<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
Commission File Number 0-5550
TCI COMMUNICATIONS, INC.
---------------------------------------------------------------
(Exact name of Registrant as specified in its charters)
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
Securities registered pursuant to Section 12(b) of the Act:
8.72% Trust Originated Preferred Securities
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Exchangeable Preferred Stock, Series A
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
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) have been subject to such filing
requirements for the past 90 days. Yes X No
------ -------
The aggregate market value of the Cumulative Exchangeable Preferred Stock,
Series A held by nonaffiliates of TCI Communications, Inc., computed by
reference to the last sales price of such stock, as of the close of trading on
January 31, 1996, was $ 231,150,000.
All of the Registrant's common stock is owned by Tele-Communicatons, Inc.
The number of shares outstanding of the Registrant's common stock, as of January
31, 1996, was:
Class A common stock - 811,655 shares; and
Class B common stock - 94,447 shares.
<PAGE>
TCI COMMUNICATIONS, INC.
1995 ANNUAL REPORT ON FORM 10-K
Table of Contents
Page
----
PART I
Item 1. Business............................................... I-1
Item 2. Properties............................................. I-22
Item 3. Legal Proceedings...................................... I-22
Item 4. Submission of Matters to a Vote of Security Holders.... I-31
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters........................... II-1
Item 6. Selected Financial Data................................ II-2
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................... II-3
Item 8. Financial Statements and Supplementary Data............ II-16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure................ II-16
PART III
Item 10. Directors and Executive Officers of the Registrant..... III-1
Item 11. Executive Compensation................................. III-4
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ III-12
Item 13. Certain Relationships and Related Transactions......... III-22
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................... IV-1
<PAGE>
PART I.
Item 1. Business.
- - ------ --------
(a) General Development of Business
-------------------------------
TCI Communications, Inc. ("TCIC" or the "Company"), through its
subsidiaries and affiliates, is principally engaged in the construction,
acquisition, ownership, and operation of cable television systems. The Company
is a Delaware corporation and was incorporated on August 20, 1968. The Company
and its predecessors have been engaged in the cable television business since
the early 1950's.
As of January 27, 1994, TCI Communications, Inc. (formerly Tele-
Communications, Inc. or "Old TCI") and Liberty Media Corporation ("Liberty")
entered into a definitive agreement to combine the two companies (the
"TCI/Liberty Combination"). The transaction was consummated on August 4, 1994
and was structured as a tax free exchange of Class A and Class B shares of both
companies and preferred stock of Liberty for like shares of a newly formed
holding company, TCI/Liberty Holding Company. In connection with the
TCI/Liberty Combination, Old TCI changed its name to TCI Communications, Inc.
and TCI/Liberty Holding Company changed its name to Tele-Communications, Inc.
("TCI"). TCIC is a subsidiary of TCI.
On August 3, 1995, the stockholders of TCI approved an amendment to TCI's
charter to (i) authorize two new series of common stock of TCI, designated the
Tele-Communications, Inc. Series A Liberty Media Group Common Stock, par value
$1.00 per share and the Tele-Communications, Inc. Series B Liberty Media Group
Common Stock, par value $1.00 per share (collectively, the "Liberty Group
Stock"), and (ii) redesignate TCI's Class A Common Stock, par value $1.00 per
share, as the Tele-Communications, Inc. Series A TCI Group Common Stock, par
value $1.00 per share, and the Class B Common Stock, par value $1.00 per share,
as the Tele-Communications, Inc. Series B TCI Group Common Stock, par value
$1.00 per share (the Series A and Series B TCI Group Common Stock are referred
to collectively herein as the "TCI Group Stock"). The Liberty Group Stock is
intended to reflect the separate performance of the newly created "Liberty Media
Group", which consists of TCI's businesses which produce and distribute cable
television programming services. 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 one hundred percent of
the equity value attributable to Liberty Media Group (the "Distribution") to its
security holders of record on August 4, 1995.
In connection with the Distribution, subsidiaries of TCIC exchanged all of
the TCI Class A common stock and TCI preferred stock owned by such subsidiaries
for 267,944 shares of a new series of TCI Series Preferred Stock designated
Convertible Redeemable Participating Preferred Stock Series F (the "Series F
Preferred Stock"). Subsequent to such exchange, a holder of 78,077 shares of
Series F Preferred Stock converted its holdings into 100,524,364 shares of
Series A TCI Group Stock.
As of January 26, 1995, TCI, TCIC and TeleCable Corporation ("TeleCable")
consummated a transaction, whereby TeleCable was merged into TCIC. The aggregate
$1.6 billion purchase price was satisfied by TCIC's assumption of approximately
$300 million of TeleCable's net liabilities and the issuance to TeleCable's
shareholders of approximately 42 million shares of TCI Class A common stock and
an issue of TCI convertible preferred stock with an aggregate initial
liquidation value of $300 million. Such preferred stock is convertible into 10
million shares of Series A TCI Group Stock and 2.5 million shares of Series A
Liberty Group Stock.
I-1
<PAGE>
During 1994, TCIC, Comcast Corporation, Cox Communications, Inc. ("Cox" and
together with TCIC and Comcast, the "Cable Partners") and Sprint Corporation
("Sprint") formed a partnership ("WirelessCo") to engage in the business of
providing wireless communications services on a nationwide basis. Through
WirelessCo, of which TCIC owns a 30% interest, the partners participated in
auctions ("PCS Auctions") of broadband personal communications services ("PCS")
licenses being conducted by the Federal Communications Commission ("FCC"). In
the first round auction, which concluded during the first quarter of 1995,
WirelessCo was the winning bidder for PSC licenses for 29 markets, including New
York, San Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth, Boston-
Providence, Minneapolis-St. Paul and Miami-Fort Lauderdale. The aggregate
license cost for these licenses was approximately $2.1 billion.
WirelessCo has also invested in American PSC, L.P. ("APC"), which holds a
PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited partnership
interest in APC for $23 million and has agreed to make capital contributions to
APC equal to 49/51 of the cost of APC's PCS license. Additional capital
contributions may be required in the event APC is unable to finance the full
cost of its PCS license. WirelessCo may also be required to finance the build-
out expenditures for APC's PCS system. Cox, which holds a pioneer preference
PCS license for the Los Angeles-San Diego market, and WirelessCo have also
agreed on the general terms and conditions upon which Cox (with a 51% interest)
and WirelessCo (with a 49% interest) would form a partnership to hold and
develop a PCS system using the Los Angeles-San Diego license. APC and the Cox
partnership would affiliate their PCS systems with WirelessCo and be part of
WirelessCo's nationwide integrated network, offering wireless communications
services under the "Sprint" brand.
During 1994, subsidiaries of Cox, Sprint and TCIC also formed a separate
partnership ("PhillieCo"), in which TCIC owns a 35.3% interest. PhillieCo was
the winning bidder in the first round auction for a PCS license for the
Philadelphia market at a license cost of $85 million. To the extent permitted
by law, the PCS system to be constructed by PhillieCo would also be affiliated
with WirelessCo's nationwide network.
WirelessCo may bid in subsequent rounds of the PCS Auctions and may invest
in, affiliate with or acquire licenses from other successful bidders. The
capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial.
In March of 1995, the Cable Partners and Sprint (collectively, the
"Partners") formed two new partnerships, of which the principal partnership is
MajorCo, L.P. ("MajorCo"), to which they contributed their respective interests
in WirelessCo and through which they formed another partnership, NewTelco, L.P.
("NewTelco") to engage in the business of providing local wireline
communications services to residences and businesses on a nationwide basis. The
Cable Partners agreed to contribute their interests in Teleport Communications
Group, Inc. and TCG Partners (collectively, "TCG") to NewTelco. TCG is one of
the largest competitive access providers in the United States in terms of route
miles.
I-2
<PAGE>
Effective January 31, 1996, the Partners amended the MajorCo partnership
agreement (the "Partnership Agreement") and certain other agreements related
thereto. Under the Partnership Agreement, the business of MajorCo and its
subsidiaries will be the provision of certain wireless and other services
described in the Partnership Agreement. The Partners intend for WirelessCo and
its subsidiary partnerships to be the exclusive vehicles through which they
engage in the wireless telephony service businesses, subject to certain
exceptions. MajorCo will no longer be authorized to engage in the business of
providing local wireline communications services to residences and businesses.
In connection with the amendment of the Partnership Agreement, the Partners also
agreed to the termination of the agreement to contribute the Cable Partners'
interests in TCG to NewTelco.
Pursuant to separate agreements, each of the Cable Partners and Sprint have
agreed to negotiate in good faith on a market-by-market basis for the provision
of local wireline telephony services over the cable television facilities of the
respective Cable Partner under the Sprint brand. Accordingly, local wireline
telephony offerings in each market would be the subject of individual agreements
to be negotiated with Sprint, rather than being provided by MajorCo, as
originally contemplated. The Cable Partners and Sprint also reaffirmed their
intention to continue to attempt to integrate the business of TCG with that of
MajorCo. In addition, each Cable Partner agreed to certain restrictions on its
ability to offer, promote, or package certain of its products or services with
certain products and services of other persons and agreed to make its facilities
available to Sprint for specified purposes to the extent and on the terms that
it has made such facilities available to others for such purposes. Such
agreements have a term of five years, but under certain circumstances may
terminate after three years.
Execution of the foregoing agreements was a condition to the effectiveness
of a previously approved business plan for the build out of WirelessCo's
nationwide network for wireless personal communications services. Pursuant to
the business plan, the Partners are obligated to make additional cash capital
contributions to MajorCo in the aggregate amount of approximately $1.9 billion
during the two-year period that commenced January 1, 1996. The business plan
contemplates that MajorCo will require additional equity thereafter.
In July 1995, TCIC and TCI entered into certain agreements with Viacom Inc.
("Viacom") and certain subsidiaries of Viacom regarding the purchase by TCIC of
all of the common stock of a subsidiary of Viacom ("Cable Sub") which, at the
time of purchase, will own Viacom's cable systems and related assets.
The transaction has been structured as a tax-free reorganization in which
Cable Sub will initially transfer 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 will also transfer to New Viacom Sub the proceeds
(the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan Facility") to
be arranged by TCIC, TCI and Cable Sub. Following these transfers, Cable Sub
will retain cable assets with an estimated value at closing of approximately
$2.2 billion and the obligation to repay the Loan Proceeds borrowed under the
Loan Facility.
Viacom will offer 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"). The Exchange Offer will be
subject to a number of conditions, including a condition (the "Minimum
Condition") that sufficient tenders are made of Viacom Common Stock that permit
the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange
Offer to equal the total number of shares of Cable Sub Class A Stock issuable in
the Exchange Offer.
I-3
<PAGE>
Immediately following the completion of the Exchange Offer, TCIC will
acquire from Cable Sub shares of Cable Sub Class B Common Stock for $350 million
(which will be used to reduce Cable Sub's obligations under the Loan Facility).
At the time of such acquisition, the Cable Sub Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer will automatically convert into a
series of senior cumulative exchangeable preferred stock (the "Exchangeable
Preferred Stock") of Cable Sub 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, will be 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 will be
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. If insufficient
tenders are made by Viacom stockholders in the Exchange Offer to permit the
Minimum Condition to be satisfied, Viacom will extend the Exchange Offer for up
to 15 business days and, during such extension, TCI and Viacom are to negotiate
in good faith to determine mutually acceptable changes to the terms and
conditions for the Exchangeable Preferred Stock and the Exchange Offer that each
believes in good faith will cause the Minimum Condition to be fulfilled and that
would cause the Exchangeable Preferred Stock to trade at a price equal to the
Stated Value immediately following the expiration of the Exchange Offer. In the
event the Minimum Condition is not thereafter met, TCI and Viacom will each have
the right to terminate the transaction. In addition, either party may terminate
the transaction if the Exchange Offer has not commenced by June 24, 1996 or been
consummated by July 24, 1996.
Consummation of the transaction is subject to a number of conditions,
including receipt of a favorable letter ruling from the Internal Revenue Service
that the transaction qualifies as a tax-free transaction and the satisfaction or
waiver of all of the conditions of the Exchange Offer. A request for a letter
ruling from the Internal Revenue Service has been filed by Viacom. TCIC
believes that, based upon the unique and complex structure of the transaction,
there exists significant uncertainty as to whether a favorable ruling will be
obtained. In light of the foregoing, management of TCIC has concluded that
consummation of the transaction is not yet probable. No assurance can be given
that the transaction will be consummated.
During the fourth quarter of 1994, TCI was reorganized based upon four
lines of business: Domestic Cable and Communications; Programming;
International Cable and Programming; and Technology/Venture Capital.
(b) Financial Information about Industry Segments
---------------------------------------------
The Company operates in the cable and communications services industry.
(c) Narrative Description of Business
---------------------------------
General. Cable television systems receive video, audio and data signals
transmitted by nearby television and radio broadcast stations, terrestrial
microwave relay services and communications satellites. Such signals are then
amplified and distributed by coaxial cable and optical fiber to the premises of
customers who pay a fee for the service. In many cases, cable television
systems also originate and distribute local programming.
I-4
<PAGE>
Service Charges. The Company offers a limited "basic service" (primarily
comprised of local broadcast signals and public, educational and governmental
access channels) and an "expanded" tier (primarily comprised of specialized
programming services, in such areas as health, family entertainment, religion,
news, weather, public affairs, education, shopping, sports and music). The
monthly fee for "basic service " generally ranges from $8.00 to $10.00, and the
monthly service fee for the "expanded" tier generally ranges from $11.00 to
$15.00. The Company offers "premium services" (referred to in the cable
television industry as "Pay-TV" and "pay-per-view") to its customers. Such
services consist principally of feature films, as well as live and taped sports
events, concerts and other programming. The Company offers Pay-TV services for
a monthly fee generally ranging from $9.00 to $15.00 per service, except for
certain movie or sports services (such as various regional sports networks and
certain pay-TV channels) offered at $1.00 to $5.00 per month, pay-per-view
movies offered separately generally at $3.00 per movie and certain pay-per-view
events offered separately at $10.00 to $50.00 per event. Charges are usually
discounted when multiple Pay-TV services are ordered.
The Company generally does not charge for additional outlets in a
subscriber's home. As further enhancements to their cable services, customers
may generally rent converters, with or without a remote control device, for a
monthly charge ranging from $0.50 to $3.00 each, as well as purchase a channel
guide for a monthly charge ranging from $1.00 to $2.00. Also a nonrecurring
installation charge (which is based upon the FCC's rules which regulate hourly
service charges for each individual cable system) of up to $60.00 is usually
charged.
Monthly fees for basic and Pay-TV services to commercial customers vary
widely depending on the nature and type of service. Except under the terms of
certain contracts to provide service to commercial accounts, customers are free
to discontinue service at any time without penalty.
As noted below, the Company's service offerings and rates were affected by
rate regulations issued by the FCC in 1993 and 1994. See Regulation and
Legislation below.
Subscriber Data. TCIC operates its cable television systems either
directly through its regional operating divisions or indirectly through certain
subsidiaries or affiliated companies. Basic and Pay-TV cable and satellite
customers served by TCIC and its consolidated subsidiaries are summarized as
follows (amounts in millions):
<TABLE>
<CAPTION>
Basic subscribers at December 31,
---------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Managed through the Company's
regional operating divisions (1) 11.8 10.5 9.8 9.4 6.4
TKR Cable II, Inc. and
TKR Cable III, Inc. (2) 0.3 0.3 0.3 0.3 --
United Artists Entertainment Company
("UAE") (3) -- -- -- -- 2.3
Other non-managed subsidiaries 0.3 0.3 0.2 0.2 0.2
---- ---- ---- ---- ----
12.4 11.1 10.3 9.9 8.9
==== ==== ==== ==== ====
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
Pay TV subscribers at December 31,
----------------------------------
1995 1994 1993 1992 1991
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Managed through the Company's
regional operating divisions (1) 13.2 11.4 9.5 8.8 6.1
TKR Cable II, Inc. and
TKR Cable III, Inc. (2) 0.2 0.2 0.2 0.3 --
UAE (3) -- -- -- -- 2.2
Other non-managed subsidiaries (4) 0.2 0.2 0.2 0.2 0.1
---- ---- ---- ---- ----
13.6 11.8 9.9 9.3 8.4
==== ==== ==== ==== ====
</TABLE>
_______________________
(1) In December of 1992, SCI Holdings, Inc. ("SCI") consummated a transaction
(the "Split-Off") that resulted in the ownership of its cable television
systems being split between its two stockholders, which stockholders were
Comcast and the Company. The Split-Off was effected by the distribution of
approximately 50% of the net assets of SCI to three holding companies
formed by the Company (the "Holding Companies"). Immediately following the
Split-Off, the Company owned a majority of the common stock of the Holding
Companies. As such, the Company, which previously accounted for its
investment in SCI using the equity method, now consolidates its investment
in the Holding Companies. One of the Holding Companies, TKR Cable I, Inc.,
is managed through the Company's regional operating divisions.
(2) Management of the remaining two Holding Companies was assumed by an
affiliated company of TCIC in December of 1992.
(3) Management assumed by the Company's regional operating divisions in January
of 1992.
At December 31, 1995, TCIC operated substantially all of its consolidated
cable television systems through four regional operating divisions -- Central,
Great Lakes, Southeast and West. The table below sets forth certain statistical
data of TCIC's regional operating divisions as of December 31, 1995.
<TABLE>
<CAPTION>
Estimated
homes Basic Basic Pay-TV Pay
Division passed subscribers penetration (1) subscriptions (2) penetration (3)
- - ----------------- --------- ----------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
amounts in millions, except for percentages
Central (4) 4.1 2.4 59% 2.8 117%
Great Lakes (5) 6.3 4.2 67% 4.3 102%
Southeast (6) 4.0 2.5 63% 3.0 120%
West (7) 4.4 2.7 61% 3.1 115%
---- ---- ----
Total 18.8 11.8 63% 13.2 112%
==== ==== ====
</TABLE>
_____________________
(1) Calculated by dividing the number of basic subscribers by the number of
estimated homes passed.
I-6
<PAGE>
(2) A basic customer may subscribe to one or more Pay-TV services and the
number of Pay-TV subscriptions reflected represents the total number of
such subscriptions to Pay-TV services.
(3) Calculated by dividing the number of Pay-TV subscriptions by the number of
basic subscribers.
(4) Central operating division includes cable television systems located in
Colorado, Kansas, Nebraska, New Mexico, North Dakota, Oklahoma, South
Dakota, Texas and Wyoming.
(5) Great Lakes operating division includes cable television systems located in
Connecticut, Illinois, Indiana, Kentucky, Maine, Massachusetts, Michigan,
Minnesota, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode
Island, Vermont, West Virginia and Wisconsin.
(6) Southeast operating division includes cable television systems located in
Alabama, Arkansas, Delaware, District of Columbia, Florida, Georgia, Iowa,
Louisiana, Maryland, Mississippi, Missouri, North Carolina, South Carolina,
Tennessee and Virginia.
(7) West operating division includes cable television systems located in
Arizona, California, Idaho, Nevada, Montana, Oregon, Utah and Washington.
TCIC operates cable television systems throughout the continental United
States and, through certain joint ventures accounted for under the equity
method.
In addition to cable television subscribers, TCIC has satellite customers
from an equity interest in a direct broadcast satellite partnership, PrimeStar
Partners ("Primestar"). At December 31, 1995, TCIC had approximately 550,000
Primestar subscribers.
The Company has entered into long-term agreements with a majority of its
program suppliers in order to obtain favorable rates for programming and to
protect the Company from unforeseen future increases in the Company's cost of
programming.
Local Franchises. Cable television systems generally are constructed and
operated under the authority of nonexclusive permits or "franchises" granted by
local and/or state governmental authorities. Federal law, including the Cable
Communications Policy Act of 1984 (the "1984 Cable Act") and the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"), limits the power of the franchising authorities to impose certain
conditions upon cable television operators as a condition of the granting or
renewal of a franchise.
Franchises contain varying provisions relating to construction and
operation of cable television systems, such as time limitations on commencement
and/or completion of construction; quality of service, including (in certain
circumstances) requirements as to the number of channels and broad categories of
programming offered to subscribers; rate regulation; provision of service to
certain institutions; provision of channels for public access and commercial
leased-use; and maintenance of insurance and/or indemnity bonds. The Company's
franchises also typically provide for periodic payments of fees, generally
ranging from 3% to 5% of revenue, to the governmental authority granting the
franchise. Franchises usually require the consent of the franchising authority
prior to a transfer of the franchise or a transfer or change in ownership or
operating control of the franchisee.
I-7
<PAGE>
Subject to applicable law, a franchise may be terminated prior to its
expiration date if the cable television operator fails to comply with the
material terms and conditions thereof. Under the 1984 Cable Act, if a franchise
is lawfully terminated, and if the franchising authority acquires ownership of
the cable television system or effects a transfer of ownership to a third party,
such acquisition or transfer must be at an equitable price or, in the case of a
franchise existing on the effective date of the 1984 Cable Act, at a price
determined in accordance with the terms of the franchise, if any.
In connection with a renewal of a franchise, the franchising authority may
require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the 1984
Cable Act and other applicable Federal, state and local law. The 1984 Cable
Act, as supplemented by the renewal provisions of the 1992 Cable Act,
establishes an orderly process for franchise renewal which protects cable
operators against unfair denials of renewals when the operator's past
performance and proposal for future performance meet the standards established
by the 1984 Cable Act. The Company believes that its cable television systems
generally have been operated in a manner which satisfies such standards and
allows for the renewal of such franchises; however, there can be no assurance
that the franchises for such systems will be successfully renewed as they
expire.
Most of the Company's present franchises had initial terms of approximately
10 to 15 years. The duration of the Company's outstanding franchises presently
varies from a period of months to an indefinite period of time. Approximately
1,100 of the Company's franchises expire within the next five years. This
represents approximately twenty-five percent of the franchises held by the
Company and involves approximately 4.4 million basic subscribers.
Technological Changes. Cable operators have traditionally used coaxial
cable for transmission of television signals to subscribers. Optical fiber is a
technologically advanced transmission medium capable of carrying cable
television signals via light waves generated by a laser. The Company is
installing optical fiber technology in its cable systems at a rate such that in
approximately two years TCIC anticipates that it will be serving the majority of
its customers with this technology. The systems, which facilitate digital
transmission of voice, video and data signals as discussed below, will have
optical fiber to neighborhood nodes with coaxial cable distribution downstream
from that point.
Compressed digital video technology converts as many as ten analog signals
(now used to transmit video and voice) into a digital format and compresses such
signals (which is accomplished primarily by eliminating the redundancies in
television imagery) into the space normally occupied by one analog signal. The
digitally compressed signal will be uplinked to a satellite, which will send the
signal back down to a customer's satellite dish or to a cable system's headend
to be distributed, via optical fiber and coaxial cable, to the customer's home.
At the home, a set-top video terminal will convert the digital signal back into
analog channels that can be viewed on a normal television set. The Company
anticipates that it will begin offering such technology to its cable
subscribers in three markets in late 1996 and intends to make such service
available to approximately one-third of its cable subscribers by the end of
1997, depending upon the availability of set-top video terminals. However, since
1994, the Company has encountered repeated delays in the production and delivery
of such devices by its suppliers. The Company will be required to further
upgrade its existing distribution system to enable it to provide additional
advanced services, such as two-way interactive technology. The Company is
dependent upon further technological advances to enable it to provide such
interactive services.
During 1994, the Company established the National Digital Television Center
("NDTC") in Denver to compress, uplink, encrypt and authorize reception of
digital television signals as well as provide digital television and multimedia
production services. The NDTC currently has established long term contracts to
provide services to 16 content providers, digitally compressing and/or
distributing more than 125 channels of programming.
I-8
<PAGE>
Competition. Cable television competes for customers in local markets with
other providers of entertainment, news and information. The competitors in
these markets include broadcast television and radio, newspapers, magazines and
other printed material, motion picture theatres, video cassettes and other
sources of information and entertainment including directly competitive cable
television operations. Both the 1992 Cable Act and the recently enacted
Telecommunications Act of 1996 ("1996 Telecom Act") are designed to increase
competition in the cable television industry. See Regulation and Legislation
below.
There are alternative methods of distributing the same or similar video
programming offered by cable television systems. Further, these technologies
have been encouraged by Congress and the FCC to offer services in direct
competition with existing cable systems.
A significant competitive impact is expected from medium power and higher
power direct broadcast satellites ("DBS") that use high frequencies to transmit
signals that can be received by dish antennas much smaller in size than
traditional home satellite dishes ("HSDs"). The Company has an interest in an
entity, Primestar, which provides programming and marketing support to its
partners who distribute a multi-channel programming service via a medium power
communications satellite to HSDs of approximately 3 feet in diameter. At
December 31, 1995, Primestar, through its partners, served an estimated 940,000
HSDs in the United States. Two other DBS operators, DirecTV, a subsidiary of GM
Hughes Electronics, and United States Satellite Broadcasting, a subsidiary of
Hubbard Broadcasting, Inc., offer video services that can be received by HSDs
that measure approximately eighteen inches in diameter. Such DBS operators have
the right to distribute substantially all of the significant cable television
programming services currently carried by cable television systems.
The competition from DBS will likely continue to grow. One DBS operator is
preparing to launch a new DBS satellite. AT&T Corp. recently made a large
investment in DirecTV and several other major companies are preparing the
develop and operate high-power DBS systems, including MCI Communications Corp.
("MCI") and News Corp. MCI recently acquired rights to satellite frequencies
for DBS in an FCC auction.
DBS has advantages and disadvantages as an alternative means of
distributing video signals to the home. Among the advantages are that the
capital investment (although initially high) for the satellite and uplinking
segment of a DBS system is fixed and does not increase with the number of
subscribers receiving satellite transmissions; that DBS is not currently subject
to local regulation of service and prices or required to pay franchise fees; and
that the capital costs for the ground segment of a DBS system (the reception
equipment) are directly related to, and limited by, the number of service
subscribers. DBS's disadvantages presently include limited ability to tailor
the programming package to the interests of different geographic markets, such
as providing local news, other local origination services and local broadcast
stations; signal reception being subject to line of sight angles; and
intermittent interference from atmospheric conditions and terrestrially
generated radio frequency noise.
Although the effect of competition from these DBS services cannot be
specifically predicted, it is clear there has been significant growth in DBS
subscribers and the Company assumes that such DBS competition will be
substantial in the near future as developments in technology continue to
increase satellite transmitter power and decrease the cost and size of equipment
needed to receive these transmissions, and enable DBS to overcome the
aforementioned disadvantages. Further, the extensive national advertising of
DBS programming packages, including certain sports packages not currently
available on cable television systems, will likely continue the rapid growth in
DBS subscribers.
I-9
<PAGE>
The 1996 Telecom Act eliminated the statutory and regulatory restrictions
that prevented telephone companies from competing with cable operators for the
provision of video services by any means. See "Regulation and Legislation"
section. The 1996 Telecom Act allows local telephone companies, including the
regional bell operating companies, to compete with cable television operators
both inside and outside their telephone service areas. The Company expects that
it will face substantial competition from telephone companies for the provision
of video services, whether it is through the acquisition of cable systems
through the provision of wireless cable, or through the provision of upgraded
telephone networks. The Company assumes that all major telephone companies have
already entered or soon will enter the business of providing video services.
Most major telephone companies have greater financial resources than the
Company, and the 1992 Cable Act ensures that telephone company providers of
video services will have access to acquiring all of the significant cable
television programming services. The specific manner in which telephone company
provision of video services will be regulated is described under Regulation and
Legislation below. Additionally, the 1996 Telecom Act eliminates certain
federal restrictions on utility holding companies and thus frees all utility
companies to provide cable television services. The Company expects this could
result in another source of significant competition in the delivery of video
services.
Another alternative method of distribution is multi-channel multi-point
distribution systems ("MMDS"), which deliver programming services over microwave
channels received by subscribers with special antennas. MMDS systems are less
capital intensive, are not required to obtain local franchises or pay franchise
fees, and are subject to fewer regulatory requirements than cable television
systems. The 1992 Cable Act also ensures that MMDS systems have access to
acquire all significant cable television programming services. Although there
are relatively few MMDS systems in the United States currently in operation,
virtually all markets have been licensed or tentatively licensed. The FCC has
taken a series of actions intended to facilitate the development of wireless
cable systems as an alternative means of distributing video programming,
including reallocating the use of certain frequencies to these services and
expanding the permissible use of certain channels reserved for educational
purposes. The FCC's actions enable a single entity to develop an MMDS system
with a potential of up to 35 channels, and thus compete more effectively with
cable television. Developments in compression technology will significantly
increase the number of channels that can be made available from MMDS. Further,
in 1995, several large telephone companies acquired significant ownership in
numerous MMDS companies. This infusion of money into the MMDS industry can be
expected to accelerate its growth and its competitive impact.
Within the cable television industry, cable operators may compete with
other cable operators or others seeking franchises for competing cable
television systems at any time during the terms of existing franchises or upon
expiration of such franchises in expectation that the existing franchise will
not be renewed. The 1992 Cable Act promotes the granting of competitive
franchises. An increasing number of cities are exploring the feasibility of
owning their own cable systems in a manner similar to city-provided utility
services.
The Company also competes with Master Antenna Television ("MATV") systems
and Satellite MATV ("SMATV") systems, which provide multi-channel program
services directly to hotel, motel, apartment, condominium and similar multi-unit
complexes within a cable television system's franchise area, generally free of
any regulation by state and local governmental authorities.
I-10
<PAGE>
Although long distance telephone companies had no legal prohibition on the
provision of video services, they have historically not been providers of such
services in competition with cable systems. However, such companies may prove
to be a source of competition in the future. The long distance companies are
expected to expand into local markets with local telephone and other offerings
(including video services) in competition with the regional bell operating
companies, which under the 1996 Telecom Act have been released, upon the terms
and conditions of the 1996 Telecom Act, from the legal prohibitions on their
ability to enter the long distance service market.
In addition to competition for subscribers, the cable television industry
competes with broadcast television, radio, the print media and other sources of
information and entertainment for advertising revenue. As the cable television
industry has developed additional programming, its advertising revenue has
increased. Cable operators sell advertising spots primarily to local and
regional advertisers.
The Company has no basis upon which to estimate the number of cable
television companies and other entities with which it competes or may
potentially compete. There are a large number of individual and multiple system
cable television operators in the United States but, measured by the number of
basic subscribers, the Company is the largest provider of cable television
services.
The full extent to which other media or home delivery services will compete
with cable television systems may not be known for some time and there can be no
assurance that existing, proposed or as yet undeveloped technologies will not
become dominant in the future.
Regulation and Legislation. The operation of cable television systems is
extensively regulated through a combination of Federal legislation and FCC
regulations, by some state governments and by most local government franchising
authorities such as municipalities and counties. On February 8, 1996, the 1996
Telecom Act was signed into law. This new law will alter federal, state and
local laws and regulations regarding telecommunications providers and cable
television service providers, including the Company. The discussion below
summarizes the 1996 Telecom Act and reviews the pre-existing federal cable
television regulation as revised by the 1996 Telecom Act.
The Telecommunications Act of 1996. The following is a summary of certain
provisions of the 1996 Telecom Act which could materially affect the growth and
operation of the cable television industry and the cable and telecommunications
services provided by the Company. There are numerous rulemakings to be
undertaken by the FCC which will interpret and implement the provisions
discussed below. It is not possible at this time to predict the outcome of such
rulemakings.
Cable Rate Regulation. Rate regulation of the Company's cable television
---------------------
services is divided between the FCC and local units of government such as
states, counties or municipalities. The FCC's jurisdiction extends to the cable
programming service tier ("CPST"), which consists largely of satellite-delivered
programming (excluding basic tier programming and programming offered on a per-
channel or per-program basis). Local units of governments (commonly referred to
as local franchising authorities or "LFAs") are primarily responsible for
regulating rates for the basic tier of cable service ("BST"), which will
typically contain at least the local broadcast stations and Public Access,
Educational and Government ("PEG") channels. Equipment rates are also regulated
by LFAs. The FCC retains appeal jurisdiction from LFA decisions. Cable
services offered on a per-channel or per-program-only basis remain unregulated.
I-11
<PAGE>
The 1996 Telecom Act eliminates CPST rate regulation for the Company as of
March 31, 1999. In the interim, CPST rate regulation can be triggered only by
an LFA complaint to the FCC. An LFA complaint must be based upon more than one
subscriber complaint. Prior to the 1996 Telecom Act, an FCC review of CPST
rates could be occasioned by a single subscriber complaint to the FCC. The 1996
Telecom Act does not disturb existing or pending CPST rate settlements between
the Company and the FCC. The Company's BST rates remain subject to LFA
regulation under the 1996 Telecom Act.
Existing law precludes rate regulation wherever a cable operator faces
"effective competition." The 1996 Telecom Act expands the definition of
effective competition to include any franchise area where a local exchange
carrier (or affiliate) provides video programming services to subscribers by any
means other than through direct broadcast satellite. There is no penetration
minimum for the local exchange carrier to qualify as an effective competitor,
but it must provide "comparable" programming services (12 channels including
some broadcast channels) in the franchise area.
Under the 1996 Telecom Act, the Company will be allowed to aggregate on a
franchise, system, regional or company level, its equipment costs into broad
categories, such as converter boxes, regardless of the varying levels of
functionality of the equipment within each such broad category. The 1996
Telecom Act will allow the Company to average together costs of different types
of converters (including non-addressable, addressable, and digital). The
statutory changes will also facilitate the rationalizing of equipment rates
across jurisdictional boundaries. These cost-aggregation rules do not apply to
the limited equipment used by "BST-only" subscribers.
Cable Uniform Rate Requirements. The 1996 Telecom Act immediately relaxes
-------------------------------
the "uniform rate" requirements of the 1992 Cable Act by specifying such
requirements do not apply where the operator faces "effective competition," and
by exempting bulk discounts to multiple dwelling units, although complaints
about "predatory" pricing may be made to the FCC. Upon a prima facie showing
that there are reasonable grounds to believe that the discounted price is
predatory, the cable system operator will have the burden of proving otherwise.
System Sales. The 1996 Telecom Act changes the definition of a "cable
------------
system" so that competitive providers of video services will only be regulated
and franchised as a cable system if they use public rights-of-way.
Cable Pole Attachments. Under the 1996 Telecom Act, investor-owned
----------------------
utilities must make poles and conduits available to cable systems under
delineated terms. Electric utilities are given the right to deny access to
particular poles on a nondiscriminatory basis for lack of capacity, safety,
reliability, and generally accepted engineering purposes. The current method
for determining rates charged by telephone and utility companies for cable
delivery of cable and non-cable services will continue for five years. However,
the FCC will establish a new formula for poles used by cable operators for
telecommunications services which will result in higher pole rental rates for
cable operators. Any increases pursuant to this formula may not begin for 5
years and will be phased in in equal increments over years 5 through 10. This
new FCC formula does not apply in states which certify they regulate pole rents.
Pole owners must impute pole rentals to themselves if they offer
telecommunications or cable services. Cable operators need not pay future
"make-ready" on poles currently contracted if the make-ready is required to
accommodate the attachments of another user, including the pole owner.
I-12
<PAGE>
Cable Entry Into Telecommunications. The 1996 Telecom Act declares that no
-----------------------------------
state or local laws or regulations may prohibit or have the effect of
prohibiting the ability of any entity to provide any interstate or intrastate
telecommunications service. States are authorized to impose "competitively
neutral" requirements regarding universal service, public safety and welfare,
service quality, and consumer protection. The 1996 Telecom Act further provides
that cable operators and affiliates providing telecommunications services are
not required to obtain a separate franchise from LFAs for such services. The
1996 Telecom Act prohibits LFAs from requiring cable operators to provide
telecommunications service or facilities as a condition of a grant of a
franchise, franchise renewal, or franchise transfer, except that LFAs can seek
"institutional networks" as part of such franchise negotiations.
The 1996 Telecom Act clarifies that traditional cable franchise fees may
only be based on revenues related to the provision of cable television services.
However, when cable operators provide telecommunications services, LFAs may
require reasonable, competitively neutral compensation for management of the
public rights-of-way.
To facilitate the entry of new telecommunications providers (including
cable operators), the 1996 Telecom Act imposes interconnection obligations on
all telecommunications carriers. All carriers must interconnect their networks
with other carriers and may not deploy network features and functions that
interfere with interoperability. Existing local exchange carriers ("LECs") also
have the following obligations: (1) good faith negotiation with those seeking
interconnection; (2) unbundling, equal access and non-discrimination
requirements; (3) resale of services, including "resale at wholesale rates"
(with an exception for certain low-priced residence services to business
customers); (4) notice of changes in the network that would affect
interconnection and interoperability; and (5) physical collocation unless shown
that practical technical reasons, or space limitations, make physical
collocation impractical. The FCC has six months to "complete all actions
necessary to establish regulations" needed to effectuate this section. The 1996
Telecom Act also directs the FCC, within one year of enactment, to adopt
regulations for existing LECs to share infrastructure with qualifying carriers.
Under the 1996 Telecom Act, individual interconnection rates must be just
and reasonable, based on cost, and may include a reasonable profit. Cost of
interconnection will not be determined in a rate of return proceeding. Traffic
termination charges shall be "mutual and reciprocal." The 1996 Telecom Act
contemplates that interconnection agreements will be negotiated by the parties
and submitted to a state public service commission ("PSC") for approval. A PSC
may become involved, at the request of either party, if negotiations fail. If
the state regulator refuses to act, the FCC may determine the matter. If the
PSC acts, an aggrieved party's remedy is to file a case in federal district
court.
The 1996 Telecom Act requires that all telecommunications providers
(including cable operators that provide telecommunications services) must
contribute equitably to a Universal Service Fund ("USF"), although the FCC may
exempt an interstate carrier or class of carriers if their contribution would be
minimal under the USF formula. The 1996 Telecom Act allows states to determine
which intrastate telecommunications providers contribute to the USF. The
purpose of the USF is to provide consumers in all regions, including low-income
consumers and those consumers in rural, insular and high-cost areas, access to
telecommunications and information services that are reasonably comparable to
those services in urban areas at reasonably comparable rates.
I-13
<PAGE>
Telephone Company Entry Into Cable Television. The 1996 Telecom Act allows
---------------------------------------------
telephone companies to compete directly with cable operators by repealing the
telephone company-cable cross-ownership ban and the FCC's video dialtone
regulations. This will allow LECs, including the regional bell operating
companies, to compete with cable operators both inside and outside their
telephone service areas. If a LEC provides video via radio waves, it is subject
to broadcast jurisdiction. If a LEC provides common carrier channel service it
is subject to common carrier jurisdiction. A LEC providing video programming to
subscribers is otherwise regulated as a cable operator (including franchising,
leased access, and customer service requirements), unless the LEC elects to
provide its programming via an "open video system." LEC owned programming
services will also be fully subject to program access requirements.
The 1996 Telecom Act replaces the FCC's video dialtone rules with an "open
video system" ("OVS") plan by which LECs can provide cable service in their
telephone service area. LECs complying with the FCC OVS regulations will
receive relaxed oversight. The 1996 Telecom Act requires the FCC to act on any
such OVS certification within ten days of its filing. Only the program access,
negative option billing prohibition, subscriber privacy, EEO, PEG, must-carry
and retransmission consent provisions of the Communications Act of 1934, as
amended, will apply to LECs providing OVS. Franchising, rate regulation,
consumer service provisions, leased access and equipment compatibility will not
apply. Cable copyright provisions will apply to programmers using OVS. LFAs
may require OVS operators to pay "franchise fees" only to the extent that the
OVS provider or its affiliates provide cable services over the OVS. OVS
operators will be subject to LFA general right-of-way management regulations.
Such fees may not exceed the franchise fees charged to cable operators in the
area, and the OVS provider may pass through the fees as a separate subscriber
bill item.
The 1996 Telecom Act requires the FCC to adopt, within six months,
regulations prohibiting an OVS operator from discriminating among programmers,
and ensuring the OVS rates, terms, and conditions for service are reasonable and
nondiscriminatory. Further, the FCC is to adopt regulations prohibiting a LEC-
OVS operator, or its affiliates, from occupying more than one-third of the
system's activated channels when demand for channels exceeds supply, although
there are no numeric limits. The 1996 Telecom Act also mandates OVS regulations
governing channel sharing; extending the FCC's sports exclusivity, network
nonduplication, and syndex regulations; and controlling the positioning of
programmers on menus and program guides. The 1996 Telecom Act does not require
LECs to use separate subsidiaries to provide incidental interLATA video or audio
programming services to subscribers or for their own programming ventures.
While there remains a general prohibition on LEC buyouts of cable systems
(any ownership interest exceeding 10 percent), cable operator buyouts of LEC
systems, and joint ventures between cable operators and LECs in the same market,
the 1996 Telecom Act provides exceptions. A rural exemption permits buyouts
where the purchased system serves an area with fewer than 35,000 inhabitants
outside an urban area. Where a LEC purchases a cable system, that system plus
any other system in which the LEC has an interest may not serve 10% or more of
the LEC's telephone service area. Additional exceptions are also provided for
such buyouts. The 1996 Telecom Act also provides the FCC with the power to
grant waivers of the buyout provisions in cases where (1) the cable operator or
LEC would be subject to undue economic distress, (2) the system or facilities
would not be economically viable, or (3) the anticompetitive effects of the
proposed transaction are clearly outweighed by the effect of the transaction in
meeting community needs. The LFA must approve any such waiver.
I-14
<PAGE>
Electric Utility Entry Into Telecommunications/Cable Television. The 1996
---------------------------------------------------------------
Telecom Act provides that registered utility holding companies and subsidiaries
may provide telecommunications services (including cable television)
notwithstanding the Public Utilities Holding Company Act. Electric utilities
must establish separate subsidiaries, known as "exempt telecommunications
companies" and must apply to the FCC for operating authority. It is anticipated
that large utility holding companies will become significant competitors to both
cable television and other telecommunications providers.
Cross-Ownership and Must Carry. The 1996 Telecom Act eliminates
------------------------------
broadcast/cable cross-ownership restrictions (including broadcast network/cable
restrictions), but leaves in place FCC regulations prohibiting local cross-
ownership between television stations and cable systems. The FCC is empowered
by the 1996 Telecom Act to adopt rules to ensure carriage, channel positioning
and non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. The SMATV and MMDS cable cross-
ownership restrictions have been eliminated for cable operators subject to
effective competition.
The 1996 Telecom Act preserves must carry rights for local television
broadcasters, and clarifies that the geographic scope of must carry is to be
based on commercial publications which delineate television markets based on
viewing patterns. The FCC is directed to grant or deny must carry requests
within 120 days of a complaint being filed with the FCC.
Cable Equipment Compatibility and Scrambling Requirements. The 1996
---------------------------------------------------------
Telecom Act directs an FCC equipment comparability rulemaking emphasizing that
(1) narrow technical standards, mandating a minimum degree of common design
among televisions, VCRs, and cable systems, and relying heavily on the open
marketplace, should be pursued; (2) competition for all converter features
unrelated to security descrambling should be maximized; and (3) adopted
standards should not affect unrelated telephone and computer features. The 1996
Telecom Act directs the FCC to adopt regulations which assure the competitive
availability of converters, ("navigation devices") from vendors other than cable
operators. The 1996 Telecom Act provides that the FCC's rules may not impinge
upon signal security concerns or theft of service protections. Waivers will be
possible where the cable operator shows the waiver is necessary for the
introduction of new services. Once the equipment market becomes competitive,
FCC regulations in this area will be terminated.
The 1996 Telecom Act requires cable operators, upon subscriber request, to
fully scramble or block at no charge the audio and video portion of any channel
not specifically subscribed to by a household. Further, the 1996 Telecom Act
provides that sexually explicit programming must be fully scrambled or blocked.
If the cable operator cannot fully scramble or block its signal, it must
restrict transmission to those hours of the day when children are unlikely to
view the programming.
Cable Provision of Internet Services. Transmitting indecent material via
------------------------------------
the Internet is made criminal by the 1996 Telecom Act. However, on-line access
providers are exempted from criminal liability for simply providing
interconnection service; they are also granted an affirmative defense from
criminal or other action where in "good faith" they restrict access to indecent
materials. The 1996 Telecom Act further exempts on-line access providers from
civil liability for actions taken in good faith to restrict access to obscene,
excessively violent or otherwise objectionable material.
I-15
<PAGE>
Pre-existing Federal Regulation. The 1984 Cable Act and 1992 Cable Act
extensively regulated the cable television industry and the vast majority of
that regulation remains unchanged by the 1996 Telecom Act. Among other things,
the 1984 Cable Act (a) requires cable television systems with 36 or more
"activated" channels to reserve a percentage of such channels for commercial use
by unaffiliated third parties; (b) permits franchise authorities to require the
cable operator to provide channel capacity, equipment and facilities for public,
educational and governmental access; and (c) regulates the renewal of
franchises.
The 1992 Cable Act greatly expanded federal and local regulation of the
cable television industry. The Company believes that the 1992 Cable Act taken
as a whole has had and will continue to have a material adverse impact upon the
cable industry in general and upon the Company's cable operations specifically.
See related discussion under the caption Management's Discussion and Analysis of
Financial Condition and Results of Operations. Certain of the more significant
areas of regulation imposed by the 1992 Cable Act are discussed below.
Regulation of Program Licensing. The 1992 Cable Act directed the FCC to
-------------------------------
promulgate regulations regarding the sale and acquisition of cable programming
between multichannel video program distributors (including cable operators) and
programming services in which a cable operator has an attributable interest.
The legislation and the implementation regulations adopted by the FCC preclude
most exclusive programming contracts (unless the FCC first determines the
contract serves the public interest) and generally prohibit a cable operator
which has an attributable interest in a programmer from improperly influencing
the terms and conditions of sale to unaffiliated multichannel video program
distributors. Further, the 1992 Cable Act requires that such cable affiliated
programmers make their programming services available to cable operators and
competing video technologies such as MMDS and DBS, and to telephone company
providers of video services, on terms and conditions that do not unfairly
discriminate among such competitors.
Regulation of Carriage of Programming. Under the 1992 Cable Act, the FCC
-------------------------------------
adopted regulations prohibiting cable operators from requiring a financial
interest in a program service as a condition to carriage of such service,
coercing exclusive rights in a programming service or favoring affiliated
programmers so as to restrain unreasonably the ability of unaffiliated
programmers to compete.
Regulation of Cable Service Rates. The 1992 Cable Act subjected the
---------------------------------
Company's cable systems to rate regulation, except in those cases where they
face "effective competition". The FCC was required to establish standards and
procedures governing regulation of rates for basic cable service, equipment and
installation, which were then to be implemented by state and local franchising
authorities. The 1992 Cable Act also required the FCC, upon complaint from a
franchising authority or a cable subscriber, to review the "reasonableness" of
rates for CPSTs. The 1996 Telecom Act amended the 1992 Cable Act to allow only
LFAs to file complaints. Services offered on an individual basis, such as pay
television and pay-per-view services, were not subject to rate regulation.
On April 1, 1993, the FCC adopted rate regulations governing virtually all
cable systems. Such regulations were revised on February 22, 1994. Under such
regulations, existing basic and tier service rates typically are evaluated
against "benchmark" rates established by the FCC and subject to mandatory
reductions. Equipment and installation charges are regulated based on "actual
costs". As noted above, the 1996 Telecom Act provides that rate regulation of
the CPST automatically sunsets on March 31, 1999.
I-16
<PAGE>
The FCC also allowed cable operators to justify rates under "cost of
service" rules, which allow "high cost" systems to establish rates in excess of
the benchmark level. The FCC's interim cost of service rules allowed a cable
operator to recover through rates for regulated cable services its normal
operating expenses plus a rate of return equal to 11.25 percent on the rate
base. However, the FCC significantly limited the inclusion in the rate base of
acquisition costs in excess of the book value of tangible assets. As a result,
the Company pursued cost of service justifications in only a few cases. On
December 15, 1995, the FCC adopted slightly more favorable cost of service
rules.
The FCC's rate regulations generally permit cable operators to adjust rates
to account for inflation and increases in certain external costs, including
programming costs, to the extent such increases exceed the rate of inflation.
However, a cable operator may pass through increases in the cost of programming
services affiliated with such cable operator to the extent such costs exceed the
rate of inflation only if the price charged by the programmer to the affiliated
cable operator reflects either prevailing prices offered in the marketplace by
the programmer to unaffiliated third parties or the fair market value of the
programming. The FCC's revised regulations confirm that increases in pole
attachment fees ordinarily will not be accorded external cost treatment. The
FCC recently adopted a method for recovering external costs and inflation on an
annual basis. The new method minimizes the need for frequent rate adjustments
and the regulatory lag problems associated with the previous rate adjustment
methodology.
The regulations also provide mechanisms for adjusting rates when regulated
tiers are affected by channel additions or deletions. Additional programming
costs resulting from channel additions can be accorded the same external
treatment as other program costs increases, and cable operators presently are
permitted to recover a mark-up on their programming expenses. Under one option,
operators are allowed a flat ($.20) fee increase per channel added to an
existing CPST, with an aggregate cap on such increases ($1.20) plus a license
fee reserve ($.30) through 1996. In 1997, an additional flat ($.20) fee
increase will be available, and the license fees for additional channels and for
increases in existing channels will no longer be subject to the aggregate cap.
This optional approach for adding services is scheduled to expire on December
31, 1997.
The FCC adopted additional rules that permit channels of new programming
services to be added to cable systems in a separate new product tier which the
FCC has determined will not be rate regulated at this time. The FCC has also
adopted rules allowing operators to raise rates based on costs incurred in
connection with a substantial upgrade of the cable system. The FCC provided
additional rate relief for small operators that is not applicable to the
Company, except to the extent it acquires systems already eligible for this
favorable treatment.
The Company reduced many of its existing rates and has limited rate
increases to those increases allowed by FCC regulations. Such actions have had
a material adverse effect on the operating income of the Company's cable
systems. Many of these rate regulations are subject to change during the course
of ongoing proceedings before the FCC.
The Company has negotiated a rate settlement with the FCC which promises to
resolve all liability for alleged overcharges in past CPST rates and to approve
all existing CPST charges on a prospective basis. Under the terms of the
proposed settlement (which is still awaiting final action by the FCC), the
Company generally would provide a one time credit to each subscriber in a CPST
regulated community. The aggregate amount of such credits is approximately $9
million.
I-17
<PAGE>
Regulation of Customer Service. As required by the 1992 Cable Act, the FCC
------------------------------
has adopted comprehensive regulations establishing minimum standards for
customer service and technical system performance. Franchising authorities are
allowed to enforce stricter customer service requirements than the FCC
standards.
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act granted
--------------------------------------------
broadcasters a choice of "must carry" rights or "retransmission consent" rights.
By October of 1993, cable operations were required to secure permission from
broadcasters that elected retransmission consent rights before retransmitting
the broadcasters' signals. Local and distant broadcasters can require cable
operators to make a payment as a condition to carriage of such broadcasters'
station on a cable system. (Established "superstations" were not granted such
rights.)
The 1992 Cable Act also imposed obligations to carry "local" broadcast
stations for such stations which chose a "must carry" right, as distinguished
from the "retransmission consent" right described above. The rules adopted by
the FCC generally provided for mandatory carriage by cable systems of all local
full-power commercial television broadcast signals selecting must carry,
including the signals of stations carrying home-shopping programming and,
depending on a cable system's channel capacity, non-commercial television
broadcast signals. The United States Supreme Court is currently reviewing the
constitutionality of the must carry regulations.
