<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-5550
TCI COMMUNICATIONS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-0588868
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
All of the Registrant's common stock is owned by Tele-Communications,
Inc. The number of shares outstanding of the Registrant's common stock as of
October 31, 1997, was:
Class A common stock - 811,655 shares; and
Class B common stock - 94,447 shares.
<PAGE> 2
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
Assets amounts in millions
- ------
<S> <C> <C>
Trade and other receivables, net $ 307 308
Investments in affiliates, accounted for under
the equity method, and related receivables (note 4) 368 317
Property and equipment, at cost:
Land 74 74
Distribution systems 9,701 9,726
Support equipment and buildings 1,383 1,423
------------ ------------
11,158 11,223
Less accumulated depreciation 4,384 4,031
------------ ------------
6,774 7,192
------------ ------------
Franchise costs 17,161 17,174
Less accumulated amortization 2,615 2,380
------------ ------------
14,546 14,794
------------ ------------
Other assets, net of amortization 297 525
------------ ------------
$ 22,292 23,136
============ ============
</TABLE>
(continued)
I-1
<PAGE> 3
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
Liabilities and Common Stockholder's Equity (Deficit) amounts in millions
- -----------------------------------------------------
<S> <C> <C>
Accounts payable $ 139 191
Accrued interest 153 268
Accrued expenses 977 768
Debt (note 6) 13,612 14,318
Deferred income taxes 5,336 5,459
Other liabilities 100 84
------------ ------------
Total liabilities 20,317 21,088
------------ ------------
Minority interests in equity of consolidated subsidiaries
801 802
Redeemable preferred stock 232 232
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts ("Trust Preferred
Securities") holding solely subordinated debt
securities of the Company (note 7) 1,500 1,000
Common stockholder's equity (deficit):
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, issued and
outstanding 94,447 shares -- --
Additional paid-in capital 2,123 2,234
Unrealized holding gains for available-for-sale securities, net
of taxes 9 --
Accumulated deficit (834) (822)
------------ ------------
1,299 1,413
Investment in Tele-Communications, Inc. ("TCI"), at cost (note 1) (1,143) (1,143)
Due from related parties (note 8) (714) (256)
------------ ------------
Total common stockholder's equity (deficit) (558) 14
------------ ------------
Commitments and contingencies (note 9)
$ 22,292 23,136
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 4
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
amounts in millions
<S> <C> <C> <C> <C>
Revenue $ 1,562 1,571 4,612 4,334
Operating costs and expenses:
Operating 571 549 1,677 1,526
Selling, general and administrative 318 434 904 1,176
Stock compensation 35 (8) 43 (12)
Depreciation and amortization 325 359 1,019 1,040
------------ ------------ ------------ ------------
1,249 1,334 3,643 3,730
------------ ------------ ------------ ------------
Operating income 313 237 969 604
Other income (expense):
Interest expense (257) (267) (803) (760)
Interest income (note 8) 7 12 23 31
Share of losses of affiliates, net
(note 4) (25) (47) (47) (150)
Loss on early extinguishment of debt
(note 6) -- (7) (11) (73)
Minority interests in earnings of
consolidated subsidiaries, net
(note 7) (46) (28) (127) (43)
Gain on sale of stock by equity investee -- 12 -- 12
Gain (loss) on disposition and exchange
of assets, net (35) 6 5 18
Other, net (5) -- (4) (3)
------------ ------------ ------------ ------------
(361) (319) (964) (968)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes (48) (82) 5 (364)
Income tax benefit (expense) 10 8 (17) 96
------------ ------------ ------------ ------------
Net loss (38) (74) (12) (268)
Preferred stock dividend requirements (2) (3) (7) (7)
------------ ------------ ------------ ------------
Net loss attributable to common
stockholder $ (40) (77) (19) (275)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE> 5
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statement of Common Stockholder's Equity (Deficit)
Nine months ended September 30, 1997
(unaudited)
<TABLE>
<CAPTION>
Unrealized
holding
gains for
available-
Common stock Additional for-sale
------------------------ paid-in securities, Accumulated
Class A Class B capital net of taxes deficit
--------- ---------- ------------ ------------- ------------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 1 -- 2,234 -- (822)
Net loss -- -- -- -- (12)
Accreted dividends on redeemable
preferred stock -- -- (7) -- --
Change in unrealized holding gains for
available-for-sale securities, net of
taxes -- -- -- 9 --
Transfer of assets from TCI
Communications, Inc. to TCI (note 8) -- -- (104) -- --
Change in due from related parties -- -- -- -- --
-------- -------- --------- --------- -----------
Balance at September 30, 1997 $ 1 -- 2,123 9 (834)
======= ======== ========= ========= ===========
<CAPTION>
Total
Investment Due common
in from related stockholder's
TCI parties equity (deficit)
------------- --------------- ----------------
<S> <C> <C> <C>
Balance at January 1, 1997 (1,143) (256) 14
Net loss -- -- (12)
Accreted dividends on redeemable
preferred stock -- -- (7)
Change in unrealized holding gains for
available-for-sale securities, net of
taxes -- -- 9
Transfer of assets from TCI
Communications, Inc. to TCI (note 8) -- 33 (71)
Change in due from related parties -- (491) (491)
---------- ---------- -----------
Balance at September 30, 1997 (1,143) (714) (558)
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE> 6
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------
1997 1996
---------- ----------
amounts in millions
(see note 3)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (12) (268)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 1,019 1,040
Stock compensation 43 (12)
Payments of obligation relating to stock compensation (4) (2)
Share of losses of affiliates, net 47 150
Loss on early extinguishment of debt 11 73
Deferred income tax benefit (108) (95)
Minority interests in earnings of consolidated subsidiaries, net 127 43
Gain on sale of stock by equity investee -- (12)
Gain on disposition and exchange of assets, net (5) (18)
Intercompany tax allocation 125 (5)
Payments of restructuring charges (21) --
Other noncash charges (credits) 3 (5)
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Change in receivables (1) 11
Change in accrued interest (115) (59)
Change in other accruals and payables 176 (72)
---------- ----------
Net cash provided by operating activities 1,285 769
---------- ----------
Cash flows from investing activities:
Capital expended for property and equipment (324) (1,433)
Cash paid for acquisitions (160) (104)
Cash received in exchanges 20 69
Cash proceeds from disposition of assets 269 139
Additional investments in and loans to affiliates and others (31) (569)
Repayment of loans to affiliates and others 16 299
Other investing activities (52) (32)
---------- ----------
Net cash used in investing activities (262) (1,631)
---------- ----------
Cash flows from financing activities:
Borrowings of debt 2,928 6,783
Repayments of debt (3,686) (6,669)
Prepayment penalties (7) (60)
Proceeds from issuance of redeemable preferred stock -- 223
Proceeds from issuance of Trust Preferred Securities 490 971
Payment of redeemable preferred stock dividends (7) (5)
Payment of dividends on subsidiary preferred stock and Trust Preferred
Securities (124) (51)
Change in due from related parties (617) (323)
---------- ----------
Net cash provided by (used in) financing activities (1,023) 869
---------- ----------
Net change in cash -- 7
Cash at beginning of period -- --
---------- ----------
Cash at end of period $ -- 7
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
I-5
<PAGE> 7
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
September 30, 1997
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of TCI Communications, Inc. ("TCIC" or the "Company") and those of all
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. TCIC is a
subsidiary of TCI.
TCIC, through its subsidiaries and affiliates, is principally engaged
in the construction, acquisition, ownership and operation of cable
television systems. TCIC operates its cable television systems
throughout the United States.
