiessm (the "Trust I Preferred Securities" and together with the
common securities, the "Trust I Securities") to the public. Trust I exists
for the exclusive purpose of issuing Trust I Securities and investing the
proceeds thereof into an aggregate principal amount of $516 million of
8.72% Subordinated Deferrable Interest Notes due January 31, 2045 (the
"8.72% Subordinated Debt Securities") of the Company. The 8.72%
Subordinated Debt Securities are unsecured obligations of the Company and
are subordinate and junior in right of payment to certain other
indebtedness of the Company. Upon redemption of the 8.72% Subordinated
Debt Securities, the Trust I Preferred Securities will be mandatorily
redeemable. The Company effectively provides a full and unconditional
guarantee of Trust I's obligations under the Trust I Preferred Securities.
In May 1996, TCI Communications Financing II ("Trust II"), a wholly-owned
subsidiary of the Company, issued $16 million in common securities to the
Company, and issued $500 million of 10% Trust Preferred Securities (the
"Trust II Preferred Securities" and together with the common securities,
the "Trust II Securities") to the public. Trust II exists for the
exclusive purposes of issuing Trust II Securities and investing the
proceeds thereof into an aggregate principal amount of $516 million of 10%
Subordinated Deferrable Interest Notes due May 31, 2045 (the "10%
Subordinated Debt Securities") of the Company. The 10% Subordinated Debt
Securities are unsecured obligations of the Company and are subordinate and
junior in right of payment to certain other indebtedness of the Company.
Upon redemption of the 10% Subordinated Debt Securities, the Trust II
Preferred Securities will be mandatorily redeemable. The Company
effectively provides a full and unconditional guarantee of Trust II's
obligations under the Trust II Preferred Securities.
The Trust I and Trust II Preferred Securities are presented together in a
separate line item in the accompanying consolidated balance sheet captioned
"Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely subordinated debt securities of the
Company." Dividends accrued on the Trust I and Trust II Preferred
Securities are included in minority interests in losses (earnings) of
consolidated subsidiaries in the accompanying consolidated financial
statements.
(continued)
I-13
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(7) Transactions with Related Parties
---------------------------------
A tax sharing agreement (the "Tax Sharing Agreement") among TCIC and
certain other subsidiaries of TCI was implemented effective July 1, 1995.
The Tax Sharing Agreement formalizes certain elements of pre-existing tax
sharing arrangements and contains additional provisions regarding the
allocation of certain consolidated income tax attributes and the settlement
procedures with respect to the intercompany allocation of current tax
attributes. The Tax Sharing Agreement encompasses U.S. Federal, state,
local and foreign tax consequences and relies upon the U.S. Internal
Revenue Code of 1986 as amended, and any applicable state, local and
foreign tax law and related regulations. Beginning on the July 1, 1995
effective date, TCIC is responsible to TCI for its share of current
consolidated income tax liabilities. TCI will be responsible to TCIC to
the extent that TCIC's income tax attributes generated after the effective
date are utilized by TCI to reduce its consolidated income tax liabilities.
Accordingly, all tax attributes generated by TCIC's operations after the
effective date including, but not limited to, net operating losses, tax
credits, deferred intercompany gains, and the tax basis of assets are
inventoried and tracked for the entities comprising TCIC.
TCIC purchases sports and other programming from certain subsidiaries of
Liberty. Charges to TCIC (which are based upon customary rates charged to
others) for such programming were $61 million and $53 million for the nine
months ended September 30, 1996 and 1995, respectively. Such amounts are
included in operating expenses in the accompanying consolidated statements
of operations. In April of 1996, certain of such Liberty subsidiaries were
contributed to a newly formed joint venture, of which Liberty owns a 50%
interest.
Liberty leases satellite transponder facilities from TCIC. Charges by TCIC
for such arrangements for the nine month periods ended September 30, 1996
and 1995, aggregated $9 million and $11 million, respectively.
TCI Starz, Inc., a subsidiary of TCI, has a 50.1% general partnership
interest in QE+ Ltd Limited Partnership ("QE+"), which distributes STARZ!,
a first-run movie premium programming service. Liberty holds the remaining
49.9% partnership interest.
TCIC has entered into a long-term affiliation agreement with QE+ related to
the distribution of the STARZ! service. Rates per subscriber specified in
the agreement are based upon customary rates charged to other cable system
operators. Payments to QE+ for the nine months ended September 30, 1996
and 1995 were approximately $38 million and $22 million, respectively. The
affiliation agreement also provides that QE+ will not grant materially more
favorable terms and conditions to other cable system operators unless such
more favorable terms and conditions are made available to TCIC. The
affiliation agreement also requires TCIC to make payments to QE+ with
respect to a guaranteed minimum number of subscribers totaling
approximately $339 million for the years 1996, 1997 and 1998.