Ownership Regulations. The 1992 Cable Act required the FCC to (1)
---------------------
promulgate rules and regulations establishing reasonable limits on the number of
cable subscribers which may be served by a single multiple system cable operator
or entities in which it has an attributable interest, (2) prescribe rules and
regulations establishing reasonable limits on the number of channels on a cable
system that will be allowed to carry programming in which the owner of such
cable system has an attributable interest, and (3) consider the necessity and
appropriateness of imposing limitations on the degree to which multichannel
video programming distributors (including cable operators) may engage in the
creation or production of video programming. On September 23, 1993, the FCC
adopted regulations establishing a 30% limit on the number of homes nationwide
that a cable operator may reach through cable systems in which it holds an
attributable interest, (attributable for these purposes is defined as a 5% or
greater ownership interest or the existence of any common directors) with an
increase to 35% if the additional cable systems are minority controlled.
However, the FCC stayed the effectiveness of its ownership limits pending the
appeal of a September 16, 1993 decision by the United States District Court for
the District of Columbia which, among other things, found unconstitutional the
provision of the 1992 Cable Act requiring the FCC to establish such ownership
limits. If the ownership limits are determined on appeal to be constitutional,
they may affect the Company's ability to acquire interests in additional cable
systems.
On September 23, 1993, the FCC also adopted regulations limiting carriage
by a cable operator of national programming services in which that operator
holds an attributable interest (using the same attribution standards as were
adopted for its limits on the number of homes nationwide that a cable operator
may reach through its cable systems) to 40% of the first 75 activated channels
on each of the cable operator's systems. The rules provide for the use of two
additional channels or a 45% limit, whichever is greater, provided that the
additional channels carry minority controlled programming services. The
regulations also grandfather existing carriage arrangements which exceed the
channel limits, but require new channel capacity to be devoted to unaffiliated
programming services until the system achieves compliance with the regulations.
Channels beyond the first 75 activated channels are not subject to such
limitations, and the rules do not apply to local or regional programming
services.
I-18
<PAGE>
In the same rulemaking, the FCC concluded that additional restrictions on
the ability of multichannel distributors to engage in the creation or production
of video programming presently are unwarranted.
Under the 1992 Cable Act and the FCC's regulations, a cable operator may
not hold a license for a MMDS system within the same geographic area in which it
provides cable service. The 1996 Telecom Act would allow such ownership if
effective competition exists in that geographic area.
The 1992 Cable Act contains numerous other provisions which together with
the 1984 Cable Act create a comprehensive regulatory framework. Violation by a
cable operator of the statutory provisions or the rules and regulations of the
FCC can subject the operator to substantial monetary penalties and other
significant sanctions such as suspension of licenses and authorizations,
issuance of cease and desist orders, and imposition of penalties that could be
of severe consequence to the conduct of a cable operator's business. Many of
the specific obligations imposed on the operation of cable television systems
under these laws and regulations are complex, burdensome and increase the
Company's cost of doing business.
In the normal course of its business, the Company obtains licenses from the
FCC for two-way communications stations, and in certain cases, microwave relay
stations and other facilities. Based upon its experience and knowledge with the
renewal process, the Company has no reason to believe that such licenses will
not be renewed as they expire.
Pursuant to lease agreements with local public utilities, the cable
facilities in the Company's cable television systems are generally attached to
utility poles or are in underground ducts controlled by the utility owners. The
rates and conditions imposed on the Company for such attachments or occupation
of utility space are generally subject to regulation by the FCC or, in some
instances, by state agencies, and are subject to change. As described above,
the 1996 Telecom Act significantly revises the regulation of pole attachment
rates and access.
Copyright Regulations. The Copyright Revision Act of 1976 (the "Copyright
Act") provides cable television operators with a compulsory license for
retransmission of broadcast television programming without having to negotiate
with the stations or individual copyright owners for retransmission consent for
the programming. The availability of the compulsory license is conditioned upon
the cable operators' compliance with applicable FCC regulations, certain
reporting requirements and payment of appropriate license fees, including
interest charges for late payments, pursuant to the schedule of fees established
by the Copyright Act and regulations promulgated thereunder. The Copyright Act
also empowers the Copyright Office to periodically review and adjust copyright
royalty rates based on inflation and/or petitions for adjustments due to
modifications of FCC rules. The FCC has recommended to Congress the abolition
of the compulsory license for cable television carriage of broadcast signals, a
proposal that has received substantial support from members of Congress. Any
material change in the existing statutory copyright scheme could significantly
increase the costs of programming and be adverse to the business interests of
the Company.
I-19
<PAGE>
State and Local Regulation. Cable television systems are generally
licensed or "franchised" by local municipal or county governments and, in some
cases, by centralized state authorities with such franchises being given for
fixed periods of time subject to extension or renewal largely at the discretion
of the issuing authority. The specific terms and conditions of such franchises
vary significantly depending on the locality, population, competitive services,
and a host of other factors. While this variance takes place even among systems
of essentially the same size in the same state, franchises generally are
comprehensive in nature and impose requirements on the cable operator relating
to all aspects of cable service including franchise fees, technical
requirements, channel capacity, subscriber rates, consumer and service
standards, "access" channel and studio facilities, insurance and penalty
provisions and the like. Local franchise authorities generally control the sale
or transfer of cable systems to third parties. The franchising process, like
the federal regulatory climate, is highly politicized and no assurances can be
given that the Company's franchises will be extended or renewed or that other
problems will not be engendered at the local level. In connection with the
franchise renewal process, LFAs commonly request the provision of enhanced cable
system technology as a condition of franchise renewal. The 1984 Cable Act grants
certain protective procedures in connection with renewal of cable franchises,
which procedures were further clarified by the renewal provisions of the 1992
Cable Act.
Proposed Changes in Regulation. The regulation of cable television systems
at the federal, state and local levels is subject to the political process and
has been in constant flux over the past decade. Material changes in the law and
regulatory requirements must be anticipated and there can be no assurance that
the Company's business will not be affected adversely by future legislation, new
regulation or deregulation.
GENERAL
-------
Legislative, administrative and/or judicial action may change all or
portions of the foregoing statements relating to competition and regulation.
The Company has not expended material amounts during the last three fiscal
years on research and development activities.
There is no one customer or affiliated group of customers to whom sales are
made in an amount which exceeds 10% of the Company's consolidated revenue.
Compliance with Federal, state and local provisions which have been enacted
or adopted regulating the discharge of material into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, results of operations or competitive
position of the Company.
At December 31, 1995, the Company had approximately 32,500 employees. Of
these employees, approximately 750 were located in its corporate headquarters
and most of the balance were located at the Company's various facilities in the
communities in which the Company owns and/or operates cable television systems.
(d) Financial Information about Foreign & Domestic Operations and Export Sales
--------------------------------------------------------------------------
The Company has neither material foreign operations nor export sales.
I-20
<PAGE>
Item 2. Properties.
- - ------ ----------
The Company owns its executive offices in a suburb of Denver, Colorado. It
leases most of its regional and local operating offices. The Company owns many
of its head-end and antenna sites. Its physical cable television properties,
which are located throughout the United States, consist of system components,
motor vehicles, miscellaneous hardware, spare parts and other components.
The Company's cable television facilities are, in the opinion of
management, suitable and adequate by industry standards. Physical properties of
the Company are not held subject to any major encumbrance.
Item 3. Legal Proceedings.
- - ------ -----------------
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject, except as follows:
On September 30, 1994, an action captioned The Carter Revocable Trust by H.
--------------------------------
Allen Carter and Sharlynn Carter as Trustee v. Tele-Communications, Inc.; IR-
- - ----------------------------------------------------------------------------
Daniels Partners III; Daniels Ventures, Inc.; Cablevision Equities IV; Daniels &
- - --------------------------------------------------------------------------------
Associates, Inc.; and John V. Saeman, 94-N-2253, was filed in the United States
- - ------------------------------------
District Court for the District of Colorado. The suit alleges that all the
defendants violated disclosure requirements under the Securities Exchange Act of
1934, and that defendants IR-Daniels Partners III (now known as IR-TCI Partners
III), Daniels Ventures, Inc. (now known as TCI Ventures, Inc.) and Daniels &
Associates, Inc. (now known as TCI Cablevision Associates, Inc. or "D&A")
breached a fiduciary duty to plaintiff and other limited partners of American
Cable TV Investors 3 (the "ACT 3 Partnership"), in connection with (i) the sale
to TCI Communications, Inc. of ACT 3 Partnership's ownership interest in the
Redlands System and (ii) the sale to affiliates of TCIC of ACT 3 Partnership's
ownership interests in other cable television systems (the "ACT 3
Transactions").
Plaintiff brings this action on behalf of himself and purports to bring it
as a class action on behalf of all persons who were limited partners of the ACT
3 Partnership as of the close of business on October 1, 1993 and who had their
proxies solicited by the defendants in connection with the ACT 3 Transactions
that allegedly "resulted in the dissolution of the ACT 3 Partnership and the
loss of their limited partnership interests."
Plaintiff seeks unspecified damages that allegedly include, but are not
limited to (i) the difference between the value of ACT 3 Partnership's interest
in the Redlands System (as a percentage of the appraised value of that system as
determined by a 1992 appraisal) and the amount paid by TCIC for the ACT 3
Partnership's interest in the Redlands System, plus the amount of a fee paid to
D&A, and (ii) the difference between the fair market value of the limited
partnership interests owned by members of a putative class and value received by
members of the putative class pursuant to the ACT 3 Transactions. Plaintiff
also seeks interest and consequential damages.
Plaintiffs moved for class certification which was granted by the Court on
November 3, 1995. Factual discovery in this case is complete. The case is not
currently set for trial, but there is a pre-trial conference scheduled for April
9, 1996. Defendants will be filing a Motion for Summary Judgment within the
scheduling deadlines ordered by the Court. Management of the Company believes
that, although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.
I-21
<PAGE>
On September 30, 1994, an action captioned WEBBCO v. Tele-Communications,
------------------------------
Inc.; IR-Daniels Partners II; Daniels Ventures, Inc.; Cablevision Equities III;
- - -------------------------------------------------------------------------------
Daniels & Associates, Inc.; and John V. Saeman, 94-N-2254, was filed in the
- - ----------------------------------------------
United States District Court for the District of Colorado. The suit alleges
that all the defendants violated disclosure requirements under the Securities
Exchange Act of 1934, and that defendants IR-Daniels Partners II (now known as
IR-TCI Partners II), Daniels Ventures, Inc. (now known as TCI Ventures, Inc.)
and D&A breached a fiduciary duty to plaintiff and other limited partners of
American Cable TV Investors 2 (the "ACT 2 Partnership"), in connection with the
sale to TCIC of ACT 2 Partnership's ownership interest in the Redlands System
(the "ACT 2 Transaction").
Plaintiff brings this action on behalf of himself and purports to bring it
as a class action on behalf of all persons who were limited partners of the ACT
2 Partnership as of the close of business on October 1, 1993 and who had their
proxies solicited by the defendants in connection with the ACT 2 Transaction
that allegedly "resulted in the dissolution of the ACT 2 Partnership and the
loss of their limited partnership interests."
Plaintiff seeks unspecified damages that allegedly include, but are not
limited to (i) the difference between the value of ACT 2 Partnership's interest
in the Redlands System (as a percentage of the appraised value of that system as
determined by a 1992 appraisal) and the amount paid by TCIC for ACT 2
Partnership's interest in the Redlands System, plus the amount of a fee paid to
D&A, and (ii) the difference between the fair market value of the limited
partnership interests owned by members of a putative class and value received by
members of the putative class pursuant to the ACT 2 Transaction. Plaintiff also
seeks interest and consequential damages.
Plaintiffs moved for class certification which was granted by the Court on
November 3, 1995. Factual discovery in this case is complete. The case is not
currently set for trial, but there is a pre-trial conference scheduled for April
9, 1996. Defendants will be filing a Motion for Summary Judgment within the
scheduling deadlines ordered by the Court. Management of the Company 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.
Intellectual Property Development Corporation v. UA-Columbia Cablevision
------------------------------------------------------------------------
of Westchester, Inc. and Tele-Communications, Inc. On September 1, 1994,
- - --------------------------------------------------
plaintiff filed suit in federal court in New York for the alleged infringement
of a patent for an invention used in broadcasting systems with fiber optic
transmission lines. Plaintiff seeks injunctive relief and unspecified treble
damages. The patent at issue expired on January 16, 1996, thereby eliminating
any claim for injunctive relief by plaintiff. The issues now center around
whether defendants owe past damages up to the time the patent expired.
Discovery is currently ongoing. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of this
action, the ultimate disposition of this action should not have a material
adverse effect upon the financial condition of the Company.
I-22
<PAGE>
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 alleges, 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 seeks $1,000,000 compensatory damages and $5,000,000 punitive damages
per count. The loss of consortium claim is 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). On January 6, 1995, the parties stipulated to the
dismissal of the case without prejudice, which dismissal the Court approved on
January 9, 1995. A Motion to Dismiss was filed in the state court action and
the Court dismissed plaintiffs' claims for intentional infliction of emotional
distress, false light and privacy violations without prejudice and granted
plaintiffs' leave to amend the complaint. Discovery is currently ongoing and
trial is scheduled to commence October 21, 1996. 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.
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 alleges, 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 seek 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 apply to
eight of the plaintiffs. On January 6, 1995, the parties stipulated to the
dismissal of the case without prejudice, which dismissal the Court approved on
January 9, 1995. The Company intends to contest the state court case.
Discovery is currently ongoing and trial is scheduled to commence October 21,
1996. Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of this action, the ultimate
disposition should not have a material adverse effect upon the financial
condition of the Company.
I-23
<PAGE>
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 alleges, 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 seek 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 alleges 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 seeks $1,000,000 in
compensatory damages and $5,000,000 in punitive damages per plaintiff. The
Company intends to contest the case. Motions to Dismiss were filed in this
consolidated action and the Court entered an Order dismissing plaintiffs' claims
for intentional infliction of emotional distress and wrongful discharge without
prejudice and granted plaintiffs' leave to amend their complaint. Discovery is
currently ongoing and trial is scheduled to commence October 21, 1996. Based
upon the facts available, management believes that, although no assurance can be
given as to the outcome of this action, the ultimate disposition should not have
a material adverse effect upon the financial condition of the Company.
I-24
<PAGE>
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 alleges, 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. Six
counts in the complaint each seek compensatory damages of $1,000,000 per
plaintiff, and punitive damages of $5,000,000 per plaintiff. Three other counts
in the complaint each seek compensatory damages 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 allege 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 allege loss on
consortium. Ten existing plaintiffs also allege wrongful discharge and civil
conspiracy to wrongfully terminate. Each claim seeks $1,000,000 in compensatory
damages and $5,000,000 in punitive damages per plaintiff. The Company intends
to contest the case. Motions to Dismiss were filed in this consolidated action
and the Court entered an Order dismissing plaintiffs' claims for intentional
infliction of emotional distress and wrongful discharge without prejudice and
granted plaintiffs' leave to amend their complaint. Discovery is currently
ongoing and trial is scheduled to commence October 21, 1996. Based upon the
facts available, management believes that, although no assurance can be given as
to the outcome of this action, the ultimate disposition should not have a
material adverse effect upon the financial condition of the Company.
I-25
<PAGE>
Viacom International, Inc. v. Tele-Communications, Inc., Liberty Media
----------------------------------------------------------------------
Corporation, Satellite Services, Inc., Encore Media Corporation, NetLink USA,
- - -----------------------------------------------------------------------------
Comcast Corporation, and QVC Network, Inc. This suit was filed on September 23,
- - ------------------------------------------
1993 in the United States District Court for the Southern District of New York,
and the complaint was amended on November 9, 1993. The amended complaint
alleges that the Company violated the antitrust laws of the United States and
the State of New York, violated the 1992 Cable Act, breached an affiliation
agreement, and tortiously interfered with the Viacom Inc. - Paramount
Communications, Inc. ("Paramount") merger agreement and with plaintiff's
prospective business advantage. The amended complaint further alleges that even
if plaintiff is ultimately successful in its bid to acquire Paramount, its
competitive position will still be diminished because the Company, through
Liberty, will have forced plaintiff to expend additional financial resources to
consummate the acquisition. Plaintiff is seeking permanent injunctive relief
and actual and punitive or treble damages of an undisclosed amount. Plaintiff
claims that the Company, along with Liberty, has conspired to use its monopoly
power in cable television markets to weaken unaffiliated programmers and deny
access to essential facilities necessary for distributing programming to cable
television systems. Plaintiff also alleges that the Company has conspired to
deny essential technology necessary for distributing programming to owners of
home satellite dishes. Plaintiff claims that the Company is engaging in these
alleged conspiracies in an attempt to monopolize alleged national markets for
non-broadcast television programming and distribution. On October 11, 1994, the
United States District Court granted Tele-Communications, Inc. and the other
defendants' motion for partial summary judgment and dismissed Viacom's $2
billion damage claim alleging that defendants tortiously interfered with its
contract to merge with Paramount and with the prospective business advantage
Viacom claimed it had in seeking to merge with Paramount. The Court also held
that the $2 billion difference between plaintiff's cost to acquire Paramount
under its original proposed merger agreement with Paramount and the costs it
finally incurred when plaintiff acquired Paramount pursuant to a merger
agreement entered into after an auction, was not incurred as a result of an
antitrust injury and could not be asserted as a discreet element of Viacom's
damage even if Viacom was ultimately successful in proving any or all of its
antitrust claims. Viacom has also voluntarily dismissed its claims that the
defendants violated Section 7 of the Clayton Act and that certain of the
defendants breached the affiliation agreement they had with Viacom. On January
20, 1995, the parties entered into a settlement agreement under which this
action is to be dismissed with prejudice contemporaneously with the first
closing of the sale of certain cable systems pursuant to the Tele-Vue Agreement.
The Stipulation of Discontinuance with Prejudice has been executed by the
parties and is being held in escrow pending the first closing described above.
Based upon the facts available, management believes that, although no assurance
can be given as to the outcome of this action, the ultimate disposition should
not have a material adverse effect upon the financial condition of the Company.
I-26
<PAGE>
Euan Fannell v. Tele-Communications, Inc., et al. On February 8, 1994,
-------------------------------------------------
Euan Fannell, the former general manager of UCTC of Baltimore, Inc. filed suit
in the Circuit Court for Baltimore City against Tele-Communications, Inc., TCI
East, Inc., UCTC of Baltimore, Inc., and United Cable Television of Baltimore
Limited Partnership. The suit alleges, inter alia, employment defamation,
----------
intentional infliction of emotional distress, unreasonable intrusion upon
seclusion, invasion of privacy by false light, breach of contract, and
discrimination on the basis of race. The complaint also seeks divestiture of
the Baltimore City cable franchise of the Company. The plaintiff seeks
$10,000,000 in compensatory damages and $50,000,000 in punitive damages with
respect to the intentional infliction of emotional distress claim; and
$10,000,000 in compensatory damages and $50,000,000 in punitive damages with
respect to each of five other counts. 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 alleges 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 seeks $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 Company
intends to contest the case. Motions to Dismiss were filed in this consolidated
action and the Court entered an Order dismissing plaintiffs' claims for
intentional infliction of emotional distress and wrongful discharge without
prejudice and granted plaintiffs' leave to amend their complaint. Discovery is
currently ongoing and trial is scheduled to commence October 21, 1996. Based
upon the facts available, management believes that, although no assurance can be
given as to the outcome of this action, the ultimate disposition should not have
a material adverse effect upon the financial condition of the Company.
I-27
<PAGE>
Leonie Palumbo, et al. v. Tele-Communications, Inc., et al. On February 8,
-----------------------------------------------------------
1994, Leonie Palumbo, a former employee of TCI East, Inc., filed a class action
suit in the United States District Court for the District of Columbia against
Tele-Communications, Inc., John Malone, and J.C. Sparkman. The action alleges,
on behalf of a class of past, present and future black employees of the Company,
and all past, present and future black applicants for employment with the
Company, discrimination on the basis of race. The complaint seeks unspecified
compensation and punitive damages as well as injunctive relief for these
violations. On June 22, 1994, defendants moved to disqualify plaintiffs'
counsel on the ground that during the time period relevant to the case,
plaintiffs' lead counsel had an ownership interest and fiduciary
responsibilities relating to United Cable Television of Baltimore Limited
Partnership, one of the cable systems whose policies and practices are under
attack. Plaintiffs' lead counsel was a member of the board of UCTC of
Baltimore, Inc., the general partner of United Cable Television of Baltimore
Limited Partnership. By Order dated August 30, 1994, the Court granted
Defendants' Motion and gave plaintiffs 60 days to find substitute counsel. At a
status conference on April 26, 1995, the Court dismissed the action without
prejudice, with the understanding that plaintiffs would have six months to
reinstitute the case with new counsel and that defendants would not raise any
objection to plaintiffs' reopening the case within the six month period in the
event that new counsel was retained. The six month period has expired and no
substitute counsel has surfaced for plaintiffs. Accordingly, this case will not
be reported in future filings.
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 Defendants' favor on or about March 15,
1996. Unless an appeal is filed within 45 days, the case will be closed. Based
upon the facts available, management believes that, although no assurance can be
given as to the outcome of this action, the ultimate disposition should not have
a material adverse effect upon the financial condition of the Company.
I-28
<PAGE>
Tony Jeffreys, et al v. Tele-Communications, Inc. et al. On February 7,
--------------------------------------------------------
1995, Tony Jeffreys and 41 current and former employees of United Cable
Television of Baltimore Limited Partnership filed a complaint in Circuit Court
for Baltimore City against Tele-Communications, Inc., UCT of Baltimore, Inc.,
United Cable Television of Baltimore Limited Partnership, UCTC of Baltimore,
Inc. and TCI East, Inc. With two exceptions, these plaintiffs are also parties
to identical claims asserted in the amended complaints filed on February 14,
1994 in the previously described Belgrave, Fannell and Lewis actions. The
-------- ------- -----
action alleges, in part, that the 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 seek damages in connection with their claims of assault,
civil conspiracy to commit assault, battery, civil conspiracy to commit battery,
false imprisonment, civil conspiracy to commit false imprisonment, intentional
infliction of 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 seeks
$1,000,000 in compensatory damages and $5,000,000 in punitive damages per
plaintiff. The Company intends to contest this action. Motions to Dismiss were
filed in this consolidated action and the Court entered an Order dismissing
plaintiffs' claims for intentional infliction of emotional distress and wrongful
discharge without prejudice and granted plaintiffs' leave to amend their
complaint. Discovery is currently ongoing and trial is scheduled to commence
October 21, 1996. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.
Donald E. Watson v. Tele-Communications, Inc., et al. On March 10, 1995,
-----------------------------------------------------
Donald Watson, doing business under the name of Tri-County Cable, filed suit in
Superior Court for the District of Columbia against TCI, TCI East, Inc.,
District Cablevision Limited Partnership, District Cablevision, Inc., TCI of
D.C., Inc., TCI of Maryland, Inc., TCI Development Corporation, United Cable
Television of Baltimore Limited Partnership, TCI of Pennsylvania, Inc. and two
individuals, Richard Bushey and Roy Harbert. The action alleges breach of
settlement agreement, intentional misrepresentations, tortious interference with
prospective advantage, tortious interference with contract, tortious
interference with economic relations, and discrimination on the basis of race.
Three counts in the Complaint seek compensatory damages of $2,500,000 and
punitive damages of $25,000,000; one count seeks compensatory damages of
$2,500,000 and punitive damages of $40,000,000; and two counts each seek
compensatory damages of $20,000,000 and punitive damages of $40,000,000. The
Company intends to contest this action. Based upon the facts available,
management believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition should not have a material adverse
effect upon the financial condition of the Company.
I-29
<PAGE>
Louis Beverly v. Tele-Communications, Inc., et al. On July 27, 1995, Louis
--------------------------------------------------
Beverly, a former employee of United Cable Television of Baltimore Limited
Partnership filed a complaint in United States District Court for the District
of Maryland against Tele-Communications, Inc., United Artists Cable of
Baltimore, Inc., United Cable Television of Baltimore Limited Partnership, UCTC
of Baltimore, Inc., and TCI East, Inc. The plaintiff alleges, in part, that his
termination on September 11, 1987, was the result of racial discrimination.
Plaintiff filed five counts, including race discrimination (Title VII),
violation of 42 USC 1981, defamation, invasion of privacy (false light), and
assault and battery. Each count seeks $3,000,000 in compensatory and $6,000,000
in punitive damages, an award of all bonuses and other compensation lost due to
defendants' actions as well as attorneys' fees, costs, and pre-judgment
interest. On February 14, 1996, the Court granted defendants' Motion dismissing
Tele-Communications, Inc., and TCI East, Inc. as parties, along with various
counts asserted by the plaintiffs including 42 USC 1981, defamation, invasion of
privacy, and assault and battery. United Artists Cable of Baltimore was also
dismissed from the Title VII claim for race discrimination. Currently, the only
damages available to plaintiff are those which existed prior to the amendment to
the Civil Rights Act of 1991. As the case currently stands, the remaining
defendants are faced with one count without exposure to punitive damages. Based
upon the facts available, management believes that, although no assurances 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.
Clarence L. Elder, both individually and as the group Representative vs.
------------------------------------------------------------------------
Tele-Communications, Inc. et al. On December 18, 1995, plaintiff filed suit in
- - ---------------------------------
the Circuit Court for Baltimore City, Case No. 95345001/CL205580 against UCTC
L.P. Company, UCTC of Baltimore, Inc., UTI Purchase Company, Inc. and Tele-
Communications, Inc. The allegations made in the complaint pertain to
plaintiff's interest in United Cable Television of Baltimore Limited
Partnership. Plaintiff claims he was wrongfully denied certain preference
distributions, rights to purchase stock, rights to escrow funds, and tax
distributions. Plaintiff claims entitlement to compensatory damages in excess
of $70,000,000 plus punitive damages in excess of $450,000,000. Plaintiff
asserts claims for: breach of contract; negligent misrepresentation;
negligence; unjust enrichment; conversion; fraud; and breach of fiduciary duty.
The Company intends to contest this action. Based upon the facts available,
management believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition should not have a material adverse
effect upon the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
- - ------ ---------------------------------------------------
None.
I-30
<PAGE>
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
- - ------ ---------------------------------------------------------------------
All of TCI Communications, Inc.'s (the "Company") common stock is owned by
Tele-Communications, Inc. No dividends have been paid on the Company's common
stock.
II-1
<PAGE>
Item 6. Selected Financial Data.
- - ------ -----------------------
The following tables present selected information relating to the financial
condition and results of operations of TCI Communications, Inc. for the past
five years. The following data should be read in conjunction with TCI
Communications, Inc.'s consolidated financial statements.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1995 1994* 1993* 1992* 1991*
---------- ------- ------- ------- -------
amounts in millions
Summary Balance Sheet Data:
- - ---------------------------
<S> <C> <C> <C> <C> <C>
Property and equipment, net $ 6,605 5,579 4,935 4,562 4,081
Franchise costs, net $ 11,563 9,297 9,197 9,300 8,104
Net assets of discontinued
operations $ -- -- -- -- 242
Total assets $ 19,981 15,880 16,527 16,315 15,169
Debt $ 12,635 10,712 9,900 10,285 9,455
Redeemable preferred stock $ -- -- 18 110 115
Stockholder's(s') equity $ 1,729 683 2,116 1,728 1,571
Common shares outstanding
(net of treasury shares):
Class A common stock 1 1 403 382 370
Class B common stock -- -- 47 48 49
<CAPTION>
Years ended December 31,
----------------------------------------------
1995 1994* 1993* 1992* 1991*
--------- ------- ------- ------- -------
amounts in millions
Summary Statement of
- - --------------------
Operations Data:
- - -----------------
<S> <C> <C> <C> <C> <C>
Revenue $ 5,118 4,318 4,153 3,574 3,214
Operating income $ 803 818 916 864 674
Earnings (loss) from:
Continuing operations $ (120) 94 (5) 8 (77)
Discontinued operations -- -- -- (15) (19)
------- ------- ------- ------- -------
(120) 94 (5) (7) (96)
Dividend requirement on
preferred stocks -- -- (2) (15) --
------- ------- ------- ------- -------
Net earnings (loss) attributable
to common stockholder(s) $ (120) 94 (7) (22) (96)
======= ======= ======= ======= =======
- - ------------------------
</TABLE>
* Restated - see note 3 to the TCI Communications, Inc. consolidated financial
statements included in Part II of this report.
II-2
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- - ------ -----------------------------------------------------------------------
of Operations.
--------------
General
-------
As of January 27, 1994, TCI Communications, Inc. (formerly Tele-
Communications, Inc. or "Old TCI") and Liberty Media Corporation ("Liberty")
entered into a definitive merger agreement to combine the two companies (the
"TCI/Liberty Combination"). The transaction was consummated on August 4, 1994
and was structured as a tax free exchange of Class A and Class B shares of both
companies and preferred stock of Liberty for like shares of a newly formed
holding company, TCI/Liberty Holding Company. In connection with the
TCI/Liberty Combination, Old TCI changed its name to TCI Communications, Inc.
("TCIC" or the "Company") and TCI/Liberty Holding Company changed its name to
Tele-Communications, Inc. ("TCI"). TCIC is a subsidiary of TCI.
During the fourth quarter of 1994, TCI was reorganized (the
"Reorganization") based upon four lines of business: Domestic Cable and
Communications; Programming; International Cable Programming ("TINTA"); and
Technology/Venture Capital. Upon Reorganization, certain of the assets of TCIC
were transferred to the other operating units. The most significant transfers
were as follows: (i) Turner Broadcasting System, Inc. ("TBS") and Discovery
Communications, Inc. were transferred to the Programming unit and (ii) TCI/US
WEST Cable Communications Group ("TeleWest UK") was transferred to TINTA. In
the first quarter of 1995, TCIC transferred certain additional assets to TINTA.
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI to issue a new class of stock ("Liberty Group Stock") which is
intended to reflect the separate performance of the Programming Unit ("Liberty
Media Group"). 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
one hundred percent of the equity value attributable to Liberty Media Group (the
"Distribution") 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").
In connection with the Distribution, subsidiaries of TCIC exchanged all of
the TCI Class A common stock and TCI preferred stock owned by such subsidiaries
for 267,944 shares of a new series of TCI Series Preferred Stock designated
Convertible Redeemable Participating Preferred Stock Series F (the "Series F
Preferred Stock"). Subsequent to such exchange, a holder of 78,077 shares of
Series F Preferred Stock converted its holdings into 100,524,364 shares of
Series A TCI Group Stock.
II-3
<PAGE>
Summary of Operations
---------------------
The following table sets forth, for the periods indicated, the percentage
relationship that certain items bear to revenue and the percentage increase or
decrease of the dollar amount of such items as compared to the prior period.
This summary provides trend data relating to TCIC's normal recurring operations.
Other items of significance are discussed separately under the captions "Other
Income and Expense", "Income Taxes" and "Net Earnings (Loss)" below.
<TABLE>
<CAPTION>
Relationship to Period to Period
Revenue Increase
Years ended Years ended
December 31, December 31,
------------------- --------------------
1995 1994 1993 1994-95 1993-94
----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue 100% 100% 100% 19% 4%
Operating costs and
expenses before
depreciation and
amortization 60 58 56 23% 8%
Depreciation and
amortization 24 23 22 24% 8%
---- ---- ----
Operating income 16% 19% 22% (2%) (11%)
==== ==== ====
</TABLE>
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 Federal Communications Commission ("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.
The FCC also allowed cable operators to justify rates under "cost of
service" rules, which allow "high cost" systems to establish rates in excess of
the benchmark level. The FCC's interim cost of service rules allowed a cable
operator to recover through rates for regulated cable services its normal
operating expenses plus a rate of return equal to 11.25 percent on the rate
base. However, the FCC significantly limited the inclusion in the rate base of
acquisition costs in excess of the book value of tangible assets. As a result,
the Company pursued cost of service justifications in only a few cases. On
December 15, 1995, the FCC adopted slightly more favorable cost of service
rules.
The regulations also provide mechanisms for adjusting rates when regulated
tiers are affected by channel additions or deletions. Additional programming
costs resulting from channel additions can be accorded the same external
treatment as other program costs increases, and cable operators presently are
permitted to recover a mark-up on their programming expenses. Under one option,
operators are allowed a flat ($.20) fee increase per channel added to an
existing cable programming services tier ("CPST"), with an aggregate cap on such
increases ($1.20) plus a license fee reserve ($.30) through 1996. In 1997, an
additional flat ($.20) fee increase will be available, and the license fees for
additional channels and for increases in existing channels will no longer be
subject to the aggregate cap. This optional approach for adding services is
schedule to expires on December 31, 1997.
II-4
<PAGE>
TCIC reduced its rates in 1993 and 1994 and limited its rate increase in
1995 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 October 30, 1995, the FCC accepted for comment a proposed resolution of
all complaints against the CPST currently pending against cable systems owned by
TCIC. If the proposed resolution is accepted by the FCC, TCIC will settle all
pending complaints by a one-time credit to each subscriber on CPST regulated
franchises. The aggregate amount of such credits is approximately $9 million
and had previously been accrued by TCIC. In addition, the FCC will find that
the CPST rates in CPST regulated franchises on September 15, 1995 comply with
federal regulations. TCIC has committed not to file any additional cost-of-
service filings until May 15, 1996 in franchises that were subject to CPST
regulations prior to September 15, 1995. However, TCIC will be able to avail
itself of the other mechanisms under FCC rules to recover costs, including
abbreviated cost-of-service filings covering system rebuilds and upgrades. In
the proposed resolution, TCIC does not admit any violation of, or any failure to
conform to, the 1992 Cable Act or the rules promulgated thereunder. The comment
period has ended and TCIC is awaiting final action by the FCC.
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
CPST 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 by approximately 19% from 1994 to 1995. Such increase
was the result of growth in subscriber levels within TCIC's cable television
systems (3%), increases in the rates charged to TCIC's subscribers from
inflation increases, the provision of new channels and increases in equipment
costs (4%), the effect of certain acquisitions (8%), growth in TCIC's satellite
subscribers (4%), growth in revenue generated by TCIC's common carrier microwave
assets (1%), and growth in advertising sales (1%), net of a decrease in revenue
due to the transfer of Netlink USA to the Programming unit in the Reorganization
(2%).
Revenue increased by approximately 4% from 1993 to 1994. Such increase was
the result of growth in subscriber levels within TCIC's cable television systems
(5%), the effect of certain acquisitions (2%) and certain new services (1%), net
of a decrease in revenue (4%) due to rate reductions required by rate regulation
implemented pursuant to the 1992 Cable Act. In the second half of 1994, as a
result of the FCC revision of its rate regulations which reduced benchmark
rates, TCIC experienced an additional decrease, in excess of that which was
incurred in 1993, in prices charged for its Regulated Services.
Included in TCIC's total revenue is revenue generated by TCIC's common
carrier microwave assets amounting to $80 million, $45 million and $55 million
for the years ended December 31, 1995, 1994 and 1993, respectively.
II-5
<PAGE>
Operating costs and expenses before depreciation and amortization have
increased 23% for the year ended December 31, 1995 compared to the corresponding
period of 1994. Such increase is consistent with the increase in revenue
discussed above and is due primarily to acquisitions and increased direct
broadcast satellite expenses. As a percent of revenue, operating expenses and
selling, general and administrative expenses were relatively comparable over the
1995 and 1994 periods. During 1995, the Company changed its approach to how it
ordered and stored excess cable distribution equipment. The Company created
material support centers and consolidated all of its excess inventory. In
conjunction with this change, the Company incurred $5 million of costs.
Additionally, during 1995, the Company incurred approximately $22 million in
expenses related to initiatives to improve its customer service, to begin the
redesign of its computer and accounting systems and to promote and market the
Company's products. During the fourth quarter of 1995, the Company incurred $25
million in expenses related to payment of bonuses to the majority of its
employees.
Programming expenses represented $979 million (32%), $845 million (34%) and
$740 million (32%) of total operating costs and expenses before depreciation and
amortization during 1995, 1994 and 1993, respectively. 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 Regulated Services.
The Company will experience an increase in programming costs in the first
five months of 1996 without increasing its rates charged to its customers at
that time. In June of 1996, the Company will be entitled to an increase in its
service rates for increased programming costs and inflation. FCC regulations
provide for the Company to further increase its rates by an additional amount
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.
TCIC has an investment in a direct broadcast satellite partnership,
Primestar Partners ("Primestar"). Primestar provides programming and marketing
support to each of its cable partners who then provide satellite service to
their customers. During 1995, TCIC's revenue and expenses related to such
satellite service have increased significantly as the number of TCIC's Primestar
subscribers increased from approximately 100,000 subscribers at January 1, 1995
to approximately 550,000 subscribers at December 31, 1995. During the year
ended December 31, 1995, revenue increased from $30 million to $207 million and
operating, selling, general and administrative expenses increased from $18
million to $197 million, as compared to the year ended December 31, 1994. TCIC
incurs significant sales commissions 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.
Operating costs and expenses before depreciation and amortization increased
8% for the year ended December 31, 1994 compared to the corresponding period of
1993. TCIC incurred $29 million of programming and marketing costs associated
with the launch in 1994 of a new premium programming service to its subscribers.
In 1993, TCIC incurred certain one-time direct charges relating to the
implementation of the FCC rate regulations.
The increase in TCIC's depreciation expense in 1995 is due to acquisitions,
as well as increased capital expenditures incurred to upgrade and install
optical fiber technology in TCIC's cable systems. The systems, which facilitate
digital transmission of voice, video and data signals, will have optical fiber
to neighborhood nodes with coaxial cable distribution downstream from that
point. The increase in amortization expense in 1995 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.
II-6
<PAGE>
Other Income and Expense
------------------------
TCIC's interest expense increased $185 million or 24% during 1995 as
compared to 1994 and $46 million or 6% during 1994 as compared to 1993. Such
increases are the result of higher interest rates and debt balances. TCIC's
weighted average interest rate on borrowings was 8.1%, 7.5% and 7.2% during
1995, 1994 and 1993, respectively.
TCIC had an investment in TeleWest UK in 1994, a company that is currently
operating and constructing cable television and telephone systems in the United
Kingdom ("UK"). TeleWest UK, which was accounted for under the equity method,
comprised $40 million and $28 million of TCIC's share of its affiliates' losses
in 1994 and 1993, respectively. In February 1994, TCIC acquired a consolidated
investment in Flextech p.l.c. ("Flextech"). Flextech accounted for net losses
in 1994 of $21 million (before deducting the minority interests' 40% share of
such losses). In addition, TCIC had other less significant investments in video
distribution and programming businesses located in the UK, other parts of
Europe, Asia, Latin America and certain other foreign countries. In the
aggregate, such other investments accounted for $44 million of TCIC's share of
its affiliates' losses in 1994. In connection with the Reorganization, TCIC's
ownership in the aforementioned entities was transferred to the International
Cable and Programming unit effective December 1, 1994, and TCIC is no longer
exposed to the risk associated with unfavorable fluctuations in foreign currency
exchange rates nor will it continue to incur the aforementioned losses
associated with such investments.
Prior to the Reorganization, TCI and US WEST, Inc. each exchanged their
respective 50% ownership interest in TeleWest UK for 302,250,000 ordinary shares
and 76,500,000 convertible preference shares of TeleWest Communications plc
("TeleWest Communications") (the "TeleWest Exchange"). Following the completion
of the TeleWest Exchange, TeleWest Communications conducted an initial public
offering in November of 1994 in which it sold 243,740,000 ordinary shares for
aggregate net proceeds of (Pounds)401 million (the "TeleWest IPO"). Upon
completion of the TeleWest Exchange and the TeleWest IPO, TCI and US WEST, Inc.
each became the owners of 36% of the ordinary shares and 38% of the total
outstanding ordinary and convertible preference shares of TeleWest
Communications. As a result of the TeleWest IPO and the associated dilution of
TCI's ownership interest of TeleWest Communications, TCIC recognized a gain
amounting to $161 million (before deducting the related tax expense of $57
million) in 1994.
On July 11, 1994, Rainbow Program Enterprise purchased 49.9% of Liberty's
50% general partnership interest in American Movie Classics Company ("AMC").
The gain recognized by Liberty in connection with the disposition of AMC was
$183 million and is included in TCIC's share of Liberty's earnings prior to the
TCI/Liberty Combination.
During 1995, 1994 and 1993, TCIC recorded losses of $6 million, $9 million
and $17 million, respectively, from early extinguishments of debt. There may be
additional losses associated with early extinguishments of debt in the future.
Interest and dividend income was $34 million, $35 million and $34 million
in 1995, 1994 and 1993, respectively. Included in the 1994 and 1993 amounts
were $5 million of dividends earned on TCIC's investment in TBS. Subsequent to
the Reorganization, TCIC no longer is the recipient of such stock dividends.
Income Taxes
------------
New tax legislation was enacted in the third quarter of 1993 which, among
other matters, increased the corporate Federal income tax rate from 34% to 35%.
TCIC reflected the tax rate change in its consolidated statements of operations.
Such tax rate change resulted in an increase of $76 million to TCIC's income tax
expense and deferred income tax liability in the third quarter of 1993.
II-7
<PAGE>
Net Earnings (Loss)
-------------------
TCIC's net loss of $120 million for the year ended December 31, 1995
represented a decrease of $214 million as compared to TCIC's net earnings of $94
million for the corresponding period of 1994. Such decrease is the net result
of an increase in interest expense due to higher debt levels, the dilution of
share of earnings of Liberty due to the TCI/Liberty Combination, TCIC's
recognition of a nonrecurring gain resulting from the TeleWest IPO in 1994 and a
decrease in operating income.
TCIC's net earnings of $94 million for the year ended December 31, 1994
represented an increase of $99 million as compared to TCIC's net loss (before
preferred stock dividends) of $5 million for the corresponding period of 1993.
Such increase is principally the result of the effect of improved share of
earnings from Liberty prior to the TCI/Liberty Combination (principally
resulting from the gain recognized by Liberty upon the sale of its investment in
AMC), TCIC's recognition of a nonrecurring gain resulting from the TeleWest IPO
and the associated dilution of TCIC's ownership interest in TeleWest
Communications, and the reduction in income tax expense (principally resulting
from the required recognition in the third quarter of 1993 of the cumulative
effect of the change in the Federal income tax rate from 34% to 35%), net of the
effect of the aforementioned reduction in rates charged for Regulated Services
and the decrease in gain on disposition of assets.
Inflation has not had a significant impact on TCIC's results of operations
during the three-year period ended December 31, 1995.
Recent Accounting Pronouncements
--------------------------------
In March of 1995, the Financial Accounting Standards Board (the "FASB")
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. TCIC will adopt
Statement No. 121 effective January 1, 1996. The effect of such adoption is not
expected to be significant.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("Statement No. 123") was issued by the FASB in October 1995.
Statement No. 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans as well as transactions in which an
entity issues its equity instruments to acquire goods or services from non-
employees. The Company will include the disclosures required by Statement
No. 123 in the notes to future financial statements.
II-8
<PAGE>
Liquidity and Capital Resources
-------------------------------
During 1994, TCIC, Comcast Corporation ("Comcast"), Cox Communications,
Inc. ("Cox" and together with TCIC and Comcast, the "Cable Partners") and Sprint
Corporation ("Sprint") formed a partnership ("WirelessCo") to engage in the
business of providing wireless communications services on a nationwide basis.
Through WirelessCo, of which TCIC owns a 30% interest, the partners have been
participating in auctions ("PCS Auctions") of broadband personal communications
services ("PCS") licenses being conducted by the FCC. In the first round
auction, which concluded during the first quarter of 1995, WirelessCo was the
winning bidder for PSC licenses for 29 markets, including New York, San
Francisco-Oakland-San Jose, Detroit, Dallas-Fort Worth, Boston-Providence,
Minneapolis-St. Paul and Miami-Fort Lauderdale. The aggregate license cost for
these licenses was approximately $2.1 billion.
WirelessCo has also invested in American PSC, L.P. ("APC"), which holds a
PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited partnership
interest in APC for $23 million and has agreed to make capital contributions to
APC equal to 49/51 of the cost of APC's PCS license. Additional capital
contributions may be required in the event APC is unable to finance the full
cost of its PCS license. WirelessCo may also be required to finance the build-
out expenditures for APC's PCS system. Cox, which holds a pioneer preference
PCS license for the Los Angeles-San Diego market, and WirelessCo have also
agreed on the general terms and conditions upon which Cox (with a 51% interest)
and WirelessCo (with a 49% interest) would form a partnership to hold and
develop a PCS system using the Los Angeles-San Diego license. APC and the Cox
partnership would affiliate their PCS systems with WirelessCo and be part of
WirelessCo's nationwide integrated network, offering wireless communications
services under the "Sprint" brand. The Company owns a 30% interest in
WirelessCo.
During 1994, subsidiaries of Cox, Sprint and the Company also formed a
separate partnership ("PhillieCo"), in which the Company owns a 35.3% interest.
PhillieCo was the winning bidder in the first round auction for a PCS license
for the Philadelphia market at a license cost of $85 million. To the extent
permitted by law, the PCS system to be constructed by PhillieCo would also be
affiliated with WirelessCo's nationwide network.
WirelessCo may bid in subsequent rounds of the PCS Auctions and may invest
in, affiliate with or acquire licenses from other successful bidders. The
capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above, will
be substantial.
In March of 1995, the Cable Partners and Sprint (collectively, the
"Partners") formed two new partnerships of which the principal partnership is
MajorCo, L.P. ("MajorCo"), to which they contributed their respective interests
in WirelessCo and through which they formed another partnership, NewTelco, L.P.
("NewTelco") to engage in the business of providing local wireline
communications services to residences and businesses on a nationwide basis. The
Cable partners agreed to contribute their interests in Teleport Communications
Group, Inc. and TCG Partners (collectively, "TCG") to NewTelco. TCG is one of
the largest competitive access providers in the United States in terms of route
miles.
II-9
<PAGE>
Effective January 31, 1996, the Partners amended the MajorCo partnership
agreement (the "Partnership Agreement") and certain other agreements related
thereto. Under the Partnership Agreement, the business of MajorCo and its
subsidiaries will be the provision of certain wireless and other services
described in the Partnership Agreement. The Partners intend for WirelessCo and
its subsidiary partnerships to be the exclusive vehicles through which they
engage in the wireless telephony service businesses, subject to certain
exceptions. MajorCo will no longer be authorized to engage in the business of
providing local wireline communications services to residences and businesses.
In connection with the amendment of the Partnership Agreement, the Partners also
agreed to the termination of the agreement to contribute the Cable Partners'
interests in TCG to NewTelco.
Pursuant to separate agreements, each of the Cable Partners and Sprint have
agreed to negotiate in good faith on a market-by-market basis for the provision
of local wireline telephony services over the cable television facilities of the
respective Cable Partner under the Sprint brand. Accordingly, local wireline
telephony offerings in each market would be the subject of individual agreements
to be negotiated with Sprint rather than being provided by MajorCo, as
originally contemplated. The Cable Partners and Sprint also reaffirmed their
intention to continue to attempt to integrate the business of TCG with that of
MajorCo. In addition, each Cable Partner agreed to certain restrictions on its
ability to offer, promote, or package certain of its products or services with
certain products and services of other persons and agreed to make its facilities
available to Sprint for specified purposes to the extent and on the terms that
it has made such facilities available to others for such purposes. Such
agreements have a term of five years, but under certain circumstances may
terminate after three years.
Execution of the foregoing agreements was a condition to the effectiveness
of a previously approved business plan for the build out of WirelessCo's
nationwide network for wireless personal communications services. Pursuant to
the business plan, the Partners are obligated to make additional cash capital
contributions to MajorCo in the aggregate amount of approximately $1.9 billion
during the two-year period that commenced January 1, 1996. The business plan
contemplates that MajorCo will require additional equity thereafter.
As of January 26, 1995, TCI, TCIC, and TeleCable Corporation ("TeleCable")
consummated a transaction whereby TeleCable was merged into TCIC. The aggregate
$1.6 billion purchase price was satisfied by TCIC's assumption of approximately
$300 million of TeleCable's net liabilities and the issuance to TeleCable's
shareholders of approximately 42 million shares of TCI Class A common stock and
1 million shares of TCI Convertible Preferred stock, Series D (the "Series D
Preferred Stock") with an aggregate initial liquidation value of $300 million.
The Series D Preferred Stock, which accrues dividends at a rate of 5.5% per
annum, is convertible into 10 million shares of Series A TCI Group Stock and 2.5
million shares of Series A Liberty Group Stock. The Series D Preferred Stock is
redeemable for cash at the option of TCI after five years and at the option of
either TCI or the holder after ten years.
II-10
<PAGE>
In July 1995, TCIC and TCI entered into certain agreements with Viacom Inc.
("Viacom") and certain subsidiaries of Viacom regarding the purchase by TCIC of
all of the common stock of a subsidiary of Viacom ("Cable Sub") which, at the
time of purchase, will own Viacom's cable systems and related assets.
The transaction has been structured as a tax-free reorganization in which
Cable Sub will initially transfer 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 will also transfer to New Viacom Sub the proceeds
(the "Loan Proceeds") of a $1.7 billion loan facility (the "Loan Facility") to
be arranged by TCIC, TCI and Cable Sub. Following these transfers, Cable Sub
will retain cable assets with an estimated value at closing of approximately
$2.2 billion and the obligation to repay the Loan Proceeds borrowed under the
Loan Facility. Repayment of the Loan Proceeds will be non-recourse to Viacom
and New Viacom Sub.
Viacom will offer 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"). The Exchange Offer will be
subject to a number of conditions, including a condition (the "Minimum
Condition") that sufficient tenders are made of Viacom Common Stock that permit
the number of shares of Cable Sub Class A Stock issued pursuant to the Exchange
Offer to equal the total number of shares of Cable Sub Class A Stock issuable in
the Exchange Offer.
Immediately following the completion of the Exchange Offer, TCIC will
acquire from Cable Sub shares of Cable Sub Class B Common Stock for $350 million
(which will be used to reduce Cable Sub's obligations under the Loan Facility).
At the time of such acquisition, the Cable Sub Class A Stock received by Viacom
stockholders pursuant to the Exchange Offer will automatically convert into a
series of senior cumulative exchangeable preferred stock (the "Exchangeable
Preferred Stock") of Cable Sub 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, will be designed to cause the
Exchangeable Preferred Stock to initially trade at the Stated Value. The
Exchangeable Preferred Stock, in the opinion of two investment banks, will be
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
Exchangeable Preferred Stock will also be redeemable, at the option of Cable
Sub, after the fifth anniversary of the date of issuance, and will be 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, payable
in cash or, at the election of Cable Sub, in shares of Series A TCI Group Stock
or in combination of the foregoing. If insufficient tenders are made by Viacom
stockholders in the Exchange Offer to permit the Minimum Condition to be
satisfied, Viacom will extend the Exchange Offer for up to 15 business days and,
during such extension, TCI and Viacom are to negotiate in good faith to
determine mutually acceptable changes to the terms and conditions for the
Exchangeable Preferred Stock and the Exchange Offer that each believes in good
faith will cause the Minimum Condition to be fulfilled and that would cause the
Exchangeable Preferred Stock to trade at a price equal to the Stated Value
immediately following the expiration of the Exchange Offer. In the event the
Minimum Condition is not thereafter met, TCI and Viacom will each have the right
to terminate the transaction. In addition, either party may terminate the
transaction if the Exchange Offer has not commenced by June 24, 1996 or been
consummated by July 24, 1996.
II-11
<PAGE>
Consummation of the transaction is subject to a number of conditions,
including receipt of a favorable letter ruling from the Internal Revenue Service
that the transaction qualifies as a tax-free transaction and the satisfaction or
waiver of all of the conditions of the Exchange Offer. A request for a letter
ruling from the Internal Revenue Service has been filed by Viacom. TCIC
believes that, based upon the unique and complex structure of the transaction,
there exists significant uncertainty as to whether a favorable ruling will be
obtained. In light of the foregoing, management of TCIC has concluded that
consummation of the transaction is not yet probable. Accordingly, no assurance
can be given that the transaction will be consummated.