TCI common stock, par value $1.00 per share, is comprised of six
series: Tele-Communications, Inc. Series A TCI Group Common Stock (the
"Series A TCI Group Common Stock"), Tele-Communications, Inc. Series B
TCI Group Common Stock (the "Series B TCI Group Common Stock" and,
together with the Series A TCI Group Common Stock, the "TCI Group
Common Stock"), Tele-Communications, Inc. Series A Liberty Media Group
Common Stock (the "Series A Liberty Media Group Common Stock"),
Tele-Communications, Inc. Series B Liberty Media Group Common Stock
(the "Series B Liberty Media Group Common Stock" and, together with the
Series A Liberty Media Group Common Stock, the "Liberty Media Group
Common Stock"), Tele-Communications, Inc. Series A TCI Ventures Group
Common Stock (the "Series A TCI Ventures Group Common Stock") and
Tele-Communications, Inc. Series B TCI Ventures Group Common Stock (the
"Series B TCI Ventures Group Common Stock" and, together with the
Series A TCI Ventures Group Common Stock, the "TCI Ventures Group
Common Stock").
The TCI Group Common Stock is intended to reflect the separate
performance of the "TCI Group", which is comprised of TCI's domestic
distribution and communications businesses (other than the investments
attributed to the TCI Ventures Group), and any other businesses and
assets of TCI not attributed to either the Liberty Media Group or the
TCI Ventures Group. The Liberty Media Group Common Stock is intended to
reflect the separate performance of the "Liberty Media Group," which is
comprised of TCI's businesses, and investments in entities, that are
engaged in the production, acquisition and distribution through all
available formats and media of branded entertainment, educational and
informational programming and software, including multimedia products,
and its investments in entities engaged in electronic retailing, direct
marketing, advertising sales relating to programming services,
infomercials and transaction processing, and the operation of UHF
television stations. The TCI Ventures Group Common Stock is intended to
reflect the separate performance of the "TCI Ventures Group," which is
comprised of TCI's principal international assets and businesses and
substantially all of TCI's non-cable and non-programming domestic
assets and businesses. TCIC is a member of the TCI Group.
(continued)
I-6
<PAGE> 8
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for the periods presented. The results of
operations for any interim period are not necessarily indicative of
results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto contained in TCIC's Annual Report on Form
10-K for the year ended December 31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Certain amounts have been reclassified for comparability with the 1997
presentation.
(2) Derivative Financial Instruments
TCIC has entered into variable and fixed interest rate exchange
agreements ("Interest Rate Swaps") which it uses to manage interest
rate risk arising from its financial liabilities. Such Interest Rate
Swaps are accounted for as hedges; and accordingly, amounts receivable
or payable under Interest Rate Swaps are recognized as adjustments to
interest expense. Gains and losses on early terminations of Interest
Rate Swaps are included in the carrying amount of the related debt and
amortized as yield adjustments over the remaining term of the
derivative financial instruments. TCIC does not use such instruments
for trading purposes.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $918 million and $819 million for the nine
months ended September 30, 1997 and 1996, respectively. Also during
these periods, cash paid for income taxes was $7 million and $6
million, respectively.
(continued)
I-7
<PAGE> 9
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>
Nine months ended
September 30,
--------------------
1997 1996
-------- --------
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ (211) (4,318)
Liabilities assumed, net of current assets 54 1,714
Deferred tax liability recorded in acquisitions -- 1,310
Preferred stock of subsidiary issued in acquisition -- 626
Minority interests in equity of acquired entities
(3) --
Common stock of TCI issued in acquisition contributed
to TCIC -- 564
-------- --------
Cash paid for acquisitions $ (160) (104)
======== ========
Cash received in exchanges:
Aggregate cost basis of assets acquired $ (390) (569)
Historical cost of assets given up 399 617
Gain recorded on exchange of assets 11 21
-------- --------
Cash received in exchanges $ 20 69
======== ========
Transfer of net assets:
Fair value of assets transferred to (from) TCI $ 90 (180)
Liabilities assumed, net of current assets -- 39
Deferred tax liability transferred to TCI (19) --
Decrease in additional paid-in-capital resulting from
transfer of net assets to TCI (104) --
Decrease in due from related parties resulting from
transfer of net assets 33 141
-------- --------
$ -- --
======== ========
</TABLE>
(4) Investments in Affiliates
TCIC's investments in affiliates are comprised of limited partnerships
and other entities that are primarily engaged in the domestic cable
business. Summarized unaudited results of operations for affiliates
accounted for under the equity method are as follows:
<TABLE>
<CAPTION>
Nine months ended
Combined Operations September 30,
1997 1996
-------- --------
amounts in millions
<S> <C> <C>
Revenue $ 357 540
Operating expenses (181) (644)
Depreciation and amortization (154) (73)
-------- --------
Operating income (loss) 22 (177)
Interest expense (85) (29)
Other, net 38 (30)
-------- --------
Net loss $ (25) (236)
======== ========
</TABLE>
(continued)
I-8
<PAGE> 10
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Effective December 31, 1996, TCIC transferred its 30% ownership
interest in Sprint Spectrum Holding Company, L.P. ("Sprint Spectrum"),
31.1% ownership interest in Teleport Communications Group Inc. ("TCG")
and certain other investments to TCI. Collectively, such investments
accounted for $145 million of TCIC's share of its affiliates' losses
for the nine months ended September 30, 1996.
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 applicable partnership law for all
debts of that partnership in the event liabilities of that partnership
were to exceed its assets.
(5) Acquisition and Dispositions
In June 1997, the Company entered into an agreement with Cablevision
Systems Corporation ("Cablevision") pursuant to which the Company
agreed to contribute certain of its cable television systems serving
approximately 820,000 basic customers to Cablevision in exchange for
approximately 12.2 million newly issued Cablevision Class A shares.
Such shares represent approximately 33% of Cablevision's total
outstanding shares. Cablevision will also assume approximately $669
million of TCI's debt. The transaction is subject to, among other
matters, Cablevision shareholder and regulatory approvals. There is no
assurance that the transaction will be consummated.
Including the Cablevision transaction described above, the Company has
signed agreements or letters of intent to contribute, within the next
twelve months, certain cable systems serving approximately 3 million
basic customers to various joint ventures. Such anticipated
transactions, if consummated as currently intended, would result in
estimated reductions in debt and annual revenue of approximately $4
billion and $1 billion, respectively. Such transactions are subject to,
among other matters, regulatory approval. Accordingly, there is no
assurance that any of such transactions will be consummated.
On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI, Viacom International, Inc. and Viacom, Inc. ("Viacom"), TCIC
acquired all of the common stock of a subsidiary of Viacom ("Cable
Sub") which owned Viacom's cable systems and related assets (the
"Viacom Acquisition").
The transaction was structured as a tax-free reorganization in which
Cable Sub transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to a new subsidiary of
Viacom ("New Viacom Sub"). Cable Sub also transferred to New Viacom
Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility
(the "Loan Facility") arranged by TCIC, TCI and Cable Sub. Following
these transfers, Cable Sub retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay
the Loan Proceeds. Neither Viacom nor New Viacom Sub has any
obligation with respect to repayment of the Loan Proceeds.