(continued)
I-14
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
At September 30, 1996, TCIC had a $170 million intercompany receivable from
TCI Starz, Inc. which represented the net effect of advances to TCI Starz,
Inc., who in turn paid such amounts to QE+, offset by TCIC's purchase of
programming from QE+. Such receivable is non-interest bearing for five
years from the date of the advances.
A consolidated subsidiary of Liberty, Home Shopping Network, Inc., pays a
commission to TCIC for merchandise sales to customers who are subscribers
of TCIC's cable systems. Aggregate commissions to TCIC were $5 million for
each of the nine month periods ended September 30, 1996 and 1995. Such
amounts are recorded in revenue in the accompanying consolidated statements
of operations.
Tele-Communications International, Inc. ("TINTA") has indemnified TCIC for
any loss, claim or liability that TCIC may incur by reason of certain
guarantees and credit enhancements made by TCIC on TINTA's behalf.
Intercompany amounts at September 30, 1996 represent non-interest bearing
intercompany advances, net aggregating $200 million from certain
subsidiaries of TCI offset by the aforementioned $170 million intercompany
receivable from TCI Starz, Inc. and interest-bearing loans to certain
subsidiaries of TCI. Such interest-bearing loans plus accrued interest
aggregated $119 million and $134 million at September 30, 1996 and December
31, 1995, respectively. Interest earned by TCIC on such intercompany loans
aggregated $9 million for each of the nine month periods ended September
30, 1996 and 1995. Such interest amounts are included in interest income
in the accompanying consolidated statements of operations.
(8) Commitments and Contingencies
-----------------------------
TCIC, Comcast, Cox and Sprint are partners in Sprint Spectrum, a
partnership formed to engage in the business of providing wireless
communications services on a nationwide basis. TCIC owns a 30% interest in
Sprint Spectrum. Sprint Spectrum was the successful bidder for personal
communications services ("PCS") licenses for 29 markets in an auction
conducted by the Federal Communications Commission ("FCC") that ended in
March 1995. The aggregate license cost for these licenses was approximately
$2.1 billion, all of which has been paid. Sprint Spectrum may elect to bid
in subsequent auctions of PCS licenses and/or acquire PCS licenses from
other holders, has invested in an entity ("APC") which holds the PCS
license for the Washington-Baltimore market, has agreed to invest in the
entity that will hold the PCS license for the Los Angeles-San Diego market,
and may invest in other entities that hold PCS licenses. Subsidiaries of
Cox, Sprint and TCIC are also partners in a partnership ("PhillieCo") that
holds a PCS license for the Philadelphia market which was acquired at a
license cost of $85 million. TCIC has a 35.3% interest in PhillieCo.
(continued)
I-15
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The capital that Sprint Spectrum will require to fund the construction of
the PCS systems, in addition to the license costs and investments described
above, will be substantial. Pursuant to the business plan adopted by the
partners in Sprint Spectrum for the build out of Sprint Spectrum's
nationwide network, the partners are obligated to make additional cash
capital contributions to Sprint Spectrum in the aggregate amount of
approximately $1.9 billion during the two-year period that commenced
January 1, 1996. TCIC has agreed to contribute approximately $0.6 billion
of such aggregate amount, $0.2 billion of which was contributed during the
nine months ended September 30, 1996. The business plan contemplates that
Sprint Spectrum will require additional equity thereafter.
TCIC has guaranteed notes payable and other obligations of affiliated and
other companies with outstanding balances of approximately $205 million at
September 30, 1996. 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 fulfill any of such obligations, that
they will not be material to TCIC.
In connection with the launch of STARZ!, TCIC became a direct obligor or
guarantor of the payment of certain amounts that may be due pursuant to
motion picture output, distribution, and license agreements. As of
September 30, 1996, the amount of such obligations or guarantees was
approximately $151 million. The future obligations of TCIC with respect to
these agreements is not currently determinable because such amount is
dependent upon certain variable factors.
Certain key employees of the Company hold restricted stock awards and
options with tandem SARs to acquire shares of TCI and certain TCI
subsidiaries' common stock. Estimates of the compensation related to the
restricted stock awards and options and/or SARs have been recorded in the
accompanying consolidated financial statements, but are subject to future
adjustment based upon the market value of the respective common stock and,
ultimately, on the final market value when the rights are exercised or the
restricted stock awards are vested.
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-16
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Management's Discussion and Analysis of
- ---------------------------------------
Financial Condition and Results of Operations
---------------------------------------------
The following discussion and analysis should be read in conjunction with
the Company's Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. The following discussion focuses on material
changes in the trends, risks and uncertainties affecting the Company's results
of operations and financial condition.