At December 31, 1995, Cable Sub provided service to approximately 1.2
million basic subscribers and had total assets of $1,067 million. For the year
ended December 31, 1995, Cable Sub had revenues of $442 million and net earnings
of $34 million. It is expected that if the transaction is consummated, the
Company would account for such acquisition under the purchase method of
accounting. Accordingly, the cost to acquire Cable Sub estimated at
approximately $2.2 billion (reflecting the Loan Proceeds of $1.7 billion and the
estimated aggregate Stated Value of the Exchangeable Preferred Stock of $500
million) would be allocated to the assets and liabilities acquired according to
their respective fair values, with any excess being treated as intangible
assets. As such, the Company will, if such transaction is consummated, reflect
additional interest expense, depreciation, amortization and minority share of
losses of consolidated subsidiaries. On a pro forma basis, if the transaction
had been consummated under its current terms on or before January 1, 1995, Cable
Sub would have reflected loss before taxes of approximately $51 million for the
year ended December 31, 1995. On a pro forma basis, Cable Sub would reflect an
approximate $21 million of preferred stock dividend requirements on an annual
basis assuming, solely for the purpose of this presentation, a dividend rate of
4.25% per annum on the Exchangeable Preferred Stock. On a pro forma basis, the
Company would reflect the foregoing financial impacts of Cable Sub in its
consolidated results of operations except that the preferred stock dividend
requirement of Cable Sub would be reflected as minority interest in the
Company's statement of operations and the Company would incur an additional
approximately $28 million of interest expense per year arising from the assumed
borrowing by the Company for its $350 million capital contribution to Cable Sub.
Pursuant to an underwritten public offering, TCI sold 19,550,000 shares of
TCI Class A common stock in February of 1995. TCI received approximately $401
million. Such proceeds were immediately used to reduce TCIC outstanding
indebtedness under credit facilities.
II-12
<PAGE>
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.
During the year ended December 31, 1995, TCIC sold approximately $1.5
billion of publicly-placed fixed-rate senior and medium term notes with interest
rates ranging from 6.8% to 8.8% and maturity dates ranging through 2015. The
proceeds from the sale of these notes were used primarily to repay variable-rate
bank debt.
Subsequent to December 31, 1995, the Company issued (i) 4.6 million shares
of Series A Cumulative Exchangeable Preferred Stock in a public offering for net
cash proceeds of $223.1 million and (ii) $1 billion of publicly-placed fixed
rate senior and medium term notes with interest rates ranging from 6.9% to 7.9%
and maturing dates ranging through 2026. In addition, a subsidiary of the
Company (a special purpose entity formed as a Delaware business trust) issued 20
million preferred securities of 8.72% Trust Originated Preferred Securities for
net cash proceeds of $486 million. The Company used the proceeds from the
aforementioned debt and equity securities to retire overnight commercial paper
and to repay variable rate indebtedness.
The Company has a credit facility which matures in September of 1996. The
outstanding balance of such facility was $602 million at December 31, 1995. 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.
The Company had approximately $2.1 billion in unused lines of credit at
December 31, 1995 excluding amounts related to lines of credit which provide
availability to support commercial paper. Although the Company was in
compliance with the restrictive covenants contained in its credit facilities at
said date, additional borrowings under the credit facilities are subject to the
Company's continuing compliance with such restrictive covenants (which relate
primarily to the maintenance of certain ratios of cash flow to total debt and
cash flow to debt service, as defined). The Company believes that the
aforementioned FCC 1993 and 1994 rate regulations will not materially impact the
availability under its subsidiaries' lines of credit or its ability to repay
indebtedness as it matures. See note 6 to the accompanying consolidated
financial statements for additional information regarding the material terms of
the Company's lines of credit.
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)($2,043 million, $1,801 million and $1,858 million in 1995,
1994 and 1993, respectively) to interest expense ($962 million, $777 million and
$731 million in 1995, 1994 and 1993, respectively), is determined by reference
to the consolidated statements of operations. The Company's interest coverage
ratio was 212%, 232% and 254% for 1995, 1994 and 1993, respectively. The
decrease in the Company's interest coverage in 1995 is caused by increased
interest expense due to higher interest rates and debt levels in 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, 45% 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 ($1,263 million, $1,142 million and $1,251
million in 1995, 1994 and 1993, respectively) reflects net cash from the
operations of the Company available for the Company's liquidity needs after
taking into consideration the aforementioned additional substantial costs of
doing business not reflected in Operating Cash Flow. Amounts expended by the
Company for its investing activities exceed net cash provided by operating
activities. However, management believes that net cash provided by operating
activities, the ability of the Company and its subsidiaries to obtain additional
financing (including the subsidiaries available lines of credit and access to
public debt markets), issuances and sales of the Company's equity or equity of
its subsidiaries, proceeds from disposition of assets will provide adequate
sources of short-term and long-term liquidity in the future. See the Company's
consolidated statements of cash flows included in the accompanying consolidated
financial statements.
II-13
<PAGE>
In order to achieve the desired balance between variable and fixed rate
indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements and interest rate hedge agreements. At December 31, 1995, after
considering the net effect of various interest rate hedge and exchange
agreements (see note 6 to the consolidated financial statements) with notional
amounts aggregating $1,918 million, TCIC had $5,701 million (or 45%) of fixed-
rate debt with a weighted average interest rate of 8.8% and $6,934 million (or
55%) of variable-rate debt with a weighted average interest rate of 6.3% at
December 31, 1995.
Pursuant to the interest rate exchange agreements, the Company pays
(i) fixed interest rates ranging from 6.1% to 9.9% on notional amounts of $602
million at December 31, 1995 and (ii) variable interest rates on notional
amounts of $2,520 million at December 31, 1995. During the years ended December
31, 1995, 1994 and 1993, the Company's net payments pursuant to its fixed rate
exchange agreements were $13 million, $26 million and $38 million, respectively.
During the years ended December 31, 1995, 1994 and 1993, the Company's net
receipts (payments) pursuant to its variable rate exchange agreements were (less
than $1 million), $36 million and $31 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.
Approximately twenty-five percent of the franchises held by the Company,
involving approximately 4.4 million basic subscribers, expire within five years.
There can be no assurance that the franchises for the Company's systems will be
renewed as they expire, although the Company believes that its cable television
systems generally have been operated in a manner which satisfies the standards
established by the Cable Communications Policy Act of 1984, as supplemented by
the renewal provisions of the 1992 Cable Act, for franchise renewal. However,
in the event they are renewed, the Company cannot predict the impact of any new
or different conditions that might be imposed by the franchising authorities in
connection with the renewals. To date they have not varied significantly from
the original terms.
A significant competitive impact is expected from medium power and higher
power direct broadcast satellites ("DBS") that use high frequencies to transmit
signals that can be received by dish antennas much smaller in size than
traditional home satellite dishes ("HSDs"). The Company has an interest in an
entity, Primestar, that distributes a multi-channel programming service via a
medium power communications satellite to HSDs of approximately 3 feet in
diameter. At December 31, 1995, Primestar, through its partners, served an
estimated 940,000 HSDs in the United States. Two other DBS operators, DirecTV,
a subsidiary of GM Hughes Electronics, and United States Satellite Broadcasting,
a subsidiary of Hubbard Broadcasting, Inc., offer video services that can be
received by HSDs that measure approximately eighteen inches in diameter. Such
DBS operators have the right to distribute substantially all of the significant
cable television programming services currently carried by cable television
systems. The competition from DBS will likely continue to grow. One DBS
operator is preparing to launch a new DBS satellite. AT&T Corp. recently made a
large investment in DirecTV and several other major companies are preparing to
develop and operate high-power DBS systems, including MCI Communications Corp.
("MCI") and News Corp. MCI recently acquired rights to satellite frequencies
for DBS in an FCC auction.
II-14
<PAGE>
The 1996 Telecom Act eliminated the statutory and regulatory restrictions
that prevented telephone companies from competing with cable operators for the
provision of video services by any means. The 1996 Telecom Act allows local
telephone companies, including the Bell Operating Companies, to compete with
cable television operators both inside and outside their telephone service
areas. The Company expects that it will face substantial competition from
telephone companies for the provision of video services. The Company assumes
that all major telephone companies have already entered or soon will enter the
business of providing video services. Most major telephone companies have
greater financial resources than the Company, and the 1992 Cable Act ensures
that telephone company providers of video services will have access to all of
the significant cable television programming services. Additionally, the 1996
Telecom Act eliminates certain federal restrictions on utility holding companies
and thus frees all utility companies to provide cable television services. The
Company expects this could result in another source of significant competition
in the delivery of video services.
The Company is upgrading and installing optical fiber technology in its
cable systems at a rate such that in approximately two years TCIC anticipates
that it will be serving the majority of its customers with this technology. The
systems, which facilitate digital transmission of voice, video, and data
signals, will have optical fiber to neighborhood nodes with coaxial cable
distribution downstream from that point. The Company made capital expenditures
of $1,665 million in 1995 and the Company expects to expend similar amounts in
1996 to provide for the continued rebuilding of its cable systems. However, such
proposed expenditures are subject to reevaluation based upon changes in the
Company's liquidity, including those resulting from rate regulation.
TCIC has guaranteed notes payable and other obligations of affiliated and
other companies with outstanding balances of approximately $185 million at
December 31, 1995. Although there can be no assurance, management of TCIC
believes that it will not be required to meet its obligations under such
guarantees, or if it is required to meet any of such obligations, that they will
not be material to TCIC.
The Company is obligated to pay fees for the license to exhibit certain
qualifying films that are released theatrically by various motion picture
studios through December 31, 2005 (the "Film License Obligations"). The
aggregate minimum liability under certain of the license agreements is
approximately $135 million. The aggregate amount of the Film License
Obligations under other license agreements is not currently estimable because
such amount is dependent upon certain variable factors.
TCIC has also committed to provide additional debt or equity funding to
certain of its affiliates. At December 31, 1995, such commitments aggregated
$24 million.
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.
II-15
<PAGE>
Item 8. Financial Statements and Supplementary Data.
- - ------ -------------------------------------------
The consolidated financial statements of TCI Communications, Inc. are filed
under this Item, beginning on Page II-17. The financial statement schedules
required by Regulation S-X are filed under Item 14 of this Annual Report on
Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- - ------ ---------------------------------------------------------------
Financial Disclosure.
--------------------
None.
II-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
TCI Communications, Inc.:
We have audited the accompanying consolidated balance sheets of TCI
Communications, Inc. and subsidiaries (a subsidiary of Tele-Communications,
Inc.) as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholder's(s') equity, and cash flows for each of the years in
the three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of TCI Communications,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 18, 1996
II-17
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994 *
---------- --------
Assets amounts in millions
- - ------
<S> <C> <C>
Cash $ -- 6
Trade and other receivables, net 262 198
Investments in affiliates, accounted for
under the equity method, and related
receivables (note 4) 1,062 341
Property and equipment, at cost:
Land 63 68
Distribution systems 8,942 7,589
Support equipment and buildings 1,147 921
------- ------
10,152 8,578
Less accumulated depreciation 3,547 2,999
------- ------
6,605 5,579
------- ------
Franchise costs 13,618 10,994
Less accumulated amortization 2,055 1,697
------- ------
11,563 9,297
------- ------
Other assets, at cost, net of 489 459
amortization ------- ------
$19,981 15,880
======= ======
</TABLE>
*Restated - see note 3.
(continued)
II-18
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
<TABLE>
<CAPTION>
1995 1994 *
----------- --------
Liabilities and Stockholder's Equity amounts in millions
- - ------------------------------------
<S> <C> <C>
Accounts payable $ 176 74
Accrued interest 226 179
Accrued programming expense 209 178
Other accrued expenses 473 388
Debt (note 6) 12,635 10,712
Deferred income taxes (note 8) 4,261 3,299
Other liabilities 66 96
------- ------
Total liabilities 18,046 14,926
------- ------
Minority interests in equity
of consolidated subsidiaries 206 271
Stockholder's equity (note 7):
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 3,122 2,842
Unrealized holding gains for
available-for-sale securities,
net of taxes 7 2
Accumulated deficit (370) (250)
------- ------
2,760 2,595
Investment in Tele-Communications, Inc.
("TCI") (note 3) (1,145) (1,102)
Due to (from) TCI 114 (810)
------- ------
Total stockholder's equity 1,729 683
------- ------
Commitments and contingencies (note 11)
$19,981 15,880
======= ======
</TABLE>
*Restated - see note 3.
See accompanying notes to consolidated financial statements.
II-19
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994* 1993*
-------- ------ ------
<S> <C> <C> <C>
amounts in millions
Revenue (note 9) $5,118 4,318 4,153
Operating costs and expenses:
Operating 1,568 1,315 1,190
Selling, general and administrative 1,507 1,202 1,105
Compensation relating to stock
appreciation rights 17 -- 31
Adjustment to compensation relating
to stock appreciation rights -- (5) --
Depreciation 848 685 622
Amortization 375 303 289
------ ----- -----
4,315 3,500 3,237
------ ----- -----
Operating income 803 818 916
Other income (expense):
Interest expense (962) (777) (731)
Interest and dividend income (note 9) 34 35 34
Share of earnings of Liberty Media
Corporation ("Old Liberty") (note 3) -- 128 7
Share of losses of other affiliates,
net (note 4) (43) (114) (76)
Gain on sale of stock by equity
investee (note 4) -- 161 --
Other, net (1) (25) 14
------ ----- -----
(972) (592) (752)
------ ----- -----
Earnings (loss) before
income taxes (169) 226 164
Income tax benefit (expense) 49 (132) (169)
------ ----- -----
Net earnings (loss) (120) 94 (5)
Dividend requirements on preferred
stocks -- -- (2)
------ ----- -----
Net earnings (loss) attributable
to common stockholder(s) $ (120) 94 (7)
====== ===== =====
</TABLE>
* Restated - see note 3.
See accompanying notes to consolidated financial statements.
II-20
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Stockholder's(s') Equity
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign gains for
Common stock Additional currency available- Investment
---------------- paid-in translation for-sale Accumulated Treasury in
Class A Class B capital adjustment securities* deficit* stock TCI*
-------- ----------- ------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
amounts in millions
Balance at January 1, 1993* $ 462 48 1,909 (19) -- (339) (333) --
Net loss -- -- -- -- -- (5) -- --
Issuance of common stock
upon conversion of
notes 20 -- 383 -- -- -- -- --
Issuance of common stock
upon exercise of options -- -- 7 -- -- -- -- --
Dividends on redeemable
preferred stock -- -- (2) -- -- -- -- --
Foreign currency
translation adjustment -- -- -- (10) -- -- -- --
Acquisition and retirement
of common stock -- (1) (4) -- -- -- -- --
------- ---------- ----------- ---------- ----------- -------- ---------- ------
Balance at December 31,
1993* 482 47 2,293 (29) -- (344) (333) --
Unrealized holding
gains for
available-for-sale
securities as of
January 1, 1994 -- -- -- -- 297 -- -- --
Net earnings -- -- -- -- -- 94 -- --
Conversion of redeemable
preferred stock 1 -- 17 -- -- -- -- --
Issuance of common stock
upon conversion of notes 3 -- -- -- -- -- -- --
Exchange of TCI
Communications, Inc.
("TCIC") common stock
and Old Liberty common
stock and preferred
stock owned by
subsidiaries of TCIC
for TCI common stock
and preferred stock in
the TCI/Liberty
Combination (note 3) -- -- -- -- -- -- 333 (651)
Reclassification and
change of common
stock (note 7) (485) (47) 532 -- -- -- -- --
Foreign currency
translation adjustment -- -- -- 24 -- -- -- --
Reduction in unrealized
holding gains for
available-for-sale
securities (note 1) -- -- -- -- (141) -- -- --
Change in due from TCI -- -- -- -- -- -- -- --
Effect of Reorganization
(note 1) -- -- -- 5 (154) -- -- (451)
------- ---------- ----------- ---------- ----------- -------- ---------- ------
Balance at December 31,
1994 $ 1 -- 2,842 -- 2 (250) -- (1,102)
======= ========== =========== ========== =========== ======== ========== ======
<CAPTION>
Due Total
(from) to stockholder's(s')
TCI equity
--------- -------
<S> <C> <C>
Balance at January 1, 1993* -- 1,728
Net loss -- (5)
Issuance of common stock
upon conversion of
notes -- 403
Issuance of common stock
upon exercise of options -- 7
Dividends on redeemable
preferred stock -- (2)
Foreign currency
translation adjustment -- (10)
Acquisition and retirement
of common stock -- (5)
-------- -----
Balance at December 31,
1993* -- 2,116
Unrealized holding
gains for
available-for-sale
securities as of
January 1, 1994 -- 297
Net earnings -- 94
Conversion of redeemable
preferred stock -- 18
Issuance of common stock
upon conversion of notes -- 3
Exchange of TCI
Communications, Inc.
("TCIC") common stock
and Old Liberty common
stock and preferred
stock owned by
subsidiaries of TCIC
for TCI common stock
and preferred stock in
the TCI/Liberty
Combination (note 3) -- (318)
Reclassification and
change of common
stock (note 7) -- --
Foreign currency
translation adjustment -- 24
Reduction in unrealized
holding gains for
available-for-sale
securities (note 1) -- (141)
Change in due from TCI (810) (810)
Effect of Reorganization -- (600)
(note 1) -------- -----
Balance at December 31,
1994 (810) 683
======== =====
</TABLE>
* Restated-see note 3.
(continued)
II-21
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Stockholder's(s') Equity, continued
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Cumulative holding
foreign gains for
Common stock Additional currency available- Investment
---------------- paid-in translation for-sale Accumulated Treasury in
Class A Class B capital adjustment securities* deficit* stock TCI*
-------- ----------- ------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
amounts in millions
Balance at December 31,
1994* $1 -- 2,842 -- 2 (250) -- (1,102)
Net loss -- -- -- -- -- (120) -- --
Effect of Reorganization
(note 1) -- -- -- -- -- -- -- (6)
Effect of implementation
of Tax Sharing Agreement
(note 8) -- -- -- -- -- -- -- --
Retirement of TCI Class A
common stock received in
Reorganization -- -- 37 -- -- -- -- (37)
TCI Class A common stock
issued in acquisition of
remaining minority
interest of Heritage
Communications, Inc.
contributed to TCIC
(note 5) -- -- 234 -- -- -- -- --
Contribution of
investments from
subsidiaries of
TCI to TCIC -- -- 9 -- -- -- -- --
Issuance of TCI Class A
common stock and TCI
preferred stock in
acquisition (note 5) -- -- -- -- -- -- -- --
Turner Broadcasting
System, Inc. stock
received in acquisition
transferred to
a subsidiary of TCI -- -- -- -- -- -- -- --
Proceeds from issuance
of TCI Class A common
stock to public -- -- -- -- -- -- -- --
Proceeds from issuance
of TCI Class A common
stock in private
offering -- -- -- -- -- -- -- --
Change in unrealized
holding gains for
available-for-sale
securities -- -- -- -- 5 -- -- --
Change in due to/from
TCI -- -- -- -- -- -- -- --
------- ---------- ------ ----- ---------- ----------- --- ----- ---------- ------
Balance at December 31,
1995 $1 -- 3,122 -- 7 (370) -- (1,145)
======= ========== ====== ===== ========== =========== === ===== ========== ======
<CAPTION>
Due Total
(from) to stockholder's(s')
TCI equity
--------- -------
<S> <C> <C>
Balance at December 31,
1994* (810) 683
Net loss -- (120)
Effect of Reorganization
(note 1) (75) (81)
Effect of implementation
of Tax Sharing Agreement
(note 8) (76) (76)
Retirement of TCI Class A
common stock received in
Reorganization -- --
TCI Class A common stock
issued in acquisition of
remaining minority
interest of Heritage
Communications, Inc.
contributed to TCIC
(note 5) 58 292
Contribution of
investments from
subsidiaries of
TCI to TCIC -- 9
Issuance of TCI Class A
common stock and TCI
preferred stock in
acquisition (note 5) 1,313 1,313
Turner Broadcasting
System, Inc. stock
received in acquisition
transferred to
a subsidiary of TCI (7) (7)
Proceeds from issuance
of TCI Class A common
stock to public 401 401
Proceeds from issuance
of TCI Class A common
stock in private
offering 30 30
Change in unrealized
holding gains for
available-for-sale
securities -- 5
Change in due to/from
TCI (720) (720)
----- -----
Balance at December 31,
1995 114 1,729
===== =====
</TABLE>
*Restated - see note 3.
See accompanying notes to consolidated financial statements.
II-22
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994* 1993*
-------- ------- -------
<S> <C> <C> <C>
amounts in millions
(see note 2)
Cash flows from operating activities:
Net earnings (loss) $ (120) 94 (5)
Adjustments to reconcile net
earnings (loss) to net cash provided
by operating activities:
Depreciation and amortization 1,223 988 911
Compensation relating to stock
appreciation rights 17 -- 31
Adjustment to compensation
relating to stock appreciation
rights -- (5) --
Share of earnings of Old Liberty -- (128) (7)
Share of losses of other
affiliates 43 114 76
Gain on sale of stock by
equity investee -- (161) --
Deferred income tax expense (56) 45 140
Other noncash charges (credits) (29) 5 6
Changes in operating assets and
liabilities, net of the effect
of acquisitions:
Change in receivables (52) 16 (32)
Change in accrued interest 42 22 63
Change in other accruals
and payables 195 152 68
------- ------ ------
Net cash provided by
operating activities 1,263 1,142 1,251
------- ------ ------
Cash flows from investing activities:
Cash paid for acquisitions (259) (494) (158)
Capital expended for property and
equipment (1,665) (1,235) (947)
Cash proceeds from disposition of
assets 49 36 149
Additional investments in and loans
to affiliates and others (764) (384) (361)
Repayment of loans by affiliates and
others 8 145 62
Other investing activities (82) (71) 85
------- ------ ------
Net cash used in
investing activities (2,713) (2,003) (1,170)
------- ------ ------
Cash flows from financing activities:
Borrowings of debt 7,719 4,409 6,305
Repayments of debt (6,020) (3,348) (6,321)
Change in due to/from TCI (249) (189) --
Preferred stock dividends of
subsidiaries (6) (6) (6)
Preferred stock dividends -- -- (2)
Repurchase of preferred stock -- -- (92)
Issuances of common stock -- -- 6
Repurchases of common stock -- -- (4)
------- ------ ------
Net cash provided
(used) by financing
activities 1,444 866 (114)
------- ------ ------
Net increase
(decrease) in cash (6) 5 (33)
Cash at beginning of
year 6 1 34
------- ------ ------
Cash at end of year $ -- 6 1
======= ====== ======
</TABLE>
*Restated - see note 3.
See accompanying notes to consolidated financial statements.
II-23
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
TCI Communications, Inc. (formerly Tele-Communications, Inc. or "Old TCI")
and those of all majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. TCIC is a
subsidiary of TCI.
Nature of Operations
--------------------
TCIC (the "Company"), 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 through its four regional
operating divisions -- Central, Great Lakes, Southeast and West.
Reorganization
--------------
During the fourth quarter of 1994, TCI was reorganized (the
"Reorganization") based upon four lines of business: Domestic Cable and
Communications; Programming; International Cable and Programming ("TINTA");
and Technology/Venture Capital. Upon Reorganization, certain of the assets
of TCIC were transferred to the other operating units. The most
significant transfers were as follows: (i) equity securities of Turner
Broadcasting System, Inc. ("TBS") and Discovery Communications, Inc. were
transferred to the Programming unit and (ii) TeleWest Communications plc
("TeleWest UK") was transferred to TINTA. In conjunction with the
Reorganization, TCIC reduced its unrealized gain on available-for-sale
securities by $154 million, as a result of the transfer of TBS common
stock. In the first quarter of 1995, TCIC transferred certain additional
assets to TINTA.
Receivables
-----------
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1995 and 1994 was not material.
(continued)
II-24
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Investments
-----------
All marketable equity securities held by TCIC are classified as available-
for-sale or trading and are carried at fair value. Unrealized holding
gains and losses on securities classified as available-for-sale are carried
net of taxes as a separate component of stockholder's equity.
Other investments in which the ownership interest is less than 20% but are
not considered marketable securities are generally carried at cost. For
those investments in affiliates in which TCIC's voting interest is 20% to
50%, the equity method of accounting is generally used. Under this method,
the investment, originally recorded at cost, is adjusted to recognize
TCIC's share of the net earning or losses of the affiliates as they occur
rather than as dividends or other distributions are received, limited to
the extent of TCIC's investment in, advances to and commitments for the
investee. TCIC's share of net earnings or losses of affiliates includes
the amortization of the difference between TCIC's investment and its share
of the net assets of the investee. Recognition of gains on sales of
properties to affiliates accounted for under the equity method is deferred
in proportion to TCIC's ownership interest in such affiliates.
Changes in TCIC's proportionate share of the underlying equity of a
subsidiary or equity method investee, which result from the issuance of
additional equity securities by such subsidiary or equity investee,
generally are recognized as gains or losses in TCIC's consolidated
statements of operations.
Long-Lived Assets
-----------------
(a) Property and Equipment
----------------------
Property and equipment is stated at cost, including acquisition costs
allocated to tangible assets acquired. Construction costs, including
interest during construction and applicable overhead, are capitalized.
During 1995, 1994 and 1993, interest capitalized was not material.
Depreciation is computed on a straight-line basis using estimated
useful lives of 3 to 15 years for distribution systems and 3 to 40
years for support equipment and buildings.
(continued)
II-25
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Repairs and maintenance are charged to operations, and renewals and
additions are capitalized. At the time of ordinary retirements, sales
or other dispositions of property, the original cost and cost of
removal of such property are charged to accumulated depreciation, and
salvage, if any, is credited thereto. Gains or losses are only
recognized in connection with the sales of properties in their
entirety.
(b) Franchise Costs
---------------
Franchise costs include the difference between the cost of acquiring
cable television systems and amounts assigned to their tangible
assets. Such amounts are generally amortized on a straight-line basis
over 40 years. Costs incurred by TCIC in obtaining franchises are
being amortized on a straight-line basis over the life of the
franchise, generally 10 to 20 years.
In March of 1995, the Financial Accounting Standards Board (the "FASB")
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 either the undiscounted future cash flows
estimated to be generated by those assets or the fair market value 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. TCIC
will adopt Statement No. 121 effective January 1, 1996. The effect of such
adoption is not expected to be significant.
Interest Rate Derivatives
-------------------------
Amounts receivable or payable under derivative financial instruments used
to manage interest rate risks arising from TCIC's financial liabilities are
recognized as interest expense. Gains and losses on early terminations of
derivatives are included in the carrying amount of the related debt and
amortized as yield adjustments over the remaining terms of the debt. TCIC
does not use such instruments for trading purposes.
Minority Interests
------------------
Recognition of minority interests' share of losses of consolidated
subsidiaries is limited to the amount of such minority interests' allocable
portion of the common equity of those consolidated subsidiaries. Further,
the minority interests' share of losses is not recognized if the minority
holders of common equity of consolidated subsidiaries have the right to
cause TCIC to repurchase such holders' common equity.
Included in minority interests in equity of consolidated subsidiaries is
$49 million and $50 million in 1995 and 1994, respectively, of preferred
stocks (and accumulated dividends thereon) of certain subsidiaries. The
current dividend requirements on these preferred stocks aggregate $6
million per annum and such dividend requirements are reflected as minority
interests in the accompanying consolidated statements of operations.
(continued)
II-26
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Trust Originated Preferred Securities/sm/
-------------------------------------
Subsequent to December 31, 1995, TCI Communications Financing I (the
"Trust"), a wholly owned subsidiary of the Company, issued $16 million in
common securities and $500 million of 8.72% Trust Originated Preferred
Securities/sm/ (the "Preferred Securities" and together with the common
securities, the "Trust Securities"). The Trust exists for the exclusive
purpose of issuing Trust 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 "Subordinated Debt
Securities") of the Company. The 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
such Subordinated Debt Securities, the Preferred Securities will be
mandatorily redeemable. The Company effectively provides a full and
unconditional guarantee of the Trust's obligations under the Preferred
Securities. The Company will present the Preferred Securities as a separate
line item in its balance sheet captioned "Company-obligated mandatorily
redeemable preferred securities of subsidiary trust."
Investment in TCI
-----------------
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI to issue a new class of stock ("Liberty Group Stock")
which is intended to reflect the separate performance of the Programming
Unit ("Liberty Media Group"). 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 one hundred percent of the equity value
attributable to the Liberty Media Group (the "Distribution") 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").
In connection with the Distribution, subsidiaries of TCIC exchanged all of
the TCI Class A common stock and TCI preferred stock owned by such
subsidiaries for 267,944 shares of a new series of TCI Series Preferred
Stock designated Convertible Redeemable Participating Preferred Stock
Series F (the "Series F Preferred Stock"). Subsequent to such exchange, a
subsidiary holding 78,077 shares of Series F Preferred Stock converted its
holdings into 100,524,364 shares of Series A TCI Group Stock.
(continued)
II-27
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Stock Based Compensation
------------------------
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("Statement No. 123") was issued by the FASB in October
1995. Statement No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans as well as
transactions in which an entity issues its equity instruments to acquire
goods or services from non-employees. The Company will include the
disclosures required by Statement No. 123 in the notes to future financial
statements.
Estimates
---------
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 revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Reclassification
----------------
Certain amounts have been reclassified for comparability with the 1995
presentation.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
-----------------------------------------------------------------
Cash paid for interest was $920 million, $754 million and $641 million for
the years ended December 31, 1995, 1994 and 1993, respectively. Also,
during these periods, cash paid for income taxes was not material.
(continued)
II-28
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
----------------------
1995 1994 1993
-------- ----- -----
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 2,979 539 172
Liabilities assumed, net of
current assets (250) (13) (7)
Deferred tax liability recorded
in acquisitions (913) -- (7)
Minority interests in equity of
acquired entities 48 (32) --
Common stock of TCI issued in
acquisition contributed to TCIC (234)
Increase in amounts due to TCI
resulting from common stock of TCI
issued in acquisition (1,371) -- --
------- ---- ----
Cash paid for acquisitions $ 259 494 158
======= ==== ====
Reversal of deferred tax liability
recorded in TCI/Liberty Combination
(note 3) $ -- 38 --
======= ==== ====
Receipt of notes receivable upon
disposition of Liberty common
stock and preferred stock (note 3) $ -- -- 182
======= ==== ====
Noncash capital contribution to
Community Cable Television ("CCT") $ -- -- 22
======= ==== ====
Noncash exchange of equity
investment for consolidated
subsidiary and equity investments $ -- -- 22
======= ==== ====
</TABLE>
(continued)
II-29
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(3) TCI/Liberty Combination
-----------------------
As of January 27, 1994, Old TCI and Old Liberty entered into a definitive
merger agreement to combine the two companies (the "TCI/Liberty
Combination"). The transaction was consummated on August 4, 1994 and was
structured as a tax free exchange of Class A and Class B Shares of both
companies and preferred stock of Old Liberty for like shares of a newly
formed holding company, TCI/Liberty Holding Company. Old TCI stockholders
received one share of TCI for each of their shares. Old Liberty common
stockholders received 0.975 of a share of TCI for each of their common
shares. In connection with the TCI/Liberty Combination, Old TCI changed its
name to TCI Communications, Inc. and TCI/Liberty Holding Company changed
its name to Tele-Communications, Inc. In connection with the
Reorganization, the assets of Old Liberty which produce and distribute
cable television programming services were contributed to a new subsidiary
of TCI, "New Liberty". Old Liberty and New Liberty are referred to
collectively herein as "Liberty".
TCIC owned 3,477,778 shares of Liberty Class A common stock and 55,070
shares of Liberty Class E, 6% Cumulative Redeemable Exchangeable Junior
Preferred Stock. Upon consummation of the TCI/Liberty Combination, TCIC
received 3,390,883 shares of TCI Class A common stock and 55,070 shares of
Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
("Class B Preferred Stock"). Upon consummation of the TCI/Liberty
Combination, the remaining classes of preferred stock of Liberty held by
TCIC were converted into shares of TCI Class A Preferred Stock which has a
substantially equivalent fair market value to that which was given up.
Subsequently, such preferred stock was exchanged for Series F Preferred
Stock in connection with the Distribution. TCIC's ownership in TCI's
common stock, Class B Preferred Stock and Series F Preferred Stock have
been recorded as investment in TCI in stockholder's equity at TCIC's
historical cost.
Due to the significant economic interest held by TCIC through its ownership
of Liberty preferred stock and Liberty common stock and other related party
considerations, TCIC accounted for its investment in Liberty under the
equity method prior to the TCI/Liberty Combination. Accordingly, TCIC did
not recognize any income relating to dividends, including preferred stock
dividends, and TCIC recorded the earnings or losses generated by Liberty
(by recognizing 100% of Liberty's earnings or losses before deducting
preferred stock dividends) through the date the TCI/Liberty Combination was
consummated.
(continued)
II-30
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Summarized unaudited results of operations of Liberty for the period from
January 1, 1994 through August 4, 1994 and for the year ended December 31,
1993 are as follows:
<TABLE>
<CAPTION>
Consolidated Operations 1994 1993
----------------------- --------- ----------
<S> <C> <C>
amounts in millions
Revenue $ 790 1,153
Operating expenses (726) (1,105)
Depreciation and amortization (32) (49)
----- ------
Operating income (loss) 32 (1)
Interest expense (22) (31)
Other, net 118 39
----- ------
Net earnings $ 128 7
===== ======
</TABLE>
During 1995, BET Holdings, Inc. ("BET") repurchased a portion of its common
stock. As a result of the repurchase, Liberty's ownership of BET was
increased from 19% to 22%. Therefore, Liberty is deemed to exercise
significant influence over BET and, accordingly, has adopted the equity
method of accounting for its investment in BET. As a result, Liberty
restated its financial statements. Accordingly, TCIC restated its
financial statements, which resulted in a decrease to accumulated deficit
and an increase to investment in TCI by $5 million at December 31, 1994. In
addition, TCIC increased its share of earnings of Liberty by $2 million for
the period from January 1, 1994 through the TCI/Liberty Combination and $3
million for the year ended December 31, 1993.
Effective February 9, 1995 and pursuant to an Agreement and Plan of Merger,
QVC Programming Holdings, Inc., a corporation which is jointly owned by
Comcast Corporation ("Comcast") and Liberty, merged (the "QVC Merger") with
and into QVC, Inc. ("QVC") with QVC continuing as the surviving
corporation. Liberty owns an approximate 43% interest of the post-merger
QVC.
Liberty begun accounting for its investment in QVC under the cost method in
May 1994, upon its determination to remain outside of the previous QVC
stockholders agreement. Prior to such determination, Liberty accounted for
its investment in QVC under the equity method.
Upon consummation of the QVC Merger, Liberty was deemed to exercise
significant influence over QVC and, as such, adopted the equity method of
accounting for its investment in QVC. As a result, Liberty restated its
financial statements. Accordingly, TCIC restated its financial
statements, which resulted in a decrease to accumulated deficit and an
increase to investment in TCI by $1 million at December 31, 1994. In
addition, TCIC increased its share of earnings of Liberty by $1 million for
the period from May 1, 1994 through the TCI/Liberty Combination.
(continued)
II-31
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
On July 11, 1994, Rainbow Program Enterprise purchased 49.9% of Liberty's
50% general partnership interest in American Movie Classics Company
("AMC"). The gain recognized by Liberty in connection with the disposition
of AMC was $183 million and is included in TCIC's share of Liberty's
earnings prior to the TCI/Liberty Combination.
(4) Investments in Other Affiliates
-------------------------------
TCIC has various investments accounted for under the equity method. The
most significant investment held by TCIC at December 31, 1995 was its
investment in MajorCo, L.P. ("MajorCo"), a partnership formed by TCIC,
Comcast, Cox Communications, Inc. ("Cox") and Sprint Corporation ("Sprint")
(carrying value of $689 million). See note 11. Additionally, TCIC has an
investment in TelePort Communications Group, Inc. and TCG Partners
(collectively, "TCG") (carrying value of $244 million).
(continued)
II-32
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Summarized unaudited financial information for affiliates, other than
Liberty, accounted for under the equity method is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
----------- --------
Combined Financial Position amounts in millions
---------------------------
<S> <C> <C>
Property and equipment, net $1,066 777
Franchise costs, net 152 100
Other assets, net 422 313
------ -----
Total assets $1,640 1,190
====== =====
Debt $ 904 635
Due to TCIC 137 2
Other liabilities 228 180
Owners' equity 371 373
------ -----
Total liabilities and equity $1,640 1,190
====== =====
<CAPTION>
Years ended December 31,
----------------------------
1995 1994 1993
----- ------ -----
Combined Operations amounts in millions
-------------------
<S> <C> <C> <C>
Revenue $ 546 651 713
Operating expenses (491) (684) (648)
Depreciation and amortization (97) (139) (127)
----- ------ -----
Operating loss (42) (172) (62)
Interest expense (35) (45) (37)
Other, net 30 126 98
----- ------ -----
Net loss $ (47) (91) (1)
===== ====== =====
</TABLE>
TCIC had an investment in TeleWest UK, a company that is currently
operating and constructing cable television and telephone systems in the
United Kingdom ("UK"). TeleWest UK, which was accounted for under the
equity method, contributed $40 million and $28 million of TCIC's share of
its affiliates' losses in 1994 and 1993, respectively. In February 1994,
TCIC acquired a consolidated investment in Flextech p.l.c. ("Flextech").
Flextech accounted for net losses in 1994 of $21 million (before deducting
the minority interests' 40% share of such losses). In addition, TCIC had
other less significant investments in video distribution and programming
businesses located in the UK, other parts of Europe, Asia, Latin America
and certain other foreign countries. In the aggregate, such other
investments accounted for $44 million of TCIC's share of its affiliates'
losses in 1994. In connection with the Reorganization, TCIC's ownership in
the aforementioned entities was transferred to the International Cable and
Programming unit effective December 1, 1994.
(continued)
II-33
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
As a result of the TeleWest UK's November 1994 initial public offering and
the associated dilution of TCI's ownership interest of TeleWest UK, TCIC
recognized a gain amounting to $161 million (before deducting the related
tax expense of $57 million). Effective December 1, 1994, such ownership of
TeleWest Communications was transferred to the International Cable and
Programming unit in the Reorganization.
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.
(5) Acquisitions
------------
As of January 26, 1995, TCI, TCIC and TeleCable Corporation ("TeleCable")
consummated a transaction, whereby TeleCable was merged into TCIC. The
aggregate $1.6 billion purchase price was satisfied by TCIC's assumption of
approximately $300 million of TeleCable's net liabilities and the issuance
to TeleCable's stockholders of approximately 42 million shares of TCI Class
A common stock and 1 million shares of TCI Convertible Preferred Stock,
Series D with an aggregate initial liquidation value of $300 million.
The acquisition of TeleCable was accounted for by the purchase method.
Accordingly, TeleCable's results of operations have been consolidated with
those of TCIC since its date of acquisition. On a pro forma basis, TCIC's
revenue would have been increased by $25 million and $302 million for the
years ended December 31, 1995 and 1994, respectively, and net loss for the
year ended December 31, 1995 would have been decreased by $1 million and
net earnings for the year ended December 31, 1994 would have been increased
by $21 million, had TeleCable been consolidated with TCIC on January 1,
1994. The foregoing unaudited pro forma financial information was based
upon historical results of operations adjusted for acquisition costs and,
in the opinion of management, is not necessarily indicative of the results
had TCIC operated TeleCable since January 1, 1994.
(continued)
II-34
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Effective January 26, 1995, TCIC purchased from Comcast the 19.9% minority
interest in Heritage Communications, Inc. owned by Comcast for aggregate
consideration of $292 million, the majority of which was paid in shares of
TCI Class A common stock.
(6) Debt
----
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted average December 31,
interest rate at -------------------
December 31, 1995 1995 1994
------------------ ---------- -------
amounts in millions
Parent company debt:
<S> <C> <C> <C> <C>
Senior notes 8.5% $ 6,713 5,412
Bank credit facilities 6.7% 179 869
Commercial paper 6.4% 1,440 445
Other debt 1 2
------- ------
8,333 6,728
Debt of subsidiaries:
Bank credit facilities 6.8% 3,258 2,828
Notes payable 10.2% 934 1,024
Convertible notes (a) 9.5% 45 45
Commercial paper 6.1% 29 --
Other debt 36 87
------- ------
$12,635 10,712
======= ======
</TABLE>
(a) These convertible notes, which are stated net of unamortized discount
of $186 million on December 31, 1995 and 1994, mature on December 18,
2021. The notes require (so long as conversion of the notes has not
occurred) an annual interest payment through 2003 equal to 1.85% of
the face amount of the notes. At December 31, 1995, the notes were
convertible, at the option of the holders, into an aggregate of
38,707,574 shares of Series A TCI Group Stock and 9,676,893 shares of
Series A Liberty Group Stock.
TCIC's bank credit facilities and various other debt instruments generally
contain restrictive covenants which require, among other things, the
maintenance of certain earnings, specified cash flow and financial ratios
(primarily the ratios of cash flow to total debt and cash flow to debt
service, as defined), and include certain limitations on indebtedness,
investments, guarantees, dispositions, stock repurchases and 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)
II-35
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
In order to achieve the desired balance between variable and fixed rate
indebtedness, TCIC has entered into various interest rate exchange
agreements pursuant to which it pays (i) fixed interest rates (the "Fixed
Rate Agreements") ranging from 6.1% to 9.9% on notional amounts of $602
million at December 31, 1995 and (ii) variable interest rates (the
"Variable Rate Agreements") on notional amounts of $2,520 million at
December 31, 1995. During the years ended December 31, 1995, 1994 and
1993, TCIC's net payments pursuant to the Fixed Rate Agreements were $13
million, $26 million and $38 million, respectively; and TCIC's net receipts
(payments) pursuant to the Variable Rate Agreements were (less than $1
million), $36 million and $31 million, respectively. After giving effect
to TCIC's interest rate exchange agreements, approximately 45% of TCIC's
indebtedness bears interest at fixed rates.
TCIC's Fixed Rate Agreements and Variable Rate Agreements expire as
follows:
<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
--------------------------------------- -----------------------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
------------- -------------- -------- -------------- --------------- --------
amounts in millions amounts in millions
<S> <C> <C> <C> <C> <C>
April 1996 9.9% $ 30 April 1996 6.8% $ 50
May 1996 8.3% 50 July 1996 8.2% 10
June 1996 6.1% 42 August 1996 8.2% 10
July 1996 8.2% 10 September 1996 4.6% 150
August 1996 8.2% 10 April 1997 7.0% 200
November 1996 8.9% 150 September 1998 4.8%-5.2% 300
October 1997 7.2%-9.3% 80 April 1999 7.4% 100
December 1997 8.7% 230 September 1999 7.2%-7.4% 300
----
February 2000 5.8%-6.6% 650
$602 March 2000 5.8%-6.0% 675
====
September 2000 5.1% 75
------
$2,520
======
</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
December 31, 1995, taking into consideration current interest rates and
assuming the current creditworthiness of the counterparties. TCIC would be
required to pay an estimated $25 million at December 31, 1995 to terminate
the agreements.
The fair value of TCIC's debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to
TCIC for debt of the same remaining maturities. The fair value of debt,
which has a carrying value of $12,635 million, was $13,228 million at
December 31, 1995.
(continued)
II-36
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC is required to maintain unused availability under bank credit
facilities to the extent of outstanding commercial paper. At December 31,
1995, TCIC had approximately $2.1 billion in unused lines of credit
excluding amounts related to lines of credit which provide availability to
support 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.
Annual maturities of debt for each of the next five years are as follows:
<TABLE>
<CAPTION>
Parent Total
--------- ---------
<S> <C> <C>
amounts in millions
1996 $1,858* $3,332**
1997 171 518
1998 343 759
1999 232 746
2000 403 901
</TABLE>
* Includes $1,440 million of commercial paper.
** Includes $1,469 million of commercial paper.
(7) Stockholder's Equity
--------------------
Subsequent to December 31, 1995, the Company restated its Certificate of
Incorporation to change the number of authorized shares to 910,553 shares
of Class A common stock, par value $1.00 per share, 94,447 shares of Class
B common stock, par value $1.00 per share, and 5,000,000 shares of
preferred stock, par value $.01 per share. Thereafter, the Company issued
4,600,000 shares of Cumulative Exchangeable Preferred Stock with an initial
liquidation value of $230 million. Holders of the Class A common stock
have 100 votes per share and holders of the Class B common stock have 1,000
votes per share. Each share of Class B common stock is convertible, at the
option of the holder, into one share of Class A common stock. At December
31, 1995 all of the common stock of TCIC is owned by TCI.
Employee Benefit Plans
----------------------
TCI has several employee stock purchase plans (the "Plans") to provide
employees an opportunity for ownership in TCI and to create a retirement
fund. Terms of the Plans generally provide for employees to contribute up
to 10% of their compensation to a trust for investment in TCI Group Stock
and Liberty Group Stock. TCI, by annual resolution of the Board of
Directors, generally contributes up to 100% of the amount contributed by
employees. Certain of TCIC's subsidiaries have their own employee benefit
plans. Contributions to all plans aggregated $27 million, $19 million and
$16 million for 1995, 1994 and 1993, respectively.
(continued)
II-37
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Stock Options
-------------
TCIC had granted or assumed certain options and/or stock appreciation
rights. All such options and/or stock appreciation rights previously
granted by TCIC were assumed by TCI in conjunction with the TCI/Liberty
Combination. Additionally, in 1995, certain officers and other key
employees of TCIC were granted options with tandem stock appreciation
rights and were awarded restricted stock of Series A TCI Group Stock,
Series A Liberty Group Stock and/or Series A TINTA Stock. Estimates of the
compensation relating to the stock appreciation rights granted and/or
restricted stock awarded to employees of TCIC have been recorded through
December 31, 1995, but are subject to future adjustment based upon market
value and, ultimately, on the final determination of market value when the
rights are exercised or vested.
(8) Income Taxes
------------
TCI files a consolidated Federal income tax return with all of its 80% or
more owned subsidiaries. Consolidated subsidiaries in which TCI owns less
than 80% each file a separate income tax return. TCIC and all of its 80% or
more owned subsidiaries, subsequent to the TCI/Liberty Combination, is
included in the consolidated Federal income tax return of TCI. Income tax
expense for TCIC is based on those items in the consolidated calculation
applicable to TCIC. Intercompany tax allocation represents an apportionment
of tax expense or benefit (other than deferred taxes) among subsidiaries of
TCI in relation to their respective amounts of taxable earnings or losses.
The payable or receivable arising from the intercompany tax allocation is
recorded as an increase or decrease in amounts due to or from affiliated
companies included as a component of stockholder's equity.
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 of the elements of pre-
existing tax sharing arrangement 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 is 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. In connection
with the implementation of the Tax Sharing Agreement, TCIC recorded an
increase to its deferred income tax liability and a decrease to its amounts
due to TCI of $76 million.
(continued)
II-38
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Income tax benefit (expense) for the years ended December 31, 1995, 1994
and 1993 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
-------- --------- ------
<S> <C> <C> <C> <C>
amounts in millions
Year ended December 31, 1995:
Intercompany allocation $ 1 46 47
State and local (8) 10 2
---- ---- ----
$ (7) 56 49
==== ==== ====
Year ended December 31, 1994:
Intercompany allocation $(73) (35) (108)
State and local (14) (10) (24)
---- ---- ----
$(87) (45) (132)
==== ==== ====
Year ended December 31, 1993:
Federal $(14) (120) (134)
State and local (15) (20) (35)
---- ---- ----
$(29) (140) (169)
==== ==== ====
</TABLE>
Income tax benefit (expense) differs from the amounts computed by applying
the Federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
Years ended
December 31,
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C> <C>
amounts in millions
Computed "expected" tax benefit
(expense) $ 59 (79) (57)
Dividends excluded for income
tax purposes -- 1 4
Amortization not deductible for
tax purposes (18) (12) (12)
Minority interest in earnings of
consolidated subsidiaries 4 (1) (1)
Recognition of losses of
consolidated partnership -- (10) (8)
State and local income taxes,
net of Federal income
tax benefit 2 (21) (23)
Valuation allowance for net
operating loss carryforward (6) -- --
Valuation allowance for
foreign corporation -- (9) --
Adjustment to deferred tax assets
and liabilities for enacted change
in Federal income tax rate -- -- (76)
Other 8 (1) 4
----- ---- ----
$ 49 (132) (169)
===== ==== ====
</TABLE>
(continued)
II-39
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
----------- --------
<S> <C> <C> <C>
amounts in millions
Deferred tax assets:
Net operating loss carryforwards $ 470 489
Less - valuation allowance (88) (99)
Investment tax credit carryforwards 116 122
Less - valuation allowance (41) (36)
Alternative minimum tax credit
carryforwards -- 89
Investments in affiliates, due
principally to losses of affiliates
recognized for financial statement
purposes in excess of losses
recognized for income tax purposes 169 171
Future deductible amounts principally
due to non-deductible accruals 25 13
Other 11 5
------ -----
Net deferred tax assets 662 754
------ -----
Deferred tax liabilities:
Property and equipment, principally
due to differences in depreciation 1,161 1,160
Franchise costs, principally due to
differences in amortization 3,403 2,598
Investment in affiliates, due
principally to undistributed
earnings of affiliates 191 210
Leases capitalized for tax
purposes 53 --
Other 115 85
------ -----
Total gross deferred tax liabilities 4,923 4,053
------ -----
Net deferred tax liability $4,261 3,299
====== =====
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1995 was
$129 million. Such balance decreased by $6 million from December 31, 1994.
(continued)
II-40
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
At December 31, 1995, TCIC had net operating loss carryforwards for income
tax purposes aggregating approximately $902 million of which, if not
utilized to reduce taxable income in future periods, $134 million in 2003,
$116 million in 2004, $344 million in 2005, $245 million in 2006, $18
million in 2009 and $45 million in 2010. Certain subsidiaries of TCIC had
additional net operating loss carryforwards for income tax purposes
aggregating approximately $245 million and these net operating losses are
subject to certain rules limiting their usage.
At December 31, 1995, TCIC had remaining available investment tax credits
of approximately $61 million which, if not utilized to offset future
Federal income taxes payable, expire at various dates through 2005. Certain
subsidiaries of TCIC had additional investment tax credit carryforwards
aggregating approximately $55 million and these investment tax credit
carryforwards are subject to certain rules limiting their usage.
At July 1, 1995, TCIC also had available alternative minimum tax credit
carryforwards ("Alt Min Carryforwards") of $76 million. Pursuant to the Tax
Sharing Agreement, for as long as TCIC is included in TCI's consolidated
Federal income tax return, any benefit attributable to the Alt Min
Carryforwards will be reserved to TCI. Accordingly, TCIC's deferred tax
liability at December 31, 1995 has not been reduced for such future
deductible amounts. In the event that TCI's ownership of TCIC goes below
80% and TCIC is no longer included in TCI's consolidated Federal income tax
return, and TCIC subsequently realizes a benefit from the Alt Min
Carryforwards, TCIC will be required to pay to TCI the amount of such
realized benefit plus any associated interest thereon.
Certain of the Federal income tax returns of TCI and its subsidiaries which
filed separate income tax returns are presently under examination by the
Internal Revenue Service for the years 1981 through 1992. A subsidiary of
TCIC has filed a petition in United States Tax Court protesting the
disallowance of certain Transitional Investment Tax Credits and such issue
will likely be litigated in 1996. In the opinion of management, any
additional tax liability, not previously provided for, resulting from these
examinations, ultimately determined to be payable, should not have a
material adverse effect on the consolidated financial position of TCIC.
New tax legislation was enacted in the third quarter of 1993 which, among
other matters, increased the corporate Federal income tax rate from 34% to
35%. TCIC has reflected the tax rate change in its consolidated statements
of operations. Such tax rate change resulted in an increase of $76 million
to income tax expense and deferred income tax liability.
(9) Transactions with Related Parties
---------------------------------
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 $73 million, $59 million and $44 million
for the years ended December 31, 1995 and 1994 and 1993, respectively.
