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UNITED STATES
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, 1996
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.
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(Exact name of Registrant as specified in its charter)
State of Delaware 84-0588868
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
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(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
10% Trust Preferred Securities
9.65% Capital Securities
9.72% Trust Preferred Securities
Securities registered pursuant to Section 12(g) of the Act:
Cumulative Exchangeable Preferred Stock, Series A
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
--- ---
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.
---
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, 1997, was $188,025,000.
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
January 31, 1997, was:
Class A common stock - 811,655 shares; and
Class B common stock - 94,447 shares.
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement to be used in
connection with the 1997 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Form 10-K.
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TCI COMMUNICATIONS, INC.
1996 ANNUAL REPORT ON FORM 10-K
Table of Contents
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Page
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PART I
<S> <C>
Item 1. Business ...................................................... I- 1
Item 2. Properties .................................................... I-14
Item 3. Legal Proceedings ............................................. I-14
Item 4. Submission of Matters to a Vote of Security Holders ........... I-19
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-13
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............. II-13
PART III
Item 10. Directors and Executive Officers of the Registrant ............ III- 1
Item 11. Executive Compensation ........................................ III- 1
Item 12. Security Ownership of Certain Beneficial Owners
and Management ...................................... III- 1
Item 13. Certain Relationships and Related Transactions ................ III- 1
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ................................. IV- 1
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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. TCIC is a subsidiary of Tele-Communications, Inc. ("TCI").
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.
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 $625,796,100 in aggregate face
value of shares of 5% Class A Senior Cumulative Exchangeable Preferred Stock of
Cable Sub.
During 1996, TCIC issued 4.6 million shares of Series A Cumulative
Exchangeable Preferred Stock in a public offering for net cash proceeds of $223
million. In addition, subsidiaries of TCIC issued $500 million in face value of
8.72% Trust Originated Preferred SecuritiesSM and $500 million in face value of
10% Trust Preferred Securities for aggregate net cash proceeds of $971 million.
TCIC used the proceeds from such issuances to retire commercial paper and to
repay certain other indebtedness.
During March 1997, TCIC, through certain subsidiaries, issued $300
million in face value of 9.65% Capital Securities and $200 million in face
value of 9.72% Trust Preferred Securities. TCIC used the net proceeds from such
issuances to retire commercial paper and repay certain other indebtedness.
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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 Tele-Communications, Inc. Series A TCI Group common stock and
Tele-Communications, Inc. Series B TCI Group common 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.
Effective December 31, 1996, TCIC transferred its investments in
businesses which provide wireless communications services to residential and
business customers nationwide and its investment in Teleport Communications
Group Inc., which is a competitive local exchange carrier, to TCI. In addition,
effective December 31, 1996, TCIC transferred certain assets related to its
wireline residential telephony business to TCI.
Effective January 2, 1997, TCIC transferred its business of providing
long-distance transport of video, voice and data traffic and other
telecommunications services, primarily to inter-exchange carriers on a
wholesale basis using a digital broadband microwave network located throughout
a 14 state region in the western United States, to TCI.
(b) Financial Information about Industry Segments
At December 31, 1996, the Company operated 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.
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. Optical fiber, when used as an alternative to
coaxial cable, can improve system reliability and provide for additional
capacity which should enable the provision of incremental revenue-producing
services. During 1992, the Company began upgrading and installing optical fiber
in its cable systems.
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At December 31, 1996, approximately 68% of the Company's cable
television systems had bandwidth capacities ranging from 400 megahertz to 750
megahertz, which generally permit a cable television system to carry from 54 to
112 analog channels, respectively. Compressed digital video technology converts
on average as many as fourteen 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 is
uplinked to a satellite, which sends 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 converts the digital signal back into analog channels that can be
viewed on a normal television set. The Company conducted a beta test of its
digital cable television service in late 1996 and began offering such service
to selected paying customers in three markets during the first quarter of 1997.
Imedia, a small high technology firm, has developed a technology which
represents a significant advancement in increasing the number of digital
television programs delivered over a single satellite transponder or channel on
a cable system. Without requiring any change in fielded digital receiving
equipment in either the cable system headend or the customer's home, the
introduction of Imedia's StatMux(TM) technology significantly increases the
transportation capacity of the operator's system. The Company anticipates that
it will incorporate such technology with its digital service in strategic cable
systems during 1997.