(1) Material changes in financial condition:
----------------------------------------
TCIC, Comcast, Cox and Sprint are partners in Sprint Spectrum which was
formed to engage in the business of providing wireless communications services
on a nationwide basis. TCIC owns a 30% interest in Sprint Spectrum. Sprint
Spectrum was the successful bidder for PCS licenses for 29 markets in an auction
conducted by the FCC that ended in March 1995. The aggregate license cost for
these licenses was approximately $2.1 billion, all of which has been paid.
Sprint Spectrum may elect to bid in subsequent auctions of PCS licenses and/or
acquire PCS licenses from other holders, has invested in APC which holds the PCS
license for the Washington-Baltimore market, has agreed to invest in the entity
that will hold the PCS license for the Los Angeles-San Diego market, and may
invest in other entities that hold PCS licenses. Subsidiaries of Cox, Sprint
and TCIC are also partners in PhillieCo that holds a PCS license for the
Philadelphia market which was acquired at a license cost of $85 million. TCIC
has a 35.3% interest in PhillieCo.
The capital that Sprint Spectrum will require to fund the construction of
the PCS systems, in addition to the license costs and investments described
above, will be substantial. Pursuant to the business plan adopted by the
partners in Sprint Spectrum for the build out of Sprint Spectrum's nationwide
network, the partners are obligated to make additional cash capital
contributions to Sprint Spectrum in the aggregate amount of approximately $1.9
billion during the two-year period that commenced January 1, 1996. TCIC has
agreed to contribute approximately $0.6 billion of such aggregate amount, $0.2
billion of which was contributed during the nine months ended September 30,
1996. The business plan contemplates that Sprint Spectrum will require
additional equity thereafter.
On July 31, 1996, TCIC consummated the Viacom Acquisition whereby TCIC
acquired all of the common stock of Cable Sub which owned Viacom's cable systems
and related assets.
The transaction was structured as a tax-free reorganization in which Cable
Sub initially transferred all of its non-cable assets, as well as all of its
liabilities other than current liabilities, to New Viacom Sub. Cable Sub also
transferred to New Viacom Sub the proceeds of the Loan Facility. Following these
transfers, Cable Sub 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.
(continued)
I-17
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(1) Material changes in financial condition (continued):
----------------------------------------------------
Prior to the consummation of the Viacom Acquisition, Viacom offered to the
holders of Viacom Common Stock the opportunity to exchange a portion of their
shares of Viacom Common Stock for shares of Cable Sub Class A Stock. Immediately
following the completion of the Exchange Offer, TCIC acquired from Cable Sub
shares of Cable Sub Class B Common Stock for $350 million. At the time of the
Share Issuance, the Cable Sub Class A Stock received by Viacom stockholders
pursuant to the Exchange Offer automatically converted into Exchangeable
Preferred Stock. For additional discussion of the Viacom Acquisition, see note 4
to the accompanying consolidated financial statements.
During the nine months ended September 30, 1996, the Company issued (i) 4.6
million shares of Series A Cumulative Exchangeable Preferred Stock in a public
offering for net cash proceeds of $223 million and (ii) $2.06 billion of
publicly-placed senior and medium term notes with interest rates ranging from
6.2% to 7.9% and maturity dates ranging through 2026. In addition, subsidiaries
of the Company (special purpose entities formed as Delaware business trusts)
issued 20 million preferred securities of 8.72% Trust Originated Preferred
Securities for net cash proceeds of $486 million and 20 million preferred
securities of 10% Trust Preferred Securities for net cash proceeds of $485
million. The Company used the proceeds from the aforementioned debt and equity
issuances to retire overnight commercial paper and to repay certain variable and
fixed-rate indebtedness. In connection with the prepayment of certain fixed-rate
indebtedness, TCIC recognized a loss on early extinguishment of debt of $62
million. Such loss related to prepayment penalties amounting to $60 million and
the retirement of deferred loan costs.
The Company has a credit facility which matures in September of 1997. The
outstanding balance of such facility was $387 million at September 30, 1996. The
Company currently anticipates that it will refinance such borrowings, but there
can be no assurance that it can do so on terms acceptable to the Company.
During the second quarter of 1996, the Company terminated, at its option,
certain revolving bank credit facilities with aggregate commitments of
approximately $2 billion. In connection with such termination, TCIC recognized a
loss on early extinguishment of debt of $4 million. Such loss related to the
retirement of deferred loan costs. The Company does not believe that such
termination will adversely affect its future liquidity. At September 30, 1996,
subsidiaries of the Company had approximately $1.7 billion of availability under
lines of credit, 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 such
restrictive covenants (which relate primarily to the maintenance of certain
ratios of cash flow to total debt and cash flow to debt service, as defined in
the credit facilities). See note 5 to the accompanying consolidated financial
statements for additional information regarding the material terms of the
subsidiaries' lines of credit.