Such amounts are included in operating expenses in the accompanying
consolidated statements of operations.
(continued)
II-41
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Certain TCIC corporate general and administrative costs are charged to
subsidiaries of TCI at rates set at the beginning of the year based on
projected utilization for that year. The utilization-based charges are set
at levels that management believes to be reasonable and that approximate
the costs the subsidiaries would incur for comparable services on a stand
alone basis. During the year ended December 31, 1995, Liberty, TINTA and
the Technology/Venture Capital unit were allocated $3 million, $3 million
and $1 million in corporate general and administrative costs by TCIC,
respectively.
Liberty leases satellite transponder facilities from TCIC. Charges by TCIC
for such arrangements for the years ended December 31, 1995, 1994 and 1993,
aggregated $15 million, $8 million and $4 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 launched in 1994. Liberty
holds the remaining 49.9% partnership interest.
TCIC has entered into a long-term affiliation agreement with QE+ in respect
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 1995 were approximately $31 million.
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.
At December 31, 1995, TCIC had an $86 million intercompany receivable from
TCI Starz, Inc. which represented the net effect of advances to QE+ by TCI
Starz, Inc. in the amount of $117 million offset by TCIC's purchase of
programming from QE+ of $31 million. Such receivable is non-interest
bearing for five years from the date of the advances.
(continued)
II-42
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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 $6
million, $7 million and $1 million for the years ended December 31, 1995,
1994 and 1993, respectively. Such amounts are recorded in revenue in the
accompanying consolidated statements of operations.
TCIC and a certain subsidiary of TCI ("Liberty Cable") own a general
partnership, which acquires and operates cable television systems, with
TCIC owning a 49.999% interest and Liberty Cable owning the remaining
50.001% interest. Pursuant to a cable television management agreement, a
subsidiary of TCIC provides management services for cable television
systems owned by CCT. The subsidiary receives a fee equal to 3% of the
gross cable television revenue of the Partnership.
TCIC and Liberty Cable are parties to an Option-Put Agreement (the "Option-
Put Agreement"), as amended. Under the Option-Put Agreement, between
January 1, 1997 and January 31, 1997, Liberty Cable will have the right to
require TCIC to purchase Liberty Cable's interest in CCT and a loan
receivable for an amount equal to $77 million plus interest on such amount
accruing at the rate of 11.6% per annum from June 3, 1993.
Liberty Cable purchases from TCIC, at TCIC's cost plus an administrative
fee, certain pay television and other programming. Charges for such
programming were $13 million, $11 million and $10 million for the years
ended December 31, 1995, 1994 and 1993, respectively. Such amounts are
recorded in revenue in the accompanying consolidated statements of
operations.
A subsidiary of TINTA purchases from TCIC, at TCIC's cost plus an
administrative fee, certain pay television and other programming. Charges
for such programming were $3 million for each of the years ended December
31, 1995, 1994 and 1993.
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.
TCIC advanced certain subsidiaries of TCI interest-bearing loans during
1995 and 1994. Interest earned by TCIC on such intercompany loans
aggregated $12 million and $5 million for the years ended December 31, 1995
and 1994, respectively. Such amounts are included in interest and dividend
income in the accompanying consolidated statements of operations.
(10) Transactions with Officers and Directors
----------------------------------------
Effective January 31, 1996, a director purchased one-third of the Company's
interest in two limited partnerships and obtained two ten-year options to
purchase the Company's remaining partnership interests. The purchase price
for the one-third partnership interests was 37.209 shares of WestMarc
Communications, Inc. (a wholly-owned subsidiary of the Company) Series C
Cumulative Compounding Preferred Stock owned by such director, and the
purchase price for the ten-year options was $100 for each option. All
options are exercisable for cash in the aggregate amount of $3 million.
(continued)
II-43
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(11) Commitments and Contingencies
-----------------------------
During 1994, TCIC, Comcast, Cox (collectively, the "Cable Partners") and
Sprint formed a partnership ("WirelessCo") to engage in the business of
providing wireless communications services on a nationwide basis. Through
WirelessCo, of which TCIC owns a 30% interest, the partners have been
participating in auctions ("PCS Auctions") of broadband personal
communications services ("PCS") licenses being conducted by the Federal
Communications Commission ("FCC"). In the first round auction, which
concluded during the first quarter of 1995, WirelessCo was the winning
bidder for PSC licenses for 29 markets, including New York, San Francisco-
Oakland-San Jose, Detroit, Dallas-Fort Worth, Boston-Providence,
Minneapolis-St. Paul and Miami-Fort Lauderdale. The aggregate license cost
for these licenses was approximately $2.1 billion.
WirelessCo has also invested in American PSC, L.P. ("APC"), which holds a
PCS license granted under the FCC's pioneer preference program for the
Washington-Baltimore market. WirelessCo acquired its 49% limited
partnership interest in APC for $23 million and has agreed to make capital
contributions to APC equal to 49/51 of the cost of APC's PCS license.
Additional capital contributions may be required in the event APC is unable
to finance the full cost of its PCS license. WirelessCo may also be
required to finance the build-out expenditures for APC's PCS system. Cox,
which holds a pioneer preference PCS license for the Los Angeles-San Diego
market, and WirelessCo have also agreed on the general terms and conditions
upon which Cox (with a 51% interest) and WirelessCo (with a 49% interest)
would form a partnership to hold and develop a PCS system using the Los
Angeles-San Diego license. APC and the Cox partnership would affiliate
their PCS systems with WirelessCo and be part of WirelessCo's nationwide
integrated network, offering wireless communications services under the
"Sprint" brand.
During 1994, subsidiaries of Cox, Sprint and TCIC also formed a separate
partnership ("PhillieCo"), in which TCIC owns a 35.3% interest. PhillieCo
was the winning bidder in the first round auction for a PCS license for the
Philadelphia market at a license cost of $85 million. To the extent
permitted by law, the PCS system to be constructed by PhillieCo would also
be affiliated with WirelessCo's nationwide network.
(continued)
II-44
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
WirelessCo may bid in subsequent rounds of the PCS Auctions and may invest
in, affiliate with or acquire licenses from other successful bidders. The
capital that WirelessCo will require to fund the construction of the PCS
systems, in addition to the license costs and investments described above,
will be substantial.
In March of 1995, the Cable Partners and Sprint (collectively, the
"Partners") formed two new partnerships, of which the principal partnership
is MajorCo, to which they contributed their respective interests in
WirelessCo and through which they formed another partnership, NewTelco,
L.P. ("NewTelco") to engage in the business of providing local wireline
communications services to residences and businesses on a nationwide basis.
The Cable Partners agreed to contribute their interests in TCG to NewTelco.
TCG is one of the largest competitive access providers in the United States
in terms of route miles.
Effective January 31, 1996, the Partners amended the MajorCo partnership
agreement (the "Partnership Agreement") and certain other agreements
related thereto. Under the Partnership Agreement, the business of MajorCo
and its subsidiaries will be the provision of certain wireless and other
services described in the Partnership Agreement. The partners intend for
WirelessCo and its subsidiary partnerships to be the exclusive vehicles
through which they engage in the wireless telephony service businesses,
subject to certain exceptions. MajorCo will no longer be authorized to
engage in the businesses of providing local wireline communications
services to residences and businesses. In connection with the amendment of
the Partnership Agreement, the Partners also agreed to the termination of
the agreement to contribute the Cable Partners' interest in TCG to
NewTelco.
Pursuant to separate agreements, each of the Cable Partners and Sprint have
agreed to negotiate in good faith on a market-by-market basis for the
provision of local wireline telephony services over the cable television
facilities of the respective Cable Partner under the Sprint brand.
Accordingly, local wireline telephony offerings in each market would be the
subject of individual agreements to be negotiated with Sprint, rather than
being provided by MajorCo, as originally contemplated. The Cable Partners
and Sprint also reaffirmed their intention to continue to attempt to
integrate the business of TCG with that of MajorCo. In addition, each
Cable Partner agreed to certain restrictions on its ability to offer,
promote, or package certain of its products or services with certain
products and services of other persons and agreed to make its facilities
available to Sprint for specified purposes to the extent and on the terms
that it has made such facilities available to others for such purposes.
Such agreements have a term of five years, but under certain circumstances
may terminate after three years.
Execution of the foregoing agreements was a condition to the effectiveness
of a previously approved business plan for the build out of WirelessCo's
nationwide network for wireless personal communications services. Pursuant
to the business plan, the Partners are obligated to make additional cash
capital contributions to MajorCo in the aggregate amount of approximately
$1.9 billion during the two-year period that commenced January 1, 1996.
The business plan contemplates that MajorCo will require additional equity
thereafter.
(continued)
II-45
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
In July 1995, TCIC and TCI entered into certain agreements with Viacom Inc.
("Viacom") and certain subsidiaries of Viacom regarding the purchase by
TCIC of all of the common stock of a subsidiary of Viacom ("Cable Sub")
which, at the time of purchase, will own Viacom's cable systems and related
assets.
The transaction has been structured as a tax-free reorganization in which
Cable Sub will initially transfer 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 will also transfer to New Viacom
Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the
"Loan Facility") to be arranged by TCIC, TCI and Cable Sub. Following
these transfers, Cable Sub will retain cable assets with an estimated value
at closing of approximately $2.2 billion and the obligation to repay the
Loan Proceeds borrowed under the Loan Facility. Repayment of the Loan
Proceeds will be non-recourse to Viacom and New Viacom Sub.
Viacom will offer 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"). The Exchange Offer will
be subject to a number of conditions, including a condition (the "Minimum
Condition") that sufficient tenders are made of Viacom Common Stock that
permit the number of shares of Cable Sub Class A Stock issued pursuant to
the Exchange Offer to equal the total number of shares of Cable Sub Class A
Stock issuable in the Exchange Offer.
(continued)
II-46
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Immediately following the completion of the Exchange Offer, TCIC will
acquire from Cable Sub shares of Cable Sub Class B Common Stock for $350
million (which will be used to reduce Cable Sub's obligations under the
Loan Facility). At the time of such acquisition, the Cable Sub Class A
Stock received by Viacom stockholders pursuant to the Exchange Offer will
automatically convert into a series of senior cumulative exchangeable
preferred stock (the "Exchangeable Preferred Stock") of Cable Sub 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, will be 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 will be 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 Exchangeable
Preferred Stock will also be redeemable, at the option of Cable Sub, after
the fifth anniversary of the date of issuance, and will be 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, payable in cash or, at the election of Cable Sub, in shares of
Series A TCI Group Stock, or in any combination of the foregoing. If
insufficient tenders are made by Viacom stockholders in the Exchange Offer
to permit the Minimum Condition to be satisfied, Viacom will extend the
Exchange Offer for up to 15 business days and, during such extension, TCI
and Viacom are to negotiate in good faith to determine mutually acceptable
changes to the terms and conditions for the Exchangeable Preferred Stock
and the Exchange Offer that each believes in good faith will cause the
Minimum Condition to be fulfilled and that would cause the Exchangeable
Preferred Stock to trade at a price equal to the Stated Value immediately
following the expiration of the Exchange Offer. In the event the Minimum
Condition is not thereafter met, TCI and Viacom will each have the right to
terminate the transaction. In addition, either party may terminate the
transaction if the Exchange Offer has not commenced by June 24, 1996 or
been consummated by July 24, 1996.
Consummation of the transaction is subject to a number of conditions,
including receipt of a favorable letter ruling from the Internal Revenue
Service that the transaction qualifies as a tax-free transaction and the
satisfaction or waiver of all of the conditions of the Exchange Offer. A
request for a letter ruling from the Internal Revenue Service has been
filed by Viacom. TCIC believes that, based upon the unique and complex
structure of the transaction, there exists significant uncertainty as to
whether a favorable ruling will be obtained. In light of the foregoing,
management of TCIC has concluded that consummation of the transaction is
not yet probable. No assurance can be given that the transaction will be
consummated.
(continued)
II-47
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
On October 5, 1992, Congress enacted the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). In 1993 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. Basic and tier
service rates are evaluated against competitive benchmark rates as
published by the FCC, and equipment and installation charges are based on
actual costs. Any rates for Regulated Services that exceeded the
benchmarks were reduced as required by the 1993 and 1994 rate regulations.
The rate regulations do not apply to the relatively few systems which are
subject to "effective competition" or to services offered on an individual
service basis, such as premium movie and pay-per-view services.
TCIC believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including its rate setting provisions.
However, TCIC's rates for Regulated Services are subject to review by the
FCC, if a complaint has been filed, or the appropriate franchise authority,
if such authority has been certified. If, as a result of the review
process, a system cannot substantiate its rates, it could be required to
retroactively reduce its rates to the appropriate benchmark and refund the
excess portion of rates received. Any refunds of the excess portion of
tier service rates would be retroactive to the date of complaint. Any
refunds of the excess portion of all other Regulated Service rates would be
retroactive to one year prior to the implementation of the rate reductions.
On October 30, 1995, the FCC accepted for comment a proposed resolution of
all complaints against the cable programming services tier ("CPST")
currently pending against cable systems owned by TCIC. If the proposed
resolution is accepted by the FCC, TCIC will settle all pending complaints
by a one-time credit to each subscriber in CPST regulated franchises. The
aggregate amount of such credits is approximately $9 million. Such amount
had previously been accrued by TCIC. In addition, the FCC will find that
the CPST rates in CPST regulated franchises on September 15, 1995 comply
with federal regulations. TCIC has committed not to file any additional
cost-of-service filings until May 15, 1996 in franchises that were subject
to CPST regulation prior to September 15, 1995. However, TCIC will be able
to avail itself of the other mechanisms under FCC rules to recover costs,
including abbreviated cost-of-service filings covering system rebuilds and
upgrades. In the proposed resolution, TCIC does not admit any violation
of, or any failure to conform to, the 1992 Cable Act or the rules
promulgated thereunder. The comment period has ended and TCIC is awaiting
action by the FCC.
TCIC has guaranteed notes payable and other obligations of affiliated and
other companies with outstanding balances of approximately $185 million at
December 31, 1995. Although there can be no assurance, management of TCIC
believes that it will not be required to meet its obligations under such
guarantees, or if it is required to fulfill any of such obligations, that
they will not be material to TCIC.
(continued)
II-48
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
In connection with the launch of a premium service in 1994, 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 December 31, 1995, the maximum amount of such
obligations or guarantees was approximately $135 million. The future
obligations of TCIC with respect to these agreements is not currently
determinable because such amount is dependent upon certain variable
factors.
TCIC has also committed to provide additional debt or equity funding to
certain of its affiliates. At December 31, 1995, such commitments
aggregated $24 million.
TCIC leases business offices, has entered into pole rental agreements,
transponder lease agreements and uses certain equipment under lease
arrangements. Minimum rental expense under such arrangements amounted to
$112 million, $76 million and $70 million in 1995, 1994 and 1993,
respectively.
Future minimum lease payments under noncancellable operating leases for
each of the next five years are summarized as follows (amounts in
millions):
Years ending
December 31,
------------
1996 $ 66
1997 64
1998 59
1999 57
2000 51
It is expected that, in the normal course of business, expiring leases will
be renewed or replaced by leases on other properties; thus, it is
anticipated that future minimum lease commitments will not be less than the
amount shown for 1996.
Certain key employees of the Company hold restricted stock awards and
options with tandem SARs to acquire shares of certain 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.
II-49
(continued)
<PAGE>
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(12) Quarterly Financial Information (Unaudited)
-------------------------------------------
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
--------- -------- -------- --------
<S> <C> <C> <C> <C>
amounts in millions
1995:
-----
Revenue $ 1,169 1,262 1,310 1,377
Operating income $ 230 208 222 143
Income tax benefit (expense) $ (4) 14 15 24
Net earnings (loss) $ 4 (28) (26) (70)
1994:
-----
Revenue $ 1,060 1,081 1,072 1,105
Operating income $ 234 205 181 198
Income tax expense:
As previously reported $ (31) (21) (29)
Adjustment for effect of adopting
equity method of accounting
for investments:
BET -- (1) --
----- ----- -----
As adjusted $ (31) (22) (29) (50)
===== ===== ===== =====
Net earnings:
As previously reported $ 32 6 23
Adjustment for effect of adopting
equity method of accounting
for investments:
QVC -- -- 1
BET -- 1 --
----- ----- -----
As adjusted $ 32 7 24 31
===== ===== ===== =====
</TABLE>
II-50
<PAGE>
PART III.
Item 10. Directors and Executive Officers of the Registrant.
- - -------- --------------------------------------------------
The following lists the directors and executive officers of TCI
Communications, Inc. ("TCIC" or the "Company"), their birth dates, a description
of their business experience and positions held with the Company as of January
31, 1996. All officers are appointed for an indefinite term, serving at the
pleasure of the Board of Directors.
Name Positions
- - ---------------------- ---------------------------------------------------
Bob Magness Chairman of the Board of TCIC since 1973 and TCIC
Born June 3, 1924 director from 1968; Chairman of the Board and
director of Tele-Communications, Inc. ("TCI")
since June of 1994.
John C. Malone Director of TCIC since 1973; Chief Executive
Born March 7, 1941 Officer of TCIC from March of 1992 to October of
1994 and President of TCIC from 1973 to October of
1994; TCI director since June of 1994; Chief
Executive Officer and President of TCI since
January of 1994; is President and a director of
many of TCI's subsidiaries; also a director of
Turner Broadcasting System, Inc., BET Holdings,
Inc., Home Shopping Network, Inc. and The Bank of
New York. Chairman of the Board and a director of
Tele-Communications International, Inc.
("International") since May 1995.
Kim Magness TCIC director from 1985 to August of 1994;
Born May 17, 1952 reinstated as TCIC director in January of 1996;
TCI director since June of 1994; manages numerous
personal and business investments, and is Chairman
and President of a company developing liners for
irrigation canals.
John W. Gallivan Chairman of the Board of Kearns-Tribune
Born June 28, 1915 Corporation ("Kearns"), a newspaper publishing
concern; also a director of Silver King Mining
Company; TCI director since June of 1994; TCIC
director from 1980 to August of 1994; reinstated
as TCIC director in January of 1996.
Donne F. Fisher Director of TCIC since 1980 and of TCI since June
Born May 24, 1938 of 1994. Executive Vice President of TCIC from
December of 1991 to October of 1994; was
previously Senior Vice President of TCIC since
1982 and Treasurer since 1970; Executive Vice
President of TCI from January of 1994 through
January 1, 1996. On January 1, 1996, Mr. Fisher
resigned his position of Executive Vice President
of TCI; also a director of General Communication,
Inc.
Brendan R. Clouston President and Chief Executive Officer of TCIC
Born April 28, 1953 since October of 1994; Executive Vice President
and Chief Operating Officer of TCI from March of
1992 to October of 1994; previously Senior Vice
President of TCI since December of 1991; Executive
Vice President of TCI since January of 1994; from
January of 1987 through December of 1991, held
various executive positions with United Artists
Entertainment Company ("UAE") and its predecessor,
United Artists Communications, Inc. ("UACI"), most
recently Executive Vice President and Chief
Financial Officer.
(continued)
III-1
<PAGE>
Name Positions
- - --------------------- ---------------------------------------------------
Stephen M. Brett Appointed Senior Vice President and General
Born September 20, 1940 Counsel of TCIC as of December of 1991. Executive
Vice President, General Counsel and Secretary of
TCI since January of 1994. Vice President and
Secretary and a director of most of TCI's
subsidiaries. From August of 1988 through
December of 1991, was Executive Vice
President-Legal and Secretary of UAE and its
predecessor, UACI.
Barry P. Marshall Executive Vice President and Chief Operating
Born March 4, 1946 Officer of TCIC since October of 1994. Executive
Vice President and Chief Operating Officer of TCI
Cable Management Corporation, TCIC's primary
operating subsidiary, from March of 1992 through
January 1, 1994, where he directly oversaw all of
TCIC's regional operating divisions. From 1986 to
March of 1992, was Vice President and Chief
Operating Officer of TCIC's largest regional
operating division.
Gary K. Bracken Controller of TCIC since 1969. Appointed Senior
Born July 29, 1939 Vice President of TCIC in December of 1991. Was
named Vice President and Principal Accounting
Officer of TCIC in 1982.
Bernard W. Schotters Appointed Senior Vice President-Finance and
Born November 25, 1944 Treasurer of TCIC in December of 1991. Was
appointed Vice President-Finance of TCIC in 1984.
Vice President and Treasurer of most of TCI's
subsidiaries.
Robert N. Thomson Appointed Senior Vice President of TCIC in
Born December 19, 1943 February of 1995. Senior Vice President of
Communications and Policy Planning for TCIC from
1991 to October of 1994. Previously, Vice
President of Government Affairs for TCIC from
January of 1987 to 1991.
Gary S. Howard TCIC Senior Vice President since October 1994 and
Born February 22, 1951 TCI Vice President from December 1991 through
October of 1994. President of Primestar by TCI.
Senior Vice President of United Artists
Entertainment Company from June 1989 to December
1991.
Sadie N. Decker TCIC Senior Vice President from October, 1994; was
Born October 8, 1939 Vice President from April, 1993 through October,
1994; Executive Director with Martin Marietta
Astronautics (the predecessor company to
Lockheed-Martin Astronautics) from 1985 through
April, 1993.
Gerald W. Gaines Appointed TCIC Senior Vice President of Telephony
Born May 29, 1956 Services in October 1994; President and Chief
Executive Officer of TCI Telephony Services, Inc.
since April, 1995; was President and founder of
GCG, Inc. (a management services firm serving the
telecommunications industry) from 1991 to 1994.
(continued)
III-2
<PAGE>
Name Positions
- - --------------------------- ---------------------------------------------------
Barbara J. Mowry TCIC Senior Vice President-Customer Satisfaction
Born January 27, 1948 since June 1995; was president and chief executive
officer of The Mowry Company from 1990 through
June, 1995.
Jedd S. Palmer TCIC Senior Vice President-Programming from
Born July 28, 1954 August, 1994; was Vice President-Programming from
1992 through August, 1994 and Director of
Programming from January, 1991 through early 1992.
Camille K. Jayne TCIC Senior Vice President since January, 1996;
Born June 15, 1952 was Vice President/Senior Consultant with Ryan
Partnership from 1994 through January, 1996; prior
to that was Senior Director/Co-Chairman New
Ventures of Ameritech Regional Bell Operating
Company from 1992 through 1994; was First Vice
President of Comerica Bank from 1987 through 1992.
There are no family relations, of first cousin or closer, among the
above named individuals, by blood, marriage or adoption, except that Bob Magness
and Kim Magness are father and son.
During the past five years, none of the above persons have had any
involvement in such legal proceedings as would be material to an evaluation of
his ability or integrity.
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires TCIC's officers and directors, and persons who own more than ten
percent of a registered class of TCIC's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish TCIC with copies of all Section 16(a)
forms they file.
Based solely on review of the copies of such Forms 3, 4 and 5 and
amendments thereto furnished to TCIC with respect to its most recent fiscal
year, or written representations that no Forms 5 were required, TCIC believes
that, during the year ended December 31, 1995, all Section 16(a) filing
requirements applicable to its officers, directors and greater than ten-percent
beneficial owners were complied with.
III-3
<PAGE>
Item 11. Executive Compensation.
- - ------- ----------------------
(a) Summary Compensation Table of TCI Communications, Inc. On August
------------------------------------------------------
3, 1995, TCI amended its Restated Certificate of Incorporation to, among other
things, (i) redesignate the TCI Class A Common Stock as "Tele-Communications,
Inc. Series A TCI Group Common Stock" ("Series A Stock") and TCI's Class B
Common Stock as "Tele-Communications, Inc. Series B TCI Group Common Stock"
("Series B Stock") and (ii) authorize two additional series of TCI common stock,
designated as "Tele-Communications, Inc. Series A Liberty Media Group Common
Stock" ("Liberty Series A Stock") and "Tele-Communications, Inc. Series B
Liberty Media Group Common Stock" ("Liberty Series B Stock "). Thereafter,
TCI distributed to the holders of TCI common stock one-fourth of a share of the
corresponding series of Liberty Media Group common stock in respect of each
share of TCI Group common stock held of record as of August 4, 1995, the record
date for such distribution (the "Distribution"). Certain of the stock options
with tandem stock appreciation rights relative to Series A Stock and Liberty
Series A Stock indicated in the following tables were granted prior to the
foregoing redesignation and Distribution. Options to purchase TCI Class A common
stock outstanding at the time of the Distribution were adjusted by issuing to
the holders of such options separate options to purchase that number of shares
of Liberty Series A Stock which the holder would have been entitled to receive
had the holder exercised such option to purchase TCI Class A common stock prior
to the record date for the Distribution and reallocating a portion of the
aggregate exercise price of the previously outstanding options to the newly
issued options to purchase Liberty Series A Stock.
The following table shows, for the years ended December 31, 1995, 1994 and 1993
all forms of compensation for the Chief Executive Officer and each of the five
most highly compensated executive officers of TCIC, whose total annual salary
and bonus exceeded $100,000 for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards
-------------------------- ----------------------
Other Securities
Annual Restricted Underlying
Compen- Stock Options/ All Other
sation Award(s) SARs Compensation
Position Year Salary ($) Bonus($) ($)(1) ($)(2) (#) ($)(6)
- - -------- ---- --------- ------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brendan R. Clouston 1995 $550,000 -- $3,181 $2,062,500 1,000,000 (3) $15,000
President and Chief 1994 $525,000 -- $1,000 --- 625,000 (4) $15,000
Executive Officer 1993 $519,231 -- $ 263 --- 625,000 (5) $15,000
Barry P. Marshall 1995 $367,500 -- $2,934 $ 309,375 75,000 (3) $13,816
Executive Vice 1994 $349,947 -- $ 538 --- 125,000 (4) $13,811
President and 1993 $363,462 -- $1,143 --- 250,000 (5) $13,746
Chief Operating
Officer
Gary S. Howard 1995 $262,500 $23,210 $3,415 $ 309,375 150,000 (3) $15,000
Senior Vice 1994 $226,462 $23,210 $1,052 --- 62,500 (4) $15,000
President 1993 $208,119 $23,210 $2,401 --- 62,500 (5) $15,000
Gary K. Bracken 1995 $248,063 -- $3,735 $ 206,250 75,000 (3) $15,000
Senior Vice President 1994 $233,624 -- $5,630 --- 62,500 (4) $15,000
and Controller 1993 $225,000 -- $ 567 --- 93,750 (5) $15,000
Bernard S. Schotters 1995 $248,063 -- $3,662 $ 515,625 300,000 (3) $15,000
Senior Vice 1994 $236,250 -- $2,775 --- 62,500 (4) $15,000
President and 1993 $233,654 -- $2,926 --- 93,750 (5) $15,000
Treasurer
Robert N. Thomson 1995 $248,063 -- $2,705 $ 206,250 50,000 (3) $12,480
Senior Vice 1994 $236,250 -- $1,846 --- 62,500 (4) $12,480
President 1993 $233,654 -- $1,914 --- 93,750 (5) $12,960
- - --------------------
</TABLE>
(1) Consists of amounts reimbursed during the year for the payment of taxes.
(2) TCI has a stock incentive plan, the Tele-Communications, Inc. 1994 Stock
Incentive Plan (the "1994 Plan"). On December 13, 1995, pursuant to the
1994 Plan, Mr. Clouston was granted 100,000 restricted shares of Series A
Stock, Mr. Marshall and Mr. Howard were each granted 15,000 restricted
shares of Series A Stock, Mr. Bracken and Mr. Thomson were each granted
10,000 restricted shares of Series A Stock and Mr. Schotters was granted
25,000 restricted shares of Series A Stock. Such restricted shares vest as
to 50% of such shares on December 13, 1999 and as to the remaining 50% on
December 13, 2000. The value of such restricted shares at the end of 1995
was $1,987,500 for Mr. Clouston, $298,125 each for Messrs. Marshall and
Howard, $198,750 each for Messrs. Bracken and Thomson and $496,875 for Mr.
Schotters based upon the closing price of Series A Stock on December 29,
1995. TCI has not paid cash dividends on the Series A Stock and does not
anticipate declaring and paying cash dividends on the Series A Stock at any
time in the foreseeable future.
(continued)
III-4
<PAGE>
(3) For additional information regarding this award, see Option/SAR Grants
Table below.
(4) On November 17, 1994, pursuant to the 1994 Plan, certain executive officers
and other key employees were granted an aggregate of 3,191,000 options in
tandem with stock appreciation rights to acquire shares of Series A Stock
at an adjusted purchase price of $16.50 per share and an aggregate of
797,750 options in tandem with stock appreciation rights to acquire shares
of Liberty Series A Stock at a purchase price of $22.00 per share. Such
options vest evenly over five years, become exercisable beginning on
November 17, 1995 and expire on November 17, 2004. Notwithstanding the
vesting schedule as set forth in the option agreement, the option shares
shall become available for purchase if grantee's employment with the
Company (a) shall terminate by reason of (i) termination by the Company
without cause (ii) termination by the grantee for good reason (as defined
in the agreement) or (iii) disability, (b) shall terminate pursuant to
provisions of a written employment agreement, if any, between the grantee
and the Company which expressly permits the grantee to terminate such
employment upon occurrence of specified events (other than the giving of
notice and passage of time), or (c) if grantee dies while employed by the
Company. Further, the option shares will become available for purchase in
the event of an Approved Transaction, Board Change, or Control Purchase
(each as defined in the 1994 Plan), unless in the case of an Approved
Transaction, the TCI Compensation Committee under the circumstances
specified in the 1994 Plan determines otherwise.
(5) On October 12, 1993 certain executive officers and other key employees were
granted an aggregate of 1,355,000 options in tandem with stock appreciation
rights to acquire shares of Series A Stock at an adjusted purchase price of
$12.50 per share and 338,750 options in tandem with stock appreciation
rights to acquire shares of Liberty Series A Stock at a purchase price of
$16.75 per share. On November 12, 1993, an additional grant of stock
options in tandem with stock appreciation rights to purchase an aggregate
of 600,000 shares of Series A Stock was made to Messrs. Clouston and an
executive officer of TCI at an adjusted purchase price of $12.50 per share
and an aggregate of 150,000 options in tandem with stock appreciation
rights to acquire shares of Liberty Series A Stock at a purchase price of
$16.75 per share. Such options vest evenly over four years, first became
exercisable on October 12, 1994 and expire on October 12, 2003.
Notwithstanding the vesting schedule as set forth in the option agreement,
the option shares shall become available for purchase if grantee's
employment with the Company (a) shall terminate by reason of (i)
termination by the Company without cause (ii) termination by the grantee
for good reason (as defined in the agreement) or (iii) disability, (b)
shall terminate pursuant to provisions of a written employment agreement,
if any, between the grantee and the Company which expressly permits the
grantee to terminate such employment upon occurrence of specified events
(other than the giving of notice and passage of time), or (c) if grantee
dies while employed by the Company. Further, the option shares will become
available for purchase in the event of an Approved Transaction, Board
Change, or Control Purchase (each as defined in the Plan), unless in the
case of an Approved Transaction, the TCI Compensation Committee under the
circumstances specified in the Plan determines otherwise.
(continued)
III-5
<PAGE>
(6) Includes dollar value of annual TCI contributions to the TCI Employee Stock
Purchase Plan ("ESPP") in which all named executive officers are fully
vested. Directors who are not employees of the Company are ineligible to
participate in the ESPP. The ESPP, a defined contribution plan, enables
participating employees to acquire a proprietary interest in TCI and
benefits upon retirement. Under the terms of the ESPP, employees are
eligible for participation after one year of service. The ESPP's normal
retirement age is 65 years. Participants may contribute up to 10% of their
compensation and TCI (by annual resolution of the TCI Board of Directors)
may contribute up to 100% of the participants' contributions. The ESPP
includes a salary deferral feature in respect of employee contributions.
Forfeitures (due to participants' withdrawal prior to full vesting) are
used to reduce TCI's otherwise determined contributions. Generally,
participants acquire a vested right in TCI contributions as follows:
Years of service Vesting Percentage
---------------- ------------------
Less than 1 0
1-2 20
2-3 30
3-4 45
4-5 60
5-6 80
6 or more 100
Participant contributions are fully vested. Although TCI has not expressed
an intent to terminate the ESPP, it may do so at any time. The ESPP
provides for full and immediate vesting of all participants' rights upon
termination.
(continued)
III-6
<PAGE>
(b) Option/SAR Grants Table of TCI Communications, Inc. The following
---------------------------------------------------
table shows all individual grants of stock options and stock appreciation rights
("SARs") granted to each of the named executive officers of TCIC during the year
ended December 31, 1995:
<TABLE>
<CAPTION>
Number of
Securities
Underlying % of Total
Options/ Options/SARs Market
SARs Granted Exercise or Price on Grant Date
Granted to Employees Base Price Grant Date Expiration Present Value
Name (#) in Fiscal Year ($/Sh) ($/Sh) Date ($)
- - ---------------------- ----------- --------------- ------------ ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Brendan R. Clouston
Series A 1,000,000 (1) $17.00 $20.625 (7) August 4, 2005 $14,133,800 (9)
Barry P. Marshall
Series A 75,000 (2) $17.00 $20.625 (7) August 4, 2005 $ 1,060,035 (9)
Gary S. Howard
Series A 150,000 (3) $17.00 $20.625 (7) August 4, 2005 $ 2,120,070 (9)
Gary K. Bracken
Series A 75,000 (2) $17.00 $20.625 (7) August 4, 2005 $ 1,060,035 (9)
Bernard W. Schotters
Series A 250,000 (4) $17.00 $20.625 (7) August 4, 2005 $ 3,533,450 (9)
TINTA Series A 50,000 (5) $16.00 $25.375 (8) August 4, 2005 $ 864,180 (10)
Robert N. Thomson
Series A 50,000 (6) $17.00 $20.625 (7) August 4, 2005 $ 706,690 (9)
- - -------------------------
</TABLE>
(1) On December 13, 1995, pursuant to the 1994 Plan, certain executive officers
were granted an aggregate of 2,650,000 options in tandem with stock
appreciation rights to acquire shares of Series A Stock and an aggregate of
675,000 options in tandem with stock appreciation rights to acquire shares
of Liberty Series A Stock. Additionally, TCI has a stock incentive plan,
the Tele-Communications, Inc. 1995 Stock Incentive Plan (the "1995 Plan").
On December 13, 1995, pursuant to the 1995 Plan, certain key employees were
granted an aggregate of 2,757,500 options in tandem with stock appreciation
rights to acquire shares of Series A Stock and an aggregate of 436,000
options in tandem with stock appreciation rights to acquire shares of
Liberty Series A Stock. Additionally, on December 13, 1995, pursuant to an
incentive plan subject to the approval of TCI shareholders (the "1996
Plan"), certain executive officers and directors of TCIC and an officer of
TCI were granted an aggregate of 2,000,000 options in tandem with stock
appreciation rights to acquire shares of Series A Stock and an aggregate of
1,100,000 options in tandem with stock appreciation rights to acquire
shares of Liberty Series A Stock. Each such grant of options with tandem
stock appreciation rights vests evenly over five years with such vesting
period beginning August 4, 1995, first becomes exercisable beginning on
August 4, 1996 and expires on August 4, 2005. Mr. Clouston's grant,
pursuant to the 1994 Plan, of options in tandem with stock appreciation
rights represents 37.7% of the total options granted to purchase Series A
Stock pursuant to the 1994 Plan and, together with the options granted to
purchase Series A Stock pursuant to the 1995 Plan and the 1996 Plan,
represents 13.5% of all options granted in 1995 to purchase Series A Stock.
(continued)
III-7
<PAGE>
(2) Mr. Marshall's and Mr. Bracken's grant, pursuant to the 1994 Plan, of
options in tandem with stock appreciation rights each represent 2.8% of the
total options granted to purchase Series A Stock pursuant to the 1994 Plan
and, together with the options granted to purchase Series A Stock pursuant
to the 1995 Plan and the 1996 Plan, each represent 1.0% of all options
granted in 1995 to purchase Series A Stock.
(3) Mr. Howard's grant, pursuant to the 1995 Plan, of options in tandem with
stock appreciation rights represents 5.4% of the total options granted to
purchase Series A Stock pursuant to the 1995 Plan and, together with the
options granted to purchase Series A Stock pursuant to the 1994 Plan and
the 1996 Plan, represents 2.0% of all options granted in 1995 to purchase
Series A Stock.
(4) Mr. Schotters' grant, pursuant to the 1994 Plan, of options in tandem with
stock appreciation rights represents 9.4% of the total options granted to
purchase Series A Stock pursuant to the 1994 Plan and, together with the
options granted to purchase Series A Stock pursuant to the 1995 Plan and
the 1996 Plan, represents 3.4% of all options granted in 1995 to purchase
Series A Stock.
(5) Mr. Schotters was granted 50,000 options in tandem with stock appreciation
rights to acquire from TCI shares of Series A Tele-Communications
International, Inc. common stock ("TINTA Series A Stock") owned by it.
Additionally, Tele-Communications International, Inc. ("International"), a
majority owned subsidiary of TCI, has a stock incentive plan (the
"International Plan") which is subject to the approval of the International
shareholders. On December 13, 1995, pursuant to the International Plan,
certain executive officers and other key employees of TCI were granted an
aggregate of 1,302,000 options in tandem with stock appreciation rights to
acquire shares of TINTA Series A Stock. Each such grant of options vests
evenly over 5 years, becomes exercisable beginning August 4, 1996 and
expires on August 4, 2005. Mr. Schotters' grant of such options in tandem
with stock appreciation rights represents 100% of the total options granted
by TCI of options to purchase its ownership of TINTA Series A Stock and,
together with the options granted pursuant to the International Plan,
represents 3.7% of all options granted to purchase TINTA Series A Stock.
(6) Mr. Thomson's grant, pursuant to the 1994 Plan, of options in tandem with
stock appreciation rights represents 1.9% of the total options granted to
purchase Series A Stock pursuant to the 1994 Plan and, together with the
options granted to purchase Series A Stock pursuant to the 1995 Plan and
the 1996 Plan, represents 0.7% of all options granted in 1995 to purchase
Series A Stock.
(7) Represents the closing market price per share of Series A Stock on December
13, 1995.
(8) Represents the closing market price per share of TINTA Series A Stock on
December 13, 1995.
(continued)
III-8
<PAGE>
(9) The values shown are based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 5.65% discount rate; (b) a volatility factor based upon the
historical trading pattern of Series A Stock; (c) the 10-year option term;
and (d) the closing price of Series A Stock on February 8, 1996. The
actual value an executive may realize will depend upon the extent to which
the stock price exceeds the exercise price on the date the option is
exercised. Accordingly, the value, if any, realized by an executive will
not necessarily be the value determined by the model.
(10) The values shown are based on the Black-Scholes model and are stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
(a) a 5.75% discount rate; (b) a volatility factor based upon the
historical trading pattern of TINTA Series A Stock; (c) the 10-year option
term; and (d) the closing price of TINTA Series A Stock on January 15,
1996. The actual value an executive may realize will depend upon the
extent to which the stock price exceeds the exercise price on the date the
option is exercised. Accordingly, the value, if any, realized by an
executive will not necessarily be the value determined by the model.
(c) Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Value
--------------------------------------------------------------------
Table of TCI Communications, Inc. The following table shows each exercise of
- - ---------------------------------
stock options and SARs during the year ended December 31, 1995 by each of the
named executive officers of TCIC and the December 31, 1995 number and year-end
value of unexercised options and SARs on an aggregated basis:
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at at
December 31, December 31,
1995 (#) 1995 ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
---- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Brendan Clouston
Exercisable
Series A -- $2,396,875 (1) 265,000 $1,794,375
Liberty Series A -- $ 873,438 (1) 66,250 $ 618,281
Unexercisable
Series A -- -- 1,610,000 $6,733,750
Liberty Series A -- -- 152,500 $1,334,063
Barry Marshall
Exercisable
Series A -- -- 240,000 $1,690,000
Liberty Series A -- -- 60,000 $ 581,250
Unexercisable
Series A -- -- 335,000 $1,813,125
Liberty Series A -- -- 65,000 $ 553,125
</TABLE>
(continued)
III-9
<PAGE>
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at at
December 31, December 31,
1995 (#) 1995 ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
---- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Gary Howard
Exercisable
Series A 9,714 $75,046 65,000 $ 439,375
Liberty Series A 2,428 $25,008 16,250 $ 151,406
Unexercisable
Series A -- -- 235,000 $ 898,125
Liberty Series A -- -- 21,250 $ 162,656
Gary Bracken
Exercisable
Series A -- -- 92,500 $ 642,188
Liberty Series A -- -- 23,125 $ 221,016
Unexercisable
Series A -- -- 182,500 $ 848,438
Liberty Series A -- -- 26,875 $ 219,609
Bernard Schotters
Exercisable
Series A -- -- 92,500 $ 642,188
Liberty Series A -- -- 23,125 $ 221,016
Unexercisable
Series A -- -- 357,500 $1,351,563
Liberty Series A -- -- 26,875 $ 219,609
TINTA Series A -- -- 50,000 $ 337,500
Robert Thomson
Exercisable
Series A -- -- 92,500 $ 642,188
Liberty Series A -- -- 23,125 $ 221,016
Unexercisable
Series A -- -- 157,500 $ 776,563
Liberty Series A -- -- 26,875 $ 219,609
</TABLE>
___________________________
(1) Mr. Clouston received an aggregate payment of $3,270,313 from the Company
(based on the market value of Series A Stock of $19.875 per share and
Liberty Series A Stock of $27.50 per share) in September of 1995, in
cancellation of his options with tandem stock appreciation rights covering
325,000 shares of Series A Stock and 81,250 shares of Liberty Series A
Stock.
(continued)
III-10
<PAGE>
(d) Compensation of directors. There are no arrangements whereby any of
-------------------------
TCIC's directors received compensation for services as a director during 1995.
(e) Employment Contracts and Termination of Employment and Change of
----------------------------------------------------------------
Control Arrangements. The Company has no employment contracts or termination of
- - --------------------
employment and change of control arrangements for any of the named executive
officers of TCIC.
(f) Additional information with respect to Compensation Committee
-------------------------------------------------------------
Interlocks and Insider Participation in Compensation Decisions. The members of
- - --------------------------------------------------------------
TCI's compensation committee are Messrs. Robert A. Naify and John W. Gallivan,
both directors of TCI and, as to Mr. Gallivan, a director of TCIC. TCIC has no
separate compensation committee, and compensation decisions relative to TCIC are
determined by TCI's compensation committee.
Dr. Malone is a director of TCIC and is Chairman of the Board and a
member of the compensation committee of International.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- - ------- --------------------------------------------------------------
(a) Security ownership of certain beneficial owners. The following table
-----------------------------------------------
sets forth, as of January 31, 1996, information with respect to the ownership of
TCIC Class A common stock ("Class A Stock"), Class B common stock ("Class B
Stock") and Cumulative Exchangeable Preferred Stock, Series A ("Series A
Preferred Stock"), by each person known to the Company to own beneficially more
than 5% of any class outstanding on that date. So far as is known to TCIC, the
persons indicated below have sole voting and investment power with respect to
the shares indicated as owned by them. Voting power in the table is computed
with respect to a general election of directors and, therefore, the Series A
Preferred Stock is included in the calculation.
<TABLE>
<CAPTION>
Name and address of Amount and Nature Percent Voting
Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1)
- - ---------------- -------------------- ----------------------- ----------- ---------
<S> <C> <C> <C> <C>
Class A Tele-Communications, 811,655 100% 97.4%
Class B Inc. 94,447 100%
Series A Pref. 5619 DTC Parkway -- --
Englewood, CO
Class A The TCW Group, Inc. -- -- *
Class B 865 South Figueroa -- --
Series A Pref. Street 516,000 11.2%
Los Angeles, CA
</TABLE>
________________________
* Less than one percent
(1) Based on 811,655 shares of Class A Stock, 94,447 shares of Class B Stock
and 4,600,000 shares of Series A Preferred Stock outstanding on January 31,
1996. The Class A Stock has 100 votes per share and the Class B Stock has
1,000 votes per share.
(continued)
III-11
<PAGE>
(b) Security ownership of management. The following table sets forth, as
--------------------------------
of January 31, 1996, information with respect to the ownership of TCIC's voting
securities (Class A Stock, Class B Stock and Series A Preferred Stock) and
ownership of TCI's voting securities (Series A Stock, Series B Stock, Liberty
Series A Stock and Liberty Series B Stock (other than directors' qualifying
shares), Class B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock
("Class B preferred Stock"), Convertible Preferred Stock, Series C ("Series C
Preferred Stock"), Redeemable Convertible TCI Group Preferred Stock, Series G
("Series G Preferred Stock") and Redeemable Convertible Liberty Media Group
Preferred Stock, Series H ("Series H Preferred Stock")), by all directors and
each of the named executive officers of TCIC, and by all executive officers and
directors of TCIC as a group. Shares issuable upon exercise or vesting of
convertible securities or restricted shares are deemed to be outstanding for the
purpose of computing the percentage ownership and overall voting power of
persons beneficially owning such securities, but have not been deemed to be
outstanding for the purpose of computing the percentage ownership or overall
voting power of any other person. Voting power in the table is computed with
respect to a general election of directors. The number of Series A Stock, Series
B Stock, Liberty Series A Stock and Liberty Series B Stock in the table include
interests of the named directors or executive officers or of members of the
group of directors and executive officers in shares held by the trustee of TCI's
ESPP and shares held by the trustee of UAE's Employee Stock Ownership Plan for
their respective accounts. So far as is known to TCIC, the persons indicated
below have sole voting and investment power with respect to the shares indicated
as owned by them except as otherwise stated in the notes to the table and except
for the shares held by the trustee of TCI's ESPP for the benefit of such person,
which shares are voted at the discretion of the trustee.
(continued)
III-12
<PAGE>
<TABLE>
<CAPTION>
Name of Amount and Nature Percent Voting
Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1)
-------------- ---------------- ----------------------- ----------- ---------
<S> <C> <C> <C> <C>
Class A Bob Magness -- -- --
Class B -- --
Series A Pref. -- --
Series A 5,626,938 (2)(3)(4) * 26.2%
Series B 37,132,076 (2)(4)(7) 43.9%
Liberty Series A 1,406,734 (2)(3)(4) *
Liberty Series B 9,283,019 (2)(4) 43.8%
Class B Pref. 125,000 7.7%
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A John C. Malone -- -- --
Class B -- --
Series A Pref. -- --
Series A 2,171,395 (5) * 17.8%
Series B 25,287,083 (6)(7)(8) 29.9%
Liberty Series A 542,819 (5) *
Liberty Series B 6,349,270 (6)(7)(8) 30.0%
Class B Pref. 306,000 (6)(8) 18.9%
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A Donne F. Fisher -- -- --
Class B -- --
Series A Pref. -- --
Series A 536,367 (9) * *
Series B 249,072 *
Liberty Series A 136,358 (9) *
Liberty Series B 62,268 *
Class B Pref. 3,464 *
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A John W. Gallivan -- -- --
Class B -- --
Series A Pref. -- --
Series A 52,124 (10) * *
Series B -- --
Liberty Series A 13,031 (10) *
Liberty Series B -- --
Class B Pref. 14 *
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
</TABLE>
(continued)
III-13
<PAGE>
<TABLE>
<CAPTION>
Name of Amount and Nature Percent Voting
Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1)
-------------- ---------------- ----------------------- ----------- ---------
<S> <C> <C> <C> <C>
Class A Kim Magness -- -- --
Class B -- --
Series A Pref. -- --
Series A 50,000 (11) * *
Series B 518,000 *
Liberty Series A 12,500 (11) *
Liberty Series B 129,500 *
Class B Pref. -- --
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A Brendan R. Clouston -- -- --
Class B -- --
Series A Pref. -- --
Series A 1,985,391 (12) * *
Series B 230 *
Liberty Series A 221,347 (12)
Liberty Series B 57 *
Class B Pref. -- --
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A Barry Marshall -- -- --
Class B -- --
Series A Pref. -- --
Series A 637,606 (13) *
Series B -- --
Liberty Series A 136,848 (13)
Liberty Series B -- --
Class B Pref. -- --
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A Gary Howard -- -- --
Class B -- --
Series A Pref. -- --
Series A 348,058 (14) * *
Series B -- --
Liberty Series A 46,115 (14) *
Liberty Series B -- --
Class B Pref. -- --
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
</TABLE>
(continued)
III-14
<PAGE>
<TABLE>
<CAPTION>
Name of Amount and Nature Percent Voting
Title of Class Beneficial Owner of Beneficial Ownership of Class(1) Power(1)
-------------- ---------------- ----------------------- ----------- ---------
<S> <C> <C> <C> <C>
Class A Gary Bracken -- -- --
Class B -- --
Series A Pref. -- --
Series A 485,424 (15) * *
Series B 3,000 *
Liberty Series A 100,469 (15) *
Liberty Series B 750 *
Class B Pref. 810 *
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A Bernard Schotters -- -- --
Class B -- --
Series A Pref. -- --
Series A 619,556 (16) * *
Series B 1,716 *
Liberty Series A 88,131 (16) *
Liberty Series B 429 *
Class B Pref. 1,022 *
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A Robert Thomson -- -- --
Class B -- --
Series A Pref. -- --
Series A 267,285 (17) * *
Series B -- --
Liberty Series A 51,770 (17) *
Liberty Series B -- --
Class B Pref. -- --
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
Class A All directors -- -- --
Class B and executive -- --
Series A Pref. officers -- --
Series A as a group 14,709,468 (2)(3)(4)(5) 2.5% 44.7%
(17 persons) (9)(10)(11)(12)
(13)(14)(15)(16)
(17)
Series B 63,191,177 (2)(4)(6)(7)(8) 74.6%
Liberty Series A 3,008,392 (2)(3)(4)(5)(9) 2.1%
(10)(11)(12)(13)
(14)(15)(16)(17)
Liberty Series B 15,825,293 (2)(4)(6)(7)(8) 74.7%
Class B Pref. 436,332 (6)(8) 26.9%
Series C Pref. -- --
Series G Pref. -- --
Series H Pref. -- --
</TABLE>
_________________________
* Less than one percent.
(continued)
III-15
<PAGE>
(1) Based on 811,655 shares of Class A Stock, 94,447 shares of Class B Stock,
4,600,000 shares of Series A Preferred Stock, 571,692,645 shares of Series
A Stock (after elimination of shares of TCI held by subsidiaries of TCI),
84,685,554 shares of Series B Stock, 142,896,264 shares of Liberty Series A
Stock, 21,196,868 shares of Liberty Series B Stock, 1,620,026 shares of
Class B Preferred Stock, 70,575 shares of Series C Preferred Stock,
7,259,380 shares of Series G Preferred Stock and 7,259,380 shares of Series
H Preferred Stock outstanding on January 31, 1996.
(2) Mr. Magness, as executor of the Estate of Betsy Magness, is the beneficial
owner of all shares of Series A Stock, Series B Stock, Liberty Series A
Stock and Liberty Series B Stock held of record by the Estate of Betsy
Magness. The number of shares held by Mr. Magness includes 2,105,332
shares of Series A Stock, 6,346,212 shares of Series B Stock, 526,333
shares of Liberty Series A Stock and 1,586,553 shares of Liberty Series B
Stock of which Mr. Magness is beneficial owner as executor.
(3) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 1,000,000 shares of
Series A Stock and 250,000 shares of Liberty Series A Stock. Options to
acquire 600,000 and 150,000 shares of Series A Stock and Liberty Series A
Stock, respectively, are currently exercisable. Additionally assumes the
exercise in full of stock options granted in tandem with stock appreciation
rights in December of 1995 to acquire 1,000,000 shares of Series A Stock
and 250,000 shares of Liberty Series A Stock. None of the options are
exercisable until August 4, 1996. Such grant is subject to the approval by
shareholders of the 1996 Plan.