Service Charges. The Company offers a limited "basic service" ("Basic
TV") (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 $11.00, and the monthly service fee for the "expanded" tier generally
ranges from $13.00 to $18.00. 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 $4.00 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.
As further enhancements to their cable services, customers may
generally rent converters and/or a remote control device for a monthly charge
ranging from $0.10 to $5.00 each, as well as purchase a channel guide for a
monthly charge ranging from $1.50 to $2.00. Also a nonrecurring installation
charge (which is limited by the Federal Communications Commission's ("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.
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Customer Data. TCIC operates its cable television systems either
through its operating divisions or through certain other subsidiaries or
affiliated companies. Basic and Pay-TV cable served by TCIC and its
consolidated subsidiaries are summarized as follows (amounts in millions):
<TABLE>
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Basic TV customers at December 31,
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1996 1995 1994 1993 1992
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Managed through TCIC's operating
divisions (1) 13.4 11.9 10.7 9.8 9.4
Other non-managed subsidiaries 0.5 0.6 0.5 0.5 0.5
------- ------- ------- ------- -------
13.9 12.5 11.2 10.3 9.9
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<TABLE>
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Pay TV subscriptions at December 31,
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1996 1995 1994 1993 1992
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<S> <C> <C> <C> <C> <C>
Managed through TCIC's operating
divisions (1) 14.7 13.4 11.5 9.5 8.8
Other non-managed subsidiaries 0.4 0.4 0.4 0.4 0.5
------- ------- ------- ------- -------
15.1 13.8 11.9 9.9 9.3
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(1) Reflects approximately 100,000 customers in 1995 and 1994 owned by
another subsidiary of TCI.
TCIC operates cable television systems throughout the continental
United States and Hawaii.
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, not to exceed
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.
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.
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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 1,200 of the Company's franchises expire within the next
five years. This represents approximately twenty-seven percent of the
franchises held by the Company and involves approximately 4.5 million basic
subscribers.
The Company owns and operates the National Digital Television Center
("NDTC") in Denver. This facility provides services to the cable television and
satellite entertainment industries which include production, digital video
compression, satellite uplinking and transponder management as well as signal
authorization and encryption. The NDTC's "Headend in the Sky" ("HITS") provides
cable operators with the ability to securely encrypt and control viewer access
for analog and digital subscribers from a single centralized location. In
addition to HITS, the NDTC contains 20,000 square feet of video production
space and operates post production facilities in New York, Hollywood and Hong
Kong.
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 and Internet service providers. Both the 1992 Cable Act
and the 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.
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DBS. During 1996, the Company has experienced a competitive impact from
medium power and high power direct broadcast satellites ("DBS") that use high
frequencies to transmit signals that can be received by dish antennas ("HSDs")
much smaller in size than traditional HSDs. The Primestar partners distribute a
multi-channel programming service via a medium power communications satellite to
HSDs of approximately 3 feet in diameter. Prior to the Satellite Spin-off, the
Company provided this satellite delivered service. DirecTv, Inc., United States
Satellite Broadcasting Corporation and EchoStar Communications Corp.
("Echostar"), transmit from high power satellites and generally use smaller
dishes to receive their signals. Alphastar, Inc. began offering medium power
service in the second quarter of 1996. On February 24, 1997, The News
Corporation Limited ("News Corp.") and EchoStar announced that News Corp. will
acquire a 50% interest in EchoStar and that the companies will combine their DBS
businesses into a new company, which will operate under the name Sky. The two
companies contend that Sky, which is scheduled to launch in early 1998, will
offer 500 channels of digital television on a nationwide basis (not all of which
would be available to each subscriber), Internet services and local broadcast
network television signals, capable of reaching more than 50% of all television
households upon the launch of Sky and 75% of all television households by the
end of 1998. DBS operators have the right to distribute substantially all of the
significant cable television programming services currently carried by cable
television systems. Estimated DBS customers nationwide increased from
approximately 2.2 million at the end of 1995 to approximately 4.4 million at the
end of 1996, and the Company expects that competition from DBS will continue to
increase.
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 technology which requires a customer to rent or own one set-top box
(which is significantly more expensive than a cable converter) for each
television on which they wish to view DBS programming.