(continued)
I-18
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(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)($1,642 million and $1,541 million, for the nine months ended
September 30, 1996 and 1995, respectively) to interest expense ($760 million and
$713 million, for the nine months ended September 30, 1996 and 1995,
respectively), is determined by reference to the consolidated statements of
operations. The Company's interest coverage ratio was 216% for each of the nine
month periods ended September 30, 1996 and 1995. 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 ($783 million and $854 million for the nine
months ended September 30, 1996 and 1995, 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, and 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.
In late April 1996, TCIC was notified by Moody's Investors Service, Inc.
and Duff & Phelps Credit Rating Co. that those rating agencies had downgraded by
one level their respective ratings of TCIC's senior debt to the first level
below investment grade. Fitch Investors Service, L.P. reaffirmed its rating for
TCIC's senior debt at the last level of investment grade. On October 18, 1996,
Standard & Poor's Securities, Inc. ("Standard & Poor's") issued a press release
stating that TCIC's senior debt would be placed on CreditWatch with negative
implications. TCIC's senior debt is currently rated BBB- by Standard & Poor's
(the last level of investment grade). A downgrade by Standard & Poor's of TCIC's
senior debt would lower such debt to the first level below investment grade.
These actions are expected to marginally increase TCIC's cost of borrowings
under certain bank credit facilities, and may adversely affect TCIC's access to
the public debt market and its overall cost of future borrowings.
(continued)
I-19
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(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. Pursuant to the interest rate exchange agreements, the Company pays
(i) fixed interest rates ranging from 7.2% to 9.3% on notional amounts of $460
million at September 30, 1996 and (ii) variable interest rates on notional
amounts of $2,450 million at September 30, 1996. During the nine months ended
September 30, 1996 and 1995, the Company's net payments pursuant to its fixed
rate exchange agreements were $3 million and $1 million, respectively; and the
Company's net receipts pursuant to the variable rate agreements were $11 million
and less than $1 million, respectively. 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.
TCIC has guaranteed notes payable and other obligations of affiliated and
other companies with outstanding balances of approximately $205 million at
September 30, 1996. 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.
In connection with the launch of STARZ!, TCIC became a direct obligor or
guarantor of the payment of certain amounts that may be due pursuant to motion
picture output, distribution, and license agreements. As of September 30, 1996,
the amount of such obligations or guarantees was approximately $151 million. The
future obligations of TCIC with respect to these agreements is not currently
determinable because such amount is dependent upon certain variable factors.
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:
-----------------------------------------
Revenue
-------
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (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 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. The regulations established bench mark
rates in 1993, which were further reduced in 1994, to which the rates charged by
cable operators for Regulated Services were required to conform.
(continued)
I-20
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(2) Material changes in results of operations (continued):
------------------------------------------------------
TCIC reduced its rates in 1993 and 1994 and limited its rate increases in
1995 and 1996 in response to FCC regulations. 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 by
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 one year prior to the implementation of the rate reductions.
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Telecom
Act") was signed into law. Because the 1996 Telecom Act does not deregulate
cable programming service tier rates until 1999 (and basic service tier rates
will remain regulated thereafter), 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 26% and 22% for the three months and nine months ended
September 30, 1996, respectively, as compared to the corresponding periods of
1995. In TCIC's regulated cable systems, TCIC implemented rate increases for
its Regulated Services in June 1996. As allowed by FCC regulations, such rate
increases include amounts intended to recover increased programming costs
incurred during the first five months of 1996 and not previously recovered, as
well as interest on said amounts.
The increase in revenue for the three months ended September 30, 1996 is
due to the effect of certain acquisitions (including the Viacom Acquisition)
(12%), increases in the rates charged to TCIC's subscribers due to inflation,
programming cost increases (as discussed above) and channel additions (5%),
growth in TCIC's satellite subscribers (4%), growth in subscriber levels within
TCIC's cable television systems (3%) and growth in advertising sales and other
revenue (2%).
The increase in revenue for the nine months ended September 30, 1996 is due
to the effect of certain acquisitions (including the Viacom Acquisition) (7%),
increases in the rates charged to TCIC's subscribers due to inflation,
programming cost increases (as discussed above) and channel additions (6%),
growth in TCIC's satellite subscribers (5%), growth in subscriber levels within
TCIC's cable television systems (2%) and growth in advertising sales and other
revenue (2%).
Included in TCIC's total revenue is revenue generated by TCIC's common
carrier microwave assets amounting to $74 million and $57 million for the nine
months ended September 30, 1996 and 1995, respectively, and $25 million and $20
million for the three months ended September 30, 1996 and 1995, respectively.