(4) Mr. Magness and Kearns are parties to a buy-sell agreement, entered into in
October of 1968, as amended, under which neither party may dispose of their
shares without notification of the proposed sale to the other, who may then
buy such shares at the offered price, sell all of their shares to the other
at the offered price or exchange one of their Series A shares for each
Series B share or one of their Liberty Series A shares for each Liberty
Series B share held by the other and purchase any remaining Series B shares
or Liberty Series B shares at the offered price. There are certain
exceptions, including transfers to specified persons or entities, certain
public sales of Series A shares or Liberty Series A shares and exchanges of
Series A shares for Series B shares or Liberty Series A shares for Liberty
Series B shares.
(5) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 1,000,000 shares of
Series A Stock and 250,000 shares of Liberty Series A Stock. Options to
acquire 600,000 and 150,000 shares of Series A Stock and Liberty Series A
Stock, respectively, are currently exercisable. Additionally assumes the
exercise in full of stock options granted in tandem with stock appreciation
rights in December of 1995 to acquire 1,000,000 shares of Series A Stock
and 250,000 shares of Liberty Series A Stock. None of the options are
exercisable until August 4, 1996. Such grant is subject to the approval by
shareholders of the 1996 Plan.
(6) Includes 1,173,000 shares of Series B Stock, 293,250 shares of Liberty
Series B Stock and 6,900 shares of Class B Preferred Stock held by Dr.
Malone's wife, Mrs. Leslie Malone, but Dr. Malone has disclaimed any
beneficial ownership of such shares.
(continued)
III-16
<PAGE>
(7) Pursuant to a letter agreement, dated June 17, 1988, Mr. Magness and Kearns
each agreed with Dr. Malone that prior to making a disposition of a
significant portion of their respective holdings of Series B Stock or
Liberty Series B Stock, he or it would first offer Dr. Malone the
opportunity to purchase such shares.
(8) The number of shares of Series B Stock, Liberty Series B Stock and Class B
Preferred Stock held by Dr. Malone includes 3,120,000, 780,000 and 40,000
TCI Restricted Voting Shares, respectively, that are subject to repurchase
by TCI under certain circumstances. Until they cease to be subject to
TCI's repurchase right (March 28, 1996), such shares may not be transferred
and, with respect to any matter submitted to a vote of the stockholders of
TCI, the votes represented thereby will be cast in the same proportion as
all other votes are cast with respect to such matter. The number of shares
of Series A Stock, Series B Stock, Liberty Series A Stock, Liberty Series B
Stock and Class B Preferred Stock held by Dr. Malone which are not subject
to such repurchase rights and voting requirements represent 16.1% of the
total voting power of the shares of TCI common stock, TCI Class B Preferred
Stock and Series C Preferred Stock outstanding (excluding 3,120,000,
780,000 and 40,000 TCI Restricted Voting Shares from such total voting
power).
(9) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1994 to acquire 200,000 shares of Series
A Stock and 50,000 shares of Liberty Series A Stock. Options to acquire
40,000 shares of Series A Stock and 10,000 shares of Liberty Series A Stock
are currently exercisable.
(10) Includes 1,524 shares of Series A Stock and 381 shares of Liberty Series A
Stock held by Mr. Gallivan's wife. TCI has an option plan for its
directors who are not employees of TCI (the "Director Stock Option Plan").
Pursuant to such plan, TCI granted options to each such director, effective
as of November 16, 1994, to purchase 50,000 shares of Series A Stock and
12,500 shares of Liberty Series A Stock. Such options have a purchase
price of $16.50 per share and $22.50 per share, respectively, and vest and
become exercisable over a five-year period, commencing November 16, 1995
and will expire on November 16, 2004. Assumes the exercise in full of
options granted, pursuant to the Director Stock Option Plan, to acquire
50,000 shares of Series A Stock and 12,500 shares of Liberty Series A
Stock. Options to acquire 10,000 shares of Series A Stock and 2,500 shares
of Liberty Series A Stock are currently exercisable.
(11) Assumes the exercise in full of options granted, pursuant to the Director
Stock Option Plan, to acquire 50,000 shares of Series A Stock and 12,500
shares of Liberty Series A Stock. Options to acquire 10,000 shares of
Series A Stock and 2,500 shares of Liberty Series A Stock are currently
exercisable.
(continued)
III-17
<PAGE>
(12) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 300,000 shares of Series
A Stock and 75,000 shares of Liberty Series A Stock. Options to acquire
100,000 shares of Series A Stock and 25,000 shares of Liberty Series A
Stock are currently exercisable. Additionally assumes the exercise in full
of stock options in tandem with stock appreciation rights in November of
1993 to acquire 375,000 shares of Series A Stock and 93,750 shares of
Liberty Series A Stock. Options to acquire 125,000 shares of Series A Stock
and 31,250 shares of Liberty Series A Stock are currently exercisable. Also
assumes the exercise in full of stock options in tandem with stock
appreciation rights in November of 1994 to acquire 200,000 shares of Series
A Stock and 50,000 shares of Liberty Series A Stock. Options to acquire
40,000 shares of Series A Stock and 10,000 shares of Liberty Series A Stock
are currently exercisable. Assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in December of 1995 to
purchase 1,000,000 shares of Series A Stock. None of the options are
exercisable until August 4, 1996. Additionally assumes the vesting in full
of 100,000 Series A restricted stock. None of the stock is currently
vested.
(13) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 200,000 shares of Series
A Stock and 50,000 shares of Liberty Series A Stock. Options to acquire
120,000 shares of Series A Stock and 30,000 shares of Liberty Series A
Stock are currently exercisable. Additionally assumes the exercise in full
of stock options in tandem with stock appreciation rights in November of
1993 to acquire 200,000 shares of Series A Stock and 50,000 shares of
Liberty Series A Stock. Options to acquire 100,000 shares of Series A Stock
and 25,000 shares of Liberty Series A Stock are currently exercisable. Also
assumes the exercise in full of stock options in tandem with stock
appreciation rights in November of 1994 to acquire 100,000 shares of Series
A Stock and 25,000 shares of Liberty Series A Stock. Options to acquire
20,000 shares of Series A Stock and 5,000 shares of Liberty Series A Stock
are currently exercisable. Assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in December of 1995 to
purchase 75,000 shares of Series A Stock. None of the options are
exercisable until August 4, 1996. Additionally assumes the vesting in full
of 15,000 Series A restricted stock. None of the stock is currently vested.
(continued)
III-18
<PAGE>
(14) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 50,000 shares of Series
A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire
30,000 shares of Series A Stock and 7,500 shares of Liberty Series A Stock
are currently exercisable. Additionally assumes the exercise in full of
stock options in tandem with stock appreciation rights in November of 1993
to acquire 50,000 shares of Series A Stock and 12,500 shares of Liberty
Series A Stock. Options to acquire 25,000 shares of Series A Stock and
6,250 shares of Liberty Series A Stock are currently exercisable. Also
assumes the exercise in full of stock options in tandem with stock
appreciation rights in November of 1994 to acquire 50,000 shares of Series
A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire
10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock
are currently exercisable. Assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in December of 1995 to
purchase 150,000 shares of Series A Stock. None of the options are
exercisable until August 4, 1996. Additionally assumes the vesting in full
of 15,000 Series A restricted stock. None of the stock is currently vested.
(15) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 75,000 shares of Series
A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire
45,000 shares of Series A Stock and 11,250 shares of Liberty Series A Stock
are currently exercisable. Additionally assumes the exercise in full of
stock options in tandem with stock appreciation rights in November of 1993
to acquire 75,000 shares of Series A Stock and 18,750 shares of Liberty
Series A Stock. Options to acquire 37,500 shares of Series A Stock and
9,375 shares of Liberty Series A Stock are currently exercisable. Also
assumes the exercise in full of stock options in tandem with stock
appreciation rights in November of 1994 to acquire 50,000 shares of Series
A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire
10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock
are currently exercisable. Assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in December of 1995 to
purchase 75,000 shares of Series A Stock. None of the options are
exercisable until August 4, 1996. Additionally assumes the vesting in full
of 10,000 Series A restricted stock. None of the stock is currently vested.
(continued)
III-19
<PAGE>
(16) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 75,000 shares of Series
A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire
45,000 shares of Series A Stock and 11,250 shares of Liberty Series A Stock
are currently exercisable. Additionally assumes the exercise in full of
stock options in tandem with stock appreciation rights in November of 1993
to acquire 75,000 shares of Series A Stock and 18,750 shares of Liberty
Series A Stock. Options to acquire 37,500 shares of Series A Stock and
9,375 shares of Liberty Series A Stock are currently exercisable. Also
assumes the exercise in full of stock options in tandem with stock
appreciation rights in November of 1994 to acquire 50,000 shares of Series
A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire
10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock
are currently exercisable. Assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in December of 1995 to
purchase 250,000 shares of Series A Stock. None of the options are
exercisable until August 4, 1996. Additionally assumes the vesting in full
of 25,000 Series A restricted stock. None of the stock is currently vested.
(17) Assumes the exercise in full of stock options granted in tandem with stock
appreciation rights in November of 1992 to acquire 75,000 shares of Series
A Stock and 18,750 shares of Liberty Series A Stock. Options to acquire
45,000 shares of Series A Stock and 11,250 shares of Liberty Series A Stock
are currently exercisable. Additionally assumes the exercise in full of
stock options in tandem with stock appreciation rights in November of 1993
to acquire 75,000 shares of Series A Stock and 18,750 shares of Liberty
Series A Stock. Options to acquire 37,500 shares of Series A Stock and
9,375 shares of Liberty Series A Stock are currently exercisable. Also
assumes the exercise in full of stock options in tandem with stock
appreciation rights in November of 1994 to acquire 50,000 shares of Series
A Stock and 12,500 shares of Liberty Series A Stock. Options to acquire
10,000 shares of Series A Stock and 2,500 shares of Liberty Series A Stock
are currently exercisable. Assumes the exercise in full of stock options
granted in tandem with stock appreciation rights in December of 1995 to
purchase 50,000 shares of Series A Stock. None of the options are
exercisable until August 4, 1996. Additionally assumes the vesting in full
of 10,000 Series A restricted stock. None of the stock is currently vested.
(continued)
III-20
<PAGE>
(18) Certain executive officers and directors of TCIC (10 persons, including
Messrs. Clouston, Marshall, Howard, Bracken, Schotters and Thomson) hold
options which were granted in tandem with stock appreciation rights in
November of 1992, to acquire an aggregate of 2,888,500 shares of Series A
Stock and an aggregate of 722,125 shares of Liberty Series A Stock at
purchase prices of $12.50 per shares and $16.75 per share, respectively.
Options to acquire 1,653,100 shares of Series A Stock and 413,275 shares of
Liberty Series A Stock are currently exercisable. Additionally, certain
executive officers (9 persons including Messrs. Clouston, Marshall, Howard,
Bracken, Schotters and Thomson) hold stock options granted in tandem with
stock appreciation rights in October and November of 1993 to acquire an
aggregate of 1,015,000 shares of Series A Stock and an aggregate of 253,750
shares of Liberty Series A Stock at purchase prices of $12.50 per share and
$16.75 per share, respectively. Options to acquire 445,000 shares of
Series A Stock and 111,250 shares of Liberty Series A Stock are currently
exercisable. Also, certain executive officers and directors (12 persons
including Messrs. Clouston, Marshall, Howard, Bracken, Schotters and
Thomson) hold stock options which were granted in tandem with stock
appreciation rights in November of 1994 to acquire an aggregate of
1,075,000 shares of Series A Stock and an aggregate of 268,750 shares of
Liberty Series A Stock at purchase prices of $16.50 per share and $22.50
per share, respectively. Options to acquire 215,000 shares of Series A
Stock and 53,750 shares of Liberty Series A Stock are currently
exercisable. Additionally, certain executive officers and directors (14
persons, including Messrs. Clouston, Marshall, Howard, Bracken, Schotters
and Thomson) hold stock options which were granted, pursuant to the 1994
Plan and the 1996 Plan (the 1996 Plan is subject to approval by
shareholders) in tandem with stock appreciation rights in December of 1995
to acquire an aggregate of 4,775,000 shares of Series A Stock at $17.00 per
share. None of the options are exercisable until August 4, 1996.
Additionally, certain executive officers and directors (3 persons) hold
stock options which were granted, pursuant to the 1994 Plan and the 1996
Plan, in tandem with stock appreciation rights in December of 1995 to
acquire an aggregate of 575,000 shares of Liberty Series A Stock at a
purchase price of $24.00 per share. None of the options are exercisable
until August 4, 1996. Also, certain executive officers (11 persons,
including Messrs. Clouston, Marshall, Howard, Bracken, Schotters and
Thomson) hold an aggregate of 260,000 shares of Series A restricted stock.
None of the shares are currently vested. One executive officer holds
10,000 shares of Liberty Series A restricted stock. None of the shares are
currently vested. Also, two directors, who are also directors of TCI, hold
options to purchase an aggregate of 100,000 shares of Series A Stock and an
aggregate of 25,000 shares of Liberty Series A Stock at purchase prices of
$16.50 per share and $22.50 per share, respectively. Options to purchase
20,000 shares of Series A Stock and 5,000 shares of Liberty Series A Stock
are currently exercisable. All of the aforementioned options with tandem
stock appreciation rights, options and restricted stock are reflected in
this table assuming the exercise or vesting in full of such securities.
(continued)
III-21
<PAGE>
No equity securities in any subsidiary of the Company, other than
directors' qualifying shares, are owned by any of the Company's executive
officers or directors, except that Mr. Bob Magness, a director of the
Company, owns 944 shares of WestMarc Series C Cumulative Compounding
Redeemable Preferred Stock; Mr. Kim Magness, a director of the Company,
owns 31 shares of WestMarc Series C Cumulative Compounding Redeemable
Preferred Stock; and Dr. Malone, a director and an executive officer of the
Company, owns, as trustee for his children, 68 shares of WestMarc Series C
Cumulative Compounding Redeemable Preferred Stock.
(c) Change of control. The Company knows of no arrangements, including any
-----------------
pledge by any person of securities of the Company, the operation of which may at
a subsequent date result in a change in control of the Company.
Item 13. Certain Relationships and Related Transactions.
- - ------- ----------------------------------------------
(a) Transactions with management and others.
---------------------------------------
Pursuant to a Restricted Stock Award Agreement dated December 10, 1992, the
Company transferred to Mr. Fisher, a director of the Company, 124.03 shares
(having a liquidation value of $4 million) of WestMarc Series C Cumulative
Compounding Preferred Stock owned by the Company, subject to forfeiture in the
event of certain circumstances from the date of grant through February 1, 2002,
with the number of shares subject to forfeiture decreasing by 10% on February 1
of each year. Effective January 1, 1996, he acquired vested title to 37.209 of
such shares of WestMarc Series C Cumulative Compounding Preferred Stock and
forfeited the balance of such shares. As described below, effective as of
January 31, 1996, the 37.209 vested shares of WestMarc Series C Cumulative
Compounding Preferred Stock owned by Mr. Fisher were used by one of his
affiliates as the consideration for the purchase of certain partnership
interests held by subsidiaries of the Company.
(continued)
III-22
<PAGE>
In 1989, ECP Holdings, Inc., a subsidiary of the Company ("ECP"), and
Halcyon Communications, Inc., an Oklahoma corporation which is not an affiliate
of the Company ("HCI"), formed Halcyon Communications Partners, an Oklahoma
general partnership ("HCP"), for the purpose of acquiring, owning and operating
cable television systems. In 1994, HCI and American Televenture of Minersville,
Inc., a subsidiary of the Company ("ATM"), as general partners, and three other
subsidiaries of the Company, TCI Cablevision of Nevada, Inc. ("TCINV"), and
TEMPO Cable, Inc. ("Tempo Cable") and TCI Cablevision of Utah, Inc. ("TCIU") as
limited partners, formed Halcyon Communications Limited Partnership, an Oklahoma
limited partnership ("HCLP"), for the purpose of acquiring, owning and operating
certain other cable television systems. Effective as of January 31, 1996, Fisher
Communication Associates, L.L.C., a Colorado limited liability company ("Fisher
Communications") controlled by Mr. Donne F. Fisher, a director of the Company
purchased one-third of ECP's partnership interest in HCP and one-third of the
partnership interest of each of ATM, TCINV, TCIU and Tempo Cable in HCLP, a ten-
year option to purchase the balance of ECP's partnership interest in HCP and
ten-year options to purchase the balance of the partnership interest in HCLP of
each of ATM, TCINV, TCIU and Tempo Cable. The purchase price for each such
partnership interest purchased by Fisher Communications consisted of shares of
Series C Cumulative Compounding Preferred Stock of WestMarc Communications,
Inc., a subsidiary of the Company (the "WestMarc Shares"). The purchase price
for each such option acquired by Fisher Communications was $100 in cash, and
each such option is exercisable for cash in a specified amount. The number of
WestMarc Shares delivered to each of the Company's subsidiaries named above as
consideration for one-third of its partnership interest in HCP or HCLP, and the
cash exercise price which Fisher Communications would be required to pay in
order to exercise the options granted by those subsidiaries, are as follows:
<TABLE>
<CAPTION>
Cash Exercise Price
Number of WestMarc Shares Of Option
------------------------- -------------------
<S> <C> <C>
ECP 14.8836 $1,200,000
ATM 0.5224 42,120
TCINV 2.8911 233,100
TCIU 4.3557 351,180
Tempo Cable 14.5562 1,173,600
------- ----------
37.2090 $3,000,000
======= ==========
</TABLE>
The WestMarc Shares are not publicly traded. The dividend, liquidation, and
redemption features of the WestMarc Shares are determined by reference to
"Liquidation Price," which is defined, per share, as the sum of (i) $32,250 plus
(i) an amount equal to all dividends which accrued during any quarterly dividend
period and were not paid in full at the end of that period or subsequently.
Pursuant to a tax sharing agreement (the "Tax Sharing Agreement"), federal
income taxes are calculated, with certain adjustments, on a separate return
basis for each corporation included in TCI's consolidated tax group, applying
provisions of the Internal Revenue Code of 1986, as amended, and related
regulations as if each such corporation filed a separate return for federal
income tax purposes. Based upon these separate calculations, an allocation of
tax liabilities is made such that TCIC is responsible to TCI for its gross share
of TCI's consolidated federal income tax liabilities, such gross share being
determined without regard to (a) tax benefits that are attributable to TCI and
its other consolidated corporations or (b) certain tax benefits that are
attributable to TCIC but that are taken into account in determining TCI's
consolidated federal income tax benefit carryovers. Similarly, TCI would
reimburse TCIC for tax benefits attributable to TCIC and actually used by TCI in
determining its consolidated federal income tax liability. Tax attributes,
including but not limited to net operating losses, foreign tax credits,
alternative minimum tax net operating losses, alternative minimum tax credits,
deferred intercompany gains and tax basis in assets will be inventoried and
tracked for the consolidated entities comprising each of TCIC and TCI and its
other consolidated subsidiaries. In addition, pursuant to the Tax Sharing
Agreement, state and local income taxes are calculated on a separate return
basis for TCI and TCIC (applying provisions of state and local tax law and
related regulations as if TCIC was a separate unitary or combined group for tax
purposes) and TCI's combined or unitary tax liability is allocated between TCI
and TCIC based upon such separate calculation. TCI has retained the right to
file all returns, make all elections and control all audits and contests. The
Tax Sharing Agreement will terminate as to TCIC at such time as TCIC is no
longer permitted to file a consolidated federal income tax return for federal
income tax purposes with TCI. Under current Internal Revenue Service
regulations, TCIC and TCI must file a consolidated return until such time as TCI
owns less than 80% of the total voting power of the capital stock of TCIC or
owns stock representing less than 80% in value of the total value of the capital
stock of TCIC.
TCIC continues to be an obligor under, or a guarantor of the payment or
performance of, certain contractual obligations, including debt obligations, of
certain entities in which International has an interest. International has
entered into an Indemnification Agreement with TCIC, pursuant to which
International has agreed to indemnify TCIC for any payment made by TCIC, or any
claim, loss or liability that TCIC may otherwise incur, by reason of such
obligations. International has not made any payments to TCIC pursuant to the
Indemnification Agreement.
TCIC purchases sports and other programming from certain subsidiaries of
Liberty Media Corporation "Liberty". Charges to TCIC (which are based upon
customary rates charged to others) for such programming were $73 million for the
year ended December 31, 1995.
Certain TCIC corporate general and administrative costs are charged to
subsidiaries of TCI at rates set at the beginning of the year based on projected
utilization for that year. The utilization-based charges are set at levels that
management believes to be reasonable and that approximate the costs the
subsidiaries would incur for comparable services on a stand alone basis. During
the year ended December 31, 1995, Liberty, International and the
Technology/Venture Capital unit were allocated $3 million, $2 million and $1
million in corporate general and administrative costs by TCIC, respectively.
Liberty leases satellite transponder facilities from TCIC. Charges by TCIC
for such arrangement for the year ended December 31, 1995 aggregated $15
million.
TCI Starz, Inc., a subsidiary of TCI, has 50.1% general partnership
interest in QE+ Ltd Limited partnership ("QE+"), which distributes STARZ!, a
first-run movie premium programming service launched in 1994. Liberty holds the
remaining 49.9% partnership interest.
TCIC has entered into a long-term affiliation agreement with QE+ in respect
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 1995 were approximately $31 million. 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.
At December 31, 1995, TCIC had an $86 million intercompany receivable from
TCI Starz, Inc. which represented the net effect of advances to QE+ by TCI
Starz, Inc. in the amount of $117 million offset by TCIC's purchase of
programming from QE+ of $31 million. 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 $6 million for the year
ended December 31, 1995.
TCIC and a certain subsidiary of TCI ("Liberty Cable") own a general
partnership, which acquires and operates cable television systems, with TCIC
owning a 49.999% interest and Liberty Cable owning the remaining 50.001%
interest. Pursuant to a cable television management agreement, a subsidiary of
TCIC provides management services for cable television systems owned by CCT. The
subsidiary receives a fee equal to 3% of the gross cable television revenue of
the Partnership.
TCIC and Liberty Cable are parties to an Option-Put Agreement (the
"Option-Put Agreement"), as amended. Under the Option-Put Agreement, between
January 1, 1997 and January 31, 1997, Liberty Cable will have the right to
require TCIC to purchase Liberty Cable's interest in CCT and a loan receivable
for an amount equal to $77 million plus interest on such amount accruing at the
rate of 11.6% per annum from June 3, 1993.
Liberty Cable purchases from TCIC, at TCIC's cost plus an administrative
fee, certain pay television and other programming. Charges for such programming
were $13 million for the year ended December 31, 1995.
A subsidiary of International purchase programming services from a
subsidiary of TCIC. The charges, which approximate such TCIC subsidiary's cost
and are based on the aggregate number of subscribers served by the subsidiary of
International, aggregated $3 million during the year ended December 31, 1995.
The subsidiary of International also has management agreements with certain
subsidiaries of TCIC whereby such subsidiaries' management provides
administrative services and has assumed managerial responsibility for cable
television system operations and construction. As compensation for these
services, the subsidiary of International pays a monthly fee calculated on a
per-subscriber basis. Charges for such services were $1 million during the year
ended December 31, 1995.
TCIC advanced certain subsidiaries of TCI interest-bearing loans during
1995. Interest earned by TCIC on such intercompany loans aggregated $12 million
for the year ended December 31, 1995.
The Company believes that the foregoing business dealings with management
during 1995 were based upon terms no less advantageous to TCIC than those which
would be available in dealing with unaffiliated persons.
(b) Certain business relationships
------------------------------
See Item 13(a) above.
(c) Indebtedness of management
--------------------------
None.
III-23
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- - ------- ----------------------------------------------------------------
(a) (1) Financial Statements
Included in Part II of this Report: Page No.
--------
Independent Auditors' Report II-17
Consolidated Balance Sheets,
December 31, 1995 and 1994 II-18 to II-19
Consolidated Statements of Operations,
Years ended December 31, 1995, 1994 and 1993 II-20
Consolidated Statements of Stockholder's(s') Equity,
Years ended December 31, 1995, 1994 and 1993 II-21 to II-22
Consolidated Statements of Cash Flows,
Years ended December 31, 1995, 1994 and 1993 II-23
Notes to Consolidated Financial Statements,
December 31, 1995, 1994 and 1993 II-24 to II-49
IV-1
<PAGE>
(a) (2) Financial Statement Schedules
-----------------------------
Included in Part IV of this Report:
Financial Statement Schedules required to be filed: Page No.
--------
Independent Auditors' Report IV-12
Schedule I - Condensed Information as to the
Financial Position of the Registrant, December 31, 1995
and 1994; Condensed Information as to the Operations
and Cash Flows of the Registrant, Years ended
December 31, 1995, 1994 and 1993 IV-13 to IV-15
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1995, 1994 and 1993 IV-16
IV-2
<PAGE>
(a) (3) Exhibits
----------
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
3 - Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation, dated as of January 11, 1996, as
amended on January 11, 1996 and February 6, 1996.
3.2 Bylaws as adopted August 4, 1994.
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
10 - Material Contracts:
10.1 Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Form S-4
Registration Statement (Commission File No. 33-54263).
10.2 Tele-Communications, Inc. 1995 Employee Stock Incentive Plan.*
Tele-Communications, Inc. 1996 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.3 Restated and Amended Employment Agreement, dated as of November 1, 1992,
between the Company and Bob Magness.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by Form
10-K/A for the year ended December 31, 1992 (Commission File No.
0-5550).
10.4 Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Bob
Magness.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
10.5 Restated and Amended Employment Agreement, dated as of November 1, 1992,
between the Company and John C. Malone.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by Form
10-K/A for the year ended December 31, 1992 (Commission File No.
0-5550).
10.6 Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and John C.
Malone.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
(continued)
IV-3
<PAGE>
10 - Material contracts, continued:
10.7 Employment Agreement, dated as of January 1, 1992, between Tele-
Communications, Inc. and Donne F. Fisher.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by Form
10-K/A for the year ended December 31, 1992 (Commission File No.
0-5550).
10.8 Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Donne F.
Fisher.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
10.9 Restricted Stock Award Agreement, made as of December 10, 1992, among
Tele-Communications, Inc., Donne F. Fisher and WestMarc Communications,
Inc.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by Form
10-K/A for the year ended December 31, 1992 (Commission File No.
0-5550).
10.10 Consulting Agreement, dated as of January 1, 1996, between Tele-
Communications, Inc. and Donne F. Fisher.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.11 Form of 1992 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended by Form
10-K/A for the year ended December 31, 1993 (Commission File No.
0-5550).
10.12 Form of 1993 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended by Form
10-K/A for the year ended December 31, 1993 (Commission File No.
0-5550).
10.13 Assumption and Amended and Restated Stock Option Agreement between the
Company, TCI/Liberty Holding Company and a director of Tele-
Communications, Inc. relating to assumption of options and related
stock appreciation rights granted outside of an employee benefit plan
pursuant to Tele-Communications, Inc.'s 1993 Non-Qualified Stock
Option and Stock Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post Effective
Amendment No. 1 to Form S-4 Registration Statement on Form S-8
Registration Statement (Commission File No. 33-54263).
(continued)
IV-4
<PAGE>
10 - Material contracts, continued:
10.14 Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee relating
to assumption of options and related stock appreciation rights granted
under Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant
to Tele-Communications, Inc.'s 1993 Non-Qualified Stock Option and
Stock Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post Effective
Amendment No. 1 to Form S-4 Registration Statement on Form S-8
Registration Statement (Commission File No. 33-54263).
10.15 Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee relating
to assumption of options and related stock appreciation rights under
Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to
Tele-Communications, Inc.'s 1992 Non-Qualified Stock Option and Stock
Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post Effective
Amendment No. 1 to Form S-4 Registration Statement on Form S-8
Registration Statement (Commission File No. 33-54263).
10.16 Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended by Form
10-K/A for the year ended December 31, 1993 (Commission File No.
0-5550).
10.17 Form of 1994 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
10.18 Qualified Employee Stock Purchase Plan of Tele-Communications, Inc., as
amended.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File No. 33-57635).
10.19 Form of Restricted Stock Award Agreement for 1995 Award of Series A TCI
Group Restricted Stock pursuant to the Tele-Communications, Inc. 1994
Stock Incentive Plan.*
Form of Restricted Stock Award Agreement for 1995 Award of Series A
Liberty Media Group Restricted Stock pursuant to the Tele-
Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.20 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A TCI Group common stock pursuant to the
Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
(continued)
IV-5
<PAGE>
10 - Material contracts, continued:
10.21 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.22 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A TCI Group common stock pursuant to the
Tele-Communications, Inc. 1995 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.23 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1995 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.24 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A TCI Group common stock pursuant to the
Tele-Communications, Inc. 1996 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.25 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1996 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.26 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A Tele-Communications International, Inc.
common stock.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.27 Employee Stock Purchase Plan for Bargaining Unit Employees of United
Cable Television of Baltimore Limited Partnership.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File No. 33-60839).
(continued)
IV-6
<PAGE>
10 - Material contracts, continued:
10.28 Employee Stock Purchase Plan for Bargaining Unit Employees of Heritage
Cable Vision Associates, L.P. D/B/A TCI of Michiana.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File No. 33-60843).
10.29 Employee Stock Purchase Plan for Bargaining Unit Employees of UACC
Midwest, Inc. d/b/a TCI of Central Indiana.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File No. 33-64827).
10.30 The Settlement Plan and Rabbi Trust Agreement Entered into Pursuant to
Thomas Adams, Mark Adamski, et. al. v. TCI of Northern New Jersey,
Inc. and the Tele-Communications, Inc. Employee Stock Purchase Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File No. 33-64829).
10.31 Employee Stock Purchase Plan for Bargaining Unit Employees of TCI of
Northern New Jersey, Inc.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File No. 33-64831).
10.32 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 Company's Current Report on
Form 8-K, dated July 26, 1995 (Commission File No. 0-5550).
10.33 Amended and Restated Agreement of Limited Partnership of MajorCo, L.P.,
dated as of January 31, 1996, among Sprint Spectrum, L.P., TCI Network
Services, Comcast Telephony Services and Cox Telephony Partnership.
Second Amended and Restated Joint Venture Formation Agreement, dated as
of January 31, 1996, by and between Sprint Corporation, Tele-
Communications, Inc., Comcast Corporation and Cox Communications, Inc.
Parents Agreement, dated as of January 31, 1996, by Tele-
Communications, Inc. and Sprint Corporation.
Incorporated herein by reference to Tele-Communications, Inc.'s
Current Report on Form 8-K, dated February 9, 1996 (Commission
File No. 0-20421).
10.34 Agreement and Plan of Merger, dated as of January 27, 1994, by and
among Tele-Communications, Inc., Liberty Media Corporation,
TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty Mergeco,
Inc.
Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated February 15, 1994 (Commission File No. 0-5550).
(continued)
IV-7
<PAGE>
10 - Material contracts, continued:
10.35 Amendment No. 1, dated as of March 30, 1994, to Agreement and Plan of
Merger, dated as of January 27, 1994, by and among Tele-
Communications, Inc., Liberty Media Corporation, TCI/Liberty Holding
Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc.
Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated April 6, 1994 (Commission File No. 0-5550).
10.36 Amendment No. 2, dated as of August 4, 1994, to Agreement and Plan of
Merger, dated as of January 27, 1994, by and among Tele-
Communications, Inc., Liberty Media Corporation, TCI/Liberty Holding
Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc.
Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated August 18, 1994 (Commission File No. 0-20421).
10.37 Agreement and Plan of Merger, dated as of August 8, 1994, among Tele-
Communications, Inc., TCI Communications, Inc. and TeleCable
Corporation
Incorporated herein by reference to Tele-Communications, Inc.'s
Current Report on Form 8-K, dated August 18, 1994 (Commission File
No. 0-20421).
10.38 Agreement of Purchase and Sale of Partnership Interest, dated as of
January 31, 1996, among Halcyon Communications, Inc., ECP Holdings,
Inc. and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.39 Consent and Amendment of Amended Agreement of Partnership for Halcyon
Communications Partners, dated as of January 31, 1996, by and among
Halcyon Communications, Inc., ECP Holdings, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.40 Assignment and Assumption Agreement, made as of January 31, 1996,
between ECP Holdings, Inc. and Fisher Communications Associates,
L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.41 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
(continued)
IV-8
<PAGE>
10 - Material contracts, continued:
10.42 Agreement of Purchase and Sale of Partnership Interests, dated as of
January 31, 1996, among Halcyon Communications, Inc., American
Televenture of Minersville, Inc., TCI Cablevision of Nevada, Inc., TCI
Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.43 Consent and First Amendment of Amended and Restated Agreement of
Limited Partnership for Halcyon Communications Limited Partnership,
dated as of January 31, 1996, by and among Halcyon Communications,
Inc., American Televenture of Minersville, Inc., TCI Cablevision of
Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc. and
Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.44 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Utah, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.45 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of Utah, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.46 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Nevada, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.47 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of Nevada, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.48 Assignment and Assumption Agreement, made as of January 31, 1996,
between American Televenture of Minersville, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
(continued)
IV-9
<PAGE>
10 - Material contracts, continued:
10.49 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and American Televenture of
Minersville, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.50 Assignment and Assumption Agreement, made as of January 31, 1996,
between TEMPO Cable, Inc. and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.51 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TEMPO Cable, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
21- Subsidiaries of TCI Communications, Inc.
23- Consent of KPMG Peat Marwick LLP.
27- Financial data schedule
*Constitutes management contract or compensatory arrangement.
IV-10
<PAGE>
(b) Reports on Form 8-K filed during the quarter ended December 31, 1995:
Item
Date of Report Reported Financial Statements Filed
-------------- -------- --------------------------
December 18, 1995 Item 5 None
December 21, 1995 Item 5 None
and
Item 7
IV-11
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
TCI Communications, Inc.:
Under date of March 18, 1996, we reported on the consolidated balance sheets of
TCI Communications, Inc. and subsidiaries (a subsidiary of Tele-Communications,
Inc.) as of December 31, 1995 and 1994, and the related consolidated statements
of operations, stockholder's(s') equity, and cash flows for each of the years in
the three-year period ended December 31, 1995, which are included in the
December 31, 1995 annual report on Form 10-K. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedules as listed in the accompanying index.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Denver, Colorado
March 18, 1996
IV-12
<PAGE>
Schedule I
----------
Page 1 of 3
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Condensed Information as to the
Financial Position of the Registrant
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994*
- - ------ ---- ----
amounts in millions
<S> <C> <C>
Investments in and advances to consolidated
subsidiaries - eliminated upon $10,348 7,645
consolidation
Other assets, at cost, net of 116 91
amortization ------- ------
$10,464 7,736
======= ======
Liabilities and Stockholder's Equity
- - ------------------------------------
Accrued liabilities $ 402 325
Debt 8,333 6,728
------- ------
Total liabilities 8,735 7,053
Stockholder's equity (see detail on 1,729 683
page II-19) ------- ------
$10,464 7,736
======= ======
Guarantees $ 22 23
======= ======
</TABLE>
* Restated -- see note 3 to the consolidated financial statements.
IV-13
<PAGE>
Schedule I
----------
Page 2 of 3
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Condensed Information as to the
Operations of the Registrant
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994* 1993*
------ ------ -----
amounts in millions
<S> <C> <C> <C>
Management costs reimbursed by
subsidiaries $ 152 115 98
----- ---- ----
Operating expenses (income):
Selling, general and administrative 116 103 103
Compensation relating to stock
appreciation rights 17 -- 31
Adjustment to compensation relating
to stock appreciation rights -- (5) --
Interest expense 624 471 369
Interest income, principally from
consolidated subsidiaries (625) (472) (370)
Depreciation and amortization 19 13 8
Loss (gain) on disposition of assets 1 5 (43)
----- ---- ----
152 115 98
----- ---- ----
Earnings from operations before
share of losses (earnings) of
consolidated subsidiaries -- -- --
Share of losses (earnings) of
consolidated subsidiaries 120 (94) 5
----- ---- ----
Net loss (earnings) $ 120 (94) 5
===== ==== ====
</TABLE>
* Restated -- see note 3 to the consolidated financial statements.
IV-14
<PAGE>
Schedule I
----------
Page 3 of 3
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Condensed Information as to
Cash Flows of the Registrant
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
amounts in millions
Cash flows from operating activities:
Earnings before share of losses
(earnings) of consolidated
subsidiaries $ -- -- --
Adjustments to reconcile earnings
before share of losses (earnings)
of consolidated subsidiaries to
net cash provided by operating
activities:
Depreciation and amortization 19 13 8
Compensation relating to stock
appreciation rights 17 -- 31
Adjustment to compensation
relating to stock appreciation
rights -- (5) --
Loss (gain) on disposition of 1 5 (43)
assets
Amortization of debt discount 1 1 27
Change in accrued liabilities 73 43 105
------- ------ ------
Net cash provided by
operating activities 111 57 128
------- ------ ------
Cash flows from investing activities:
Reduction in or additional
investments in and advances to
consolidated subsidiaries, net (2,592) (1,376) (2,723)
Proceeds on disposition of assets -- -- 111
Other investing activities (52) (45) (38)
------- ------ ------
Net cash used by
investing activities (2,644) (1,421) (2,650)
------- ------ ------
Cash flows from financing activities:
Borrowings of debt 5,255 2,227 3,274
Repayment of debt (3,651) (678) (735)
Change in due to/from TCI 929 (189) --
Preferred stock dividends -- -- (2)
Repurchase of preferred stock -- -- (92)
Issuances of common stock -- -- 6
Repurchases of common stock -- -- (4)
------- ------ ------
Net cash provided by
financing activities 2,533 1,360 2,447
------- ------ ------
Increase (decrease) -- (4) (75)
in cash
Cash at beginning of -- 4 79
year ------- ------ ------
Cash at end of year $ -- -- 4
======= ====== ======
Supplemental disclosure of cash flow
information -
Cash paid during the year for $ 576 448 257
interest ======= ====== ======
</TABLE>
See also note 2 to the consolidated financial statements.
IV-15
<PAGE>
Schedule II
-----------
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Additions Deductions
---------- -----------
Balance at Charged to Write-offs Balance
beginning profit net of at end
Description of year and loss recoveries of year
- - ----------- ------- -------- ---------- -------
<S> <C> <C> <C> <C>
amounts in millions
Year ended
December 31, 1995:
Allowance for doubtful
receivables - trade $ 15 76 (67) 24
===== ===== ===== ====
Year ended
December 31, 1994:
Allowance for doubtful
receivables - trade $ 19 57 (61) 15
===== ===== ===== ====
Year ended
December 31, 1993:
Allowance for doubtful
receivables - trade $ 15 58 (54) 19
===== ===== ===== ====
</TABLE>
IV-16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ Brendan R. Clouston
--------------------------
Brendan R. Clouston
President and Chief
Executive Officer
Dated: March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ John C. Malone Chairman of the Board March 26, 1996
- - ----------------------------- and Director
John C. Malone
/s/ Bob Magness Director March 26, 1996
- - ------------------------------
Bob Magness
/s/ Donne F. Fisher Director March 26, 1996
- - ------------------------------
Donne F. Fisher
/s/ Brendan R. Clouston President and March 26, 1996
- - ------------------------------ Chief Executive Officer
Brendan R. Clouston
/s/ Stephen M. Brett Executive Vice President March 26, 1996
- - ------------------------------ and Secretary
Stephen M. Brett
/s/ Bernard W. Schotters Senior Vice President March 26, 1996
- - ------------------------------ (Principal Financial Officer)
Bernard W. Schotters
/s/ Gary K. Bracken Senior Vice President and March 26, 1996
- - ------------------------------ Controller
Gary K. Bracken (Principal Accounting Officer)
IV-17
<PAGE>
EXHIBIT INDEX
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
3 - Articles of Incorporation and Bylaws:
3.1 Restated Certificate of Incorporation, dated as of January 11, 1996, as
amended on January 11, 1996 and February 6, 1996.
3.2 Bylaws as adopted August 4, 1994.
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
10 - Material Contracts:
10.1 Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Company's Form S-4
Registration Statement (Commission File No. 33-54263).
10.2 Tele-Communications, Inc. 1995 Employee Stock Incentive Plan.*
Tele-Communications, Inc. 1996 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended Decmeber 31, 1995
(Commission File No. 0-20421).
10.3 Restated and Amended Employment Agreement, dated as of November 1,
1992, between the Company and Bob Magness.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by
Form 10-K/A for the year ended December 31, 1992 (Commission
File No. 0-5550).
10.4 Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and Bob
Magness.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
10.5 Restated and Amended Employment Agreement, dated as of November 1,
1992, between the Company and John C. Malone.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by
Form 10-K/A for the year ended December 31, 1992 (Commission
File No. 0-5550).
10.6 Assignment and Assumption Agreement, dated as of August 4, 1994, among
TCI/Liberty Holding Company, Tele-Communications, Inc. and John C.
Malone.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
(continued)
<PAGE>
10 - Material contracts, continued:
10.7 Employment Agreement, dated as of January 1, 1992, between
Tele-Communications, Inc. and Donne F. Fisher.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by
Form 10-K/A for the year ended December 31, 1992 (Commission
File No. 0-5550).
10.8 Assignment and Assumption Agreement, dated as of August 4, 1994,
among TCI/Liberty Holding Company, Tele-Communications, Inc. and
Donne F. Fisher.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
10.9 Restricted Stock Award Agreement, made as of December 10, 1992, among
Tele-Communications, Inc., Donne F. Fisher and WestMarc
Communications, Inc.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, as amended by
Form 10-K/A for the year ended December 31, 1992 (Commission
File No. 0-5550).
10.10 Consulting Agreement, dated as of January 1, 1996, between
Tele-Communications, Inc. and Donne F. Fisher.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.11 Form of 1992 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended by
Form 10-K/A for the year ended December 31, 1993 (Commission File
No. 0-5550).
10.12 Form of 1993 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended by
Form 10-K/A for the year ended December 31, 1993 (Commission File
No. 0-5550).
10.13 Assumption and Amended and Restated Stock Option Agreement between the
Company, TCI/Liberty Holding Company and a director of
Tele-Communications, Inc. relating to assumption of options and
related stock appreciation rights granted outside of an employee
benefit plan pursuant to Tele-Communications, Inc.'s 1993
Non-Qualified Stock Option and Stock Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post Effective
Amendment No. 1 to Form S-4 Registration Statement on Form S-8
Registration Statement (Commission File No. 33-54263).
(continued)
<PAGE>
10 - Material contracts, continued:
10.14 Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee relating
to assumption of options and related stock appreciation rights
granted under Tele-Communications, Inc.'s 1992 Stock Incentive Plan
pursuant to Tele-Communications, Inc.'s 1993 Non-Qualified Stock
Option and Stock Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post Effective
Amendment No. 1 to Form S-4 Registration Statement on Form S-8
Registration Statement (Commission File No. 33-54263).
10.15 Form of Assumption and Amended and Restated Stock Option Agreement
between the Company, TCI/Liberty Holding Company and grantee relating
to assumption of options and related stock appreciation rights under
Tele-Communications, Inc.'s 1992 Stock Incentive Plan pursuant to
Tele-Communications, Inc.'s 1992 Non-Qualified Stock Option and Stock
Appreciation Rights Agreement.*
Incorporated herein by reference to the Company's Post Effective
Amendment No. 1 to Form S-4 Registration Statement on Form S-8
Registration Statement (Commission File No. 33-54263).
10.16 Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993, as amended by
Form 10-K/A for the year ended December 31, 1993 (Commission File
No. 0-5550).
10.17 Form of 1994 Non-Qualified Stock Option and Stock Appreciation Rights
Agreement.*
Incorporated herein by reference to the Company's Annual Report on
Form 10-K dated December 31, 1994, as amended by Form 10-K/A
(Commission File No. 0-5550).
10.18 Qualified Employee Stock Purchase Plan of Tele-Communications, Inc., as
amended.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File
No. 33-57635).
10.19 Form of Restricted Stock Award Agreement for 1995 Award of Series A TCI
Group Restricted Stock pursuant to the Tele-Communications, Inc. 1994
Stock Incentive Plan.*
Form of Restricted Stock Award Agreement for 1995 Award of Series A
Liberty Media Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995
(Commission File No. 0-20421).
10.20 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A TCI Group common stock pursuant to the
Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
(continued)
<PAGE>
10 - Material contracts, continued:
10.21 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1994 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.22 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A TCI Group common stock pursuant to the
Tele-Communications, Inc. 1995 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.23 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1995 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.24 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A TCI Group common stock pursuant to the
Tele-Communications, Inc. 1996 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.25 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A Liberty Media Group common stock pursuant
to the Tele-Communications, Inc. 1996 Stock Incentive Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31,
1995.
10.26 Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1995 Grant of Options with tandem stock appreciation
rights to purchase Series A Tele-Communications International, Inc.
common stock.*
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.27 Employee Stock Purchase Plan for Bargaining Unit Employees of United
Cable Television of Baltimore Limited Partnership.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File No.
33-60839).
(continued)
<PAGE>
10 - Material contracts, continued:
10.28 Employee Stock Purchase Plan for Bargaining Unit Employees of Heritage
Cable Vision Associates, L.P. D/B/A TCI of Michiana.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File
No. 33-60843).
10.29 Employee Stock Purchase Plan for Bargaining Unit Employees of UACC
Midwest, Inc. d/b/a TCI of Central Indiana.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File No. 33-64827).
10.30 The Settlement Plan and Rabbi Trust Agreement Entered into Pursuant to
Thomas Adams, Mark Adamski, et. al. v. TCI of Northern New Jersey,
Inc. and the Tele-Communications, Inc. Employee Stock Purchase Plan.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File
No. 33-64829).
10.31 Employee Stock Purchase Plan for Bargaining Unit Employees of TCI of
Northern New Jersey, Inc.*
Incorporated herein by reference to the Tele-Communications, Inc.
Registration Statement on Form S-8 (Commission File
No. 33-64831).
10.32 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 Company's Current Report
on Form 8-K, dated July 26, 1995 (Commission File No. 0-5550).
10.33 Amended and Restated Agreement of Limited Partnership of MajorCo, L.P.,
dated as of January 31, 1996, among Sprint Spectrum, L.P., TCI
Network Services, Comcast Telephony Services and Cox Telephony
Partnership.
Second Amended and Restated Joint Venture Formation Agreement, dated as
of January 31, 1996, by and between Sprint Corporation,
Tele-Communications, Inc., Comcast Corporation and Cox
Communications, Inc.
Parents Agreement, dated as of January 31, 1996, by
Tele-Communications, Inc. and Sprint Corporation.
Incorporated herein by reference to Tele-Communications, Inc.'s
Current Report on Form 8-K, dated February 9, 1996 (Commission
File No. 0-20421).
10.34 Agreement and Plan of Merger, dated as of January 27, 1994, by and
among Tele-Communications, Inc., Liberty Media Corporation,
TCI/Liberty Holding Company, TCI Mergeco, Inc. and Liberty Mergeco,
Inc.
Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated February 15, 1994 (Commission File No. 0-5550).
(continued)
<PAGE>
10 - Material contracts, continued:
10.35 Amendment No. 1, dated as of March 30, 1994, to Agreement and Plan of
Merger, dated as of January 27, 1994, by and among
Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty
Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc.
Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated April 6, 1994 (Commission File No. 0-5550).
10.36 Amendment No. 2, dated as of August 4, 1994, to Agreement and Plan of
Merger, dated as of January 27, 1994, by and among
Tele-Communications, Inc., Liberty Media Corporation, TCI/Liberty
Holding Company, TCI Mergeco, Inc. and Liberty Mergeco, Inc.
Incorporated herein by reference to the Company's Current Report on
Form 8-K, dated August 18, 1994 (Commission File No. 0-20421).
10.37 Agreement and Plan of Merger, dated as of August 8, 1994, among
Tele-Communications, Inc., TCI Communications, Inc. and TeleCable
Corporation
Incorporated herein by reference to Tele-Communications, Inc.'s
Current Report on Form 8-K, dated August 18, 1994 (Commission
File No. 0-20421).
10.38 Agreement of Purchase and Sale of Partnership Interest, dated as of
January 31, 1996, among Halcyon Communications, Inc., ECP Holdings,
Inc. and Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.39 Consent and Amendment of Amended Agreement of Partnership for Halcyon
Communications Partners, dated as of January 31, 1996, by and among
Halcyon Communications, Inc., ECP Holdings, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.40 Assignment and Assumption Agreement, made as of January 31, 1996,
between ECP Holdings, Inc. and Fisher Communications Associates,
L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.41 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and ECP Holdings, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
(continued)
<PAGE>
10 - Material contracts, continued:
10.42 Agreement of Purchase and Sale of Partnership Interests, dated as of
January 31, 1996, among Halcyon Communications, Inc., American
Televenture of Minersville, Inc., TCI Cablevision of Nevada, Inc.,
TCI Cablevision of Utah, Inc., TEMPO Cable, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.43 Consent and First Amendment of Amended and Restated Agreement of
Limited Partnership for Halcyon Communications Limited Partnership,
dated as of January 31, 1996, by and among Halcyon Communications,
Inc., American Televenture of Minersville, Inc., TCI Cablevision of
Nevada, Inc., TCI Cablevision of Utah, Inc., TEMPO Cable, Inc. and
Fisher Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.44 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Utah, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.45 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of Utah, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.46 Assignment and Assumption Agreement, made as of January 31, 1996,
between TCI Cablevision of Nevada, Inc. and Fisher Communications
Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.47 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TCI Cablevision of Nevada, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.48 Assignment and Assumption Agreement, made as of January 31, 1996,
between American Televenture of Minersville, Inc. and Fisher
Communications Associates, L.L.C.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
(continued)
<PAGE>
10 - Material contracts, continued:
10.49 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and American Televenture of
Minersville, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.50 Assignment and Assumption Agreement, made as of January 31, 1996,
between TEMPO Cable, Inc. and Fisher Communications Associates,
L.L.C. Incorporated herein by reference to the
Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
10.51 Option Agreement, dated as of January 31, 1996, between Fisher
Communications Associates, L.L.C. and TEMPO Cable, Inc.
Incorporated herein by reference to the Tele-Communications, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995.
21- Subsidiaries of TCI Communications, Inc.
23- Consent of KPMG Peat Marwick LLP.
27- Financial data schedule
*Constitutes management contract or compensatory arrangement.
<PAGE>
Exhibit 3.1
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "TCI COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE ELEVENTH
DAY OF JANUARY, A.D. 1996, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[STAMP OF THE /s/ Edward J. Freel
SECRETARY'S OFFICE -----------------------------------
APPEARS HERE] Edward J. Freel, Secretary of State
AUTHENTICATION:
0685208 8100 7789058
DATE:
960009826 01-16-96
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
TCI COMMUNICATIONS, INC.
TCI COMMUNICATIONS, INC., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
(1) The name of the Corporation is TCI Communications, Inc. The
original Certificate of Incorporation of the Corporation was filed on
August 20, 1968. The name under which the Corporation was originally
incorporated is American Tele-Communications, Inc. The Certificate of
Incorporation of the Corporation has heretofore been restated twice with
Restated Certificates of Incorporation for the Corporation being filed on
July 19, 1979 and August 4, 1994, respectively.
(2) This Restated Certificate of Incorporation (the "Certificate")
further amends and restates the Certificate of Incorporation of the
Corporation.
(3) Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, the text of the Certificate of Incorporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the corporation is TCI Communications, Inc. (the
"Corporation").
<PAGE>
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of
Delaware is The Prentice-Hall Corporation System, Inc., 1013 Centre Road,
Wilmington, New Castle, Delaware 19805. The name of its registered agent at such
address is The Prentice-Hall Corporation System, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE IV
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation
shall have authority to issue is 6,005,000 shares, of which 1,005,000 shares
shall be common stock ("Common Stock") and five million 5,000,000 shares shall
be preferred stock ("Preferred Stock"). Said shares of Common Stock shall be
divided into the following classes: (a) 905,553 shares shall be designated as
Class A Common Stock with a par value of $1.00 per share ("Class A Common
Stock"); and (b) 94,447 shares shall be designated as Class B Common Stock with
a par value of $1.00 per share ("Class B Common Stock"). Said shares of
Preferred Stock shall be all of one class with a par value of $.01 per share,
and shall be issued in one or more series as set forth in Section B below.