(continued)
I-9
<PAGE> 11
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Prior to the consummation of the Viacom Acquisition, Viacom offered to
the holders of shares of Viacom Class A Common Stock and Viacom Class B
Common Stock (collectively, "Viacom Common Stock") the opportunity to
exchange (the "Exchange Offer") a portion of their shares of Viacom
Common Stock for shares of Class A Common Stock, par value $100 per
share, of Cable Sub ("Cable Sub Class A Stock"). Immediately following
the completion of the Exchange Offer, TCIC acquired from Cable Sub
shares of Cable Sub Class B Common Stock (the "Share Issuance") for
$350 million (which was used to reduce Cable Sub's obligations under
the Loan Facility). At the time of the Share Issuance, the Cable Sub
Class A Stock received by Viacom stockholders pursuant to the Exchange
Offer automatically converted into 5% Class A Senior Cumulative
Exchangeable Preferred Stock of Cable Sub with a stated value of $100
per share. Upon completion of the Viacom Acquisition, Cable Sub was
renamed TCI Pacific Communications, Inc.
(6) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
amounts in millions
<S> <C> <C>
Parent company debt:
Notes payable (a) $ 8,165 8,031
Commercial paper 713 638
---------- ----------
8,878 8,669
Debt of subsidiaries:
Bank credit facilities (b) 3,935 4,810
Notes payable (a) 737 768
Convertible notes (c) 40 43
Other debt 22 28
---------- ----------
$ 13,612 14,318
========== ==========
</TABLE>
(a) During the nine months ended September 30, 1997, TCIC purchased
in the open market certain notes payable which had an aggregate
principal balance of $190 million and fixed interest rates
ranging from 8.75% to 10.13% (the "1997 Purchases"). In
connection with the 1997 Purchases, TCIC recognized a loss on
early extinguishment of debt of $11 million. Such loss related to
prepayment penalties amounting to $7 million and the retirement
of deferred loan costs.
During the nine months ended September 30, 1996, TCIC purchased
in the open market certain notes payable which had an aggregate
principal balance of $809 million and fixed interest rates
ranging from 8.67% to 10.44% (the "1996 Purchases"). In
connection with the 1996 Purchases, TCIC recognized a loss on
early extinguishment of debt of $62 million. Such loss related to
prepayment penalties amounting to $60 million and the retirement
of deferred loan costs.
(continued)
I-10
<PAGE> 12
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(b) During the nine months ended September 30, 1996, TCIC
terminated, at its option, certain revolving bank credit
facilities with aggregate commitments of approximately $2
billion and refinanced certain other bank credit facilities.
In connection with such termination and refinancings, TCIC
recognized a loss on early extinguishment of debt of $11
million related to the retirement of deferred loan costs.
(c) The convertible notes, which are stated net of unamortized
discount of $166 million and $178 million at September 30,
1997 and December 31, 1996, respectively, mature on December
18, 2021. The notes require (so long as conversion of the
notes has not occurred) an annual interest payment through
2003 equal to 1.85% of the face amount of the notes. At
September 30, 1997, the notes were convertible, at the option
of the holders, into an aggregate of 24,177,475 shares of
Series A TCI Group Common Stock, 12,952,093 shares of Series A
Liberty Media Group Common Stock and 10,387,182 shares of
Series A TCI Ventures Group Common Stock.
TCIC's bank credit facilities and various other debt instruments
generally contain restrictive covenants which require, among other
things, the maintenance of certain earnings, specified cash flow and
financial ratios (primarily the ratios of cash flow to total debt and
cash flow to debt service, as defined), and include certain limitations
on indebtedness, investments, guarantees, dispositions, stock
repurchases and/or dividend payments.
As security for borrowings under one of TCIC's bank credit facilities,
TCIC has pledged 116,853,195 shares of Series A TCI Group Common Stock
held by a subsidiary of TCIC.
The fair value of TCIC's debt is estimated based on quoted market
prices for the same or similar issues or on the current rates offered
to TCIC for debt of the same remaining maturities. At September 30,
1997, the fair value of TCIC's debt was $14,016 million, as compared to
a carrying value of $13,612 million on such date.
In order to achieve the desired balance between variable and fixed rate
indebtedness, TCIC has entered into various Interest Rate Swaps
pursuant to which it (i) pays fixed interest rates (the "Fixed Rate
Agreements") ranging from 7.1% to 9.3% and receives variable interest
rates on notional amounts of $410 million at September 30, 1997 and
(ii) pays variable interest rates (the "Variable Rate Agreements") and
receives fixed interest rates ranging from 4.8% to 9.7% on notional
amounts of $2,400 million at September 30, 1997. During the nine months
ended September 30, 1997 and 1996, TCIC's net payments pursuant to the
Fixed Rate Agreements were less than $1 million and $3 million,
respectively; and TCIC's net receipts pursuant to the Variable Rate
Agreements were $1 million and $11 million, respectively.
(continued)
I-11
<PAGE> 13
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC's Fixed Rate Agreements and Variable Rate Agreements expire as
follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
---------------------------------------------- ----------------------------------------------------
Expiration Interest rate Notional Expiration Interest rate Notional
date to be paid amount date to be received amount
---------------- ------------- ------ ------------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
October 1997 7.1%-9.3% $ 180 September 1998 4.8%-5.4% $ 450
December 1997 8.7% 230 April 1999 7.4% 50
------ September 1999 6.4% 350
February 2000 5.8%-6.6% 300
$ 410 March 2000 5.8%-6.0% 675
====== September 2000 5.1% 75
March 2027 9.7% 300
December 2036 9.7% 200
---------
$ 2,400
=========
</TABLE>
TCIC is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps 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 Swaps is the estimated amount that
TCIC would pay or receive to terminate the agreements at September 30,
1997, taking into consideration current interest rates and the current
creditworthiness of the counterparties. At September 30, 1997, TCIC
would be required to pay an estimated $2 million to terminate the Fixed
Rate Agreements and an estimated $8 million to terminate the Variable
Rate Agreements.
In addition, on September 11, 1997, TCIC entered into an Interest Rate
Swap pursuant to which it pays a variable rate based on the LIBOR rate
(6.1% at September 30 ,1997) and receives a variable rate based on the
Constant Maturity Treasury Index (6.4% at September 30, 1997) on a
notional amount of $400 million. As of September 30, 1997, no payments
or receipts had been made pursuant to such agreement. At September 30,
1997, the Company would be required to pay an estimated $2 million to
terminate such agreement.
TCIC is required to maintain unused availability under bank credit
facilities to the extent of outstanding commercial paper. At September
30, 1997, TCIC had approximately $1.6 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.
(continued)
I-12
<PAGE> 14
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(7) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of the
Company
In 1996 and 1997, the Company, through certain subsidiary trusts, (the
"Trusts"), issued preferred securities as follows:
<TABLE>
<CAPTION>
Subsidiary Trust Interest Rate Face Amount
---------------- ------------- -----------
in millions
<S> <C> <C>
TCI Communications Financing I 8.72% $ 500
TCI Communications Financing II 10.00% 500
TCI Communications Financing III 9.65% 300
TCI Communications Financing IV 9.72% 200
----------
$ 1,500
==========
</TABLE>
The Trusts exist for the exclusive purpose of issuing the Trust
Preferred Securities and investing the proceeds thereof into
Subordinated Deferrable Interest Notes (the "Subordinated Debt
Securities") of the Company. The Subordinated Debt Securities have
interest rates equal to the interest rate of the corresponding Trust
Preferred Securities and have maturity dates ranging from 30 to 49
years from the date of issuance. 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 the Subordinated Debt Securities, the Trust Preferred
Securities will be mandatorily redeemable. The Company effectively
provides a full and unconditional guarantee of the Trusts' obligations
under the Trust Preferred Securities.
The Trust Preferred Securities are presented together in a separate
line item in the accompanying consolidated balance sheets captioned
"Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely subordinated debt securities of the
Company." Dividends accrued on the Trust Preferred Securities
aggregated $96 million and $47 million during the nine months ended
September 30, 1997 and 1996, respectively, and are included in minority
interests in earnings of consolidated subsidiaries in the accompanying
consolidated financial statements.