(continued)
I-21
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(2) Material changes in results of operations (continued):
------------------------------------------------------
Operating Costs and Expenses
----------------------------
Operating expenses increased 31% and 28% for the three months and nine
months ended September 30, 1996, respectively, as compared to the corresponding
periods of 1995. Exclusive of the effects of acquisitions (12% and 7%) and
Primestar (3% and 5%) (see discussion below), such expenses increased 16% for
each period. Programming costs and salary expenses represented the majority of
such increases. TCIC cannot determine whether and to what extent increases in
the cost of programming will affect its future operating costs. However, such
programming costs have increased at a greater percentage than increases in
revenue of Regulated Services.
Selling general and administrative expenses ("SG&A") increased 39% and 37%
for the three months and nine months ended September 30, 1996, respectively, as
compared to the corresponding periods of 1995. Exclusive of the effects of
acquisitions (11% and 7%) and Primestar (10% and 13%) (see discussion below),
SG&A increased 18% and 17%, respectively. Such increases are due primarily to
salaries and related payroll expenses and those expenses that vary with revenue
and/or subscribers. Additionally, during the nine months ended September 30,
1996 and 1995, the Company incurred $34 million and $14 million, respectively,
of costs related to newly created material support centers, initiatives to
improve its customer service and the continued redesign of its computer and
accounting systems.
TCIC has an interest in Primestar, which provides programming and marketing
support to its partners who distribute a multi-channel programming service via a
medium power communications satellite to home satellite dish owners. During the
three months and nine months ended September 30, 1996, TCIC's revenue and
expenses related to such satellite service increased significantly over the
corresponding periods in 1995, as the number of TCIC's Primestar subscribers
increased from approximately 370,000 subscribers at September 30, 1995 to
approximately 735,000 subscribers at September 30, 1996. During the three
months ended September 30, 1996, revenue increased from $59 million to $110
million and operating, selling, general and administrative expenses increased
from $54 million to $108 million, as compared to the three months ended
September 30, 1995. During the nine months ended September 30, 1996, revenue
increased from $120 million to $304 million and operating, selling, general and
administrative expenses increased from $111 million to $295 million, as compared
to the nine months ended September 30, 1995. TCIC incurs significant sales
commission and installation costs when customers initially subscribe. Therefore,
as long as TCIC continues to launch this new service and increase its Primestar
subscriber base at such a rapid pace, management expects operating costs and
expenses will increase as well.
(continued)
I-22
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(2) Material changes in results of operations (continued):
------------------------------------------------------
In June 1996, TCIC announced its intention to pursue a tax-free spin-off of
SatCo to the holders of TCI Group Stock. At the time of the Satellite Spin-Off,
SatCo's assets and operations will include TCIC's interest in Primestar and
TCIC's business of distributing Primestar programming. Although there is no
assurance, the Satellite Spin-Off is anticipated to be completed in the fourth
quarter of 1996. Upon completion of the Satellite Spin-Off, SatCo's operations
will no longer be consolidated with TCIC's.
The increase in TCIC's depreciation expense in 1996 is due to acquisitions,
as well as increased capital expenditures (which amounted to $1,433 million for
the nine months ended September 30, 1996) incurred to upgrade and install
optical fiber technology in TCIC's cable systems. The increase in amortization
expense in 1996 is due to acquisitions.
The Company records compensation relating to stock appreciation rights and
restricted stock awards granted to certain employees. Such compensation is
subject to future adjustment based upon market value, and ultimately, on the
final determination of market value when the rights are exercised or the
restricted stock awards are vested.
Other Income (Expense) and Net Loss
-----------------------------------
Included in share of losses of affiliates for the three months and nine
months ended September 30, 1996 is $33 million and $112 million, respectively,
attributable to Sprint Spectrum. Such amount for the nine month period includes
$34 million associated with prior periods.
Minority interests in earnings of consolidated subsidiaries primarily
represents dividends on Trust Securities. Such dividends amounted to $23
million and $47 million for the three months and nine months ended September 30,
1996, respectively. See note 6 to the accompanying consolidated financial
statements.
As a result of the TCG IPO, the Company recognized a gain of $12 million
during the third quarter of 1996. There is no assurance that the Company will
realize similar gains in future periods. See note 3 to the accompanying
consolidated financial statements.
TCIC's net loss (before preferred stock dividend requirements) increased
from $26 million for the three months ended September 30, 1995 to $72 million
for the three months ended September 30, 1996. TCIC's net loss (before
preferred stock dividend requirements) increased from $50 million for the nine
months ended September 30, 1995 to $260 million for the nine months ended
September 30, 1996. Such increases are primarily the result of the
aforementioned increases in depreciation and amortization expense, the
aforementioned share of losses from Sprint Spectrum, the dividends on Trust
Securities discussed above, the loss on early extinguishment of debt resulting
primarily from the prepayment of certain fixed-rate indebtedness and an increase
in interest expense due to higher interest rates and debt levels.