2
<PAGE>
SECTION A
---------
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Each share of the Class A Common Stock and each share of the Class B
Common Stock of the Corporation shall, except as otherwise provided in this
Article IV, Section A, be identical in all respects and shall have equal rights
and privileges.
1. Voting Rights.
-------------
Holders of Class A Common Stock shall be entitled to 100 votes for
each share of such stock held, and holders of Class B Common Stock shall be
entitled to 1,000 votes for each share of such stock held, on all matters
presented to such stockholders. Except as may otherwise be required by the laws
of the State of Delaware and, with respect to any series of Preferred Stock,
except as may be provided in any resolution or resolutions providing for the
establishment of such series pursuant to authority vested in the Board of
Directors by Article IV, Section B, of this Certificate, the holders of
outstanding shares of Class A Common Stock, the holders of outstanding shares of
Class B Common Stock and the holders of outstanding shares of each series of
Preferred Stock shall vote together as one class with respect to (i) any general
election of directors and (ii) all other matters to be voted on by stockholders
of the Corporation (including, without limitation, any proposed amendment to
this Certificate that would increase the number of authorized shares of any
class of Common Stock or any series of Preferred Stock or decrease the number of
authorized shares of any such class or series of stock (but not below the number
of shares thereof then outstanding)), and no separate vote or consent of the
holders of shares of Class A Common Stock, Class B Common Stock or any series of
Preferred Stock shall be required for the approval of any such matter.
3
<PAGE>
2. Conversion Rights.
-----------------
Each share of Class B Common Stock shall be convertible, at the option
of the holder thereof, into one share of Class A Common Stock. Any such
conversion may be effected by any holder of Class B Common Stock by surrendering
such holder's certificate or certificates for the Class B Common Stock to be
converted, duly endorsed, at the office of the Corporation or any transfer agent
for the Class B Common Stock, together with a written notice to the Corporation
at such office that such holder elects to convert all or a specified number of
shares of Class B Common Stock represented by such certificate and stating the
name or names in which such holder desires the certificate or certificates for
Class A Common Stock to be issued. If so required by the Corporation, any
certificate for shares surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the holder of such shares or the duly authorized representative of such
holder. Promptly thereafter, the Corporation shall issue and deliver to such
holder or such holder's nominee or nominees, a certificate or certificates for
the number of shares of Class A Common Stock to which such holder shall be
entitled as herein provided. Such conversion shall be deemed to have been made
at the close of business on the date of receipt by the Corporation or any such
transfer agent of the certificate or certificates, notice and, if required,
instruments of transfer referred to above, and the person or persons entitled to
receive the Class A Common Stock issuable on such conversion shall be treated
for all purposes as the record holder or holders of such Class A Common Stock on
that date. A number of shares of Class A Common Stock equal to the number of
shares of Class B Common Stock outstanding from time to time shall be set aside
and reserved for issuance upon conversion of shares of Class B
4
<PAGE>
Common Stock. Shares of Class B Common Stock that have been converted hereunder
shall remain treasury shares to be disposed of by resolution of the Board of
Directors. Shares of Class A Common Stock shall not be convertible into shares
of Class B Common Stock.
3. Dividends. Subject to subparagraph 4 of this Section A, whenever
---------
a dividend is paid to the holders of Class A Common Stock, the Corporation also
shall pay to the holders of Class B Common Stock a dividend per share at least
equal to the dividend per share paid to the holders of the Class A Common Stock.
Subject to subparagraph 4 of this Section A, whenever a dividend is paid to the
holders of Class B Common Stock, the Corporation shall also pay to the holders
of the Class A Common Stock a dividend per share at least equal to the dividend
per share paid to the holders of the Class B Common Stock. Dividends shall be
payable only as and when declared by the Board of Directors out of funds legally
available therefor.
4. Share Distributions. If at any time a distribution paid in Class
-------------------
A Common Stock, Class B Common Stock, or any other securities of the Corporation
or any other entity (hereinafter sometimes called a "share distribution") is to
be made with respect to the Class A Common Stock or Class B Common Stock, such
share distribution may be declared and paid only as follows:
(i) a share distribution consisting of shares of Class A Common Stock
(or convertible securities convertible into or exercisable or exchangeable
for shares of Class A Common Stock) to holders of Class A Common Stock and
Class B Common Stock, on an equal per share basis; or consisting of shares
of Class B Common Stock (or convertible securities convertible into or
exercisable or exchangeable for shares of Class
5
<PAGE>
B Common Stock) to holders of Class B Common Stock and Class A Common
Stock, on an equal per share basis; or consisting of shares of Class A
Common Stock (or convertible securities convertible into or exercisable or
exchangeable for shares of Class A Common Stock) to holders of Class A
Common Stock and, on an equal per share basis, shares of Class B Common
stock (or like convertible securities convertible into or exercisable or
exchangeable for shares of Class B Common Stock) to holders of Class B
Common Stock; and
(ii) a share distribution consisting of any class or series of
securities of the Corporation or any other entity other than Class A Common
Stock or Class B Common Stock (or convertible securities convertible into
or exercisable or exchangeable for shares of Class A Common Stock or Class
B Common Stock), either on the basis of a distribution of identical
securities, on an equal per share basis, to holders of Class A Common Stock
and Class B Common Stock or on the basis of a distribution of one class or
series of securities to holders of Class A Common Stock and another class
or series of securities to holders of Class B Common Stock, provided that
the securities so distributed (and, if the distribution consists of
convertible securities, the securities into which such convertible
securities are convertible or for which they are exercisable or
exchangeable) do not differ in any respect other than their relative voting
rights and related differences in designation, conversion, redemption and
share distribution provisions, with holders of the shares of Class B Common
Stock receiving the class or series having the higher relative voting
rights (without regard to whether such rights differ to a greater or lesser
extent than the corresponding differences in voting rights,
6
<PAGE>
designation, conversion, redemption and share distribution provisions
between the Class A Common Stock and the Class B Common Stock), provided
that if the securities so distributed constitute capital stock of a
subsidiary of the Corporation, such rights shall not differ to a greater
extent than the corresponding differences in voting rights, designation,
conversion, redemption and share distribution provisions between the Class
A Common Stock and the Class B Common Stock, and provided in each case that
such distribution is otherwise made on an equal per share basis.
The Corporation shall not reclassify, subdivide or combine the Class A
Common Stock without reclassifying, subdividing or combining the Class B Common
Stock, on an equal per share basis. The Corporation shall not reclassify,
subdivide or combine the Class B Common Stock without reclassifying, subdividing
or combining the Class A Common Stock, on an equal per share basis.
5. Liquidation and Mergers. Subject to the prior payment in full of
-----------------------
the preferential amounts to which any Preferred Stock is entitled, the holders
of Class A Common Stock and the holders of Class B Common Stock shall share
equally, on a share for share basis, in any distribution of the Corporation's
assets upon any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, after payment or provisions for payment of the
debts and other liabilities of the Corporation. Neither the consolidation or
merger of the Corporation with or into any other corporation or corporations nor
the sale, transfer or lease of all or substantially all of the assets of the
Corporation shall itself be deemed to be a liquidation, dissolution or winding
up of the Corporation within the meaning of this subparagraph 5.
7
<PAGE>
SECTION B
---------
PREFERRED STOCK
The Preferred Stock may be issued, from time to time, in one or more
series, with such powers, designations, preferences and relative, participating,
optional or other rights, and qualifications, limitations or restrictions
thereof, as shall be stated and expressed in a resolution or resolutions
providing for the issue of each such series adopted by the Board of Directors.
The Board of Directors, in such resolution or resolutions (a copy of which shall
be filed and recorded as required by law), is also expressly authorized to fix
with respect to each series:
(i) the distinctive serial designations and the division of such
shares into series and the number of shares of a particular series, which
may be increased or decreased, but not below the number of shares thereof
then outstanding, by a certificate made, signed, filed and recorded as
required by law;
(ii) the dividend rate or amounts, if any, for the particular series,
the date or dates from which dividends on all shares of such series shall
be cumulative, if dividends on stock of the particular series shall be
cumulative and the relative rights of priority, if any, or participation,
if any, with respect to payment of dividends on shares of that series;
(iii) the rights of the shares of each series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of each series;
8
<PAGE>
(iv) the right, if any, of the holders of a particular series to
convert or exchange such stock into or for other classes or series of a
class of stock or indebtedness of the Corporation or of another entity, and
the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the Board of Directors may determine;
(v) the voting rights, if any, of the holders of a particular series
(which may be in addition to or in lieu of those specified in this
Certificate); and
(vi) the terms and conditions, if any, for the Corporation to purchase
or redeem shares of a particular series.
ARTICLE V
DIRECTORS
SECTION A
---------
NUMBER OF DIRECTORS
The governing body of the Corporation shall be a Board of Directors.
Subject to any rights of the holders of any series of Preferred Stock to elect
additional directors (and the automatic increase of the number of directors
during the period such rights are vested if the resolution or resolutions
providing for the establishment of such series so provides), the number of
directors shall not be less than three (3) and the exact number of directors
shall be fixed by the Board of Directors by resolution. Election of directors
need not be by written ballot.
9
<PAGE>
SECTION B
---------
REMOVAL OF DIRECTORS
Subject to the rights of the holders of any series of Preferred Stock with
respect to directors especially elected by such holders, directors may be
removed from office with or without cause upon the affirmative vote of the
holders of at least 66% of the total voting power of the then outstanding Class
A Common Stock, Class B Common Stock and any series of Preferred Stock entitled
to vote at an any general election of directors, voting together as a single
class.
SECTION C
---------
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Subject to the rights of the holders of any series of Preferred Stock with
respect to directors especially elected by such holders, vacancies on the Board
of Directors resulting from death, resignation, removal, disqualification or
other cause, and newly created directorships resulting from any increase in the
number of directors on the Board of Directors, shall be filled by the
affirmative vote of a majority of the remaining directors then in office (even
though less than a quorum) or by the sole remaining director. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the director whose vacancy he has filled. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director, except as may be provided in the
terms of any series of Preferred Stock with respect to any additional director
especially elected by the holders of such series of Preferred Stock.
10
<PAGE>
SECTION D
---------
LIMITATION ON LIABILITY AND INDEMNIFICATION
1. Limitation On Liability.
-----------------------
To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, a director of the
Corporation shall not be liable to the Corporation or any of its stockholders
for monetary damages for breach of fiduciary duty as a director. Any repeal or
modification of this paragraph 1 shall be prospective only and shall not
adversely affect any limitation, right or protection of a director of the
Corporation existing at the time of such repeal or modification.
2. Indemnification.
---------------
(a) Right to Indemnification. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he, or a person for whom he is the
legal representative, is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust, enterprise or nonprofit entity, including service with respect to
employee benefit plans, against all liability and loss suffered and expenses
(including attorneys' fees) reasonably incurred by such person. Such right of
indemnification shall inure whether or not the claim asserted is based on
matters which antedate the adoption of this Section D. The Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated
11
<PAGE>
by such person only if the proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation.
(b) Prepayment of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred by a director or officer in defending any
proceeding in advance of its final disposition, provided, however, that the
payment of expenses incurred by a director or officer in advance of the final
disposition of the proceeding shall be made only upon receipt of an undertaking
by the director or officer to repay all amounts advanced if it should be
ultimately determined that the director or officer is not entitled to be
indemnified under this paragraph or otherwise.
(c) Claims. If a claim for indemnification or payment of expenses
under this paragraph is not paid in full within 60 days after a written claim
therefor has been received by the Corporation, the claimant may file suit to
recover the unpaid amount of such claim and, if successful in whole or in part,
shall be entitled to be paid the expense of prosecuting such claim. In any such
action the Corporation shall have the burden of proving that the claimant was
not entitled to the requested indemnification or payment of expenses under
applicable law.
(d) Non-Exclusivity of Rights. The rights conferred on any person by
this paragraph shall not be exclusive of any other rights which such person may
have or hereafter acquires under any statute, provision of this Certificate, the
Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
(e) Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, enterprise or nonprofit entity shall be reduced by any
12
<PAGE>
amount such person may collect as indemnification from such other corporation,
partnership, joint venture, trust, enterprise or nonprofit entity.
3. Amendment or Repeal.
-------------------
Any repeal or modification of the foregoing provisions of this Section
D shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
SECTION E
---------
AMENDMENT OF BYLAWS
The Board of Directors of the Corporation is authorized to adopt,
amend, or repeal the bylaws of the Corporation except as and to the extent
provided in the bylaws.
ARTICLE VI
TERM
The term of existence of this Corporation shall be perpetual.
ARTICLE VII
STOCK NOT ASSESSABLE
The capital stock of this Corporation shall not be assessable if fully
paid. It shall be issued as fully paid, and the private property of the
stockholders shall not be liable for the debts, obligations or liabilities of
this Corporation.
13
<PAGE>
ARTICLE VIII
MEETINGS OF STOCKHOLDERS
SECTION A
---------
ANNUAL AND SPECIAL MEETINGS
Subject to the rights of the holders of any series of Preferred Stock,
stockholder action may be taken only at an annual or special meeting. Except as
otherwise provided in the terms of any series of Preferred Stock or unless
otherwise prescribed by law or by another provision of this Certificate, special
meetings of the stockholders of the Corporation, for any purpose or purposes,
shall be called by the Secretary of the Corporation only (i) upon the written
request of the holders of not less than 25% of the total voting power of the
outstanding Voting Securities (as defined hereinafter) or (ii) at the request of
at least 75% of the members of the Board of Directors then in office. The term
"Voting Securities" shall include the Class A Common Stock, the Class B Common
Stock and any series of Preferred Stock entitled to vote with the holders of
Common Stock generally upon all matters which may be submitted to a vote of
stockholders at any annual meeting or special meeting thereof.
SECTION B
---------
STOCKHOLDER ACTION WITHOUT A MEETING
Except as otherwise provided in the terms of any series of Preferred Stock,
no action required to be taken or which may be taken at any annual meeting or
special meeting of stockholders may be taken without a meeting, and the power of
stockholders to consent in writing, without a meeting, is specifically denied.
14
<PAGE>
ARTICLE IX
CERTAIN COMPROMISES OR ARRANGEMENTS
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
15
<PAGE>
IN WITNESS WHEREOF, said TCI COMMUNICATIONS, INC. has caused this
Restated Certificate of Incorporation to be signed by its Vice President this
11th day of January, 1996.
TCI COMMUNICATIONS INC.
By:[signature appears here]
------------------------
Name:
Title:
16
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "TCI COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE ELEVENTH
DAY OF JANUARY, A.D. 1996, AT 4:01 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
/s/ Edward J. Freel
[SEAL APPEARS HERE] --------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
0685208 8100 7789090
DATE:
960009825 01-16-96
<PAGE>
01/11/96 THRU 17:15 FAX 302 658 6548
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 04:01 PM 01/11/1996
960009825 - 685208
TCI COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATIONS
------------
SETTING FORTH A COPY OF A RESOLUTION
CREATING AND AUTHORIZING THE ISSUANCE
OF A SERIES OF PREFERRED STOCK DESIGNATED AS
"CUMULATIVE EXCHANGEABLE PREFERRED STOCK, SERIES A"
------------
The undersigned, a Vice President of TCI COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), HEREBY CERTIFIES that (i) the Board of
Directors, in accordance with Article IV, Section B of the Company's Restarted
Certificate of Incorporation, has authorized the creation of the series of
Preferred Stock hereafter provided for, has established the voting and exchange
rights thereof and has authorized, in accordance with Section 141(c) of the
Delaware General Corporation Law (the "DGCL"), a Special Committee of the Board
of Directors (the "Special Committee") to adopt the following resolution (which
includes the voting and exchange rights of such series as authorized by the
Board of Directors) and (ii) the Special Committee has adopted the following
resolution, creating the following new series of the Company's Preferred Stock:
"BE IT RESOLVED, that pursuant to authority expressly granted by the
provisions of Article IV, Section B of the Prestated Certificate of
Incorporation of the Company to the Board of Directors, there is hereby created
and authorized the issuance of a new series of the Company's Preferred Stock,
par value $.01 per share ("Preferred Stock"), with the following powers,
designations, dividend rights, voting powers, rights on liquidation, exchange
rights, redemption rights and other preferences and relative, participating,
optional or other special rights and with the
-1-
<PAGE>
qualifications, limitations or restrictions of the shares of such series (in
addition to the powers, designations, preferences and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions thereof set forth in the Restated Certificate of Incorporation that
are applicable to each series of Preferred Stock) hereinafter set forth:
(1) Designation: Number of Shares: The designation of the series of
-----------------------------
Preferred Stock, par value $.01 per share, of the Company created hereby shall
be "Cumulative Exchangeable Preferred Stock, Series A" (the "Series A Preferred
Stock"). The designated number of shares of Series A Preferred Stock shall be
4,600,000. Each share of Series A Preferred Stock shall have a stated value of
$50 ("Stated Value").
Any shares of Series A Preferred Stock redeemed or otherwise acquired by
the Company shall be retired and shall resume the status of authorized and
unissued shares of Preferred Stock, without designation as to series, until such
shares are once more designated as part of a particular series of Preferred
Stock by the Board of Directors.
(2) Certain Definitions. Unless the context otherwise requires, the
-------------------
terms defined in this paragraph (2) shall have, for all purposes of this
Certificate of Designations, the meanings herein specified:
"Average Market Price" as of any Record Date, Redemption Date or
Liquidating Payment Date shall mean the average of the daily Closing Prices for
the period of ten consecutive Trading Days ending on the third Trading Day
preceding such Record Date, Redemption Date or Liquidating Payment Date,
respectively, appropriately adjusted in such manner as the Board of Directors in
good faith deems appropriate to take in account any stock dividend on the Series
A TCI Group Common Stock, or any subdivision, split, combination or
reclassification of the Series A TCI Group Common Stock that occurs, or the
Ex-Dividend Date for which occurs, during the period following the first Trading
Day in such ten-Trading Day period and ending on the last full Trading Day
immediately preceding the Dividend Payment Date to which such Record Date
relates, such Redemption Date or such Liquidating Payment Date, respectively.
"Board of Directors" shall mean the Board of Directors of the Company,
and, unless the context indicates otherwise, shall also mean, to the extent
permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the
Company with respect to such matter.
"Business Day" shall mean any day other than a Saturday, Sunday or a day
on which banking institutions in The City of New York, New York are authorized
or obligated by law or executive order to close.
"Cash Equivalent Amount" shall mean an amount equal to 95% of the
Average Market Price per share of Series A TCI Group Common Stock, such Average
Market Price to be determined (i) in the case of a dividend payment, as of the
related Record Date, (ii) in the case of a
-2-
<PAGE>
redemption payment, as of the related Redemption Date and (iii), in the case of
a Liquidating Payment, as of the Liquidating Payment Date.
"Closing Price" shall mean, on any day, (i) the last sale price
(or, if no sale price is reported on that day, the average of the bid and asked
prices) of a share of Series A TCI Group Common Stock on the Nasdaq National
Market on such day, or (ii), if the primary trading market for the Series A TCI
Group Common Stock is not the Nasdaq National Market, then the closing sale
price regular way on such day, or, in case no such sale takes place on such day,
the reported closing bid price regular way on such day, in each case on the New
York Stock Exchange or, if the Series A TCI Group Common Stock is not listed or
admitted to trading on such Exchange, then on the principal exchange on which
such stock is traded, or (iii) if the Closing Price on such day is not available
pursuant to one of the methods specified above, then the average of the bid and
asked prices for the Series A TCI Group Common Stock on such day as furnished by
any New York Stock Exchange member firm selected from time to time by the Parent
Board of Directors for that purpose.
"Convertible Securities" shall mean rights, options, warrants and
other securities which are exercisable or exchangeable for or convertible into
shares of capital stock at the option of the holder thereof. As used herein,
Convertible Securities for shares of Series A TCI Group Common Stock do not
include the Series B TCI Group Common Stock (whether or not at the time in
question the Series B TCI Group Common Stock is convertible into shares of
Series A TCI Group Common Stock).
"Current Market Price," on the Determination Date for any issuance
of rights, warrants or options or any distribution in respect of which the
Current Market Price is being calculated, shall mean the average of the daily
Closing Prices of the Series A TCI Group Common Stock for the shortest of:
(i) the period of 30 consecutive Trading Days commencing 45
Trading Days before such Determination Date,
(ii) the period commencing on the date next succeeding the
first public announcement of the issuance of rights, warrants or options or
the distribution in respect of which the Current Market Price is being
calculated and ending on the last full Trading Day before such
Determination Date, and
(iii) the period, if any, commencing on the date next succeeding
the Ex-Dividend Date with respect to the next preceding issuance of rights,
warrants or options or distribution for which an adjustment is required by
the provisions of subparagraph (6)(b)(i)(D), (ii) or (iii), and ending on
the last full Trading Day before such Determination Date.
If the record date for an issuance of rights, warrants or options
or a distribution for which an adjustment is required by the provisions of
subparagraph (6)(b)(i)(D), (6)(ii) or (6)(b)(iii) (the "preceding adjustment
event") precedes the record date for the issuance or distribution in respect
-3-
<PAGE>
of which the Current Market Price is being calculated and the Ex-Dividend Date
for such preceding adjustment event is on or after the Determination Date for
the issuance or distribution in respect of which the Current Market Price is
being calculated, then the Current Market Price shall be adjusted by deducting
therefrom the fair market value (on the record date for the issuance or
distribution in respect of which the Current Market Price is being calculated),
as determined in good faith by the Parent Board of Directors, of the capital
stock, rights, warrants or options, assets or debt securities issued or
distributed in respect of each share of Series A TCI Group Common Stock in such
preceding adjustment event. Further, in the event that the Ex-Dividend Date (or
in the case of a subdivision, combination or reclassification, the effective
date with respect thereto) with respect to a dividend, subdivision, combination
or reclassification to which paragraph (6)(b)(i)(A), (B), (C) or (E) applies
occurs during the period applicable for calculating the Current Market Price,
then the Current Market Price shall be calculated for such period in a manner
determined in good faith by the Parent Board of Directors to reflect the impact
of such dividend, subdivision, combination or reclassification on the Closing
Prices of the Series A TCI Group Common Stock during such period.
"Determination Date" for any issuance of rights, warrants or
options or any dividend or distribution to which paragraph (6)(b)(ii) or (iii)
applies shall mean the earlier of (i) the record date for the determination of
stockholders entitled to receive the rights, warrants or options or the dividend
or distribution to which such paragraph applies and (ii) the Ex-Dividend Date
for such rights, warrants or options or dividend or distribution.
"Dividend Payment Date" shall mean the 15th day of each January,
April, July and October, commencing with April 15, 1996, or the next succeeding
Business Day if any such day is not a Business Day.
"Dividend Period" shall mean the period from the Issue Date to but
excluding the first Dividend Payment Date and, thereafter, each quarterly period
from and including a Dividend Payment Date to but excluding the next Dividend
Payment Date.
"Exchange Rate" shall mean the kind and amount of securities,
assets or other property that as of any date are deliverable upon exchange of a
share of Series A Preferred Stock pursuant to the exchange privilege set forth
in paragraph (6). The Exchange Rate of a share of Series A Preferred Stock shall
initially mean 1.871 shares of Series A TCI Group Common Stock for each share of
Series A Preferred Stock, subject to adjustment as set forth in subparagraph
(6)(b). In the event that pursuant to paragraph (6) the Series A Preferred Stock
becomes exchangeable for more than one class or series of capital stock of the
Parent, the term "Exchange Rate," when used with respect to any such class or
series, shall mean the number or fraction of shares or other units of such
capital stock that as of any date would be issued upon exchange of a share of
Series A Preferred Stock.
"Exchange Date" shall have the meaning set forth in subparagraph
(6)(a).
-4-
<PAGE>
"Ex-Dividend Date" shall mean the date on which "ex-dividend"
trading commences for a dividend, an issuance of rights, warrants or options or
a distribution to which any of subparagraphs (6)(b)(i), (ii) or (iii) applies in
the Nasdaq National Market or on the principal exchange on which the Series A
TCI Group Common Stock is then quoted or traded.
"Guarantee" shall mean the Guarantee Agreement, dated as of
January 10, 1996, entered into by the Parent in favor of the holders from time
to time of the Series A Preferred Stock, as such agreement may be amended or
supplemented from time to time in accordance with the provisions thereof.
"Initial Exchange Date" and "Initial Redemption Date" shall each
mean January 15, 2001.
"Issue Date" shall mean the date on which shares of Series A
Preferred Stock are first issued.
"Junior Stock" shall mean (i) each class or series of common stock
of the Company, (ii) any other class or series of capital stock of the Company
hereafter created, other than (A) any class or series of Parity Stock (except to
the extent provided under clause (iii) hereof) and (B) any class or series of
Senior Stock, and (iii) any class or series of Parity Stock to the extent that
it ranks junior to the Series A Preferred Stock as to dividend rights, rights of
redemption or rights on liquidation, as the case may be. For purposes of clause
(iii) above, a class or series of Parity Stock shall rank junior to the Series A
Preferred Stock as to dividend rights, rights of redemption or rights on
liquidation if the holders of shares of Series A Preferred Stock shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Company, as the
case may be, in preference or priority to the holders of shares of such class or
series of Parity Stock.
"Liquidation Preference," measured per share of the Series A
Preferred Stock, shall mean an amount equal to (a) the Stated Value of such
share, plus (b) for purposes of determining the amount payable pursuant to
paragraph (7) only, an amount equal to all dividends accrued but unpaid on such
share, whether or not such unpaid dividends have been declared or there are any
funds of the Company legally available for the payment of dividends, to the
Liquidating Payment Date.
"Liquidating Payment" shall mean an amount equal to the
Liquidation Preference of a share of Series A Preferred Stock or, if less, the
amount payable in respect of one share of Series A Preferred Stock pursuant to
subparagraph (7)(a) upon the voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company.
"Liquidating Payment Date" shall mean the date on which the
Company makes the aggregate Liquidating Payment to all holders of outstanding
shares of Series A Preferred Stock.
"Mandatory Redemption Date" shall mean January 15, 2006.
-5-
<PAGE>
"Mandatory Redemption Price," as to any share of Series A
Preferred Stock which is to be redeemed on the Mandatory Redemption Date, shall
mean the Liquidation Preference thereof on such date.
"Optional Redemption Price" shall have the meaning set forth in
subparagraph 4(b).
"Other Property" shall mean any security (other than Series A TCI
Group Common Stock), assets or other property deliverable upon the surrender of
shares of Series A Preferred Stock for exchange in accordance with the
provisions of paragraph (6).
"Parent" means Tele-Communications, Inc., a Delaware corporation.
"Parent Board of Directors" shall mean the Board of Directors of
the Parent, and, unless the context indicates otherwise, shall also mean, to the
extent permitted by law, any committee thereof authorized, with respect to any
particular matter, to exercise the power of the Board of Directors of the Parent
with respect to such matter.
"Parity Stock" shall mean the Series A Preferred Stock and any
class or series of capital stock, whether now existing or hereafter created, of
the Company ranking on a parity basis with the Series A Preferred Stock as to
dividend rights, rights of redemption or rights on liquidation. Capital stock of
any class or series, whether now existing or hereafter created, shall rank on a
parity as to dividend rights, rights of redemption or rights on liquidation with
the Series A Preferred Stock, whether or not the dividend rates, dividend
payment dates, redemption or liquidation prices per share or sinking fund or
mandatory redemption provisions, if any, are different from those of the Series
A Preferred Stock, if the holders of shares of such class or series shall be
entitled to dividend payments, payments on redemption or payments of amounts
distributable upon dissolution, liquidation or winding up of the Company, as the
case may be, in proportion to their respective accumulated and accrued and
unpaid dividends, redemption prices or liquidation prices, respectively, without
preference or priority, one over the other, as between the holders of shares of
such class or series and the holders of Series A Preferred Stock. No class or
series of capital stock that ranks junior to the Series A Preferred Stock as to
rights on liquidation shall rank or be deemed to rank on a parity basis with the
Series A Preferred Stock as to dividend rights or rights of redemption, unless
the instrument creating or evidencing such class or series of capital stock
otherwise expressly provides.
"Person" shall mean any individual, corporation, partnership,
joint venture, association, joint stock company, limited liability company,
trust, unincorporated organization, government or agency or political
subdivision thereof, or other entity, whether acting in an individual, fiduciary
or other capacity.
"Preferred Stock Directors" has the meaning set forth in
subparagraph (11)(b).
-6-
<PAGE>
"Prospectus Condition" shall mean, with respect to any exchange
requested by a holder of Series A Preferred Stock pursuant to paragraph (6)(a),
that the Parent deliver to such holder or its designee a current prospectus
(meeting the requirements of Section 10 of the Securities Act) relating to the
Series A TCI Group Common Stock; provided, however, that the Prospectus
Condition shall be deemed satisfied if the Parent receives (i) an opinion of
counsel (which may be the General Counsel of, or regular outside counsel to, the
Parent) to the effect that the Parent is not required, under the Securities Act
or the rules and regulations of the Securities and Exchange Commission (the
"SEC") promulgated thereunder, to deliver a current prospectus in connection
with any exchange of Series A Preferred Stock and the related guarantee of the
Parent for shares of Series A TCI Group Common Stock or (ii) a letter from the
Division of Corporation Finance (or other appropriate division of the SEC) to
the effect that such Division will not raise objection or recommend any
enforcement action to the SEC if the Parent does not deliver a current
prospectus in connection with an exchange of Series A Preferred Stock and the
related guarantee of the Parent for shares of Series A TCI Group Common Stock.
"Record Date" for the dividends payable on any Dividend Payment
Date shall mean the first day of the month during which such Dividend Payment
Date shall occur, as and if designated by the Board of Directors.
"Redeemable Capital Stock" has the meaning set forth in
subparagraph (6)(b)(i).
"Redemption Date," as to any share of Series A Preferred Stock
shall mean (i), for purposes of subparagraph 4(a),the Mandatory Redemption Date
and (ii), for purposes of subparagraph (4)(b),the date fixed by the Board of
Directors for the redemption of such share; provided, that no such date will be
a Redemption Date unless the applicable of the Mandatory Redemption Price or the
Optional Redemption Price is actually paid in full on such date or the
consideration sufficient for the payment thereof, and for no other purpose, has
been set apart or deposited in trust as contemplated by subparagraph (4)(f).
"Redemption Notice" shall have the meaning set forth in
subparagraph (4)(d).
"Redemption Price," at to any share of Series A Preferred Stock,
shall mean (i), if such share is to be redeemed pursuant to subparagraph (4)(a),
the Mandatory Redemption Price and (ii), if such share is to be redeemed
pursuant to subparagraph (4)(b), the applicable Optional Redemption Price.
"Redemption Securities" shall mean securities of an issuer other
than the Parent that are distributed by the Parent in payment, in whole or in
part, of the call, redemption, exchange or other acquisition price for
Redeemable Capital Stock.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time, or any successor statute, and the rules and regulations
promulgated thereunder.
-7-
<PAGE>
"Senior Stock" shall mean any class or series of capital stock of
the Company hereafter created ranking prior to the Series A Preferred Stock as
to dividend rights, rights of redemption or rights on liquidation. Capital stock
of any class or series shall rank prior to the Series A Preferred Stock as to
dividend rights, rights or rights on liquidation if the holders of shares of
such class or series shall be entitled to dividend payments, payments on
redemption or payments of amounts distributable upon dissolution, liquidation or
winding up of the Company, as the case may be, in preference or priority to the
holders of shares of Series A Preferred Stock. No class or series of capital
stock that ranks on a parity basis with or junior to the Series A Preferred
Stock as to rights on liquidation shall rank or be deemed to rank prior to the
Series A Preferred Stock as to dividend rights or rights of redemption,
notwithstanding that the dividend rate, dividend payment dates, sinking fund
provisions, if any or mandatory redemption provisions thereof are different from
those of the Series A Preferred Stock, unless the instrument creating or
evidencing such class or series of capital stock otherwise expressly so
provides.
"Series A Preferred Stock" shall have the meaning set forth in
paragraph (1).
"Series A TCI Common Stock" shall mean the Tele-Communications,
Inc. Series A TCI Group Common Stock, par value $1.00 per share, of Parent,
which term shall include, where appropriate, in the case of reclassification,
recapitalization or other change in the Series A TCI Group Common Stock, or in
the case of a consolidation or merger of Parent with or into another Person
affecting the Series A TCI Group Common Stock, such capital stock to which a
holder of Series A TCI Group Common Stock shall be entitled upon the occurrence
of such event.
"Series B TCI Group Common Stock" shall mean the
Tele-Communications, Inc. Series B TCI Group Common Stock, par value $1.00 per
share, of Parent, which term shall include, where appropriate, in the case of
any reclassification, recapitalization or other change in the Series B TCI Group
Common Stock, or in the case of a consolidation or merger of Parent with or into
another Person affecting the Series B TCI Group Common Stock, such capital stock
to which a holder of Series B TCI Group Common Stock shall be entitled upon the
occurrence of such event.
"Stated Value" shall have the meaning set forth in paragraph (1).
"Stock Dividend Amount" shall have the meaning set forth in
subparagraph (3)(c).
"Subsidiary" shall mean, with respect to any Person, (i) a
corporation a majority of the capital stock of which, having voting power under
ordinary circumstances to elect directors, is at the time, directly or
indirectly, owned by such Person and/or one or more Subsidiaries of such Person
and (ii) any other entity (other than a corporation) in which such Person and/or
one or more Subsidiaries of such Person, directly or indirectly, has (x) a
majority ownership interest and (y) the power to elect or direct the election of
a majority of the members of the governing body of such entity.
"Trading Day" shall mean a day on which the Nasdaq National Market
and the New York Stock Exchange are each open for the transaction of business.
-8-
<PAGE>
"Wholly Owned Subsidiary" means (i) a corporation all of the
capital stock of which, having voting power under ordinary circumstances to
elect directors, is at the time, directly or indirectly, owned by the Company
and/or one or more Wholly Owned Subsidiaries and (ii) any other Person, (other
than a corporation) in which the Company and/or one or more Wholly Owned
Subsidiaries, directly or indirectly, has (x) the entire ownership interest and
(y) the power to elect or direct the election of all of the members of the
governing body of such Person.
(3) Dividends.
---------
(a) Payment. The holders of shares of Series A Preferred Stock shall
-------
be entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available therefor, cumulative dividends, in preference to
dividends on any Junior Stock, from the Issue Date at the rate per annum of
4.25% of the Stated Value per share, rounded to the nearest cent on the basis of
the total number of shares of Series A Preferred Stock held by a holder (or a
dividend rate per share of $2.125 per annum or $0.53125 per quarter for each
share of Series A Preferred Stock). and no more, payable quarterly for each
share of Series A Preferred Stock in arrears on each Dividend Payment Date;
provided, however, that, with respect to any Dividend Period during which a
redemption occurs, the Board of Directors may, at its option, declare accrued
dividends to, and pay such dividends on, the related Redemption Date, in which
case such dividends would be payable on such Redemption Date to the holders of
the shares of Series A Preferred Stock as of a special record date (not to
exceed 45 days preceding the payment date) for such dividend payment. Each
dividend on the shares of Series A Preferred Stock shall be payable to holders
of record as they appear on the stock register of the Company on the Record Date
for such dividend and, for purposes of calculating the accrual of dividends,
dividends will accrue to, but not including, the date fixed for payment. For
purposes of determining the amount of dividends "accrued" (i) as of the first
Dividend Payment Date and as of any date that is not a Dividend Payment Date,
such amount shall be calculated on the basis of the rate per annum specified
above for actual days elapsed from the Issue Date (in the case of the first
Dividend Payment Date and any date prior to the first Dividend Payment Date) or
the last preceding Dividend Payment Date (in the case of any other date) to but
excluding the date as of which such determination is being made, based on a
365-or 366-day year, as the case may be, and (ii) as of any Dividend Payment
Date (other than the first Dividend Payment Date), such amount shall be
calculated on the basis of the foregoing rate per annum, based on a 360-day year
of twelve 30-day months. The first Dividend Period shall be from the Issue Date
to but excluding April 15, 1996, and the first dividend (as and if declared by
the Board of Directors and payable on the first Dividend Payment Date) will be
payable on April 15, 1996 in the amount of $0.53125 per share of Series A
Preferred Stock.
Dividends on the shares of Series A Preferred Stock will accrue on
a daily basis (without interest or compounding) whether or not there are
unrestricted funds legally available for the payment of such dividends and
whether or not such dividends are declared. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment or payments on
the Series A Preferred Stock that may be in arrears. Dividends will cease to
accrue in respect of shares of Series A Preferred Stock on the date of their
redemption or exchange.
-9-
<PAGE>
Accrued and unpaid dividends for any past Dividend Period or
Dividend Periods may be declared and paid at any time, without reference to any
Dividend Payment Date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(b) Company's Right to Elect Manner of Payment of Dividends. Any
-------------------------------------------------------
dividends may be paid, in the sole discretion of the Board of Directors, (i) out
of funds legally available therefor, (ii) through the delivery of shares of
Series A TCI Group Common Stock or (iii) through any combination of the
foregoing forms of consideration elected by the Board of Directors in its sole
discretion. If any dividend declared by the Board of Directors is to be paid, in
whole or in part, through the delivery of shares of Series A TCI Group Common
Stock, each holder of Series A Preferred Stock shall receive the same proportion
of cash and/or shares of Series A TCI Group Common Stock (except for cash paid
in lieu of fractional shares) delivered in payment of such dividend to other
holders of shares of Series A Preferred Stock.
(c) Payment of Dividends by Delivery of Series A TCI Group Common
-------------------------------------------------------------
Stock. If the Company elects to pay any dividend payment, in whole or in part,
- - -----
by delivery of shares of Series of Series A TCI Group Common Stock, the amount
of such dividend payment to be paid per share of Series A Preferred Stock in
shares of Series A TCI Group Common Stock (the "Stock Dividend Amount") shall
be paid through the delivery to the holders of record of such shares of Series A
Preferred Stock on the Record Date for such dividend payment of a number of
shares of Series A TCI Group Common Stock determined by dividing the Stock
Dividend Amount by the Cash Equivalent Amount. No fractional shares of Series A
TCI Group Common Stock shall be delivered to a holder of shares of Series A
Preferred Stock, but the Company shall instead pay a cash adjustment determined
as provided in paragraph (8).
If the Company elects to pay any dividend, in whole in part,
through the delivery of shares of Series A TCI Group Common Stock, the Company
will give notice of such determination (which shall include the number of shares
of Series A TCI Group Common Stock and the amount of cash, if any, to be
delivered in respect of each share of Series A Preferred Stock) by publication,
on the Record Date or any special record date for such dividend, of such
election in a daily newspaper of national circulation.
The Company's right to make any dividend payment (or a designated
portion thereof) through the delivery of shares of Series A TCI Group Common
Stock shall be conditioned upon: (i) the shares of Series A TCI Group Common
Stock to be so delivered being fully paid and nonassessable and free from any
preemptive rights, liens or adverse claims; (ii) the delivery of such shares of
Series A TCI Group Common Stock being exempt from the registration or
qualification requirements of the Securities Act and applicable state securities
laws or, if no such exemption is available, the delivery of such shares of
Series A TCI Group Common Stock having been duly registered or qualified under
the Securities Act and applicable state securities laws; and (iii) the shares of
Series A TCI Group Common Stock to be so delivered being listed, and upon
delivery being eligible for trading on the Nasdaq National Market or on a
national securities exchange. If
-10-
<PAGE>
the conditions set forth in this subparagraph (3)(c) have not been satisfied
prior to or on the applicable Dividend Payment Date, then such dividend payment
shall be paid solely in cash.
(d) Credit. Any dividend payment made on the shares of Series A
------
Preferred Stock shall first be credited against the earliest accrued but unpaid
dividend due with respect to the shares of Series A Preferred Stock.
(e) Pro Rata. All dividends paid with respect to the shares of Series
--------
A Preferred Stock shall be paid pro rata to the holders entitled thereto.
(f) Priority. Payment of dividends to the holders of shares of Series
--------
A Preferred Stock shall be subject to the prior preferences and other rights of
any Senior Stock and to the provisions of paragraph (5).
(4) Redemptions.
-----------
(a) Mandatory Redemption by the Company. The Company shall redeem on
-----------------------------------
the Mandatory Redemption Date all shares of Series A Preferred Stock remaining
outstanding at the Mandatory Redemption Price. If the Company is unable to
deliver shares of Series A TCI Group Common Stock in payment of the Mandatory
Redemption Price on the Mandatory Redemption Date, and if funds of the Company
legally available for redemption of shares of the Series A Preferred Stock and
any other class or series of Parity Stock then required to be redeemed are
insufficient to redeem the total number of shares of Series A Preferred Stock
remaining outstanding, those funds which are legally available shall be used to
redeem the maximum possible number of shares of Series A Preferred Stock and
each such other class or series of Parity Stock. At any time and from time to
time thereafter when the Company is able to deliver shares of Series A TCI Group
Common Stock, or additional funds of the Company are legally available for such
purpose, such shares of Series A TCI Group Common Stock and/or funds shall
immediately be used to redeem the shares of Series A Preferred Stock and of each
such other class or series of Parity Stock which were required to be redeemed
that the Company failed to redeem until the balance of such shares have been
redeemed. The selection of shares to be redeemed pursuant to the two immediately
preceding sentences shall be made, as nearly as practicable, on a pro rata basis
as among the different classes or series and as among the holders of shares of a
particular class or series.
(b) Optional Redemption by the Company. Shares of Series A Preferred
-----------------------------------
Stock are not redeemable by the Company prior to the Initial Redemption Date. At
any time and from time to time on or after the Initial Redemption Date and prior
to the Mandatory Redemption Date, the Company shall have the right to redeem, in
whole or from time to time in part, the outstanding shares of Series A Preferred
Stock at the following per share call prices, together with an amount equal to
all dividends accrued but unpaid thereon to the date fixed for redemption (the
"Optional Redemption Price"), if redeemed during the twelve-month period
beginning January 15 of the year indicated below:
-11-
<PAGE>
<TABLE>
<CAPTION>
Year Call Price
---- ----------
<S> <C>
2001.............. $50.94
2002.............. 50.71
2003.............. 50.47
2004.............. 50.24
2005 and thereafter 50.00
</TABLE>
If fewer than all of the outstanding shares of Series A Preferred
Stock are to be redeemed on any Redemption Date, the shares of Series A
Preferred Stock to be redeemed shall be chosen by the Company pro rata (as
nearly as may be practicable) among all holders of outstanding shares of Series
A Preferred Stock. If shares of Series A Preferred Stock evidenced by a
certificate selected for partial redemption are thereafter exchanged in part
pursuant to paragraph (6) hereof, the shares so exchanged (as far as may be
practicable) will be deemed to be the shares selected for redemption. The
Company shall not be required to register a transfer of (i) any shares of Series
A Preferred Stock for a period of 5 Business Days next preceding any selection
of shares of Series A Preferred Stock to be redeemed or (ii) any shares of
Series A Preferred Stock called for redemption.
(c) Company's Right to Elect Manner of Payment of Redemption Price.
--------------------------------------------------------------
The Company may effect the redemption of shares of Series A Preferred Stock at
the Redemption Price pursuant to subparagraph (4)(a) or (b) above, in the sole
discretion of the Board of Directors, (i) out of funds legally available
therefor, (ii) through the delivery of shares of Series A TCI Group Common Stock
or (iii) through any combination of the foregoing forms of consideration elected
by the Board of Directors in its sole discretion. Each holder whose shares of
Series A Preferred Stock are redeemed shall receive in payment of the
Redemption Price the same proportion of cash and/or shares of Series A TCI Group
Common Stock (except for cash paid in lieu of fractional shares) paid to other
holders of shares of Series A Preferred Stock redeemed on the same Redemption
Date.
(d) Notice of Redemption. The Company shall provide notice of any
--------------------
redemption of shares of Series A Preferred Stock to holders of record of Series
A Preferred Stock to be called for redemption not less than 10 nor more than 60
days prior to the date fixed for such redemption. Such notice (a "Redemption
Notice") shall be provided by mailing notice of such redemption first class
postage prepaid, to each holder of record of shares of Series A Preferred Stock
to be redeemed, at such holder's address as it appears on the stock register of
the Company; provided, however, that neither failure to give such notice nor any
defect therein shall affect the validity of the proceeding for the redemption of
any shares of Series A Preferred Stock to be redeemed except as to the holders
to whom the Company has failed to give said notice or whose notice was
defective.
In addition to any information required by law or by the
applicable rules of the Nasdaq National Market or any national securities
exchange, each Redemption Notice shall state, as appropriate, the following
(and may contain such other information as the Company deems advisable):
-12-
<PAGE>
(A) the Redemption Date;
(B) that all outstanding shares of Series A Preferred Stock are
to be redeemed or, in the case of a call for redemption of
fewer than all outstanding shares of Series A Preferred
Stock, the number of shares held by such holder to be
redeemed;
(C) the applicable Redemption Price and the form or forms of
consideration that the Company has elected to pay and/or
deliver upon such redemption and, if more than one form of
consideration has been elected by the Company, the
designated portions of the Redemption Price to be paid in
each form of consideration so elected;
(D) if the Company has elected to deliver shares of Series A TCI
Group Common Stock in payment of the Redemption Price (or a
designated portion thereof), the method of determining the
number of shares of Series A TCI Group Common Stock so
deliverable as provided in subparagraph 4(e) below;
(E) the place or places where certificates for Series A
Preferred Stock to be redeemed are to be surrendered for
redemption;
(F) that dividends on the shares of Series A Preferred Stock to
be redeemed shall cease to accrue on the Redemption Date
(except as otherwise provided herein); and
(G) the then current Exchange Rate and the place or places where
certificates for Series A Preferred Stock may be surrendered
for exchange pursuant to paragraph (6), and shall further
state that the exchange privilege will terminate immediately
prior to the close of business on the Redemption Date.
(e) Redemption by Delivery of Series A TCI Group Common Stock. If the
---------------------------------------------------------
Company elects to pay, in whole or in part, the Redemption Price in respect of
shares of Series A Preferred Stock through the delivery of shares of Series A
TCI Group Common Stock, then the Company shall deliver to each holder of shares
of Series A Preferred Stock to be redeemed on the applicable Redemption Date a
number of shares of Series A TCI Group Common Stock equal to the aggregate
Redemption Price (or designated portion thereof) of such shares of Series A
Preferred Stock divided by the Cash Equivalent Amount. No fractional shares of
Series A TCI Group Common Stock shall be delivered to a holder of shares of
Series A Preferred Stock in payment of the Redemption Price, but the Company
shall instead pay a cash adjustment determined as provided in paragraph (8).
The Company's right to elect to pay any Redemption Payment (or
designated portion thereof) through the delivery of shares of Series A TCI Group
Common Stock shall be conditioned upon: (i) the Company's having timely given a
Redemption Notice setting forth such election; (ii)
-13-
<PAGE>
the shares of Series A TCI Group Common Stock to be so delivered being fully
paid and nonassessable and free from any preemptive rights, liens or adverse
claims; (iii) the delivery of such shares of Series A TCI Group Common Stock
being exempt from the registration or qualification requirements of the
Securities Act and applicable state securities laws or, if no such exemption is
available, the delivery of such shares of Series A TCI Group Common Stock
having been duly registered or qualified under the Securities Act and applicable
state securities laws; and (iv) the shares of Series A TCI Group Common Stock
being listed, and upon delivery being eligible for trading, on the Nasdaq
National Market or on a national securities exchange. If the conditions set
forth in this subparagraph (4)(e) have not been satisfied prior to or on the
Redemption Date, the Redemption Price to be paid on such Redemption Date shall
be paid solely in cash.
(f) Deposit of Funds and/or Shares. If the Redemption Notice with
------------------------------
respect to shares of Series A Preferred Stock to be redeemed pursuant to this
paragraph (4) shall have been timely given by the Company, and if on or before
the applicable Redemption Date the Company shall have deposited with the
redemption agent for the Series A Preferred Stock (or, if there is no redemption
agent, shall have set apart so as to be available for such purpose and only such
purpose) cash (including cash for any adjustment in lieu of delivering
fractional shares) and/or shares of Series A TCI Group Common Stock, as
applicable, sufficient to pay in full the aggregate Redemption Price for such
shares of Series A Preferred Stock on such Redemption Date, and provided that
all conditions set forth in subparagraph (4)(e) to the delivery of shares of
Series A TCI Group Common Stock shall have been satisfied (if applicable), then
effective as of the close of business on such Redemption Date, such shares of
Series A Preferred Stock shall no longer be deemed outstanding (notwithstanding
that any certificate therefor shall not have been surrendered for cancellation),
dividends with respect to the shares so called for redemption shall cease to
accrue on the Redemption Date (except that holders of shares of Series A
Preferred Stock at the close of business on a Record Date for any payment of
dividends shall be entitled to receive the dividend payable on such shares on
the corresponding Dividend Payment Date notwithstanding the redemption of such
shares following such Record Date and prior to such Dividend Payment Date) and
all rights with respect to the shares so called for redemption shall forthwith
after such date cease and terminate, except the right of such holders, upon the
surrender of certificates evidencing the shares of Series A Preferred Stock so
redeemed, to receive the cash and/or Series A TCI Group Common Stock, as
applicable, payable or deliverable in payment of the Redemption Price therefore,
and the applicable cash adjustment, if any, in lieu of fractional shares,
without interest. Any cash and/or shares of Series A TCI Group Common Stock so
deposited or set apart which shall remain unclaimed at the end of one year after
the Redemption Date shall be returned or released to the Company, after which
time the holders of shares of Series A Preferred Stock called for redemption on
such Redemption Date that remain outstanding after such one-year period shall
look only to the Company for the payment of the Redemption Price for such
shares, without interest, unless an applicable escheat or abandoned property law
otherwise requires. If any shares of Series A Preferred Stock so called for
redemption are exchanged, pursuant to paragraph (6), between the date such cash
and/or shares of Series A TCI Group Common Stock are so deposited or set apart
and the close of business on the Redemption Date, then the cash (including cash
for any adjustment in lieu of delivering fractional shares) and/or shares of
Series A TCI Group Common Stock, as applicable, deposited or set apart for the
-14-
<PAGE>
redemption of such shares so exchanged shall be promptly thereafter returned or
released to the Company.
At its election, the Company on or prior to any Redemption Date
(but no more than ninety (90) days prior to such Redemption Date) may deposit
immediately available funds and/or shares of Series A TCI Group Common Stock
sufficient to pay the aggregate Redemption Price of the shares of Series A
Preferred Stock called for redemption on such date in trust for the holders
thereof with any bank or trust company organized under the laws of the United
States of America or any state thereof having capital, undivided profits and
surplus aggregating at least $50 million (the "Redemption Agent"), with
irrevocable instructions and authority to the Redemption Agent, on behalf and at
the expense of the Company, to mail the Redemption Notice as soon as practicable
after receipt of such irrevocable instructions (or to complete such mailing
previously commenced, if it has not already been completed) and to pay, on and
after such Redemption Date or prior thereto, the Redemption Price of the shares
of Series A Preferred Stock to be redeemed to their respective holders upon the
surrender of the certificates therefor. A deposit made in compliance with the
immediately preceding sentence shall be deemed to constitute full payment for
the shares of Series A Preferred Stock to be redeemed and from and after the
later of the close of business on the date of such deposit (although prior to
such Redemption Date) or the date the Redemption Notice is mailed, the shares of
Series A Preferred Stock to be redeemed shall no longer be deemed outstanding
and the holders thereof shall cease to be stockholders with respect to such
shares and shall have no rights with respect to such shares except (x) the right
of the holders thereof to receive the Redemption Price of such shares
(calculated through the Redemption Date), without interest, upon surrender of
the certificates therefor and (y) the right to exchange such shares in
accordance with paragraph (6) prior to the close of business on such Redemption
Date. Any interest accrued on funds so deposited shall be paid by the Redemption
Agent to the Company from time to time. Any cash and/or shares of Series A TCI
Group Common Stock deposited with the Redemption Agent which shall remain
unclaimed at the end of one year after the Redemption Date shall be returned by
the Redemption Agent to the Company, after which return the holders of shares of
Series A Preferred Stock called for redemption on such Redemption Date that
remain outstanding after such one-year period shall look only to the Company for
the payment of the Redemption Price for such shares, without interest, unless an
applicable escheat or abandoned property law otherwise requires. If any shares
of Series A Preferred Stock called for redemption on such Redemption Date are
exchanged, in accordance with paragraph (6), between the date such cash and/or
shares of Series A TCI Group Common Stock are so deposited with the Redemption
Agent and the close of business on the Redemption Date, then the cash (including
cash for any adjustment in lieu of delivering fractional shares) and/or shares
of Series A TCI Group Common Stock, as applicable, so deposited for the
redemption of such shares so exchanged shall be promptly thereafter returned by
the Redemption Agent to the Company.