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 growth in
DBS subscribers.
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Telephone Company Entry. The 1996 Telecom Act eliminated the statutory
and regulatory restrictions that prevented local 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
("RBOCs"), 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 wireless cable, or through upgraded telephone
networks. The Company assumes that all major telephone companies have already
entered or soon will enter the business of providing video services. The
Company is aware that telephone companies have already built, or are in the
process of building, competing cable system facilities in a few of the
Company's franchise areas. 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.
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.
MMDS/LMDS. Another alternative method of distribution is multi-channel
multi-point distribution systems ("MMDS"), which deliver programming services
over microwave channels received by customers 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 operators
have the opportunity 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 analog channels, and thus compete
more effectively with cable television. Developments in digital 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 was expected to accelerate its growth and its
competitive impact. However, in 1996 telephone company support of MMDS appeared
to diminish as both Bell Atlantic Corporation and NYNEX Corporation suspended
their investments in two major MMDS companies. Finally, an emerging technology,
local multipoint distribution services ("LMDS"), could also pose a significant
threat to the cable television industry, if and when it becomes established.
LMDS, sometimes referred to as cellular television, could have the capability
of delivering more than 100 channels of video programming to a customer's home.
The potential impact of LMDS is difficult to assess due to the recent
development of the technology and the absence of any current fully operational
LMDS systems.
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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.
Private Cable. 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. Further, the FCC is now considering new rules that would restrict
or eliminate the ability of cable operators to maintain ownership of cable
wiring inside multi-unit buildings, thereby potentially making it less
expensive for SMATV competitors to reach those customers.
In addition to competition for customers, 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 customers, 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 by the FCC, some state governments and most local
governments. On February 8, 1996, the President signed into law the 1996
Telecom Act. This new law alters the regulatory structure governing the
nation's telecommunications providers. It removes barriers to competition in
both the cable television market and the local telephone market. Among other
things, it reduces the scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to implement numerous
rulemakings, the final outcome of which cannot yet be determined. Moreover,
Congress and the FCC have frequently revisited the subject of cable television
regulation and may do so again. Future legislative and regulatory changes could
adversely affect the Company's operations. This section briefly summarizes key
laws and regulations currently affecting the growth and operation of the
Company's cable systems.
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Cable Rate Regulation. The 1992 Cable Act imposed extensive rate
regulation on the cable television industry. All cable systems are subject to
rate regulation, unless they face "effective competition" in their local
franchise area. Under the 1992 Cable Act, the incumbent cable operator can
demonstrate "effective competition" by showing either low penetration (less
than 30% of the local population subscribes to basic service) or the presence
(measured collectively as 50% availability, 15% subscriber penetration) of
other multichannel video programming distributors ("MVPDs"). The 1996 Telecom
Act expands the existing definition of "effective competition" to create a
special test for a competing MVPD (other than a DBS distributor) affiliated
with a local exchange carrier ("LEC"). There is no penetration minimum for a
LEC affiliate to qualify as an effective competitor, but it must offer
comparable programming services in the franchise area.
Although the FCC establishes all cable rate rules, local government
units (commonly referred to as local franchising authorities or "LFAs") are
primarily responsible for administering the regulation of the lowest level of
cable -- the basic service tier ("BST"), which typically contains local
broadcast stations and public, educational and government access channels.
Before an LFA begins BST rate regulation, it must certify to the FCC that it
will follow applicable federal rules, and many LFAs have voluntarily declined
to exercise this authority. LFAs also have primary responsibility for
regulating cable equipment rates. Under federal law, charges for various types
of cable equipment must be unbundled from each other and from monthly charges
for programming services.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only
if an LFA first receives at least two complaints from local subscribers within
90 days of a CPST rate increase and then files a formal complaint with the FCC.
When new CPST rate complaints are filed, the FCC now considers only whether the
incremental increase is justified and will not reduce the previously
established CPST rate.