I-23
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
- ------ -----------------
There were no new material legal proceedings or material developments in
previously reported legal proceedings during the quarter ended September
30, 1996 to which TCIC or any of its consolidated subsidiaries is a party
or of which any of its property is the subject, except as follows:
Cooper, et al. v. UCTC of Baltimore, Inc., et al.
-------------------------------------------------
On October 24, 1994, plaintiffs, three current employees of United Cable
Television of Baltimore Limited Partnership and two spouses of such current
employees, filed suit in the Circuit Court for Baltimore City against UCTC
of Baltimore, Inc., United Cable Television of Baltimore Limited
Partnership, TCI East, Inc. and Tele-Communications, Inc. The suit
alleged, inter alia, eight various tort claims, including assault, false
----- ----
imprisonment, intentional infliction of emotional distress, invasion of
privacy by intrusion, invasion of privacy by false light, defamation by
slander, defamation by libel and loss of consortium in connection with an
incident that occurred October 26, 1993, at the Baltimore system. Each
plaintiff sought $1,000,000 compensatory damages and $5,000,000 punitive
damages per count. The loss of consortium claim was limited to four of the
five plaintiffs. On November 1, 1994, plaintiffs also filed an action in
United States District Court for the District of Maryland alleging
discrimination on the basis of race in violation of 42 U.S.C. (S)1981 and
loss of consortium. Both counts sought $1,000,000 in compensatory damages
and $5,000,000 in punitive damages for each plaintiff (the loss of
consortium claim is limited to four of the five plaintiffs). The parties
have agreed to a settlement in principle. Such settlement represents the
final resolution of this matter, and accordingly, it will not be reported
in future filings.
Miles Whittenburg, Jr., et al., v. Tele-Communications, Inc., et al.
--------------------------------------------------------------------
On April 9, 1994, plaintiffs, six current employees of United Cable
Television of Baltimore Limited Partnership and four spouses, filed suit in
the Circuit Court for Baltimore City against Tele-Communications, Inc., TCI
East, Inc., UCTC of Baltimore, Inc., and United Cable Television of
Baltimore Limited Partnership. The suit alleged, inter alia, nine various
----------
tort claims, including but not limited to, false imprisonment, assault,
battery, intentional infliction of emotional distress, invasion of privacy
by intrusion, invasion of privacy by false light, defamation by slander,
defamation by libel, and loss of consortium in connection with an incident
that occurred October 26, 1993, at the Baltimore system. Each of the nine
counts in the complaint sought compensatory damages of $1,000,000 per
plaintiff, and punitive damages of $5,000,000 per plaintiff. On October
24, 1994, plaintiffs also filed in the United States District Court for the
District of Maryland, a lawsuit containing claims of discrimination on the
basis of race in violation of 42 U.S.C. (S)1981 and loss of consortium.
Both counts sought compensatory damages of $1,000,000 per plaintiff and
punitive damages of $5,000,000 per plaintiff. The loss of consortium
claims applied to eight of the plaintiffs. The parties have agreed to a
settlement in principle. Such settlement represents the final resolution
of this matter, and accordingly, it will not be reported in future filings.
(continued)
II-1
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
- ------ -----------------------------
Elmer Lewis v. Tele-Communications, Inc., et al.
------------------------------------------------
On June 23, 1994, plaintiff filed suit in the United States District Court
for the District of Maryland against Tele-Communications, Inc., TCI East,
Inc., UCTC of Baltimore, Inc. and United Cable Television of Baltimore
Limited Partnership. On August 2, 1994, the suit was consolidated for all
purposes with Tyrone Belgrave, et al. v. Tele-Communications, Inc. et al.
The suit alleged, inter alia, false imprisonment, assault, employment
----------
defamation, intentional infliction of emotional distress, unreasonable
intrusion upon seclusion, invasion of privacy by false light, wrongful
discharge and discrimination on the basis of race. The complaint also
seeks divestiture of the Baltimore City cable franchise from the Company.
Each of the ten counts in the complaint sought compensatory damages of
$1,000,000 and punitive damages of $5,000,000. In a decision dated October
3, 1994, the Court granted defendants' motion to dismiss the intentional
infliction of emotional distress, unreasonable intrusion upon seclusion,
invasion of privacy by false light, wrongful discharge and violation of
cable franchise agreement claims. On February 4, 1995, the federal court
dismissed the federal claims without prejudice and remanded the remaining
state claims to Circuit Court for Baltimore City. On February 14, 1995,
Lewis and his spouse filed an amended complaint in Circuit Court for
Baltimore City against the current defendants (the amended complaint was
consolidated with the Belgrave and Fannell plaintiffs). Lewis alleged
-------- -------
assault, civil conspiracy to commit assault, battery, civil conspiracy to
commit battery, false imprisonment, civil conspiracy to commit false
imprisonment, intentional infliction of emotional distress, civil
conspiracy to intentionally inflict emotional distress, invasion of privacy
by intrusion, civil conspiracy to commit invasion of privacy by intrusion,
defamation, civil conspiracy to defame, invasion of privacy by false light,
and civil conspiracy to commit invasion of privacy by false light. Lewis
and his spouse also allege loss of consortium. Each claim sought
$1,000,000 in compensatory damages and $5,000,000 in punitive damages per
plaintiff. The parties have agreed to a settlement in principle. Such
settlement represents the final resolution of this matter, and accordingly,
it will not be reported in future filings.