(continued)
I-13
<PAGE> 15
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(8) Related Party Transactions
At September 30, 1997, amounts due from related parties include (i)
$160 million representing the net amount due from TCI and certain
subsidiaries of TCI pursuant to promissory notes, including accrued
interest, and (ii) $554 million representing the net amount due from
TCI pursuant to a non-interest bearing intercompany account. The net
intercompany interest income earned on the promissory notes aggregated
$11 and $9 million during the nine months ended September 30, 1997 and
1996, respectively.
Through June 30, 1997, TCI Starz, Inc. ("TCI Starz"), a subsidiary of
TCI, had a 50.1% general partnership interest in QE+ Ltd. ("QE+"),
which distributes STARZ!, a first-run movie premium programming
service. Another subsidiary of TCI, Liberty Media Corporation
("Liberty") held the remaining 49.9% partnership interest. TCIC entered
into an affiliation agreement (the "Old Affiliation Agreement") with
QE+ related to the distribution of the STARZ! service. Rates per
subscriber specified in the Old Affiliation Agreement were based upon
customary rates charged to other cable system operators.
In July 1997, Liberty and TCI Starz entered into a series of
transactions pursuant to which, among other matters, the business of
STARZ! and Encore Media Corporation ("Encore") were contributed to a
newly formed limited liability company ("Encore Media Group"). Upon
consummation of the transactions, Liberty owns 80% of Encore Media
Group and TCI Starz owns 20%.
In connection with the formation of Encore Media Group, the Old
Affiliation Agreement was canceled, and the Company and a subsidiary of
Encore Media Group entered into a new affiliation agreement (the
"Encore Media Affiliation Agreement"). Pursuant to the Encore Media
Affiliation Agreement, the Company will pay fixed monthly amounts
through 2021 in exchange for unlimited access to all of the existing
Encore and STARZ! programming services. The fixed annual amounts
increase annually from $270 million in 1998 to $360 million in 2004,
and will increase with inflation thereafter.
Charges to TCIC for programming pursuant to the Old Affiliation
Agreement and the Encore Media Affiliation Agreement aggregated $115
million and $99 million for the nine months ended September 30, 1997
and 1996, respectively.
TCIC owns an aggregate of 189,867 shares of TCI Convertible Redeemable
Participating Preferred Stock, Series F ("Series F Preferred Stock").
Each share of Series F Preferred Stock is convertible into 1,496.65
shares of Series A TCI Group Common Stock. In addition, TCIC owns
116,853,195 shares of Series A TCI Group Common Stock. Such ownership
of Series F Preferred Stock and Series A TCI Group Common Stock is
reflected as investment in TCI, at cost, in the accompanying
consolidated balance sheets.
Effective January 2, 1997, TCIC transferred its business of providing
long-distance transport of video, voice and data traffic and other
telecommunications services to TCI. Such transfer has been recorded at
carryover basis and is reflected as a $71 million net decrease in
common stockholder's equity.
(continued)
I-14
<PAGE> 16
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
During the nine months ended September 30, 1996, certain domestic cable
subsidiaries of another subsidiary of TCI were transferred to TCIC.
Such transfer was recorded at carryover basis and reflected as a $141
million net increase in common stockholder's equity.
Pursuant to an agreement between TCI Music, Inc., a subsidiary of TCI
("TCI Music"), and TCI, certain subsidiaries of TCIC are required to
deliver to TCI Music monthly revenue payments aggregating $18 million
annually (adjusted annually for inflation) through 2017. In addition,
TCIC purchases certain audio programming from TCI Music pursuant to a
ten-year affiliation agreement. During the nine months ended September
30, 1997, the aggregate amount paid by TCIC to TCI Music pursuant to
such arrangements was $7 million. Such amount is included in operating
costs and expenses in the accompanying consolidated statements of
operations.
A tax sharing agreement (as amended, the "Old Tax Sharing Agreement")
among TCI, the Company and certain other subsidiaries of TCI was
implemented effective July 1, 1995. The Old Tax Sharing Agreement
formalized certain of the elements of a 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. Under the Old Tax Sharing Agreement, the Company was
responsible to TCI for its share of consolidated income tax liabilities
(computed as if TCI were not liable for the alternative minimum tax)
determined in accordance with the Old Tax Sharing Agreement, and TCI
was responsible to the Company to the extent that the income tax
attributes generated by the Company and its subsidiaries were utilized
by TCI to reduce its consolidated income tax liabilities (computed as
if TCI were not liable for the alternative minimum tax). The tax
liabilities and benefits of such entities so determined are charged or
credited to an intercompany account between TCI and the Company. Such
intercompany account is required to be settled only upon the date that
an entity ceases to be a member of TCI's consolidated group for federal
income tax purposes. Under the Old Tax Sharing Agreement, TCI retains
the burden of any alternative minimum tax and has the right to receive
the tax benefits from an alternative minimum tax credit attributable to
any tax period beginning on or after July 1, 1995 and ending on or
before October 1, 1997.
(continued)
I-15
<PAGE> 17
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Effective October 1, 1997 (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement, as amended by
the First Amendment thereto (the "New Tax Sharing Agreement"), which
governs the allocation and sharing of income taxes by TCI Group,
Liberty Media Group and TCI Ventures Group (each a "Group"). The
Company and its subsidiaries are members of the TCI Group for purposes
of the New Tax Sharing Agreement. Effective for periods on and after
the Effective Date, federal income taxes will be computed based upon
the type of tax paid by TCI (on a regular tax or alternative minimum
tax basis) on a separate basis for each Group. Based upon these
separate calculations, an allocation of tax liabilities and benefits
will be made such that each Group will be required to make cash
payments to TCI based on its allocable share of TCI's consolidated
federal income tax liabilities (on a regular tax or alternative minimum
tax basis, as applicable) attributable to such Group and actually used
by TCI in reducing its consolidated federal income tax liability. Tax
attributes and tax basis in assets would be inventoried and tracked for
ultimate credit to or charge against each Group. Similarly, in each
taxable period that TCI pays alternative minimum tax, the federal
income tax benefits of each Group, computed as if such Group were
subject to regular tax, would be inventoried and tracked for payment to
or payment by each Group in years that TCI utilizes the alternative
minimum tax credit associated with such taxable period. The Group
generating the utilized tax benefits would receive a cash payment only
if, and when, the unutilized taxable losses of the other Group are
actually utilized. If the unutilized taxable losses expire without ever
being utilized, the Group generating the utilized tax benefits will
never receive payment for such benefits. Pursuant to the New Tax
Sharing Agreement, state and local income taxes are calculated on a
separate return basis for each Group (applying provisions of state and
local tax law and related regulations as if the Group were a separate
unitary or combined group for tax purposes), and TCI's combined or
unitary tax liability is allocated among the Groups based upon such
separate calculation.
Notwithstanding the foregoing, items of income, gain, loss, deduction
or credit resulting from certain specified transactions that are
consummated after the Effective Date pursuant to a letter of intent or
agreement that was entered into prior to the Effective Date will be
shared and allocated pursuant to the terms of the Old Tax Sharing
Agreement, as amended.