Under the FCC's rate regulations, the Company was required to reduce
its BST and CPST rates in 1993 and 1994, and has since had its rate increases
governed by a complicated price structure that allows for the recovery of
inflation and certain increased costs, as well as providing some incentive for
expanding channel carriage. The FCC has modified its rate adjustment
regulations to allow for annual rate increases and to minimize previous
problems associated with delays in implementing rate increases. Operators also
have the opportunity of bypassing this "benchmark" in favor of traditional
cost-of-service regulation in cases where the latter methodology appears
favorable. However, the FCC significantly limited the inclusion in the rate
base of acquisition costs in excess of the historical cost of tangible assets.
As a result, the Company pursued cost of service justifications in only a few
cases. Premium cable services offered on a per channel or per program basis
remain unregulated, as do affirmatively marketed packages consisting entirely
of new programming product.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. It also relaxes existing
uniform rate requirements by specifying that uniform rate requirements do not
apply where the operator faces "effective competition," and by exempting bulk
discounts to multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC.
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Cable Entry Into Telecommunications. The 1996 Telecom Act provides
that no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way.
Although the 1996 Telecom Act clarifies that traditional cable franchise fees
may be based only on revenues related to the provision of cable television
services, it also provides that LFAs may require reasonable, competitively
neutral compensation for management of the public rights-of-way when cable
operators provide telecommunications service. The 1996 Telecom Act prohibits
LFAs from requiring cable operators to provide telecommunications service or
facilities as a condition of a franchise grant, renewal or transfer, except
that LFAs can seek "institutional networks" as part of such franchise
negotiations. The favorable pole attachment rates afforded cable operators
under federal law can be increased by utility companies owning the poles during
a five year phase in period beginning in 2001, if the cable operator provides
telecommunications service, as well as cable service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act intended to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Review of the FCC's
initial interconnection order is now pending before the Eighth Circuit Court of
Appeals.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
allows telephone companies to compete directly with cable operators by
repealing the historic telephone company/cable company cross-ownership ban and
the FCC's video dialtone regulations. This will allow local LECs, including the
RBOCs, to compete with cable operators both inside and outside their telephone
service areas. Because of their resources, LECs could be formidable competitors
to traditional cable operators, and certain LECs have begun offering cable
service.
Under the 1996 Telecom Act, a LEC providing video programming to
customers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). LECs providing
service through an OVS can proceed without a traditional cable franchise,
although an OVS operator will be subject to general rights-of-way management
regulations and can be required to pay franchise fees to the extent it provides
cable services. To be eligible for OVS status, the LEC itself cannot occupy
more than one-third of the system's activated channels when demand for channels
exceeds supply. Nor can it discriminate among programmers or establish
unreasonable rates, terms or conditions for service.
Although LECs and cable operators can now expand their offerings
across traditional service boundaries, the general prohibitions remain on LEC
buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition. The "rural
exemption" permits buyouts where the purchased system serves an area with fewer
than 35,000 inhabitants outside an urban area, and the cable system plus any
other system in which the LEC has an interest do not represent 10% or more of
the LEC's telephone service area. The 1996 Telecom Act also provides the FCC
with the power to grant waivers of the buyout prohibition 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.
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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. Again, because of their resources, electric utilities could be
formidable competitors to traditional cable systems.
Additional Ownership Restrictions. Pursuant to the 1992 Cable Act, 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.
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.
The 1996 Telecom Act eliminates statutory restrictions on
broadcast/cable cross-ownership (including broadcast network/cable
restrictions), but leaves in place existing FCC regulations prohibiting local
cross-ownership between television stations and cable systems. The 1996 Telecom
Act also eliminates the three year holding period required under the 1992 Cable
Act's "anti-trafficking" provision. The 1996 Telecom Act leaves in place
existing restrictions on cable cross-ownership with SMATV and MMDS facilities,
but lifts those restrictions where the cable operator is subject to effective
competition. In January 1995, however, the FCC adopted regulations which permit
cable operators to own and operate SMATV systems within their franchise area,
provided that such operation is consistent with local cable franchise
requirements.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Company's business.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for commercial
satellite-delivered independent "superstations" such as WTBS). The
constitutionality of the must carry requirements has been challenged and is
awaiting a decision from the U.S. Supreme Court.
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Access Channels. LFAs can include franchise provisions requiring cable
operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires a cable system with
36 or more channels to designate a portion of its channel capacity (either 10%
or 15%) for commercial leased access by unaffiliated third parties. The FCC has
adopted rules regulating the terms, conditions and maximum rates a cable
operator may charge for use of this designated channel capacity, but use of
commercial leased access channels has been relatively limited. In February of
1997, the FCC released revised rules which mandate a modest rate reduction and
could make commercial leased access a more attractive option for third party
programmers.