(continued)
II-2
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
- ------ -----------------------------
Tyrone Belgrave, et al., v. Tele-Communications, Inc., et al.
-------------------------------------------------------------
On February 8, 1994, Tyrone Belgrave and 26 other current or former
employees of United Cable Television of Baltimore Limited Partnership filed
suit in the Circuit Court for Baltimore City against Tele-Communications,
Inc., TCI East, Inc., UCTC of Baltimore, Inc., and United Cable Television
of Baltimore Limited Partnership. The action alleged, inter alia, false
imprisonment, assault, employment defamation, intentional infliction of
emotional distress, unreasonable intrusion upon seclusion, invasion of
privacy by false light, wrongful discharge and discrimination on the basis
of race. The complaint also sought divestiture of the Baltimore City cable
franchise from the Company. Six counts in the complaint each sought
compensatory damages of $1,000,000 per plaintiff, and punitive damages of
$5,000,000 per plaintiff. Three other counts in the complaint each sought
compensatory damages for $1,000,000 per plaintiff and punitive damages of
$5,000,000 per plaintiff. On March 29, 1994, the defendants removed the
case to the United States District Court for the District of Maryland. In a
decision dated October 3, 1994, the Court granted defendants motion to
dismiss the intentional infliction of emotional distress, unreasonable
intrusion upon seclusion, invasion of privacy by false light, wrongful
discharge and violation of cable franchise agreement claims. On February 9,
1995, the federal court dismissed the federal claims without prejudice and
remanded the remaining state claims to the Circuit Court for Baltimore
City. On February 14, 1995, 37 persons (the 27 original plaintiffs and 10
spouses of plaintiffs) filed an amended complaint in Circuit Court for
Baltimore City against the current defendants. (The amended complaint was
consolidated with the Lewis and Fannell plaintiffs). The 27 existing
plaintiffs alleged assault, civil conspiracy to commit assault, battery,
civil conspiracy to commit battery, false imprisonment, civil conspiracy to
commit false imprisonment, intentional infliction of emotional distress,
civil conspiracy to intentionally inflict emotional distress, invasion of
privacy by intrusion, civil conspiracy to commit invasion of privacy by
intrusion, defamation, civil conspiracy to defame, invasion of privacy by
false light, and civil conspiracy to commit invasion of privacy by false
light. Ten existing plaintiffs and their spouses alleged loss on
consortium. Ten existing plaintiffs also alleged wrongful discharge and
civil conspiracy to wrongfully terminate. Each claim sought $1,000,000 in
compensatory damages and $5,000,000 in punitive damages per plaintiff. The
parties have agreed to a settlement in principle. Such settlement
represents the final resolution of this matter, and accordingly, it will
not be reported in future filings.
(continued)
II-3
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
- ------ -----------------------------
Euan Fannell v. Tele-Communications, Inc., et al.
------------------------------------------------
On February 8, 1994, Euan Fannell, the former general manager of UCTC of
Baltimore, Inc. filed suit in the Circuit Court for Baltimore City against
Tele-Communications, Inc., TCI East, Inc., UCTC of Baltimore, Inc., and
United Cable Television of Baltimore Limited Partnership. The suit alleged,
inter alia, employment defamation, intentional infliction of emotional
distress, unreasonable intrusion upon seclusion, invasion of privacy by
false light, breach of contract, and discrimination on the basis of race.