(9) Commitments and Contingencies
TCIC has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $178
million at September 30, 1997. With respect to TCIC's guarantees of
$166 million of such obligations, TCIC has been indemnified for any
loss, claim or liability that TCIC may incur, by reason of such
guarantees. 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)
I-16
<PAGE> 18
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC is a direct obligor or guarantor of the payment of certain amounts
that may be due pursuant to motion picture output, distribution and
license agreements. As of September 30, 1997, the amount of such
obligations or guarantees was approximately $116 million. The future
obligations of TCIC with respect to these agreements is not currently
determinable because such amount is dependent upon the number of
qualifying films released theatrically by certain motion picture
studios as well as the domestic theatrical exhibition receipts upon the
release of such qualifying films.
As described in note 8, TCIC has agreed to make fixed monthly payments
through 2021 to the Liberty Media Group pursuant to the Encore Media
Affiliation Agreement.
During the third quarter of 1997, TCIC committed to purchase billing
services from an unaffiliated third party pursuant to three successive
five year agreements. Pursuant to such arrangement, TCIC is obligated
to make minimum payments aggregating approximately $1.6 billion through
2012. Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.
Pursuant to certain agreements between TCI and TCI Music, subsidiaries
of TCIC are obligated to make minimum revenue and license fee payments
to TCI Music aggregating approximately $445 million through 2017. Such
minimum payments are subject to inflation and other adjustments
pursuant to the terms of the underlying agreements.
Certain key employees of TCIC hold restricted stock awards and options
with tandem SARs to acquire shares of TCI and certain TCI subsidiaries'
common stock. Estimates of the compensation related to the restricted
stock awards and 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. Although it is
reasonably possible TCIC may incur losses upon conclusion of such
matters, an estimate of any loss or range of loss cannot be made. In
the opinion of management, it is expected that amounts, if any, which
may be required to satisfy such contingencies will not be material in
relation to the accompanying consolidated financial statements.
I-17
<PAGE> 19
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction
with the Company's Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. The following discussion focuses on
material changes in trends, risks and uncertainties affecting the Company's
results of operations and financial condition. Reference should also be made to
the Company's consolidated financial statements included herein.
(1) Material changes in financial condition:
During March 1997, the Company, through special purpose entities formed
as Delaware business trusts, issued $300 million in face value of 9.65% Capital
Securities and $200 million in face value of 9.72% Trust Preferred Securities.
The Company used the net proceeds from such issuances to retire commercial paper
and repay certain other indebtedness.
In June 1997, the Company entered into an agreement with Cablevision
pursuant to which the Company agreed to contribute certain of its cable
television systems serving approximately 820,000 basic customers to Cablevision
in exchange for approximately 12.2 million newly issued Cablevision Class A
shares. Such shares represent approximately 33% of Cablevision's total
outstanding shares. Cablevision will also assume approximately $669 million of
TCI's debt. The transaction is subject to, among other matters, Cablevision
shareholder and regulatory approvals. There is no assurance that the transaction
will be consummated.
Including the Cablevision transaction described above, the Company has
signed agreements or letters of intent to contribute, within the next twelve
months, certain cable systems serving approximately 3 million basic customers to
various joint ventures. Such anticipated transactions, if consummated as
currently intended, would result in estimated reductions in debt and annual
revenue of approximately $4 billion and $1 billion, respectively. Such
transactions are subject to, among other matters, regulatory approval.
Accordingly, there is no assurance that any of such transactions will be
consummated.
On July 31, 1996, TCIC consummated the Viacom Acquisition whereby TCIC
acquired all of the common stock of Cable Sub which owned Viacom's cable systems
and related assets. The transaction was structured as a tax-free reorganization
in which Cable Sub initially transferred all of its non-cable assets, as well as
all of its liabilities other than current liabilities, to New Viacom Sub. Cable
Sub also transferred to New Viacom Sub the Loan Proceeds of the Loan Facility.
Following these transfers, Cable Sub retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay the Loan
Proceeds borrowed under the Loan Facility. Neither Viacom nor New Viacom Sub has
any obligation with respect to repayment of the Loan Proceeds. For additional
discussion of the Viacom Acquisition, see note 5 to the accompanying
consolidated financial statements.
During 1997 and 1996, the Company purchased in the open market certain
fixed-rate notes payable which had an aggregate principle balance of $190
million and $809 million, respectively. In connection with such purchases, the
Company recognized losses on early extinguishment of debt of $11 million and $62
million, respectively. Such losses related to prepayment penalties and the
retirement of deferred loan costs.
(continued)
I-18
<PAGE> 20
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(1) Material changes in financial condition (continued):
Also, during the nine months ended September 30, 1996, certain
subsidiaries of the Company terminated, at such subsidiaries' option, certain
revolving bank credit facilities with aggregate commitments of approximately $2
billion and refinanced certain other bank credit facilities. In connection with
such termination and refinancings, the Company recognized a loss on early
extinguishment of debt of $11 million related to the retirement of deferred loan
costs.
At September 30, 1997, subsidiaries of the Company had approximately
$1.6 billion of availability in unused lines of credit, excluding amounts
related to lines of credit which provide availability to support commercial
paper. Although such subsidiaries were in compliance with the restrictive
covenants contained in their credit facilities at said date, additional
borrowings under the credit facilities are subject to the subsidiaries'
continuing compliance with such restrictive covenants after giving effect to
such additional borrowings. Such restrictive covenants require, among other
things, the maintenance of certain earnings, specified cash flow and financial
ratios (primarily the ratios of cash flow to total debt and cash flow to debt
service, as defined), and include certain limitations on indebtedness,
investments, guarantees, dispositions, stock repurchases and/or dividend
payments. See note 6 to the accompanying consolidated financial statements for
additional information regarding the material terms of the subsidiaries' 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, compensation relating
to stock appreciation rights and adjustments to compensation relating to stock
appreciation rights) ($2,031 million and $1,632 million, for the nine months
ended September 30, 1997 and 1996, respectively) to interest expense ($803
million and $760 million, for the nine months ended September 30, 1997 and 1996,
respectively), is determined by reference to the consolidated statements of
operations. The Company's interest coverage ratio was 253% and 215% for the nine
months ended September 30, 1997 and 1996, respectively. Management of the
Company believes that the foregoing interest coverage ratio is adequate in light
of the relative predictability of its cable television operations and interest
expense, 50% of which results from fixed rate indebtedness. However, the
Company's current intent is to reduce its outstanding indebtedness such that its
interest coverage ratio could be increased. There is no assurance that the
Company will be able to achieve such objective. 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.
(continued)
I-19
<PAGE> 21
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(1) Material changes in financial condition (continued):
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 ($1,285 million and $769
million for the nine months ended September 30, 1997 and 1996, respectively)
generally 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. Prior to 1997, amounts expended by TCIC for its investing activities
exceeded net cash provided by operating activities. The Company has reevaluated
its capital expenditure strategy and currently anticipates that it will expend
significantly less for property and equipment in 1997 than it did in 1996. In
this regard, the amount of capital expended by the Company for property and
equipment was $324 million during the nine months ended September 30, 1997, as
compared to $1,433 million during the corresponding period in 1996. The Company
currently estimates that it will spend between $550 million and $600 million for
capital expenditures during 1997. To the extent that net cash provided by
operating activities exceeds net cash used in investing activities in 1997, the
Company currently anticipates that such excess cash will initially be used to
reduce outstanding debt.
In the event the Company is unable to achieve such objectives,
management believes that net cash provided by operating activities, the ability
of the Company and its subsidiaries to obtain additional financing (including
the subsidiaries available lines of credit and access to public debt markets),
issuances and sales of the Company's equity or equity of its subsidiaries, and
proceeds from disposition of assets will provide adequate sources of short-term
and long-term liquidity in the future. See the Company's consolidated statements
of cash flows included in the accompanying consolidated financial statements.