(g) Surrender of Certificates: Status. Each holder of shares of
---------------------------------
Series A Preferred Stock to be redeemed shall surrender the certificates
evidencing such shares (properly endorsed or assigned to the Company in blank
and with signatures guaranteed, if the Company shall so require and the
Redemption Notice shall so state) to the redemption agent (or to the Company if
there is no
-15-
<PAGE>
redemption agent) at the place designated in the Redemption Notice for such
redemption and shall thereupon be entitled to receive the consideration for
such shares specified in the Redemption Notice (subject to subparagraph (4)(e))
in an aggregate amount equal to the Redemption Price for such shares. In case
fewer than all the shares of Series A Preferred Stock represented by any such
surrendered certificate are called for redemption, a new certificate shall be
issued at the expense of the Company representing the unredeemed shares. Holders
of shares of Series A Preferred Stock that are redeemed on any Redemption Date
shall not be entitled to receive dividends declared and paid on any shares of
Series A TCI Group Common Stock deliverable in payment of the Redemption Price
(or designated portion thereof) for such shares of Series A Preferred Stock, and
such shares of Series A TCI Group Common Stock shall not be entitled to vote,
until such shares of Series A TCI Group Common Stock are delivered upon the
surrender of the certificates representing such shares of Series A Preferred
Stock. Upon such surrender, such holders shall be entitled to receive such
dividends declared and paid on such shares of Series A TCI Group Common Stock
subsequent to such Redemption Date and prior to such delivery.
(h) Priority. The right of the Company to redeem shares of Series A
--------
Preferred pursuant to this paragraph (4) shall be subject to the prior
preferences and other rights of any Senior Stock and to the provisions of
paragraph (5).
(5) Limitations on Dividends and Redemptions In Respect of Company
--------------------------------------------------------------
Stock.
- - -----
(a) Limitations on Junior Stock Dividends. As long as any shares of
-------------------------------------
Series A Preferred Stock are outstanding, no dividends shall be paid or declared
in cash or otherwise on Junior Stock, not shall any other distribution be made
on any Junior Stock, unless: (i) full dividends on all Parity Stock have been
paid, or declared and set aside for payment, for all dividend periods
terminating on or prior to the date of such Junior Stock dividend or
distribution payment, to the extent such dividends are cumulative; (ii) the
Company has paid or set aside all amounts, if any, then or theretofore required
to be paid or set aside for all purchase, retirement, and sinking funds, if any,
for any Parity Stock; and (iii) the Company is not in default on any of its
obligations to redeem any Parity Stock.
(b) Limitations on Purchases of Junior Stock. As long as any shares of
-----------------------------------------
Series A Preferred Stock are outstanding, no shares of any Junior Stock may be
purchased, redeemed, or otherwise acquired by the Company or any of its
Subsidiaries (except in connection with a reclassification of any Junior Stock
through the issuance of other Junior Stock and/or Convertible Securities for
shares of Junior Stock and cash in lieu of fractional shares in connection
therewith or the purchase, redemption or other acquisition of any Junior Stock
from any Wholly Owned Subsidiary), nor may any funds be set aside or made
available for any sinking fund for the purchase, redemption or other acquisition
of any Junior Stock, unless: (i) full dividends on all Parity Stock have been
paid, or declared and set aside for payment, for all dividend periods
terminating on or prior to the date of such purchase, redemption or acquisition,
to the extent such dividends are cumulative; (ii) the Company has paid or set
aside all amounts, if any, then or theretofore required
-16-
<PAGE>
to be paid or set aside for all purchase, retirement, and sinking funds, if any,
for any Parity Stock; and (iii) the Company is not in default on any of its
obligations to redeem any Parity Stock.
(c) Junior Stock Dividends Otherwise Permitted. Subject to the
------------------------------------------
provisions of subparagraphs (5)(a) and (b), dividends or distributions (payable
in cash, property or securities) may be declared and paid on the shares of any
Junior Stock from time to time and any Junior Stock may be purchased, redeemed
or otherwise acquired by the Company or any of its Subsidiaries from time to
time. In the event of the declaration and payment of any such dividends or
distributions, the holders of such Junior Stock will be entitled, to the
exclusion of holders of shares of Series A Preferred Stock, to share therein
according to their respective interests.
(d) Limitations on Parity Stock Dividends and Redemptions. As long as
-----------------------------------------------------
any shares of Series A Preferred Stock are outstanding, dividends or other
distributions may not be declared or paid on any Parity Stock, and the Company
may not purchase, redeem or otherwise acquire any Parity Stock (except (x) from
any Wholly Owned Subsidiary or (y) in connection with a mandatory conversion or
exchange of such Parity Stock or a conversion or exchange of such Parity Stock
at the option of the holder for securities other than Parity Stock or Senior
Stock and cash in lieu of fractional shares in connection therewith), unless
either: (a)(i) full dividends on all Parity Stock have been paid, or declared
and set aside for payment, for all dividend periods terminating on or prior to
the date of such Parity Stock dividend, distribution, purchase, redemption or
other acquisition payment, to the extent such dividends are cumulative; (ii) the
Company has paid or set aside all amounts, if any, then or theretofore required
to be paid or set aside for all purchase, retirement, and sinking funds, if any,
for any Parity Stock; and (iii) the Company is not in default on any of its
obligations to redeem any Parity Stock; or (b) with respect to the payment of
dividends only, any such dividends are declared and paid pro rata so that the
amounts of any dividends declared and paid per share on shares of Series A
Preferred Stock and each other share of such Parity Stock will in all cases bear
to each other the same ratio that accrued and unpaid dividends (including any
accumulation with respect to unpaid dividends for prior dividend periods, if
such dividends are cumulative) per share on shares of Series A Preferred Stock
and such other share of Parity Stock bear to each other.
(e) Certain Permitted Dividends and Redemptions. Nothing contained in
-------------------------------------------
this paragraph (5) shall prevent (i) the payment of dividends or the making of
distributions on any Junior Stock solely in shares of Junior Stock and/or
Convertible Securities for shares of Junior Stock (together with a cash
adjustment for fractional shares, if any) or the redemption, purchase or other
acquisition of Junior Stock solely in exchange for (together with a cash
adjustment for fractional shares, if any), or through the application of the
proceeds from the sale of, shares of Junior Stock and/or Convertible Securities
for shares of Junior Stock; (ii) the payment of dividends or the making of
distributions on any class or series of Parity Stock solely in (together with a
cash adjustment for fractional shares, if any) (x) shares if Junior Stock and/or
Convertible Securities for shares of Junior Stock or (y) any securities of
Parent (including shares of Series A Group Common Stock), or the redemption,
exchange, purchase or other acquisition of any class or series of Parity Stock
solely in exchange for (together with a cash adjustment for fractional shares,
if any), or through the application of the
-17-
<PAGE>
proceeds from the sale of, (A) shares of Junior Stock and/or Convertible
Securities for shares of Junior Stock or (B) and securities of Parent (including
shares of Series A TCI Group Common Stock); or (iii) the exchange of Series A
Preferred Stock for shares of Series A TCI Group Common Stock (together with a
cash adjustment for fractional shares, if any) and Other Property, if any,
pursuant to the provisions of paragraph (6).
(f) Waiver. The provisions of subparagraphs (5)(a), (b) and (d) are
------
for the sole benefit of the holders of Series A Preferred Stock and any other
class or series of Parity Stock having the terms described therein and
accordingly, at any time when (i) there are no shares of any such other class or
series of Parity Stock outstanding or if the holders of each such other class or
series of Parity Stock have, by such vote or consent of the holders thereof as
may be provided for in the instrument creating or evidencing such class or
series, waived in whole or in part the benefit of such provisions (either
generally or in the specific instance), and (ii) the holders of Shares of
Series A Preferred Stock shall have waived (as provided in paragraph (12)) in
whole or in part the benefit of such provision (either generally or in the
specific instance), then the provisions of subparagraphs) (5)(a), (b) and (d)
shall not (to the extent waived, in the case of any partial waiver) restrict the
payment of dividends or the making of distributions on, or the redemption,
purchase or other acquisition of any shares of, Series A Preferred Stock, any
other class or series of Parity Stock or any Junior Stock.
(6) Exchange at Option of Holder.
----------------------------
(a) Right to and Mechanics of Exchange. Subject to the provisions of
----------------------------------
this paragraph (6), shares of Series A Preferred Stock are exchangeable, in
whole or from time to time in part, at the option of the holders thereof, at any
time from and after Initial Exchange Date and prior to the close of business on
the Mandatory Redemption Rate, unless previously redeemed, into shares of
Series A TCI Group Common Stock at the Exchange Rate. An exchange of Series A
Preferred Stock pursuant to this paragraph (6) shall be effected directly with
Parent, and the Parent has agreed, pursuant to the Guarantee, (x) to issue and
deliver shares of Series A TCI Group Common Stock to or upon the order of any
holder of shares of Series A Preferred Stock that surrenders such shares for
exchange pursuant to this pursuant to this paragraph (6) and (y) to otherwise
perform the actions required of it under this paragraph (6). The right to
exchange shares of Series A Preferred Stock called for redemption shall
terminate immediately prior to the close of business on the related Redemption
Date.
In order to exchange shares of Series A Preferred Stock, the
holder thereof shall surrender the certificates evidencing the shares of
Series A Preferred Stock to be exchanged at the office or agency to be
maintained by the Parent for that purpose, duly endorsed to the Parent or in
blank (or accompanied by duly executed instruments of transfer to the Parent or
in blank) with signatures guaranteed (such endorsements or instruments of
transfer to be in form satisfactory to the Parent), together with written notice
of exchange specifying the number of shares of Series A Preferred Stock to be
exchanged and specifying the name or names (with addresses) in which the
certificate or certificates representing the Series A TCI Group Common Stock
deliverable on such exchange are to be registered, and otherwise in accordance
with exchange procedures established
-18-
<PAGE>
by the Parent and the Company. Each notice of exchange shall be irrevocable, and
each exchange shall be deemed to have been effected immediately prior to the
close of business on the date (the "Exchange Date") on which (i) all of the
requirements for such exchange shall have been satisfied and (ii) the Parent is
able to deliver a current prospectus relating to the Series A TCI Group Common
Stock, if required to satisfy the Prospectus Condition. The exchange shall be at
the Exchange Rate in effect immediately prior to the close of business on the
Exchange Date. If any transfer is involved in the issuance or delivery of any
certificate or certificates for shares of Series A TCI Group Common Stock in a
name other than that of the registered holder of the shares of Series A
Preferred Stock surrendered for exchange, such holder shall also deliver to the
Parent a sum sufficient to pay all taxes, if any, payable in respect of such
transfer or evidence satisfactory to the Parent that such taxes have been paid.
Except as provided in the immediately preceding sentence, the Parent shall pay
any issue, stamp or other similar tax in respect of such issuance or delivery.
As promptly as practicable after the Exchange Date, the Parent, in
accordance with the provisions of this paragraph (6), shall issue and deliver at
said office or agency to the holder of the shares of Series A Preferred Stock so
surrendered for exchange, or on his or her written order, a certificate or
certificates for the number of full shares of Series A TCI Group Common Stock
issuable upon exchange of such shares in accordance with the provisions of this
paragraph (6), and any fractional interest shall be settled in accordance with
paragraph (8). If required in order to satisfy the Prospectus Condition, the
Parent shall also deliver to such holder or its designee, together with the
certificate for such shares of Series A TCI Group Common Stock and cash in lieu
of any fractional share, a current prospectus (meeting the requirements of
Section 10 of the Securities Act) relating to the Series A TCI Group Common
Stock; provided, however, that in the event the Parent is unable during any
period to deliver a current prospectus, no exchange shall be effected (and no
Exchange Date shall occur) during such period and any exchange that could
otherwise have been effected during such period shall be deemed to have been
effected immediately prior to the close of business (and the Exchange Date shall
be deemed to have occurred) on the first Business Day that the Parent is able to
deliver a current prospectus relating to the Series A TCI Group Common Stock.
The inability of the Parent to deliver a current prospectus at any time shall
not be deemed a default under this Certificate of Designations. Under the
Guarantee, the Parent has undertaken to use all reasonable efforts to ensure
that it will be able to deliver a current prospectus, if required, during any
period that the holders of shares of Series A Preferred Stock are entitled to
exchange such shares for shares of Series A TCI Group Common Stock.
The Person in whose name the certificate for shares of Series A
TCI Group Common Stock is issued upon such exchange shall be treated for all
purposes as the stockholder of record of such shares of Series A TCI Group
Common Stock as of the close of business on the Exchange Date; provided,
however, that no surrender of Series A Preferred Stock on any date when the
stock transfer books of the Parent are closed for any purpose shall be effective
to constitute the Person or Persons entitled to receive the shares of Series A
TCI Group Common Stock deliverable upon such exchange as the record holder(s) of
such shares of Series A TCI Group Common Stock on such date, but surrender shall
be effective (assuming all other requirements for the valid exchange of such
shares have been satisfied) to constitute such Person or Persons as the record
holder(s) of such shares of
-19-
<PAGE>
Series A TCI Group Common Stock for all purposes as of opening of business on
the next succeeding day on which such stock transfer books are open, and such
exchange shall be at the Exchange Rate in effect on the date that such shares of
Series A Preferred Stock were surrendered for exchange (and such other
requirements satisfied) as if the stock transfer books of the Parent had not
been closed on such date. Upon exchange of shares of Series A Preferred Stock,
the rights of the holder of such shares, as a holder thereof, shall cease.
Holders of shares of Series A Preferred Stock at the close of
business on a Record Date for any payment of declared dividends shall be
entitled to receive the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the effective exchange of such shares
following such Record Date and prior to the corresponding Dividend Payment Date.
However, shares of Series A Preferred Stock surrendered for exchange after the
close of business on a Record Date for any payment of dividends and before the
opening of business on the next succeeding Dividend Payment Date must be
accompanied by payment in cash of an amount equal to the dividend thereon
attributable to the current quarterly Dividend Period which is to be paid on
such Dividend Payment Date (unless such shares are subject to redemption on a
Redemption Date between such Record Date and such Dividend Payment Date). A
holder of shares of Series A Preferred Stock called for redemption on any
Dividend Payment Date shall (if such holder is the registered holder on the
applicable Record Date) receive the dividend on such shares payable on that date
and will be able to exchange such shares after the Record Date for such dividend
without paying an amount equal to such dividend to the Company upon exchange.
Except as provided above, upon any exchange of shares of Series A Preferred
Stock pursuant to this paragraph (6), the Company shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on exchanged shares
of Series A Preferred Stock and the Parent shall make no payment or allowance
for previously declared dividends or distributions on the shares of Series A TCI
Group Common Stock issued upon such exchange (or on any Other Property issued
upon such exchange pursuant to this paragraph (6)).
If the shares of Series A Preferred Stock represented by a
certificate surrendered for exchange in part only, the Company shall cause to
be issued and delivered to the registered holder, without charge therefor, a new
certificate or certificates representing in the aggregate the number of
unexchanged shares.
(b) Exchange Rate Adjustments. The Exchange Rate shall be subject to
adjustment from time to time as provided below in this subparagraph (6)(b).
(i) If the Parent shall, after the Issue Date:
(A) pay a stock dividend or make a distribution on the
outstanding shares of Series A TCI Group Common Stock
in shares of Series A TCI Group Common Stock,
(B) subdivide or split the outstanding shares of Series A
TCI Group Common Stock into a greater number of shares,
-20-
<PAGE>
(C) combine the outstanding shares of Series A TCI Group
Common Stock into a smaller number of shares,
(D) pays a dividend or make a distribution on the
outstanding shares of Series A TCI Group Common Stock
in shares of its capital stock (other than Series A TCI
Group Common Stock), or
(E) issue by reclassification of its outstanding shares of
Series A TCI Group Common Stock (other than a
reclassification by way of merger or binding share
exchange that is subject to subparagraph (6)(d)) any
shares of its capital stock,
then, in any such event, the Exchange Rate in effect
immediately prior to the opening of business on the record
date for determination of stockholders entitled to receive
such dividend or distribution or the effective date of such
subdivision, split, combination or reclassification, as the
case may be, shall be adjusted so that the holder of any
shares of Series A Preferred Stock shall thereafter be
entitled to receive, upon exchange at the option of such
holder, the number of shares of Series A TCI Group Common
Stock or other capital stock (or both) of the Parent which
such holder would have owned or been entitled to receive
immediately following such action if such holder had
exchanged his shares of Series A Preferred Stock immediately
prior to the record date for, or effective date of, as the
case may be, such event. Notwithstanding the foregoing, if
an event listed in clause (D) or (E) above would result
in the shares of Series A Preferred Stock being exchangeable
for shares or units (or a fraction thereof) of more than one
class or series of capital stock of the Parent and any such
class or series of capital stock provides by its terms a
right in favor of the Parent to call, redeem, exchange or
otherwise acquire all of the outstanding shares or units of
such class or series (such class or series of capital stock
being herein referred to as "Redeemable Capital Stock") for
consideration that may include Redemption Securities, then
the Exchange Rate of the Series A Preferred Stock shall not
be adjusted pursuant to this subparagraph (6)(b)(i) and in
lieu thereof the adjustment to the Exchange Rate
contemplated by subparagraph (6)(b)(iii) shall be made with
the same effect as if the dividend or distribution of such
Redeemable Capital Stock or the issuance of the additional
class or series of such Redeemable Capital Stock by
reclassification had been a distribution of assets of the
Parent.
The adjustment contemplated by this subparagraph (6)(b)(i)
shall be made successively whenever any event listed above
shall occur. For a dividend or distribution, the adjustment
shall become effective at the opening of business on the
Business Day next following the record date for such
dividend or
-21-
<PAGE>
distribution. For a subdivision, split, combination or
reclassification, the adjustment shall become effective
immediately after the effectiveness of such subdivision,
split, combination or reclassification.
If after an adjustment pursuant to this subparagraph
(6)(b)(i) a holder of Series A Preferred Stock would be
entitled to receive upon exchange thereof shares of two or
more classes or series of capital stock of the Parent, the
Exchange Rate shall thereafter be subject to adjustment upon
the occurrence of an action taken with respect to any such
class or series of capital stock other than Series A TCI
Group Common Stock as is contemplated by this paragraph (6),
on terms comparable to those applicable to the Series A TCI
Group Common Stock pursuant to this paragraph (6).
(ii) If the Parent shall, after the Issue Date, distribute
rights, warrants or options to all or substantially all
holders of its outstanding shares of Series A TCI Group
Common Stock entitling them (for a period not exceeding
forty-five days from the record date referred to below) to
subscribe for or purchase shares of Series A TCI Group
Common Stock (or Convertible Securities for shares of Series
A TCI Group Common Stock) at a price per share (or having an
exercise, exchange or conversion price per share, after
adding thereto an allocable portion of the exercise price of
the right, warrant or option to purchase such Convertible
Securities, computed on the basis of the maximum number of
shares of Series A TCI Group Common Stock issuable upon
exercise, exchange or conversion of such Convertible
Securities) less than the Current Market Price on the
applicable Determination Date, then, in any such event, the
Exchange Rate shall be adjusted by multiplying the Exchange
Rate in effect immediately prior to the opening of business
on the record date for the determination of stockholders
entitled to receive such distribution by a fraction, of
which the numerator shall be the number of shares of Series
A TCI Group Common Stock outstanding on such record date
plus the number of additional shares of Series A TCI Group
Common Stock so offered pursuant to such rights, warrants or
options to the holders of Series A TCI Group Common Stock
(and to holders of Convertible Securities for shares of
Series A TCI Group Common Stock and to holders of Series B
TCI Group Common Stock referred to in the immediately
succeeding paragraph of this subparagraph (6)(b)(ii)) for
subscription or purchase (or into which the Convertible
Securities for shares of Series A TCI Group Common Stock so
offered are exercisable, exchangeable or convertible), and
of which the denominator shall be the number of shares of
Series A TCI Group Common Stock outstanding on such record
date plus the number of additional shares of Series A TCI
Group Common Stock which the aggregate offering price of the
total number of shares of Series A TCI Group Common Stock so
offered (or the aggregate exercise, exchange or conversion
price of the Convertible
-22-
<PAGE>
Securities for shares of Series A TCI Group Common Stock so offered, after
adding thereto the aggregate exercise price of the rights, warrants or options
to purchase such Convertible Securities) to the holders of Series A TCI Group
Common Stock (and to such holders of Convertible Securities for shares of Series
A TCI Group Common Stock and such holders of Series B TCI Group Common Stock)
would purchase at such Current Market Price.
For purposes of this subparagraph (6)(b)(ii), the number of shares of Series A
TCI Group Common Stock outstanding on any applicable record date shall be deemed
to include (i) the maximum number of shares of Series A TCI Group Common Stock
the issuance of which would be necessary to effect the full exercise, exchange
or conversion of all Convertible Securities for shares of Series A TCI Group
Common Stock outstanding on such record date which are then exercisable,
exchangeable or convertible at a price (before giving effect to any adjustment
to such price for the distribution to which this subparagraph (6)(b)(ii) is
being applied) equal to or less than the Current Market Price per share of
Series A TCI Group Common Stock on the applicable Determination Date, if all of
such Convertible Securities were deemed to have been exercised, exchanged or
converted immediately prior to the opening of business on such record date and
(ii) if the Series B TCI Group Common Stock is then convertible into Series A
TCI Group Common Stock, the maximum number of shares of Series A TCI Group
Common Stock the issuance of which would be necessary to effect the full
conversion of all shares of Series B TCI Group Common Stock outstanding on such
record date, if all of such shares of Series B TCI Group Common Stock were
deemed to have been converted immediately prior to the opening of business on
such record date.
The adjustment contemplated by this subparagraph (6)(b)(ii) shall be made
successively whenever any such rights, warrants or options are distributed, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such distribution. If all of the shares of
Series A TCI Group Common Stock (or all of the Convertible Securities for shares
of Series A TCI Group Common Stock) subject to such rights, warrants or options
have not been issued when such rights, warrants or options expire (or, in the
case of rights, warrants or options to purchase Convertible Securities for
shares of Series A TCI Group Common Stock which have been exercised, if all of
the shares of Series A TCI Group Common Stock issuable upon exercise, exchange
or conversion of such Convertible Securities have not been issued prior to the
expiration of the exercise, exchange or conversion right thereof), then the
Exchange Rate shall promptly be readjusted to the Exchange Rate which would then
be in effect
-23-
<PAGE>
had the adjustment upon the issuance of such rights, warrants or options
been made on the basis of the actual number of shares of Series A TCI
Group Common Stock (or such Convertible Securities) issued upon the
exercise of such rights, warrants or options (or the exercise, exchange or
conversion of such Convertible Securities).
No adjustment shall be made under this subparagraph (6)(b)(ii) if the
adjusted Exchange Rate would be lower than the Exchange Rate in effect
immediately prior to such adjustment.
(iii) If the Parent shall, after the Issue Date, (x) pay a dividend or make a
distribution to all or substantially all holders of its outstanding shares
of Series A TCI Group Common Stock of any assets or debt securities or any
rights, warrants or options to purchase securities (excluding (A)
dividends or distributions referred to in subparagraph (6)(b)(i) (except
as otherwise provided in clause (y) of this sentence) and distributions of
rights, warrants or options referred to in subparagraph (6)(b)(ii) and (B)
cash dividends, unless such cash dividends are Extraordinary Cash
Dividends), or (y) pay a dividend or make a distribution to all or
substantially all holders of its outstanding shares of Series A TCI Group
Common Stock of Redeemable Capital Stock, or issue Redeemable Capital
Stock by reclassification of the Series A TCI Group Common Stock, and
pursuant to subparagraph (6)(b)(i) such Redeemable Capital Stock is to be
treated the same as a distribution of assets of the Parent subject to this
subparagraph (6)(b)(iii), then, in any such event, the Exchange Rate shall
be adjusted by multiplying the Exchange Rate in effect immediately prior
to the opening of business on (I) the record date for the determination of
stockholders entitled to receive the dividend or distribution or (II) in
the case of a reclassification, the effective date of such
reclassification by a fraction, of which the numerator shall be the total
number of shares of Series A TCI Group Common Stock outstanding on such
record date or immediately prior to such effective date multiplied by the
Current Market Price on the applicable Determination Date, and of which
the denominator shall be the total number of shares of Series A TCI Group
Common Stock outstanding on such record date or immediately prior to such
effective date multiplied by such Current Market Price, less the fair
market value (as determined in good faith by the Parent Board of
Directors) on such record date or effective date of the assets (or
Redeemable Capital Stock) or debt securities or rights, warrants or
options so distributed to the holders of Series A TCI Group Common Stock
(and to the holders of Convertible Securities for shares of Series A TCI
Group Common Stock and to the holders of Series B TCI Group Common Stock
referred to in the immediately succeeding paragraph of this subparagraph
(6)(b)(iii) if the dividend or
-24-
<PAGE>
distribution to which this paragraph (6)(b)(iii) applies is
also being made to such holders).
For purposes of this subparagraph (6)(b)(iii), the number of
shares of Series A TCI Group Common Stock outstanding on any
relevant date shall be deemed to include (i) the maximum
number of shares of Series A TCI Group Common Stock the
issuance of which would be necessary to effect the full
exercise, exchange or conversion of all Convertible
Securities for Series A TCI Group Common Stock outstanding
on such date which are then exercisable, exchangeable or
convertible at a price (before giving effect to any
adjustment to such price for the dividend or distribution or
reclassification to which this subparagraph (6)(b)(iii) is
being applied) equal to or less than the Current Market
Price on the applicable Determination Date, if all of such
Convertible Securities were deemed to have been exercised,
exchanged or converted immediately prior to the opening of
business on such date and (ii) if the Series B TCI Group
Common Stock is then convertible into Series A TCI Group
Common Stock, the maximum number of shares of Series A TCI
Group Common Stock the issuance of which would be necessary
to effect the full conversion of all shares of Series B
TCI Group Common Stock outstanding on such date, if
all of such shares of Series B TCI Group Common Stock were
deemed to have been converted immediately prior to the
opening of business on such date.
For purposes of this subparagraph (6)(b)(iii), the term
"Extraordinary Cash Dividend" shall mean any cash dividend
with respect to the Series A TCI Group Common Stock the
amount of which, together with the aggregate amount of cash
dividends on the Series A TCI Group Common Stock to be
aggregated with such cash dividend in accordance with the
following provisions of this paragraph, equals or exceeds
the threshold percentage set forth in the following
sentence. If, upon the date immediately prior to the Ex-
Dividend Date with respect to a cash dividend on Series A
TCI Group Common Stock, the aggregate of the amount of such
cash dividend together with the amounts of all cash
dividends on the Series A TCI Group Common Stock with Ex-
Dividend Dates occurring in the 365/366 consecutive day
period ending on the date prior to the Ex-Dividend Date with
respect to the cash dividend to which this provision is
being applied (other than any such other cash dividends with
Ex-Dividend Dates occurring in such period for which a prior
adjustment in the Exchange Rate was previously made under
this subparagraph (6)(b)(iii)) equals or exceeds on a per
share basis 10% of the average of the Closing Prices during
the period beginning on the date after the first such Ex-
Dividend Date in such period and ending on the date prior to
the Ex-Dividend Date with respect to the cash dividend to
which this provision is being applied (except that if no
other cash dividend has had an
-25-
<PAGE>
Ex-Dividend Date occurring in such period, the period for
calculating the average of the Closing Prices shall be the
period commencing 365/366 days prior to the date immediately
prior to the Ex-Dividend Date with respect to the cash
dividend to which this provision is being applied), such
cash dividend together with each other cash dividend with an
Ex-Dividend Date occurring in such 365-/366-day period that
is aggregated with such cash dividend in accordance with
this paragraph shall be deemed to be an Extraordinary Cash
Dividend.
The adjustment pursuant to the foregoing provisions of this
subparagraph (6)(b)(iii) shall be made successively whenever
any dividend or distribution or reclassification to which
this subparagraph (6)(b)(iii) applies is made, and shall
become effective immediately after (x), in the case of a
dividend or distribution, the record date for the
determination of stockholders entitled to receive such
dividend or distribution or (y), in the case of a
reclassification, the effective date of such
reclassification. No adjustment shall be made under this
subparagraph (6)(b)(iii) if the adjusted Exchange Rate would
be lower than the Exchange Rate in effect immediately prior
to such adjustment. In the event that, with respect to any
distribution to which this subparagraph (6)(b)(iii) would
otherwise apply, the denominator of the fraction in the
formula set forth in the first paragraph of this
subparagraph (6)(b)(iii) is zero or a negative number, then
the adjustment provided by this subparagraph (6)(b)(iii)
shall not be made. If the Parent makes a distribution to all
or substantially all holders of its Series A TCI Group
Common Stock of any of its assets or debt securities or any
rights, warrants or options to purchase securities of the
Parent that, but for the preceding sentence would otherwise
result in an adjustment in the Exchange Rate pursuant to the
foregoing provisions of this subparagraph (6)(b)(iii), then
from and after the record date for determining the holders
of Series A TCI Group Common Stock entitled to receive such
distribution, a holder of Series A Preferred Stock that
exchanges such shares in accordance with the provisions of
this paragraph (6) will upon such exchange be entitled to
receive, in addition to the shares of Series A TCI Group
Common Stock for which such shares of Series A Preferred
Stock are exchangeable, the kind and amount of assets or
debt securities or rights, warrants or options to purchase
securities of the Parent comprising such distribution that
such holder would have received if such holder had exchanged
such shares of Series A Preferred Stock immediately prior to
the record date for determining the holders of Series A TCI
Group Common Stock entitled to receive such distribution.
Notwithstanding the preceding sentence if any portion of
such a distribution consists of shares of Redeemable Capital
Stock that pursuant to subparagraph (6)(b)(i) are to be
treated the same as a distribution of assets of the Parent
subject to this subparagraph (6)(b)(iii), then, from and
after the record date referred to in the
-26-
<PAGE>
preceding sentence, a holder of Series A Preferred Stock
that exchanges such shares in accordance with the provisions
of this paragraph (6) will upon such exchange be entitled to
receive, in lieu of such shares of Redeemable Capital Stock,
an amount of cash equal to the product of (x) the number of
shares of such Redeemable Capital Stock that such holder
would have otherwise been entitled to receive (rounded to
the nearest whole number) multiplied by (y) one penny.
(iv) In the event that a holder of Series A Preferred Stock would
be entitled to receive upon exercise of the exchange
privilege thereof pursuant to this paragraph (6) any
Redeemable Capital Stock and the Parent redeems, exchanges
or otherwise acquires all of the outstanding shares or other
units of such Redeemable Capital Stock (such event being a
"Redemption Event"), then, from and after the effective date
of such Redemption Event, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to
receive upon the exchange of such shares, in lieu of shares
or units of such Redeemable Capital Stock, the kind and
amount of securities, cash or other assets receivable upon
the Redemption Event by a holder of the number of shares or
units of such Redeemable Capital Stock for which such shares
of Series A Preferred Stock could have been exchanged
immediately prior to the effective date of such Redemption
Event (assuming, to the extent applicable, that such holder
failed to exercise any rights of election with respect
thereto and received per share or unit of such Redeemable
Capital Stock the kind and amount of securities, cash or
other assets received per share or unit by a plurality of
the non-electing shares or units of such Redeemable Capital
Stock), and (from and after the effective date of such
Redemption Event) the holders of the Series A Preferred
Stock shall have no other exchange rights under these
provisions with respect to such Redeemable Capital Stock.
(v) For purposes of calculating the number of outstanding shares
of Series A TCI Group Common Stock under subparagraphs
(6)(b)(ii) and (6)(b)(iii), any shares of Series A TCI Group
Common Stock (i) issuable as a dividend (including shares
that the Company has notified the holders of Series A
Preferred Stock will be issued in payment of a dividend (or
a designated portion thereof) pursuant to subparagraph (3))
shall be deemed to have been issued immediately prior to the
time of the record date for such dividend or (ii) issuable
in payment of a Redemption Price (or a designated portion
thereof) pursuant to subparagraph (4) shall be deemed to
have been issued immediately prior to the related Redemption
Date. Shares of Series A TCI Group Common Stock owned by
or held for the account of the Parent or any of its
Subsidiaries shall not be deemed outstanding for the
purposes of this subparagraph (6)(b).
-27-
<PAGE>
(vi) In any case in which this subparagraph (6)(b) shall require
that an adjustment be made in the Exchange Rate, the Parent
may, in its sole discretion, elect to defer the following
until after the occurrence of the event which requires such
adjustment: (A) the issuance by the Parent to the holder of
any Series A Preferred Stock surrendered for exchange the
additional shares of Series A TCI Group Common Stock
issuable upon such exchange over the shares of Series A
TCI Group Common Stock issuable before giving effect to such
adjustment and (B) paying to such holder any amount in cash
in lieu of a fractional share of Series A TCI Group Common
Stock; provided, however, that the Parent shall deliver to
such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional
shares of Series A TCI Group Common Stock, and such cash,
upon the occurrence of the event requiring such adjustment.
(vii) All adjustments to the Exchange Rate shall be calculated to
the nearest 1/1000th of a share. No adjustment in the
Exchange Rate shall be required unless such adjustment would
require an increase or decrease of at least one percent
therein; provided, however, that any adjustment which by
reason of this subparagraph is not required to be made shall
be carried forward and taken into account in any subsequent
adjustment. In addition, no adjustment need be made for
rights to purchase shares of Series A TCI Group Common Stock
or for sales of shares of Series A TCI Group Common Stock
which in either case are made pursuant to a plan providing
for reinvestment of dividends or interest or pursuant to a
bona fide employee stock option or stock purchase plan (x)
of the Parent or any wholly owned subsidiary of the Parent
or (y) of the Company or any Wholly Owned Subsidiary. No
adjustment need be made for a change in the par value of the
Series A TCI Group Common Stock. To the extent the shares of
Series A Preferred Stock become exchangeable for cash, no
adjustment need be made thereafter as to the cash and no
interest shall accrue on such cash.
(viii) The Company shall be entitled, at the direction of the
Parent and to the extent permitted by law, to make such
increases in the Exchange Rate, in addition to those
referred to above in this subparagraph (6)(b), as the Parent
determines to be advisable in order that any stock
dividends, subdivisions of shares, reclassification or
combination of shares, distribution of rights, options or
warrants to purchase stock or securities, or a distribution
of other assets (other than cash dividends) hereafter made
by the Parent to its stockholders shall not be taxable.
(ix) There shall be no adjustment to the Exchange Rate in the
event of the issuance of any stock or other securities or
assets of the Parent in a reorganization, acquisition or
other similar transaction except as specifically
-28-
<PAGE>
provided in this paragraph (6). In the event this
subparagraph (6)(b) requires adjustments to the Exchange
Rate under more than one of subparagraph (6)(b)(i)(D),
(6)(b)(ii) or (6)(b)(iii), and the record dates for the
dividends or distributions giving rise to such adjustments
shall occur on the same date, then such adjustments shall be
made by applying first, the provisions of subparagraph
(6)(b)(i), second, the provisions of subparagraph
(6)(b)(iii) and third, the provisions of subparagraph
(6)(b)(ii).
(x) No adjustment need be made under this subparagraph
(6)(b) for a transaction referred to in subparagraph
(6)(b)(i), (ii), (iii) or (iv) if holders of the
Series A Preferred Stock are to participate in the
transaction on a basis and with notice that the Board
of Directors in good faith determines to be fair and
appropriate in light of the basis and notice on which
holders of Series A TCI Group Common Stock participate
in the transaction; provided that the basis on which
the holders of shares of Series A Preferred Stock are
to participate in the transaction shall not be deemed to
be fair if it would require the holder to exchange his
shares of Series A Preferred Stock in order to participate
at any time prior to the expiration of the exchange period
for the shares of Series A Preferred Stock specified in
subparagraph (6)(a).
(c) Fractional Shares of Series A Preferred Stock. No fractional
----------------------------------------------
shares of Series A Preferred Stock may be tendered for exchange pursuant
to this paragraph (6).
(d) Adjustment for Consolidation or Merger of Parent. In case of
-------------------------------------------------
any consolidation or merger to which the Parent is a party, or in the case of
any sale or transfer to another corporation of the property of the Parent as an
entirely or substantially as an entirety, or in case of any statutory exchange
of securities with another corporation (other than in connection with a merger
or acquisition)(each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which shares of Series A TCI Group
Common Stock shall be reclassified or converted into the right to receive stock,
securities or other property (including cash or any combination thereof), proper
provision shall be made so that each share of Series A Preferred Stock which is
not converted into the right to receive stock, securities or other property in
connection with such Transaction shall, after consummation of such Transaction,
be subject to exchange at the option of the holder into the kind and amount of
stock, securities or other property receivable upon consummation of such
Transaction by a holder of the number of shares of Series A TCI Group Common
Stock (and/or any Other Property into which the Series A Preferred Stock may be
exchangeable in accordance with this paragraph (6)) into which such share of
Series A Preferred Stock might have been exchanged immediately prior to
consummation of such Transaction (assuming in each case that such holder of
Series A TCI Group Common Stock (or such Other Property) failed to exercise
rights of election, if any, as to the kind or amount of stock securities or
other property receivable upon consummation of such Transaction (provided that
if the kind or amount of stock, securities or other property receivable upon
consummation of such Transaction is not the same for each non-electing share,
then the kind and amount of stock, securities or other property receivable upon
consummation of such
-29-
<PAGE>
Transaction for each non-electing share shall be deemed to be the kind and
amount so receivable per share by a plurality of the non-electing shares)). The
kind and amount of stock or securities into which the shares of Series A
Preferred Stock shall be exchangeable after consummation of such Transaction
shall be subject to adjustment, as nearly as may be practicable, as described in
subparagraph (6)(b) following the date of consummation of such Transaction.
Pursuant to the Guarantee, the Parent has agreed not to become a party to any
Transaction unless the terms thereof are consistent with this subparagraph
(6)(d). The provisions of this subparagraph (6)(d) shall similarly apply to
successive Transactions.
If this subparagraph (6)(d) applies, subparagraphs (6)(b)(i),
(ii), (iii) and (iv) shall not apply.
(e) Notice of Adjustments. Whenever the Exchange Rate is adjusted as
---------------------
herein provided, the Parent shall:
(i) forthwith compute the adjusted Exchange Rate in accordance
herewith and prepare a certificate signed by an officer of
the Parent setting forth the adjusted Exchange Rate, the
method of calculation thereof in reasonable detail and the
facts requiring such adjustment and upon which such
adjustment is based, which certificate shall be conclusive,
final and binding evidence of the correctness of the
adjustment (absent manifest error), and file such
certificate forthwith with the transfer agent for the shares
of Series A Preferred Stock and the Series A TCI Group
Common Stock; and
(ii) mail a notice to the holders of the outstanding shares of
Series A Preferred Stock stating that the Exchange Rate has
been adjusted, the facts requiring such adjustment and upon
which such adjustment is based and setting forth the
adjusted Exchange Rate, such notice to be mailed at or prior
to the time the Company mails an interim statement, if any,
to its stockholders covering the fiscal quarter during which
the facts requiring such adjustment occurred, but in any
event within 45 days following the end of such fiscal
quarter.
(f) Notice of Certain Transactions. In case, at any time while any of
------------------------------
the shares of Series A Preferred Stock are outstanding,
(i) the Parent takes any action which would require an
adjustment to the Exchange Rate; or
(ii) the Parent shall authorize (x) any consolidation, merger or
binding share exchange to which the Parent is a party and
for which approval of any stockholders of the Parent
is required (except for a merger of the Parent into one of
its wholly owned subsidiaries solely for the purpose of
changing the corporate domicile of the Parent to another
state of the United States and in
-30-
<PAGE>
connection with which there is no substantive change in the
rights or privileges of any securities of the Parent other
than changes resulting from differences in the corporate
statutes of the then existing and the new state of
domicile), or (y) the sale or transfer of all or
substantially all of the assets of the Parent; or
(iii) the Parent shall authorize the voluntary dissolution,
liquidation or winding up of the Parent or the Parent is the
subject of an involuntary dissolution, liquidation or
winding up;
then the Parent shall cause to be filed at each office or agency maintained for
the purpose of exchange of the shares of Series A Preferred Stock, and shall
cause to be mailed to the holders of shares of Series A Preferred Stock at their
last addresses as they shall appear on the stock register, at least 10 days
before the record date (or other date set for definitive action if there shall
be no record date), a notice stating the action or event for which such notice
is being given and the record date for (or such other date) and the anticipated
effective date of such action or event; provided, however, that any notice
required hereunder shall in any event be given no later than the time that
notice is given to the holders of the Series A TCI Group Common Stock. The
failure to give or receive the notice required by this subparagraph (6)(f) or
any defect therein shall not affect the legality or validity of any action or
any vote thereon.
(g) Actions in Respect of Series A TCI Group Common Stock. The Company
-----------------------------------------------------
shall take, and the Parent has agreed to take pursuant to the Guarantee, such
reasonable action which may, in the opinion of the Company's or the Parent's
legal counsel, be necessary in order that (i) the Parent may validly and legally
deliver fully paid and nonassessable shares of Series A TCI Group Common Stock
upon any surrender of shares of Series A Preferred Stock for exchange pursuant
to this paragraph (6), (ii) the delivery of shares of Series A TCI Group Common
Stock in accordance with this paragraph (6) is exempt from the registration or
qualification requirements of the Securities Act and applicable state securities
laws or, if no such exemption is available, that the offer and exchange of such
shares of Series A TCI Group Common Stock have been duly registered or qualified
under the Securities Act and applicable state securities laws, (iii) the shares
of Series A TCI Group Common Stock delivered upon such exchange are listed for
trading on the Nasdaq National Market or on a national securities exchange (upon
official notice of issuance) and (iv) the shares of Series A TCI Group Common
Stock delivered upon such exchange are free of preemptive rights and any liens
or adverse claims.
Pursuant to the Guarantee, the Parent has agreed to at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued Series A TCI Group Common Stock and/or its issued
Series A TCI Group Common Stock held in its treasury, for the purpose of
effecting any exchange of shares of Series A Preferred Stock at the option of
the holder pursuant to this paragraph (6) the full number of shares of Series A
TCI Group Common Stock then deliverable upon the exchange of all then
outstanding shares of Series A Preferred Stock
-31-
<PAGE>
(assuming for this purpose that all of the outstanding shares of Series A
Preferred Stock are held by a single holder).
(7) Liquidation Rights.
-------------------
(a) Payment of Liquidation Preference. In the event of any
----------------------------------
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, the holders of shares of Series A Preferred Stock then
outstanding, after payment or provision for payment of the debts and other
liabilities of the company and the payment or provision for payment of any
distribution on any shares of Senior Stock, and before any distribution to the
holders of Junior Stock, shall be entitled to be paid out of the assets of the
Company available for distribution to its stockholders an amount per share of
Series A Preferred Stock in cash equal to the Liquidation Preference. In the
event the assets of the Company available for distribution to the holders of the
shares of Series A Preferred Stock upon any dissolution, liquidation or winding
up of the Company shall be insufficient to pay in full the Liquidation
Preference payable to the holders of outstanding shares of Series A Preferred
Stock and the liquidation preference payable to all other shares of Parity Stock
(as set forth in the instrument or instruments creating such Parity Stock), the
holders of shares of Series A Preferred Stock and of all other shares of Parity
Stock shall share ratably in such distribution of assets in proportion to the
amount which would be payable on such distribution if the amounts to which the
holders of outstanding shares of Series A Preferred Stock and the holders of
outstanding shares of such other Parity Stock were paid in full. Except as
provided in this subparagraph (7)(a), holders of Series A Preferred Stock shall
not be entitled to any distribution in the event of the liquidation, dissolution
or winding up of the affairs of the Company.
(b) Certain Events Not Deemed Liquidation, Etc. For the purposes of
-------------------------------------------
this paragraph (7), none of the following shall be deemed to be a voluntary or
involuntary liquidation, dissolution or winding up of the Company:
(i) the sale, lease, transfer or exchange of all or
substantially all of the assets of the Company; or
(ii) the consolidation or merger of the Company with one or more
other corporations (whether or not the Company is the
corporation surviving such consolidation or merger) or the
consummation of a statutory binding share exchange involving
the Company.
(c) Company's Right to Elect Manner of Payment of Liquidating Payment.
------------------------------------------------------------------
Any Liquidating Payment may be paid, in the sole discretion of the Board of
Directors, (i) out of funds legally available therefor, (ii) through the
delivery of shares of Series A TCI Group Common Stock or (iii) through any
combination of the foregoing forms of consideration elected by the Board of
Directors in its sole discretion. Upon the liquidation, dissolution or winding
up of the affairs of the Company, each holder of Series A Preferred Stock shall
receive the same proportion of cash and/or shares of Series A TCI Group Common
Stock (except for cash paid in lieu of fractional shares)
-32-
<PAGE>
delivered in payment of the Liquidating Payment made to other holders of shares
of Series A Preferred Stock.
(d) Payment of Liquidating Payment by Delivery of Series A TCI Group
----------------------------------------------------------------
Common Stock. The Company may elect to make, in whole or in part, the
- - ------------
Liquidating Payment in respect of shares of Series A Preferred Stock by delivery
to the holders thereof of a number of shares of Series A TCI Group Common Stock
equal to the aggregate Liquidating Payment (or designated portion thereof)
payable in respect of such shares divided by the Cash Equivalent Amount. In
connection with any Liquidating Payment, no fractional shares of Series A TCI
Group Common Stock shall be delivered to a holder of shares of Series A
Preferred Stock, but the Company shall instead pay a cash adjustment determined
as provided in paragraph (8).
The Company's right to elect to make any Liquidating Payment (or
designated portion thereof) through the delivery of shares of Series A TCI Group
Common Stock shall be conditioned upon: (i) the shares of Series A TCI Group
Common Stock to be so delivered being fully paid and nonassessable and free from
any preemptive rights, liens or adverse claims; (ii) the delivery of such shares
of Series A TCI Group Common Stock being exempt from the registration or
qualification requirements of the Securities Act and applicable state securities
laws or, if no such exemption is available, the delivery of such shares of
Series A TCI Group Common Stock having been duly registered or qualified under
the Securities Act and applicable state securities laws; and (iii) the shares of
Series A TCI Group Common Stock to be so delivered being listed, and upon
delivery being eligible for trading, on the Nasdaq National Market or on a
national securities exchange. If the conditions set forth in this subparagraph
(6)(d) have not been satisfied prior to or on the date of payment of any
Liquidating Payment, such Liquidating Payment shall be paid solely in cash.
(8) No Fractional Shares of Series A TCI Group Common Stock. No
-------------------------------------------------------
fractional shares of Series A TCI Group Common Stock or scrip shall be issued
upon the exchange of Series A Preferred Stock for Series A TCI Group Common
Stock or in connection with the delivery of shares of Series A TCI Group Common
Stock in payment, in whole or in part, of any dividend, Redemption Price or
Liquidating Payment. Whether or not a fractional share would be delivered to a
holder of Series A Preferred Stock shall be based upon (i), in the case of an
exchange pursuant to paragraph (6), on the total number of shares of Series A
Preferred Stock such holder is at the time exchanging into Series A TCI Group
Common Stock and the total number of shares of Series A TCI Group Common Stock
otherwise deliverable upon such exchange and (ii), in the case of the payment,
in whole or in part, of dividends, a Redemption Price or a Liquidating Payment
pursuant to paragraphs (3), (4) or (7), respectively, through the delivery of
shares of Series A TCI Group Common Stock, on the total number of shares of
Series A Preferred Stock at the time held by such holder and the total number of
shares of Series A TCI Group Common Stock otherwise deliverable in respect
thereof. In lieu of the issuance of a fraction of a share of Series A TCI Group
Common Stock or scrip, the Company shall pay instead an amount in cash (rounded
to the nearest whole cent) by its check equal to the same fraction of the
Closing Price of a share of Series A TCI Group Common Stock on the Trading Day
immediately preceding the Exchange Date, the Dividend Payment Date, the
Redemption Date or the Liquidating Payment Date, as the case may be.
-33-
<PAGE>
(9) Payment of Taxes. The Parent or Company shall pay any and all
----------------
documentary, stamp or similar transfer taxes payable in respect of the delivery
of shares of Series A TCI Group Common Stock pursuant to paragraphs (3), (4),
(6) or (7); provided, however, that neither the Parent nor the Company shall be
required to pay any tax which may be payable in respect of any registration of
transfer involved in the delivery of shares of Series A TCI Group Common Stock
upon an exchange of shares of Series A Preferred Stock pursuant to paragraph (6)
in a name other than that of the registered holder of such shares of Series A
Preferred Stock.
(10) No Preemptive Rights. The holders of shares of Series A Preferred
--------------------
Stock shall have no preemptive rights, including preemptive rights with respect
to any shares of capital stock or other securities of the Company convertible
into or carrying rights or options to purchase any such shares.
(11) Voting Rights. The holders of shares of Series A Preferred Stock
-------------
shall have no voting rights, except as otherwise required by law and except as
set forth in this paragraph (11). When and if the holders of Series A Preferred
Stock are entitled to vote by law or pursuant to this paragraph (11), each
holder will be entitled to one vote per share. Shares of Series A Preferred
Stock held by the Parent or any Subsidiary of the Parent shall not be counted
for quorum purposes and shall be deemed shares not entitled to vote on any
matter presented to the holders of Series A Preferred Stock, except to the
extent otherwise required by law.
(a) General Election of Directors: Number of Votes. The holders of
----------------------------------------------
shares of Series A Preferred Stock shall have the right to vote, voting as a
class with the holders of the Company's common stock (and with the holders of
any other class or series of Preferred Stock entitled to vote with such common
stock as a class in the general election of directors), in any general election
of directors of the Company.
(b) Election of Preferred Stock Directors. (i) If at any time accrued
-------------------------------------
dividends payable on the shares of Series A Preferred Stock are in arrears and
unpaid in an aggregate amount equal to or exceeding the aggregate amount of
dividends payable thereon for six quarterly Dividend Periods, the holders of the
shares of Series A Preferred Stock, voting separately as a class (with the
holders of shares of any other class or series of Parity Stock upon which like
voting rights have been conferred and are exercisable), shall have the right to
vote for the election of two directors (the "Preferred Stock Directors") to the
Board of Directors of the Company, such directors to be in addition to the
number of directors constituting the Board of Directors immediately prior to the
accrual of such right. Such right of the holders of shares of Series A Preferred
Stock to vote for the election of two Preferred Stock Directors shall, when
vested, continue until all dividends in arrears on the shares of Series A
Preferred Stock shall have been paid in full and, when so paid, such right shall
cease, subject always to the same provisions for the vesting of such right of
the holders of the shares of Series A Preferred Stock to elect two Preferred
Stock Directors in the case of future dividend defaults. The Preferred Stock
Directors shall be elected by a plurality of the votes cast by the holders of
Series A Preferred Stock and any other class or series of Parity Stock upon
which like voting rights have been conferred and are exercisable.