The complaint also sought divestiture of the Baltimore City cable franchise
of the Company. The plaintiff sought $10,000,000 in compensatory damages
and $50,000,000 in punitive damages with respect to the intentional
infliction of emotional distress claim; and $10,000,000 in compensatory
damages and $50,000,000 in punitive damages with respect to each of five
other counts. On March 29, 1994, the defendants removed the case to the
United States District Court for the District of Maryland and the case was
subsequently consolidated with the Belgrave case. In a decision dated
November 15, 1994, the federal court dismissed plaintiffs' intentional
infliction of emotional distress, unreasonable intrusion upon seclusion,
invasion of privacy by false light, and violation of cable franchise
agreement claims. On February 9, 1995, the federal court dismissed the
federal claims without prejudice and remanded the remaining state claims to
the Circuit Court for Baltimore City. On February 14, 1995, plaintiff filed
an amended complaint in Circuit Court for Baltimore City against the
current defendants. The amended action alleged intentional infliction of
emotional distress, civil conspiracy to intentionally inflict emotional
distress, invasion of privacy by intrusion, civil conspiracy to commit
invasion of privacy by intrusion, defamation, 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, and breach of contract. With respect to all claims other than
breach of contract, plaintiff sought $1,000,000 in compensatory damages and
$5,000,000 in punitive damages. With respect to the breach of contract
claim, plaintiff seeks $100,000 plus prejudgment interest. The parties have
agreed to a settlement in principle. Such settlement represents the final
resolution of this matter, and accordingly, it will not be reported in
future filings.
(continued)
II-4
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
- ------ -----------------------------
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 alleged, in part,
-------- ------- -----
that the defendants 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
sought 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 emotional 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 sought $1,000,000 in compensatory damages and
$5,000,000 in punitive damages per plaintiff. The parties have agreed to a
settlement in principle. Such settlement represents the final resolution of
this matter, and accordingly, it will not be reported in future filings.
(continued)
II-5
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
- ------ -----------------------------
Les Dunnaville v. United Artists Cable, et al.
---------------------------------------------
On February 9, 1994, Les Dunnaville and Jay Sharrieff, former employees of
United Cable Television of Baltimore Limited Partnership, filed an amended
complaint in the Circuit Court for Baltimore City against United Cable
Television of Baltimore Limited Partnership, TCI Cablevision of Maryland,
Tele-Communications, Inc. and three company employees, Roy Harbert, Tony
Peduto, and Richard Bushie (the suit was initially filed on December 3,
1993, but the parties agreed on December 30, 1993 that no responsive
pleading would be due pending filing of an amended complaint). The action
alleges, inter alia, intentional interference with contract, tortious
----------
interference with prospective advantage, defamation, false light, invasion
of privacy, intentional infliction of emotional distress, civil conspiracy,
violation of Maryland's Fair Employment Practices Act, and respondeat
superior with respect to the individual defendants. Six counts in the
complaint each seek compensatory damages of $1,000,000 and punitive damages
of $1,000,000; the intentional infliction of emotional distress count seeks
compensatory damages of $1,000,000 and punitive damages of $2,000,000; and
the count which alleges violation of Maryland's Fair Employment Practices
Act seeks damages of $500,000. By order dated May 18, 1994, the Court
dismissed the respondeat superior claim. Defendants filed Motions for
Summary Judgment in December 1995 and January 1996 on all remaining counts
of plaintiffs' complaint. The Court granted summary judgment in the
defendant's favor on March 15, 1996. The plaintiffs have appealed the
Circuit Court ruling to the Maryland Court of Special Appeals and such
appeal is pending. Based upon the facts available, management believes
that, although no assurance can be given as to the outcome of this action,
the ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.
(continued)
II-6
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 6. Exhibit and Reports on Form 8-K.
- ------ -------------------------------
(a) Exhibit -
(27) TCI Communications, Inc. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September 30, 1996:
<TABLE>
<CAPTION>
Date of Item
Report Reported Financial Statements Filed
------- -------- --------------------------
<S> <C> <C>
July 2, 1996 Item 5 None.
August 5, 1996 Item 2 None.
September 3, 1996 Item 5 None.
September 11, 1996 Item 5 None.
</TABLE>
II-7
<PAGE>
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.
TCI COMMUNICATIONS, INC.
Date: November 14, 1996 By: /s/ Brendan R. Clouston
-----------------------------
Brendan R. Clouston
President and Chief
Executive Officer
Date: November 14, 1996 By: /s/ Bernard W. Schotters
-----------------------------
Bernard W. Schotters
Senior VicePresident
(Principal Financial Officer)
Date: November 14, 1996 By: /s/ Gary K. Bracken
-----------------------------
Gary K. Bracken
Senior Vice President
and Controller
(Principal Accounting Officer)
II-8
<PAGE>
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) TCI Communications, Inc. Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TCI COMMUNICATIONS, INC.'S QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1996 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 274
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,592
<DEPRECIATION> 4,224
<TOTAL-ASSETS> 25,305
<CURRENT-LIABILITIES> 0
<BONDS> 14,491
232
0
<COMMON> 1
<OTHER-SE> 1,821
<TOTAL-LIABILITY-AND-EQUITY> 25,305
<SALES> 0
<TOTAL-REVENUES> 4,554
<CGS> 0
<TOTAL-COSTS> 1,482
<OTHER-EXPENSES> 1,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 760
<INCOME-PRETAX> (353)
<INCOME-TAX> (93)
<INCOME-CONTINUING> (260)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (260)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