TCIC has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $178 million at
September 30, 1997. With respect to TCIC's guarantees of $166 million of such
obligations, TCIC has been indemnified for any loss, claim or liability that
TCIC may incur, by reason of such guarantees. 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.
TCIC has agreed to make fixed monthly payments through 2021 to Liberty
Media Group pursuant to the Encore Media Affiliation Agreement. The fixed annual
amounts increase annually from $270 million in 1998 to $360 million in 2004, and
will increase with inflation thereafter.
During the third quarter of 1997, TCIC committed to purchase billing
services from an unaffiliated third party pursuant to three successive five year
agreements. Pursuant to such arrangement, TCIC is obligated to make minimum
payments aggregating approximately $1.6 billion through December 2012.
Such minimum payments are subject to adjustment pursuant to the terms of the
underlying agreements.
Pursuant to certain agreements between TCI and TCI Music, the TCI Group
is obligated to make minimum revenue and license fee payments to TCI Music
aggregating approximately $445 million through 2017. Such minimum payments are
subject to inflation and other adjustments pursuant to the terms of the
underlying agreements.
(continued)
I-20
<PAGE> 22
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(1) Material changes in financial condition (continued):
TCIC is a direct obligor or guarantor of the payment of certain amounts
that may be due pursuant to motion picture output, distribution and license
agreements. As of September 30, 1997, the amount of such obligations or
guarantees was approximately $116 million. The future obligations of TCIC with
respect to these agreements is not currently determinable because such amount is
dependent upon the number of qualifying films released theatrically by certain
motion picture studios as well as the domestic theatrical exhibition receipts
upon the release of such qualifying films.
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),
through net cash provided by their own operating activities and in certain
circumstances through capital contributions from their partners.
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 Swaps.
Pursuant to the Interest Rate Swaps, the Company (i) pays fixed interest rates
ranging from 7.1% to 9.3% and receives variable interest rates on notional
amounts of $410 million at September 30, 1997 and (ii) pays variable interest
rates and receives fixed interest rates ranging from 4.8% to 9.7% on notional
amounts of $2,400 million at September 30, 1997. During the nine months ended
September 30, 1997 and 1996, the Company's net payments pursuant to the Fixed
Rate Agreements were less than $1 million and $3 million, respectively; and the
Company's net receipts pursuant to the Variable Rate Agreements were $1 million
and $11 million, respectively. The Company is exposed to credit losses for the
periodic settlements of amounts due under the Interest Rate Swaps 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. See note 6 to the
accompanying consolidated financial statements for additional information
regarding Interest Rate Swaps.
In addition, on September 11, 1997 TCIC entered into an Interest Rate
Swap pursuant to which it pays a variable rate based on the LIBOR rate (6.1% at
September 30, 1997) and receives a variable rate based on the Constant Maturity
Treasury Index (6.4% at September 30, 1997) on a notional amount of $400
million. As of September 30, 1997, no payments or receipt had been made pursuant
to such agreement. At September 30, 1997, the Company would be required to pay
an estimated $2 million to terminate such agreement.
At September 30, 1997, after considering the net effect of the
aforementioned Interest Rate Swaps, TCIC had $6,745 million (or 50%) of
fixed-rate debt and $6,867 million (or 50%) of variable-rate debt. Accordingly,
in an environment of rising interest rates, the Company could experience an
increase in its interest expense.
I-21
<PAGE> 23
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(2) Material changes in results of operations:
Revenue
The operation of the Company's cable television systems is regulated at
the federal, state and local levels. The Cable Television Consumer Protection
and Competition Act of 1992 and the Telecommunications Act of 1996
(collectively, the "Cable Acts") established rules under which the Company's
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are regulated if a complaint is filed or if the
appropriate franchise authority is certified. Approximately 78% of the Company's
basic customers are served by cable television systems that are subject to such
rate regulation.
During the nine months ended September 30, 1997, 72% of the Company's
revenue was derived from Regulated Services. As noted above, any increases in
rates charged for Regulated Services are regulated by the Cable Acts. Moreover,
competitive factors may limit the Company's ability to increase its service
rates.
Through December 4, 1996, the Company had an investment in a direct
broadcast satellite partnership, PRIMESTAR Partners L.P. ("Primestar").
Primestar provides programming and marketing support to each of its cable
partners who provide satellite television service to their customers. On
December 4, 1996, TCI distributed (the "Satellite Spin-off") to the holders of
shares of Series A TCI Group Stock and Series B TCI Group Stock all of the
issued and outstanding common stock of TCI Satellite Entertainment, Inc.
("Satellite"). At the time of the Satellite Spin-off, Satellite's assets and
operations included the Company's interest in Primestar, the Company's business
of distributing Primestar programming and two communications satellites. As a
result of the Satellite Spin-off, Satellite's operations are no longer
consolidated with those of the Company.
Revenue decreased 1% for the three months ended September 30, 1997, as
compared to the corresponding period of 1996. Exclusive of an increase in
revenue due to acquisitions (2%), and a decrease in revenue due to the Satellite
Spin-off (6%), revenue increased 3%. Such increase was primarily the result of a
4% increase in basic revenue, a 7% decrease in premium revenue and a 2% increase
in other revenue. During the three months ended September 30, 1997, TCIC
experienced a 6% increase in its average basic rate, a 2% decrease in the number
of average basic customers, a 10% increase in its average premium rate and a 16%
decrease in the number of average premium customers.
Revenue increased 6% for the nine months ended September 30, 1997, as
compared to the corresponding period of 1996. Exclusive of an increase in
revenue due to acquisitions (7%), and a decrease in revenue due to the Satellite
Spin-off (6%), revenue increased 5%. Such increase was primarily the result of
an 8% increase in basic revenue, a 5% decrease in premium revenue and a 1%
increase in other revenue. During the nine months ended September 30, 1997, TCIC
experienced a 10% increase in its average basic rate, a 1% decrease in the
number of average basic customers, a 6% increase in its average premium rate and
a 10% decrease in the number of average premium customers.
(continued)
I-22
<PAGE> 24
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(2) Material changes in results of operations (continued):
Operating Costs and Expenses
Operating expenses increased 4% and 10% for the three months and nine
months ended September 30, 1997, respectively, as compared to the corresponding
periods of 1996. Exclusive of the effects of acquisitions, net of dispositions,
such expenses increased 6% and 8%, respectively. Programming expenses accounted
for the majority of such increases. The Company cannot determine whether, and to
what extent, increases in the cost of programming will affect its future
operating costs. However, due to TCIC's obligations under the Encore Media
Affiliation Agreement, it is anticipated that TCIC's programming costs with
respect to STARZ! And Encore will increase in 1998 and future periods. See note
8 to the accompanying consolidated financial statements.
Selling, general and administrative expenses decreased 27% and 23% for
the three months and nine months ended September 30, 1997, as compared to the
corresponding periods of 1996. Exclusive of the effects of acquisitions, net of
dispositions, such expenses decreased 14% for each period. Such decrease is due
primarily to reduced marketing and general overhead expenses and a reduction in
salaries and related payroll expenses due to work force reductions in the fourth
quarter of 1996 for both the three and nine months ended September 30, 1997, as
well as a decrease in third party consulting services for the three months ended
September 30, 1997. The Company increased the level of its marketing
expenditures during the third quarter of 1997. Depending on the effectiveness of
such increased expenditures, the Company may determine to maintain or increase
the level of such expenditures in future periods.
The decrease in the Company's depreciation and amortization expense
in 1997 is the result of the net effect of a decrease due to the Satellite
Spin-off partially offset by increases due to acquisitions and capital
expenditures.