-34-
<PAGE>
(ii) At any time when the holders of shares of the Series A
Preferred Stock (with the holders of any other class or series of Parity Stock
upon which like voting rights have been conferred and are exercisable) are
entitled to elect two Preferred Stock Directors, the Company shall, upon the
written request (a "Request") of the holders of record of not less than the
greater of (i) 10% of the outstanding shares of Series A Preferred Stock or (ii)
10% of the outstanding shares of all classes and series of Parity Stock
(including the Series A Preferred Stock) entitled to vote for such Preferred
Stock Directors, call a special meeting of holders of the Series A Preferred
Stock (and such other Parity Stock) for the election of the two Preferred Stock
Directors. Notice of the special meeting shall be given in accordance with the
requirements of Delaware law, and such meeting shall be held not more than 60
days after the Company's receipt of the Request. The Preferred Stock Directors
shall be nominated by the Persons who submit the Request, except that at any
meeting after the first meeting at which the Preferred Stock Directors are
elected, the Preferred Stock Directors shall be nominated, subject to
subparagraph 11(b)(ii) below, by the existing Preferred Stock Directors.
(iii) The term of office of each Preferred Stock Director shall
terminate on the earlier of (i) the next annual meeting of stockholders of the
Company at which a successor shall have been elected and qualified (irrespective
of whether the Board of Directors is divided into staggered classes) or (ii) the
termination of the right of the holders of shares of Series A Preferred Stock
and any such other shares of Parity Stock to vote for Preferred Stock Directors
pursuant to this subparagraph 11(b). If, prior to the end of the term of any
Preferred Stock Director elected as aforesaid, a vacancy in the office of such
director shall occur, such vacancy shall be filled for the unexpired term by the
appointment by the remaining Preferred Stock Director elected as aforesaid of a
new director for the unexpired term of such former Preferred Stock Director. If
both Preferred Stock Directors so elected by the holders of shares of Series A
Preferred Stock (and such other Parity Stock) shall cease, at the same time, to
serve as directors before their terms shall expire, the holders of the shares of
Series A Preferred Stock (together with the holders of such other Parity Stock,
if any) may, at a special meeting of the holders called as provided in
subparagraph (11)(b)(ii) above, nominate and elect successors to hold office for
the unexpired terms of such Preferred Stock Directors.
(c) Certain Changes to Charter: Reclassifications. For as long as any
----------------------------------------------
shares of Series A Preferred Stock remain outstanding, the affirmative vote of
the holders of at least 66 2/3% of such outstanding shares (voting separately as
a class), given in Person or by proxy at any annual meeting or special meeting
called for such purpose, shall be necessary (i) before the Company may amend,
alter or repeal any of the provisions of this Certificate of Designations or the
Restated Certificate of Incorporation of the Company which would adversely
affect the powers, preferences or rights of the holders of the shares of Series
A Preferred Stock then outstanding or reduce the minimum time required for any
notice to which holders of shares of Series A Preferred Stock then outstanding
may be entitled; provided, however, that (x) any such amendment, alteration or
repeal that would authorize, create or increase the authorized amount of any
additional shares of Junior Stock or shares of any other class or series of
Parity Stock (whether or not already authorized) and (y) any such amendment that
would increase the number of authorized shares of Preferred Stock (but not the
-35-
<PAGE>
number of authorized shares of Series A Preferred Stock) or that would decrease
(but not below the number of shares then outstanding) the number of authorized
shares of Preferred Stock (but not the number of authorized shares of Series A
Preferred Stock), shall be deemed not to adversely affect such powers,
preferences or rights and shall not be subject to approval by the holders of
shares of Series A Preferred Stock; and (ii) before the Company may reclassify
the outstanding shares of Series A Preferred Stock into another class or series
of capital stock of the Company (unless such reclassification would not
adversely affect the powers, preferences or rights of the holders of the shares
of Series A Preferred Stock then outstanding or reduce the minimum time required
for any notice to which holders of shares of Series A Preferred Stock then
outstanding may be entitled); provided, however, that no consent described in
clause (i) of this paragraph of the holders of the shares of Series A Preferred
Stock shall be required if, at or prior to the time when such amendment,
alteration or repeal is to take effect, provision is made for the redemption of
all shares of Series A Preferred Stock at the time outstanding (except that no
such provision may be made prior to the Initial Redemption Date).
(d) Creation of Senior Stock. For as long as any shares of
-------------------------
Series A Preferred Stock remain outstanding, the affirmative vote of the holders
of at least 66 2/3% of such outstanding shares (voting separately as a class),
given in Person or by proxy at any annual meeting or special meeting called for
such purpose, shall be necessary before the Company or the Board of Directors
may create or issue any Senior Stock; provided, however, that no such consent
shall be necessary if, at or prior to the time of such creation or issue,
provision is made for the redemption of all of the outstanding shares of Series
A Preferred Stock (except that no such provision may be made prior to the
Initial Redemption Date).
(e) No Other Vote. Except as otherwise set forth in this
--------------
paragraph (11) or as required by law, the holders of Series A Preferred Stock
shall not have any relative, participating, optional or other special voting
rights and powers and the consent or vote of such holders shall not be required
for the taking of any corporate action by the Company or the Board of Directors.
The provisions of this paragraph (11) are in lieu of, and not in addition to,
any voting rights specified in the Restated Certificate of Incorporation as
applicable to all series of Preferred Stock.
-36-
<PAGE>
(12) Waiver. Any provision of this Certificate of Designations
------
which, for the benefit of the holders of Series A Preferred Stock, prohibits,
limits or restricts actions by the Company may be waived in whole or in part, or
the application of all or any part of such provision in any particular
circumstance or generally may be waived, in each case with the consent of the
holders of at least 66 2/3% of the number of shares of Series A Preferred Stock
then outstanding, either in writing or by vote at a meeting called for such
purpose at which the holders of Series A Preferred Stock shall vote as a
separate class.
(13) Guarantee. Each Holder of shares of Series A Preferred Stock, by
---------
acceptance of such shares, agrees to all of the terms and provisions of the
Guarantee, including the subordination provisions thereof.
(14) Exclusion of Other Rights. Except as may otherwise be required
-------------------------
by law, the shares of Series A Preferred Stock shall not have any designations,
preferences, limitations or relative rights other than those specifically set
forth in this Certificate of Designations.
The undersigned has signed this Certificate of Designations on this 11th
day of January, 1996.
[Signature Appears Here]
---------------------------------------------------
Vice President of TCI Communications, Inc.
Attest:
[Signature Appears Here]
----------------------------------------------
Assistant Secretary of TCI Communications, Inc.
-37-
<PAGE>
State of Delaware
PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
CORRECTION OF "TCI COMMUNICATIONS, INC.", FILED IN THIS OFFICE ON THE ELEVENTH
DAY OF FEBRUARY A.D. 1996, AT 11 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL OF THE STATE OF DELAWARE APPEARS HERE]
[STAMP OF THE /s/ Edward J. Freel
SECRETARY'S OFFICE -----------------------------------
APPEARS HERE] Edward J. Freel, Secretary of State
AUTHENTICATION: 7818211
0685208 8100
DATE: 02-07-96
960034708
<PAGE>
CERTIFICATE OF CORRECTION
Filed pursuant to Section 103(f)
of the Delaware General Corporation Law
with respect to the
RESTATED CERTIFICATE OF INCORPORATION
of
TCI COMMUNICATIONS, INC.
WHEREAS, on January 11, 1996, TCI Communications, Inc. (the "Corporation")
filed with the Delaware Secretary of State a Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation");
WHEREAS, such Certificate of Incorporation inaccurately stated that the
total number of shares of common stock designated as Class A Common Stock which
the Corporation shall have authority to issue is 905,553, when in fact the
correct total number of shares of common stock designated as Class A Common
Stock is 910,553;
NOW, THEREFORE, the Certificate of Incorporation is hereby corrected in
accordance with the provisions of Section 103(f) of the Delaware General
Corporation Law as follows:
The number "905,553" shall be deleted from the fourth line of the
first paragraph of Article IV of the Certificate of Incorporation and the number
"910,553" shall be substituted in its place.
Executed on the date set forth below by the undersigned duly authorized
officer of the Corporation.
TCI COMMUNICATIONS, INC.
Date: January 17, 1996 By: /s/ Stephen M. Brett
---------------------------------
Name: Stephen M. Brett
Title: Senior Vice President
Attest:
By: /s/ Mary S. Willis
------------------------------
Name:
Title:
<PAGE>
EXHIBIT 21
----------
A table of the subsidiaries of the TCI Communication, Inc. as of March 1,
1996, is set forth below, indicating as to each the state or the jurisdiction of
incorporation or organization and the names under which such subsidiarties do
business ("Trade Names"). Subsidiaries not included in the table are inactive
and, considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ALABAMA T.V. CABLE, INC. AL
AMERICAN CABLE TV INVESTORS 4, LTD. CO SUN CABLEVISION
AMERICAN CABLE TV INVESTORS 5, LTD. CO AMERICAN CABLE TV OF LOWER DELAWARE
AMERICAN CABLE TV OF ST. MARY'S COUNTY
AMERICAN MICROWAVE & COMMUNICATIONS, INC MI
AMERICAN MOVIE CLASSICS INVESTMENT, INC CO
AMERICAN TELEVENTURE OF MINERSVILLE, INC CO
AMES CABLEVISION, INC IA TCI OF CENTRAL IOWA
TCI OF EASTERN IOWA
ANTARES SATELLITE CORPORATION CO
ARP PARTNERSHIP DE
ATHENA CABLEVISION CORPORATION OF KNOXVILLE TN
ATHENA CABLEVISION OF TENNESSEE AND KENTUCKY, INC. TN
ATHENA REALTY, INC. NV
ATLANTIC AMERICAN CABLEVISION OF FLORIDA, INC. FL TCI CABLEVISION OF PASCO COUNTY
ATLANTIC AMERICAN CALEVISION, INC. DE
ATLANTIC AMERICAN HOLDENGS, INC. FL
ATLANTIC CABLEVISION OF FLORIDA, INC. FL
BAY AREA INTERCONNECT CA BAY CABLE ADVERTISING
BCA
BEATRICE CABLE TV COMPANY NE TCI CABLE OF BEATRICE
BELLEVUE CABLEVISION, INC DE
BILLINGS TELE-COMMUNICATIONS, INC. OR
BOB MAGNESS, INC. WY
BRESNAN COMMUNICATIONS COMPANY LIMITED PARTNERSHIP MI
BRIGAND PICTURES, INC. NY
</TABLE>
-1-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BROOKHAVEN CABLE TV, INC. NY TCI CABLE OF BROOKHAVEN
BROOKINGS CABLEVISION CO
BROOKSIDE ANTENNA COMPANY OH
CABLE ACCOUNTING, INC. CO
CABLE ADNET PARTNERS DE CABLE ADNET
HUDSON VALLEY CABLE GROUP
CABLE ADVERTISING PARTNERS CA ADLINK
CABLE NETWORK TELEVISION, INC. NV
CABLE SHOPPING INVESTMENT, INC. CO
CABLE TELEVISION ADVERTISING GROUP, INC. WY
CABLE TELEVISION OF GARY, INC. IN
CABLETIME, INC. CO
CABLEVISION ASSOCIATES OF GARY JOINT VENTURE IN
CABLEVISION IV, LTD IA
CABLEVISION OF ARCADIA/SIERRA MADRE, INC. DE
CABLEVISION V, INC. IA
CABLEVISION VI, INC. IA TCI CABLEVISION OF THE ROCKIES, INC.
CABLEVISION VII, INC. IA TCI CABLEVISION OF THE ROCKIES, INC.
CAT PARTNERSHIP DE
CATV FACILITY CO., INC. CO
CHANNEL 64 ACQUISITION, INC. DE
CHICAGO CABLE NETWORK JOINT VENTURE IL
CLINTON CABLEVISION IA
CLINTON TV CABLE COMPANY, INC. IA
COCONUT CREEK CABLE T.V., INC. FL TCI OF NORTH BROWARD
COLORADO CABLEVISION COMPANY CO TCI OF COLORADO
COLORADO TERRACE TOWER II CORPORATION CO
COLUMBIA CABLE OF OREGON DE
COMMAND CABLE OF EASTERN ILLINOIS LIMITED PARTNERSHIP NJ
COMMUNICATION INVESTMENT CORPORATION VA
</TABLE>
-2-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMUNICATIONS & CABLE CHICAGO, INC. IL CHICAGO CABLE TV
COMMUNICATIONS SERVICES, INC. KS TCI CABLEVISION OF CENTRAL TEXAS
TCI CABLEVISION OF EAST OKLAHOMA
TCI CABLEVISION OF NORTH TEXAS
TCI CABLEVISION OF NORTHEAST TEXAS
TCI CABLEVISION OF OKLAHOMA (CSI), INC.
TCI COMMUNICATIONS SERVICES, INC.
TCI OF ARKASAS
TCI OF KANSAS (CSI), INC.
TCI OF LOUISIANA (CSI), INC.
TCI OF LOUISIANA
COMMUNITY CABLE TELEVISION WY TCI CABLEVISION OF SOUTHWEST TEXAS
TCI CABLEVISION OF WEST OAKLAND COUNTY
COMMUNITY REALTY, INC. NV NEVADA COMMUNITY REALTY, INC.
COMMUNITY TELEVISION SYSTEM, INC. DE TCI CABLEVISION OF SOUTH CENTRAL
CONNECTICUT
CONSUMER ENTERTAINMENT SERVICES, INC. WY
CORSAIR PICTURES, INC. DE BRIGAND PICTURES, INC.
DANIELS-HAUSER HOLDINGS CO
DAVIS COUNTY CABLEVISION, INC. UT
DIGITAL DIRECT OF OREGON, INC. CO
DIGITAL DIRECT OF UTAH, INC. CO
DIGITAL DIRECT, INC. CO TCI TELEPHONY, INC.
DIRECT BROADCAST SATELLITE SERVICES, INC. DE
DISCOVERY PROGRAMMING INVESTMENT, INC. CO
DISTRICT CABLEVISION LIMITED PARTNERSHIP DC
EAST ARKANSAS CABLEVISION, INC. AR TCI OF ARKASAS
EAST ARKANSAS INVESTMENTS, INC. CO
EASTEX MICROWAVE, INC. TX
ECP HOLDINGS, INC. OK
</TABLE>
-3-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ELBERT COUNTY CABLE PARTNERS, L.P. CO TCI OF COLORADO
FAB COMMUNICATIONS, INC. OK
FOUR FLAGS CABLE TV MI
FOUR FLAGS CABLEVISION MI
GENERAL COMMUNICATIONS AND ENTERTAINMENT COMPANY INC DE
GILL BAY INTERCONNECT, INC. CA
GREATER BIRMINGHAM INTERCONNECT AL GBI
GREATER PORTLAND INTERCONNECT OR
HALCYON COMMUNICATIONS LIMITED PARTNERSHIP OK TCI CABLEVISION OF EAST OKLAHOMA
TCI OF ARKANSAS
HALCYON COMMUNICATIONS PARTNERS OK
HARBOR COMMUNICATIONS JOINT VENTURE WA
HARRIS COUNTY CABLE TV, INC. VA
HAWKEYE COMMUNICATIONS OF CLINTON, INC. IA
HERITAGE CABLE PARTNERS, INC. IA
HERITAGE CABLEVISION ASSOCIATES, A LIMITED PARTNERSHIP IA TCI CABLE ADVERTISING
TCI OF BEDFORD
TCI OF MICHIGAN
HERITAGE CABLEVISION OF CALIFORNIA, INC. DE TCI CABLEVISION OF SAN JOSE
HERITAGE CABLEVISION OF COLORADO, INC. CO TCI CABLEVISION OF SOUTHERN COLORADO, INC.
HERITAGE CABLEVISION OF DALLAS, INC. IA
HERITAGE CABLEVISION OF DELAWARE, INC. DE TCI CABLEVISION OF NEW CASTLE COUNTY
TCI OF FORT COLLINS
HERITAGE CABLEVISION OF MAINE II, INC. ME
HERITAGE CABLEVISION OF MASSACHUSETTS, INC. MA TCI CABLEVISION OF ANDOVER
HERITAGE CABLEVISION OF SOUTH EAST MASSACHUSETTS, INC. MA
HERITAGE CABLEVISION OF TENNESSEE, INC. TN TCI OF COLORADO
HERITAGE CABLEVISION OF TEXAS, INC. IA TCI CABLEVISION OF SOUTH TEXAS
HERITAGE CABLEVISION, INC. (IA) IA TCI OF THE HEARTLANDS
HERITAGE CABLEVISION, INC. (TX) TX
-4-
</TABLE>
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
HERITAGE CABLEVUE, INC. DE TCI CABLEVISION OF NEW ENGLAND
HERITAGE COMMUNICATIONS PRODUCTS CORP. IA
HERITAGE COMMUNICATIONS, INC. IA
HERITAGE INVESTMENTS, INC. IA
HERITAGE ROC HOLDINGS CORP. IA
HERITAGE/INDIANA CABLEVISION, INC. IA
HILLCREST CABLEVISION COMPANY OH
HOME SPORTS NETWORK, INC. CO
INDEPENDENCE CABLE TV COMPANY MI TCI CABLEVISION OF OAKLAND COUNTY, INC.
INTERMEDIA PARTNERS CA
INTERNATIONAL TELEMETER CORPORATION (NV) NV
IR-TCI PARTNERS II, L.P. CA
IR-TCI PARTNERS III, L.P. CA
IR-TCI PARTNERS IV, L.P. CO
IR-TCI PARTNERS V, L.P. CO
KANSAS CITY FIBER NETWORK, L.P. DE
KAUAI CABLEVISION
KNOX CABLE T.V., INC. TN
KTMA-TV INC. TX
LASALLE TELECOMMUNICATIONS, INC. IL CHICAGO CABLE TV-IV
LAWRENCE COUNTY CABLE PARTNERS CO
LIBERTY COMMAND II, INC. CO
LIBERTY COMMAND, INC. CO
LIBERTY OF NORTHERN INDIANA, INC. DE
LIBERTY-CSI, INC. CO
LVO CABLE PROPERTIES, INC. OK
LVOC MANAGEMENT, INC. OK
MAJORCO SUB, L.P. DE
MAJORCO, L.P. DE
MARGATE VIDEO SYSTEMS, INC. FL TCI OF NORTH BROWARD
</TABLE>
-5-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MATERIALS HANDLING SERVICES, INC. CO WESTERN COMMUNICATIONS MATERIALS
HANDLING SERVICE
MELANIE CABLE PARTNERS, L.P. FL
MIAMI TELE-COMMUNICATIONS, INC. MD
MICRO-RELAY, INC. KS
MID-KANSAS, INC. CO TCI OF COLORADO
MILE HI CABLE PARTNERS, L.P. DE
MINORCO, L.P. MS TCI OF NORTH MISSISSIPPI
MISSISSIPPI CABLEVISION, INC. NV MOUNTAIN CABLE ADVERTISING
MOUNTAIN CABLE NETWORK, INC. CO
MOUNTAIN STATES GENERAL PARTNER CO. CO
MOUNTAIN STATES LIMITED PARTNER CO. CO TCI OF COLORADO
MOUNTAIN STATES VIDEO CO TCI OF COLORADO
MOUNTAIN STATES VIDEO COMMUNICATIONS CO., INC. CO TCI OF COLORADO
MOUNTAIN STATES VIDEO, INC. CO
MSV SUBSIDIARY, INC. MI TCI CABLEVISION OF GREATER MICHIGAN, INC.
MUSKEGON CABLE TV CO. RI HERITAGE CABLEVISION OF NARRAGANSETT
NARRAGANSETT CABLEVISION CORPORATION CO
NEWPORT NEWS CABLEVISION ASSOCIATES, L.P. CO
NEWPORT NEWS CABLEVISION, LTD. CO UNITED ARTISTS CABLE OF NEWPORT NEWS
NEWTELCO, L.P. DE
NHT PARTNERSHIP NY
NORTHERN VIDEO, INC. MN TCI OF CENTRAL MINNESOTA
NORTHWEST CABLE ADVERTISING NY TV MART
NORTHWEST ILLINOIS CABLE CORPORATION DE
NORTHWEST ILLINOIS TV CABLE CO. DE TCI CABLEVISION OF GALESBURG/MONMOUTH
NORTHWEST ILLINOIS TV CABLE COMPANY IL
OHIO CABLEVISION NETWORK, INC. IA TCI CABLEVISION OF NORTHWESTERN OHIO
OTTUMWA CABLEVISION, INC. IA TCI OF SOUTHERN IOWA
PACIFIC MICROWAVE JOINT VENTURE CA
</TABLE>
-6-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PARKLAND CABLEVISION, INC. FL TCI OF NORTH BROWARD
PHILLIECO, L.P. DE
PITTSBURG CABLE TV, INC. KS TCI OF PITTSBURG
PREVIEW MAGAZINE CORPORATION NY
PRIMESTAR PARTNERS L.P. DE
ROBERT FULK, LTD. DE
ROBIN CABLE SYSTEMS OF SIERRA VISTA, L.P. CA TCI OF SOUTHERN ARIZONA
ROBIN CABLE SYSTEMS OF TUCSON, AN ARIZONA LIMITED PARTNER AZ TCI OF TUCSON
S/D CABLE PARTNERS, LTD. CO TCI CABLEVISION OF PRINCETON, L.P.
TCI CABLEVISION OF ROCK FALLS, L.P.
SAN LEANDRO CABLE TELEVISION, INC. CA TCI CABLEVISION OF HAYWARD
SANTA FE CABLEVISION CO. NM
SANTA FE CABLEVISION COMPANY NM TCI CABLEVISION OF SANTA FE
SATELLITE SERVICES OF PUERTO RICO, INC. DE
SATELLITE SERVICES, INC. DE
SCC PROGRAMS, INC. IL
SEMAPHORE PARTNERS CO
SILVER SPUR LAND AND CATTLE CO. WY SILVER SPUR RANCH
SONIC COMMUNICATIONS SAN LUIS OBISPO AND SANTA CRUZ
SONIC PARTNERS, L.P.
SOUTH CHICAGO CABLE, INC. IL CHICAGO CABLE TV-V
SOUTH FLORIDA CABLE ADVERTISING FL
SOUTHWEST TELECABLE, INC. TX
SOUTHWEST WASHINGTON CABLE, INC. WA
SSI 2, INC. NV
ST. LOUIS TELE-COMMUNICATIONS, INC. MO TCI CABLEVISION OF ST. LOUIS
TAMPA BAY INTERCONNECT FL TBI
TCG CHICAGO NY
TCG CONNECTICUT NY
TCG DALLAS NY
</TABLE>
-7-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCG DALLAS SYSTEMS NY
TCG DETROIT NY
TCG ILLINOIS NY
TCG LOS ANGELES NY
TCG PARTNERS NY
TCG PHOENIX NY
TCG PITTSBURGH NY
TCG SAN FRANCISCO NY
TCG SEATTLE NY
TCG SOUTH FLORIDA NY
TCG ST. LOUIS NY
TCI AOL, INC. CO
TCI BATON ROUGE VENTURES, INC. CO
TCI CABLE ADNET, INC. CO
TCI CABLE MANAGEMENT CORPORATION CO
TCI CABLEPCS, INC. CO
TCI CABLEPHONE, INC. CO
TCI CABLEVISION ASSOCIATES, INC. DE
TCI CABLEVISION OF ALABAMA, INC. AL
TCI CABLEVISION OF ARIZONA, INC. AZ
TCI CABLEVISION OF BAKER/ZACHARY, INC. DE TCI OF LOUISIANA
TCI CABLEVISION OF CALIFORNIA, INC. CA
TCI CABLEVISION OF CANON CITY, LTD. CO
TCI CABLEVISION OF COLORADO INC. CO TCI OF COLORADO
TCI CABLEVISION OF EAST SAN FERNANDO VALLEY, L.P. CO
TCI CABLEVISION OF DALLAS, INC. TX
TCI CABLEVISION OF FLORIDA, INC. FL TCI OF COLORADO
TCI SOUTHEAST - SOUTH REGION
TCI CABLEVISION OF GEORGIA, INC. GA TCI OF LOUISIANA
TCI CABLEVISION OF GREAT FALLS, INC. DE
</TABLE>
-8-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
TCI CABLEVISION OF IDAHO, INC. ID
TCI CABLEVISION OF KENTUCKY, INC. KY TCI CABLE ADVERTISING
TCI CABLEVISION OF KIOWA, INC. CO
TCI CABLEVISION OF LEESVILLE, INC. DE
TCI CABLEVISION OF MARYLAND, INC. MD
TCI CABLEVISION OF MASSACHUSETTS, INC. MA
TCI CABLEVISION OF MICHIGAN, INC. MI TCI CABLE ADVERTISING
TCI CABLEVISION OF MINNESOTA, INC. MN TCI OF MINNESOTA
TCI CABLEVISION OF MISSOURI, INC. MO
TCI CABLEVISION OF MONTANA, INC. MT TCI CABLE ADVERTISING
TCI CABLEVISION OF NEBRASKA, INC. NE
TCI CABLEVISION OF NEVADA, INC. NV
TCI CABLEVISION OF NEW HAMPSHIRE, INC. NH
TCI CABLEVISION OF NEW MEXICO, INC. NM
TCI CABLEVISION OF NORTH CAROLINA, INC. NC
TCI CABLEVISION OF NORTH CENTRAL KENTUCKY, INC. KY
TCI CABLEVISION OF OHIO, INC. OH TCI CABLE ADVERTISING
TCI CABLEVISION OF OKANOGAN VALLEY, INC. WA
TCI CABLEVISION OF OKLAHOMA, INC. OK
TCI CABLEVISION OF OREGON, INC. OR
TCI CABLEVISION OF PASCO COUNTY FL
TCI CABLEVISION OF PINELLAS COUNTY FL
TCI CABLEVISION OF SIERRA VISTA II, INC. CO
TCI CABLEVISION OF SIERRA VISTA, INC. CO
TCI CABLEVISION OF SOUTH DAKOTA, INC. SD
TCI CABLEVISION OF SOUTHWEST WASHINGTON, INC. WA
TCI CABLEVISION OF ST. BERNARD, INC. LA TCI OF LOUISIANA
TCI CABLEVISION OF TEXAS, INC. TX
TCI CABLEVISION OF TUCSON II, INC. CO
TCI CABLEVISION OF TUCSON, INC. CO
</TABLE>
-9-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI CABLEVISION OF TWIN CITIES, INC. WA
TCI CABLEVISION OF UTAH, INC. UT
TCI CABLEVISION OF VERMONT, INC. DE
TCI CABLEVISION OF WASHINGTON, INC. WA PACCOM
TCI CABLEVISION OF WISCONSIN, INC. WI
TCI CABLEVISION OF WYOMING, INC. WY
TCI CABLEVISION OF YAKIMA VALLEY, INC. WA
TCI CABLEVISION OF YAKIMA, INC. WA
TCI CENTRAL, INC. DE
TCI COMMUNICATIONS, INC. DE TCI CABLEVISION OF DURANGO, INC.
TCI DEVELOPMENT CORPORATION CO
TCI EAST, INC. DE
TCI FLEET SERVICES, INC. CO
TCI GREAT LAKES, INC. DE
TCI HITS, INC. CO
TCI HOLDINGS II, INC. CO
TCI INVESTMENTS, INC. CO
TCI IP, INC. DE
TCI IP-1, INC. CO
TCI K-1, INC. CO
TCI LIBERTY, INC. DE
TCI MATERIALS MANAGEMENT, INC. CO
TCI MICROWAVE, INC. DE
TCI NETWORK SERVICES DE
TCI NEWS, INC. CO
TCI NEWS-DAMN RIGHT, INC. CO
TCI NEWS-PRESIDENTIAL, INC. CO
TCI NORTH CENTRAL REGION
TCI NORTH CENTRAL, INC. DE
TCI NORTHEAST, INC. DE
</TABLE>
-10-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI OF ARKANSAS, INC. AR
TCI OF ARLINGTON, INC. TX
TCI OF AUBURN, INC. DE
TCI OF BECKLEY, INC. WV
TCI OF BLOOMINGTON/NORMAL, INC. VA
TCI OF CLEVELAND, INC. TN
TCI OF CONNECTICUT, INC. CT
TCI OF COUNCIL BLUFFS, INC. IA
TCI OF D.C., INC. DC
TCI OF DECATUR, INC. AL
TCI OF DELAWARE, INC. DE
TCI OF GREENSBURG CO
TCI OF GREENVILLE, INC. SC
TCI OF HAWAII, INC. CO
TCI OF HOUSTON, INC. CO
TCI OF ILLINOIS, INC. IL TCI CABLE ADVERTISING
TCI CABLEVISION OF DUBUQUE, INC.
TCI OF INDIANA, INC. IN TCI CABLE ADVERTISING
TCI MIDWEST REGION
TCI OF IOWA, INC. IA TCI CABLEVISION OF DUBUQUE, INC.
TCI SOUTHEAST-NORTHWEST REGION
TCI OF KANSAS, INC. KS TCI CABLEVISION OF STILLWATER
TCI CABLEVISION OF TULSA
TCI OF KOKOMO, INC. CO
TCI OF LEE COUNTY, INC. AL
TCI OF LEXINGTON, INC. KY
TCI OF MAINE, INC. ME
TCI OF MISSISSIPPI, INC. MS
TCI OF NEW JERSEY, INC. NV
</TABLE>
-11-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI OF NEW YORK, INC. NY TCI NORTHEAST REGION
TCI OF NORTH BROWARD, INC. FL
TCI OF NORTH CENTRAL KENTUCKY, INC. KY
TCI OF NORTH DAKOTA, INC. ND
TCI OF NORTHERN NEW JERSEY, INC. WA TCI CABLEVISION OF CENTRAL COLORADO
TCI CABLEVISION OF NORTHEASTERN OREGON
TCI CABLEVISIOIN OF SOUTHEAST WASHINGTON
TCI CABLEVISION OF THE TREASURE COAST
TCI OF OVERLAND PARK, INC. KS
TCI OF PENNSYLVANIA, INC. PA TCI CABLE ADVERTISING
TCI EAST REGIOIN
TCI OF CALIFORNIA
TCI OF PIEDMONT, INC. SC
TCI OF PLANO, INC. TX
TCI OF PRINCETON, INC. WV
TCI OF RACINE, INC. WI
TCI OF RADCLIFF, INC. KY
TCI OF RHODE ISLAND, INC. RI
TCI OF RICHARDSON, INC. TX
TCI OF ROANOKE RAPIDS, INC. VA
TCI OF SEATTLE, INC DE
TCI OF SELMA, INC. AL
TCI OF SOUTH CAROLINA, INC. SC
TCI OF SOUTHERN MAINE, INC. ME
TCI OF SOUTHERN MINNESOTA, INC. DE TCI OF SOUTHERN MINNESOTA
TCI OF SOUTHERN WASHINGTON WA
TCI OF SPARTANBURG, INC. SC
TCI OF SPRINGFIELD, INC. MO
TCI OF TACOMA, INC. DE
TCI OF TENNESSEE, INC. TN
</TABLE>
-12-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI OF THE BLUFFLANDS, INC. DE TCI CABLE OF LA CROSSE
TCI OF SOUTHERN MINNESOTA
TCI OF TUALATIN VALLEY, INC. OR
TCI OF VANCOUVER, INC. CO
TCI OF VIRGINIA, INC. VA
TCI OF WATERTOWN, INC. IA
TCI OF WEST VIRGINIA, INC. WV TCI CABLE ADVERTISING
TCI OF WYTHEVILLE, INC. VA
TCI OSCAR I, INC. CO
TCI PACIFIC COMMUNICATIONS, INC.
TCI PACIFIC HOLDINGS, INC.
TCI PACIFIC MICROWAVE, INC. CO PACIFIC MICROWAVE
TCI PACIFIC, INC. DE
TCI PRIVATE VENTURES, INC. CO
TCI REALTY INVESTMENTS COMPANY DE
TCI SOUTHEAST DIVISIONAL HEADQUARTERS, INC. AL
TCI SOUTHEAST, INC. DE
TCI STS, INC. CO
TCI STS-MTVI, INC. TX
TCI TELEPHONY SERVICES, INC. CO
TCI TELEPHONY SERVICES OF CALIFORNIA, INC. CO
TCI TELEPHONY SERVICES OF CONNECTICUT, INC. CO
TCI TELEPHONY SERVICES OF ILLINOIS, INC. CO
TCI TELEPHONY SERVICES OF MINNESOTA, INC. CO
TCI TELEPHONY SERVICES OF WISCONSIN, INC. CO
TCI TELEPORT OF BALTIMORE, INC. MD
TCI TELEPORT OF BOSTON, INC. MA
TCI TELEPORT OF CHICAGO, INC. IL
TCI TELEPORT OF CHICAGO-SWITCH, INC. IL
TCI TELEPORT OF DALLAS, INC. TX
</TABLE>
-13-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI TELEPORT OF DALLAS-SWITCH, INC. TX
TCI TELEPORT OF DENVER, INC. CO
TCI TELEPORT OF DETROIT, INC. MI
TCI TELEPORT OF HARTFORD, INC. CT
TCI TELEPORT OF HOUSTON, INC. TX
TCI TELEPORT OF INDIANAPOLIS, INC. CO
TCI TELEPORT OF LOS ANGELES, INC. CA
TCI TELEPORT OF MIAMI, INC. FL
TCI TELEPORT OF PHOENIX, INC. AZ
TCI TELEPORT OF PITTSBURGH, INC. PA PENN ACCESS CORPORATION
TCI TELEPORT OF PROVIDENCE, INC. CO
TCI TELEPORT OF SAN FRANCISCO, INC. CA
TCI TELEPORT OF SEATTLE, INC. WA
TCI TELEPORT OF ST. LOUIS, INC. MO
TCI TELEPORT PARTNERS, INC. CO
TCI TELEPORT, INC. CO
TCI TKR CABLE I, INC. DE
TCI TKR CABLE II, INC. DE
TCI TKR LIMITED PARTNERSHIP CO
TCI TKR OF ALABAMA, INC. DE TCI OF ALABAMA
TCI TKR OF CENTRAL FLORIDA, INC. FL TCI OF CENTRAL FLORIDA
TCI TKR OF DALLAS, INC. DE
TCI TKR OF FLORIDA, INC. DE
TCI TKR OF GEORGIA, INC. DE TCI OF GEORGIA
TCI TKR OF HOLLYWOOD, INC. DE TCI OF HOLLYWOOD
TCI TKR OF HOUSTON, INC. TX TCI CABLEVISION OF HOUSTON
TCI TKR OF JEFFERSON COUNTY, INC. KY TRK CABLE OF GREATER LOUISVILLE, INC.
TCI TKR OF KENTUCKY, INC. DE
TCI TKR OF METRO DADE, INC. DE
TCI TKR OF NORTHERN KENTUCKY, INC. KY MADISON AVENUE VIDEO PRODUCTIONS
</TABLE>
-14-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TKR CABLE OF NORTHERN KENTUCKY, INC.
TCI TKR OF SOUTH DADE, INC. FL TCI OF SOUTH DADE
TCI TKR OF SOUTH FLORIDA, INC. DE TCI OF SOUTH FLORIDA
TCI TKR OF SOUTHEAST TEXAS, INC. DE
TCI TKR OF SOUTHERN KENTUCKY, INC. DE TKR CABLE OF SOUTHERN KENTUCKY, INC.
TCI TKR OF THE GULF PLAINS, INC. DE TCI OF THE GULF PLAINS
TCI TKR OF THE METROPLEX, INC. TX TCI CABLEVISION OF THE METROPLEX
TCI TKR OF WYOMING, INC. WY
TCI TKR, INC. DE
TCI UA I, INC. CO
TCI UA, INC. DE
TCI VENTURES FIVE, INC. CO
TCI VENTURES FOUR, INC. CO
TCI VENTURES INC. CO
TCI WASHINGTON ASSOCIATES, L.P. DE
TCI WEST, INC. DE
TCI WOODLANDS VENTURES, INC. CO
TCI-UC, INC. DE
TCI/CA ACQUISITION SUB CORP. CO
TCI/CI MERGER SUB CORP. DE
TCID DATA TRANSPORT, INC. CO
TCID KHC, INC. CO
TCID NEA, INC. CO
TCID NETWORKS, INC. DE
TCID OF CARSON, INC. CA
TCID OF CHICAGO, INC. IL
TCID OF FLORIDA, INC. FL TCI CABLEVISION OF PASCO COUNTY
TCID OF MICHIGAN, INC. NV
TCID OF SOUTH CHICAGO, INC. IL
TCID PARTNERS II, INC. CO
</TABLE>
-15-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCID PARTNERS, INC. CO
TCID VFC, INC. CO
TCID VIDEO ENTERPRISES, INC. CO
TCID X*PRESS, INC. CO
TCID-COMMERCIAL MUSIC, INC. CO
TCID-ICP III, INC. CO
TCID-IP III, INC. CO
TCID-IP IV, INC. CO
TCID-IP V, INC. CO
TCID-SVHH, INC. DE
TCIP, INC. CO
TELECOMMUNICATIONS OF COLORADO, INC. CO TCI COLORADO COMMUNITY CABLE
TELEVISION, INC.
TELE-COMMUNICATIONS OF SOUTH SUBURBIA, INC. IL
TELECABLE KCFN HOLDING CORP. VA
TELECABLE OF COLUMBUS, INC. GA
TELECOMMUNICATIONS CABLE SYSTEMS, INC. LA TCI OF LOUISIANA
TCI SOUTHEAST-SOUTHWEST REGION
TELENOIS, INC. IL
TELEVENTS GROUP JOINT VENTURE CO TCI OF CENTRAL IOWA
TELEVENTS GROUP, INC. NV
TELEVENTS OF COLORADO, INC. CO
TELEVENTS OF EAST COUNTY, INC. WY TCI CABLEVISION OF EAST COUNTY
TELEVENTS OF FLORIDA, INC. WY
TELEVENTS OF POWDER RIVER, INC. WY
TELEVENTS OF SAN JOAQUIN, INC. WY TCI CABLEVISION OF SAN JOAQUIN
TELEVENTS OF WYOMING, INC. WY
TELEVENTS, INC. NV TCI CABLEVISION OF CONTRA COSTA COUNTY
TELEVESTER, INC. DE
TELEVISION CABLE SERVICE, INC. TX TCI CABLEVISION OF ABILENE
</TABLE>
-16-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI CABLEVISION OF EAST TEXAS
TCI CABLEVISION OF PERRYTON
TCI CABLEVISION OF WEST TEXAS
TEMPO CABLE, INC OK TCI CABLEVISION OF CENTRAL OKLAHOMA, INC.
TCI CABLEVISION OF NOCONA
TCI CABLEVISION OF OKLAHOMA (TEMPO), INC.
TCI OF ARKANSAS (TEMPO), INC.
TEMPO DEVELOPMENT CORPORATION OK
TEMPO ENTERPRISES, INC. OK TEMPO ENTERPRISES, INC. (OF OKLAHOMA)
TEMPO SATELLITE, INC. OK
TEMPO TELEVISION, INC. OK
THE CHICAGO CABLE INTERCONNECT IL GCCI
THE DETROIT CABLE INTERCONNECT L.P. DE THE DETROIT CABLE INTERCONNECT
LIMITED PARTNERSHIP
THE GREATER PHILADELPHIA CABLE INTERCONNECT PA PCA
PHILADELPHIA CABLE ADVERTISING
TRANS-MUSKINGUM, INCORPORATED WV
TRIBUNE COMPANY CABLE OF MICHIGAN, INC. DE TRIBUNE/UNITED CABLE OF OAKLAND COUNTY
TRIBUNE-UNITED CABLE OF OAKLAND COUNTY MI TCI CABLEVISION OF OAKLAND COUNTY, INC.
TULSA CABLE TELEVISION, INC. OK TCI CABLEVISION OF TULSA
TV MART
UA THINK, INC. CO
UA-COLUMBIA ALPINE TOWER, INC. NJ
UA-COLUMBIA CABLEVISION OF MASSACHUSETTS, INC. MA TCI CABLEVISION OF NORTH
ATTLEBORO/TAUNTON
UA-COLUMBIA CABLEVISION OF NEW JERSEY, INC. NJ
UA-COLUMBIA CABLEVISION OF WESTCHESTER, INC. NY TCI OF NORTHERN NEW JERSEY
UACC MIDWEST, INC. DE TCI CABLE ADVERTISING
TCI CABLEVISION OF ASHEVILLE
</TABLE>
-17-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI CABLEVISION OF CENTRAL ILLINOIS
TCI CABLEVISION OF DECATUR
TCI CABLEVISION OF MERCED COUNTY
TCI CABLEVISION OF NORTHSHORE
TCI CABLEVISION OF SANTA CRUZ COUNTY
TCI CABLEVISION OF TRACY
TCI CABLEVISION OF VACAVILLE
TCI CABLEVISION OF WALNUT CREEK
TCI CABLEVISION OF WEST MICHIGAN, INC.
TCI OF EVANSVILLE
TCI OF SOUTH MISSISSIPPI
UAII MERGER CORP. DE
UAII SUB NO. 24, INC. DE
UATC MERGER CORP. NY
UCT AIRCRAFT, INC. CO
UCT VIDEO, INC. CO
UCTC LP COMPANY DE
UCTC OF BALTIMORE, INC. DE
UCTC OF LOS ANGELES COUNTY, INC. DE TCI CABLEVISION OF LOS ANGELES COUNTY
UNITED ADVERTISING NETWORK, INC. CO
UNITED ARTISTS BROADCAST PROPERTIES, INC. DE
UNITED ARTISTS CABLE HOLDINGS, INC. CO
UNITED ARTISTS CABLE INVESTMENTS, INC. DE
UNITED ARTISTS CABLESYSTEMS CORPORATION DE
UNITED ARTISTS ENTERTAINMENT COMPANY DE
UNITED ARTISTS HOLDINGS, INC. DE
UNITED ARTISTS INVESTMENTS, INC. CO
UNITED ARTISTS K-1 INVESTMENTS, INC. CO
UNITED ARTISTS OPERATOR SERVICES CORPORATION CO
UNITED ARTISTS PAYPHONE CORPORATION CO
</TABLE>
-18-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED ARTISTS PREFERRED INVESTMENT, INC. CO
UNITED ARTISTS REPUBLIC INVESTMENTS, INC. CO
UNITED ARTISTS SATELLITE, INC. CO
UNITED ARTISTS TELECOMMUNICATIONS, INC. DE
UNITED CABLE AD-LINK, INC. CO
UNITED CABLE ADVERTISING, INC. CO
UNITED CABLE INVESTMENT OF BALTIMORE, INC. MD
UNITED CABLE PRODUCTIONS, INC. CO
UNITED CABLE REALTY CO. OF CALIFORNIA, INC. CO
UNITED CABLE SHOPPING CHANNEL, INC. CO
UNITED CABLE T.V. OF OAKLAND COUNTY, INC. MI TCI CABLEVISION OF OAKLAND COUNTY, INC.
UNITED CABLE TELEVISION ACQUISITION CORPORATION CO TCI OF COLORADO
UNITED CABLE TELEVISION CORP. OF EASTERN CONNECTICUT CT TCI CABLEVISION OF CENTRAL CONNECTICUT
UNITED CABLE TELEVISION CORPORATION DE TCI CABLE OF THE MIDLANDS
TCI CABLEVISION OF TREASURE VALLEY
UNITED CABLE TELEVISION CORPORATION OF MICHIGAN MI TCI CABLEVISION OF WOODHAVEN, INC.
UNITED CABLE TELEVISION CORPORATION OF NORTHERN ILLINOIS IL TCI CABLEVISION OF NORTHERN ILLINOIS
UNITED CABLE TELEVISION FINANCING CORPORATION CO
UNITED CABLE TELEVISION INVESTMENTS, LTD. CO
UNITED CABLE TELEVISION OF ALAMEDA, INC. CA TCI CABLEVISION OF ALAMEDA
UCT OF ALAMEDA, INC. #2
UNITED CABLE TELEVISION OF BALDWIN PARK, INC. CO TCI CABLEVISION OF LOS ANGELES COUNTY
UNITED CABLE TELEVISION OF BALTIMORE LIMITED PARTNERSHIP CO TCI COMMUNICATIONS OF BALTIMORE
UNITED CABLE TELEVISION OF BOSSIER CITY, INC. DE TCI OF LOUISIANA
UNITED CABLE TELEVISION OF CALIFORNIA, INC. CA TCI CABLEVISION OF CUPERTINO/LOS ALTOS
TCI CABLEVISION OF DAVIS
UNITED CABLE TELEVISION OF CHASKA, INC. CO
UNITED CABLE TELEVISION OF COLORADO, INC. CO TCI OF COLORADO
UNITED CABLE TELEVISION OF CUPERTINO, INC. CA TCI CABLEVISION OF CUPERTINO/LOS ALTOS
UNITED CABLE TELEVISION OF EASTERN SHORE, INC DE TCI CABLEVISION OF EASTERN SHORE
</TABLE>
-19-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED CABLE TELEVISION OF HILLSBOROUGH, INC. CO TCI CABLEVISION OF HAYWARD
UNITED CABLE TELEVISION OF ILLINOIS VALLEY, INC. IL TCI CABLEVISION OF ILLINOIS VALLEY
UNITED CABLE TELEVISION OF LOS ANGELES, INC. CA TCI CABLEVISION OF LOS ANGELES COUNTY
UNITED CABLE TELEVISION OF MID-MICHIGAN, INC. DE TCI CABLEVISION OF MID-MICHIGAN, INC.
UNITED CABLE TELEVISION OF NORTHERN INDIANA, INC. DE TCI OF NORTHERN INDIANA
UNITED CABLE TELEVISION OF OAKLAND COUNTY, LTD. CO
UNITED CABLE TELEVISION OF PICO RIVERA, INC. CO
UNITED CABLE TELEVISION OF SANTA CRUZ, INC. CO TCI CABLEVISION OF SANTA CRUZ COUNTY
UNITED CABLE TELEVISION OF SARPY COUNTY, INC. NE TCI CABLE OF THE MIDLANDS
UNITED CABLE TELEVISION OF SCOTTSDALE, INC. AZ TCI CABLE OF SCOTTSDALE
UNITED CABLE TELEVISION OF SOUTHERN ILLINOIS, INC. DE TCI CABLEVISION OF SOUTHERN ILLINOIS
UNITED CABLE TELEVISION OF WESTERN COLORADO, INC. CO TCI CABLEVISION OF WESTERN COLORADO, INC.
UNITED CABLE TELEVISION REAL ESTATE CORPORATION CO
UNITED CABLE TELEVISION SERVICES CORPORATION OK TCI CABLEVISION OF CENTRAL CONNECTICUT
UNITED CABLE TELEVISION SERVICES OF COLORADO, INC. CO
UNITED CABLE VIDEO INVESTMENT, INC. CO
UNITED CARPHONE CORPORATION CO
UNITED CATV, INC. MD TCI CABLEVISION OF ANNAPOLIS
UNITED CORPORATE COMMUNICATIONS COMPANY CO
UNITED ENTERTAINMENT CORPORATION CO
UNITED HOCKEY, INC. CO
UNITED MICROWAVE CORPORATION DE
UNITED OF OAKLAND, INC DE TCI CABLEVISION OF OAKLAND COUNTY, INC.
UNITED PAGING CORPORATION CO
UNITED TRIBUNE PAGING CORPORATION CO
UNITED'S HOME VIDEO CENTERS, INC. CO
UNIVERSAL TELECOM, INC. MD
UPPER VALLEY TELECABLE COMPANY, INC. ID TCI CABLEVISION OF IDAHO (UVTC), INC.
UTI PURCHASE COMPANY CO
VACATIONLAND CABLEVISION, INC. WI TCI OF SOUTH CENTRAL WISCONSIN
</TABLE>
-20-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
VALLEY CABLE TV, INC. TX
WALTHAM TELE-COMMUNICATIONS MA TCI CABLEVISION OF WALTHAM
WALTHAM TELE-COMMUNICATIONS, INC. CO
WASATCH COMMUNITY T.V., INCORPORATED UT
WENTRONICS, INC. NM TCI CABLEVISION OF CASPER
TCI CABLEVISION OF GALLUP
TCI CABLEVISION OF MOAB
TCI CABLEVISION OF WESTERN COLORADO, INC.
WESTARK CABLE
WESTERN COMMUNITY TV, INC. MT
WESTERN INFORMATION SYSTEMS, INC. CO WIS
WESTERN NEW YORK CABLE ADVERTISING L.P. NY
WESTERN SATELLITE 2, INC. CO
WESTERN TELE-COMMUNICATIONS, INC. DE NATIONAL DIGITAL TELEVISION CENTER
WESTERN TELE-COMMUNICATIONS, INC./RETAIL SALES GROUP CO
WESTMARC CABLE GROUP, INC. DE
WESTMARC CABLE HOLDING, INC. DE TCI OF CENTRAL MINNESOTA
TCI OF NORTHERN IOWA
TCI OF NORTHERN MINNESOTA
WESTMARC COMMUNICATIONS OF MINNESOTA, INC. DE TCI OF CENTRAL MINNESOTA
WESTMARC COMMUNICATIONS, INC. NV
WESTMARC DEVELOPMENT II, INC. CO
WESTMARC DEVELOPMENT III, INC. CO
WESTMARC DEVELOPMENT IV, INC. CO
WESTMARC DEVELOPMENT JOINT VENTURE CO TCI CABLE ADVERTISING
TCI CABLEVISION OF CAPE COD
TCI CABLEVISION OF GREATER MICHIGAN, INC.
TCI CABLEVISION OF NANTUCKET
TCI CABLEVISION OF NORTHWESTERN
CONNECTICUT
</TABLE>
-21-
<PAGE>
EXHIBIT 21
----------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
STATE OR JURISDICTION
OF INCORPORATION OR
SUBSIDIARY ORGANIZATION TRADE NAMES
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCI TWIN STATE CABLE TV
TCI/TWIN VALLEY CABLE
WESTMARC DEVELOPMENT, INC. CO
WESTMARC REALTY, INC. CO
WIRELESSCO, L.P. DE
WTCI OF MONTANA, INC. CO
WTCI UPLINK, INC. PA
</TABLE>
-22-
<PAGE>
Exhibit 23
----------
Consent of Independent Auditors
-------------------------------
The Board of Directors and Stockholders
TCI Communications, Inc.:
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-60982, 33-63139, 33-64127, 33-64329 and 33-64525) on Form S-3 of TCI
Communications, Inc. of our reports dated March 18, 1996, relating to the
consolidated balance sheets of TCI Communications, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, stockholder's(s') equity, and cash flows for each of the years in
the three-year period ended December 31, 1995, and all related schedules, which
reports appear in the December 31, 1995 annual report of Form 10-K of TCI
Communications, Inc.
KPMG Peat Marwick LLP
Denver, Colorado
March 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TCI COMMUNICATIONS, INC.'S ANNUAL REPORT ON FORM 10-K OR
THE PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000096903
<NAME> TCI COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 286
<ALLOWANCES> 24
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,152
<DEPRECIATION> 3,547
<TOTAL-ASSETS> 19,981
<CURRENT-LIABILITIES> 0
<BONDS> 12,635
0
0
<COMMON> 1
<OTHER-SE> 1,728
<TOTAL-LIABILITY-AND-EQUITY> 19,981
<SALES> 0
<TOTAL-REVENUES> 5,118
<CGS> 0
<TOTAL-COSTS> 4,315
<OTHER-EXPENSES> 972
<LOSS-PROVISION> 76
<INTEREST-EXPENSE> 962
<INCOME-PRETAX> (169)
<INCOME-TAX> (49)
<INCOME-CONTINUING> (120)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