The Company records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees. Such compensation is
subject to future adjustment based upon market value, and ultimately, on the
final determination of market value when the rights are exercised or the
restricted stock awards are vested.
Other Income and Expenses
Interest expense aggregated $257 million and $803 million for the three
months and nine months ended September 30, 1997, respectively, as compared to
$267 million and $760 million for the corresponding periods in 1996. Such
changes are due to increased debt balances as a result of the Viacom Acquisition
in August 1996 as well as a lower weighted average interest rate in 1997. See
note 5 to the accompanying consolidated financial statements.
(continued)
I-23
<PAGE> 25
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(2) Material changes in results of operations (continued):
Included in share of losses of affiliates for the three months and nine
months ended September 30, 1996 was $43 million and $145 million, respectively,
attributable to the Company's investment in Sprint Spectrum and TCG. Effective
December 31, 1996, the Company transferred these investments to TCI. As such,
the Company no longer reflects share of losses from such investments.
Minority interests in earnings of consolidated subsidiaries aggregated
$46 million and $127 million for the three months and nine months ended
September 30, 1997, respectively, as compared to $28 million and $43 million for
the corresponding periods in 1996. The majority of such change is due to the
issuance of additional Trust Preferred Securities in May 1996 and March 1997 and
the accrual of dividends on preferred securities issued in August 1996 by a
subsidiary of the Company. See note 7 to the accompanying consolidated financial
statements.
During the three months ended September 30, 1997, TCIC recognized a $29
million loss in connection with the disposition of certain preferred stock.
Net Loss
As a result of the above described fluctuations in the Company's
results of operations, TCIC's net loss (before preferred stock dividend
requirements) of $38 million for the three months ended September 30, 1997
changed by $36 million, as compared to TCIC's net loss (before preferred stock
dividend requirements) of $74 million for the corresponding period of 1996, and
TCIC's net loss (before preferred stock dividend requirements) of $12 million
for the nine months ended September 30, 1997 changed by $256 million, as
compared to TCIC's net loss (before preferred stock dividend requirements) of
$268 million for the corresponding period of 1996.
I-24
<PAGE> 26
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no new material legal proceedings or material developments
in previously reported legal proceedings during the quarter ended
September 30, 1997 to which TCI or any of its consolidated subsidiaries
is a party or of which any of its property is the subject, except as
follows:
As previously reported, on September 30, 1994, an action caption The
Carter Revocable Trust by H. Allen Carter and Sharlynn Carter as
Trustees 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. A tentative Settlement has been
reached pending final approval and documentation.
As previously reported, on September 30, 1994, an action caption 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. A tentative Settlement has been reached
pending final approval and documentation.
(continued)
II-1
<PAGE> 27
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
Interactive Network, Inc. Shareholder Litigation (No. C95-0026 DLJ,
Northern District of California.) In January of 1995, two class action
complaints ("Actions") were filed against Interactive Network, Inc.
("Interactive") and certain of its then current and former officers and
directors (collectively the "Interactive Defendants") in the United
States District Court for the Northern District of California which
sought unspecified damages for alleged violations of the disclosure
requirements of the federal securities laws. The actions were filed on
behalf of a class of shareholders that purchased the stock of
Interactive during the period of August 15, 1994 through November 22,
1994. Pursuant to an order of the Court, the Actions were consolidated
and in April 1995, a Consolidated Amended Class Action Complaint
captioned In re Interactive Network Inc. Securities Litigation
("Consolidated Case") was filed in the same court which sought damages
against the Interaction Defendants for violation of the federal
securities law disclosure requirements during the class period May 2,
1994 through March 31, 1995. On or about January 13, 1997, Plaintiffs
filed a Fourth Amended Complaint, seeking damages against the
Interactive Defendants and Tele-Communications, Inc., TCI
Communications, Inc., TCI Development Corporation, and Gary Howard
(collectively, "the TCI Defendants") for violation of federal
securities law disclosure requirements during the class period May 16,
1994 through March 31, 1995. In addition, the Fourth Amended Complaint
sought damages against the TCI Defendants based upon the allegation
that they were "controlling persons" of Interactive at the time the
alleged wrongs took place. On January 30, 1997, the TCI Defendants and
the Interactive Defendants separately moved to dismiss the Fourth
Amended Complaint on the ground that it failed to state a cause of
action against them. On April 4, 1997, the Court issued an order
dismissing, with prejudice, the primary liability claims against the
TCI Defendants. The Court granted the Plaintiffs leave to amend their
Complaint as to their claim for violation of federal securities law
disclosure requirements against the Interactive Defendants. The Court
further granted Plaintiffs leave to amend their "controlling person"
claim against the TCI Defendants. On or about April 30, 1997,
Plaintiffs filed a Fifth Amended Complaint seeking damages for
violation of federal securities law disclosure requirements against the
Interactive and TCI Defendants during the class period January 19, 1994
through March 31, 1995. The Fifth Amended Complaint also seeks damages
against the TCI Defendants as "controlling persons." On October 9,
1997, the Court granted the Interactive Defendants' Motion to Dismiss
with Prejudice substantial portions of the Fifth Amended Complaint. The
remaining claims are limited to a class of just several months. The
Company's response to the Fifth Amended Complaint, as so limited, is
due on November 18, 1997. 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.
(continued)
II-2
<PAGE> 28
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
Interactive Network, Inc. v. Tele-Communications, Inc., et al.(Alameda
County Superior Court, Case No. 754933-7). On October 20, 1995,
Interactive Network, Inc. ("Interactive") filed a complaint in the
Superior Court of California for the County of Alameda naming
Tele-Communications, Inc., TCI Communications, Inc., TCI Development
Corporation, TCI Programming Holding Co., TCI Cablevision of
California, Inc. ("the TCI defendants") and Gary Howard as defendants.
The Complaint alleges claims for breach of fiduciary duty, abuse of
control, intentional interference with prospective business advantage,
intentional interference with contractual relations, breach of
contract, constructive fraud, fraud and deceit, negligent
misrepresentation, misappropriation of corporate assets, unfair
competition and unjust enrichment arising out of the business
relationship between the TCI defendants and Interactive. Plaintiffs
twice amended the complaint, following a series of motions attacking
the pleadings by the TCI defendants, resulting in the Third Amended
Complaint. The Third Amended Complaint alleges that the TCI defendants
breached various duties owed to Interactive as a result of the TCI
defendants' purported status as a controlling shareholder. The
Complaint further alleges that the TCI defendants fraudulently promised
to provide financing to Interactive and fraudulently induced
Interactive to enter into various transactions. The Third Amended
Complaint seeks various unspecified compensatory and punitive damages
as well as injunctive relief. On June 17, 1996, certain of the TCI
defendants, on their own behalf and as the agent of various additional
secured creditors, filed a cross-complaint for breach of contract
against Interactive seeking in excess of $24 million pursuant to
various promissory notes entered into by Interactive. On July 22, 1996,
Interactive filed a "cross-complaint to the cross-complaint" alleging
economic duress, breach of the implied covenant of good faith and fair
dealing, fraud and breach of contract in connection with the promissory
notes entered into by Interactive. The parties have completed discovery
and trial is currently scheduled for November 21, 1997. During expert
discovery, Interactive's experts estimated Interactive's purported
damages to be in excess of $250,000,000. Management believes that the
Company has strong defenses to Interactive's claims, and that an
adverse result on those claims in the matter is not likely. Management
further believes that a favorable result on the cross-complaint is
likely. Accordingly, based upon the facts available, management
believes that, although no assurance can be given as to the outcome of
this action the ultimate disposition should not have a material adverse
effect upon the financial condition of the Company.
(continued)
II-3
<PAGE> 29
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
Clarence L. Elder, both individually and as a the group Representative
vs. Tele-Communications, Inc. et al. As previously reported, on
December 11, 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. On September 24, 1997, the Maryland Court of Special
Appeals affirmed in all but one respect the Circuit Court's summary
judgment in favor of the defendants. The court found that the
settlement agreement at issue is ambiguous concerning the number of
Limited Partnership units the plaintiffs were entitled to purchase
(186.6 or 311), but rule in favor of defendants concerning the price at
which the units must be sold and all other issues.
Plaintiffs have filed a motion for reconsideration, and have indicated
that they will petition for certiorari in the Court of Appeals if their
motion for reconsideration is denied. If the Court of Special Appeals
decision is not disturbed, the only issue for trial will be the number
of units Plaintiffs are entitled to purchase at fair market value, as
determined in accordance with the appraisal previously obtained by
defendants. Based upon the facts available, management believes that,
although no assurance can be given as to the outcome of this action,
the ultimate disposition should not have a material adverse effect upon
the financial condition of the Company.
Les Dunnaville v. United Artists Cable, et al. As previously reported,
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 Bushey (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). 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
March 18, 1996. The plaintiffs appealed the Circuit Court ruling to the
Maryland Court of Special Appeals. In a decision dated June 5, 1997,
the Maryland Court of Special Appeals affirmed the trial court's grant
of summary judgment in all respects except for one portion of the
defamation claim involving alleged statements of Roy Harbert. The trial
court is scheduled to try the one remaining claim on April 2, 1998.
Based upon the facts available, management believes that, although no
assurance can be given as to the outcome of this action, the ultimate
disposition should not have a material adverse effect upon the
financial condition of the Company.
(continued)
II-4
<PAGE> 30
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
Donald E. Watson v. Tele-Communications, Inc., et al. As previously
reported, 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. In an order dated
September 25, 1997, the Court granted summary judgment in favor of
defendants on the claims of intentional misrepresentations, tortious
interference with prospective advantage, tortious interference with
contract, and discrimination on the basis of race. The remaining claims
will be tried in a trial beginning on December 3, 1997. 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.
Louis Beverly v. Tele-Communications, Inc., et al. As previously
reported, 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. 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. United Artists Cable of Baltimore was also dismissed from
the Title VII claim for race discrimination. The parties have agreed to
a settlement. Such settlement represents the final resolution of this
matter, and accordingly, it will not be reported in future filings.
C. Lamont Smith, et al. v. Mile Hi Cable Partners, et al. As previously
reported, on December 9, 1996, C. Lamont Smith and The Black Movie
Channel, LLC filed suit in the District Court for the City and County
of Denver against subsidiaries of Tele-Communications, Inc. (TCI
Communications, Inc.; Mile Hi Cable Partners, LP; Liberty Media
Corporation and Encore Media Corporation); Black Entertainment
Television; Steven Santamaria; Media Management Group, Inc. and
Virginia Butler. On August 5, 1997, the trial court entered an Order
dismissing all of plaintiffs' claims against defendants Liberty and
Encore as well as plaintiffs' first, second, fifth, and a portion of
the twelfth claim for relief against the remaining Company defendants.
Currently pending before the trial court is a motion filed by the
remaining Company defendants for judgment on the pleadings with respect
to plaintiffs' other claims. Based upon the facts available, management
believes that, although no assurance can be given as to the outcome of
this action, the ultimate disposition should not have a material
adverse effect upon the financial condition of the Company.
II-5
<PAGE> 31
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Item 1. Legal Proceedings (continued).
Late Fee Litigation. The Company has been named in a number of
purported and certified class actions in various jurisdictions
concerning late fee charges and practices. Certain cable systems
directly or indirectly owned or managed by the Company charge late fees
to subscribers who do not pay their cable bills on time. These late fee
cases challenge the amount of the late fees and the practices under
which they are imposed. The Plaintiffs raise claims under state
consumer protection statutes, other state statutes, and the common law.
Plaintiffs generally allege that the late fees charged by various cable
systems are not reasonably related to the costs incurred by the cable
systems as a result of the late payment. Plaintiffs seek to require
cable systems to reduce their late fees on a prospective basis and to
provide compensation for alleged excessive late fee charges for past
periods. These cases are at various stages of the litigation process.
Based upon the facts available management believes that, although no
assurances can be given as to the outcome of these actions, the
ultimate disposition of these matters should not have a material
adverse effect upon the financial condition of the Company.
Item 6. Exhibit and Reports on Form 8-K.
(a) Exhibit -
(10) Material Contracts
TaxSharing Agreement, effective for periods on and after
October 1, 1997, among TCI and certain entities
attributed to each of the TCI Group, the Liberty
Media Group and the TCI Ventures Group, as amended
by the First Amendment to the Tax Sharing Agreement,
dated as of October 1, 1997, among TCI and certain
entities attributed to each of the TCI Group, the
Liberty Media Group and the TCI Ventures Group.
Incorporated herein by reference to Exhibit
9(c)2 to TCI's Schedule 13E-4/A (Amendment
No. 2), Issuer Tender Offer Statement, dated
September 5, 1997 (Commission File
No. 0-20421).
(27) TCI Communications, Inc. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended September 30,
1997:
<TABLE>
<CAPTION>
Date of Item
Report Reported Financial Statements Filed
------- -------- --------------------------
<S> <C> <C>
September 22, 1997 Item 5 None.
</TABLE>
II-6
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCI COMMUNICATIONS, INC.
Date: November 13, 1997 By: /s/ Leo J. Hindery, Jr.
--------------------------------
Leo J. Hindery, Jr.
President and Chief
Operating Officer
Date: November 13, 1997 By: /s/ Stephen M. Brett
--------------------------------
Stephen M. Brett
Executive Vice President
Date: November 13, 1997 By: /s/ Bernard W. Schotters
--------------------------------
Bernard W. Schotters
Senior Vice President
(Principal Financial Officer)
Date: November 13, 1997 By: /s/ Gary K. Bracken
--------------------------------
Gary K. Bracken
Senior Vice President of
TCI Communications, Inc.
(Principal Accounting Officer)
II-7
<PAGE> 33
EXHIBIT INDEX
-------------
The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:
(10) Material Contracts
Tax Sharing Agreement, effective for periods on and after
October 1, 1997, among TCI and certain entities
attributed to each of the TCI Group, the Liberty
Media Group and the TCI Ventures Group, as amended
by the First Amendment to the Tax Sharing Agreement,
dated as of October 1, 1997, among TCI and certain
entities attributed to each of the TCI Group, the
Liberty Media Group and the TCI Ventures Group.
Incorporated herein by reference to Exhibit
9(c)2 to TCI's Schedule 13E-4/A (Amendment
No. 2), Issuer Tender Offer Statement, dated
September 5, 1997 (Commission File
No. 0-20421).
(27) TCI Communications, Inc. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TCI COMMUNICATIONS, INC.'S QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000096903
<NAME> TCI COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 307
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,158
<DEPRECIATION> 4,384
<TOTAL-ASSETS> 22,292
<CURRENT-LIABILITIES> 0
<BONDS> 13,612
232
0
<COMMON> 1
<OTHER-SE> (559)
<TOTAL-LIABILITY-AND-EQUITY> 22,292
<SALES> 0
<TOTAL-REVENUES> 4,612
<CGS> 0
<TOTAL-COSTS> 1,677
<OTHER-EXPENSES> 1,062
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 803
<INCOME-PRETAX> 5
<INCOME-TAX> 17
<INCOME-CONTINUING> (12)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