"Anti-Buy Through" Provisions. Federal law requires each cable system
to permit subscribers to purchase premium or pay-per-view video programming
offered by the operator on a per-channel or a per-program basis without the
necessity of subscribing to any tier of service (other than the basic service
tier) unless the system's lack of addressable converter boxes or other
technological limitations does not permit it to do so. The statutory exemption
for cable systems that do not have the technological capability to comply
expires in December 2002, but the FCC may extend that period if deemed
necessary.
Access to Programming. To spur the development of independent cable
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors (such as DBS and
MMDS). This provision limits the ability of vertically integrated cable
programmers to offer exclusive programming arrangements to the Company.
Other FCC Regulations. In addition to the FCC regulations noted above,
there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. The FCC is
expected to impose new Emergency Alert System requirements on cable operators
in 1997. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational device or converter boxes. The former FCC
proceeding is considering ownership of cable wiring located inside multiple
dwelling unit ("MDU") complexes. If the FCC concludes that such wiring belongs
to, or can be unilaterally acquired by the MDU complex owner, it will become
easier for MDU complex owners to terminate service from the incumbent cable
operator in favor of a new entrant. The latter FCC proceeding is considering
whether cable customers should be permitted to purchase cable converters from
third party vendors. If the FCC concludes that third party sale of converters
is required, and does not make appropriate allowances for signal piracy
concerns, it may become more difficult for cable operators to combat theft of
service.
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Copyright. Cable television systems are subject to federal copyright
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenue to a federal copyright royalty pool (such percentage varies depending
on the size of the system and the number of distant broadcast television
signals carried), cable operators can obtain blanket permission to retransmit
copyrighted material on broadcast signals. The possible modification or
elimination of this compulsory copyright license is subject to continuing
review and could adversely affect the Company's ability to obtain desired
broadcast programming. In addition, the cable industry pays music licensing
fees to Broadcast Music, Inc. and is negotiating a similar arrangement with the
American Society of Composers, Authors and Publishers. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity. The 1996 Telecom Act clarified that the need
for an entity providing cable services to obtain a local franchise depends
solely on whether the entity crosses public rights of way. Federal law now
prohibits franchise authorities from granting exclusive franchises or from
unreasonably refusing to award additional franchises covering an existing cable
system's service area. Cable franchises generally are granted for fixed terms
and in many cases are terminable if the franchisee fails to comply with
material provisions. Non-compliance by the cable operator with franchise
provisions may also result in monetary penalties.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenue, cannot dictate the particular technology used by
the system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided
satisfactory services and have complied with the terms of their franchises.
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.
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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, 1996, the Company had approximately 30,500 employees.
Of these employees, approximately 1,200 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.
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 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. 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").
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<PAGE> 17
Plaintiff brought this action on behalf of himself and 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.
Defendants have filed a Motion for Summary Judgment within the scheduling
deadlines ordered by the Court. The case is set for trial on September 29,
1997. 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.
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 brought this action on behalf of himself and 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.
Defendants have filed a Motion for Summary Judgment within the scheduling
deadlines ordered by the Court. The case is set for trial on September 29,
1997. 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.
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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.
Interactive Network, Inc. Shareholder Litigation. 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 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 again sought damages against the
Interactive Defendants for violations of the disclosure requirements of the
federal securities laws, which violations allegedly occurred during the period
May 2, 1994 through March 31, 1995. On June 17, 1996, a Third Amended
Consolidated Class Action Complaint was filed in the Consolidated Case against
the Interactive Defendants and also added Tele-Communications, Inc., TCI
Communications, Inc., TCI Development Corporation and Gary Howard as defendant
parties (collectively, the "TCI Defendants"). The Third Amended Consolidated
Class Action Complaint which was served upon the TCI Defendants (except Gary
Howard) on June 28, 1996, continues to seek damages against the Interactive
Defendants for violation of disclosure requirements of the federal securities
laws and also seeks similar unspecified damages against the TCI Defendants
predicated upon the allegation that they were "controlling persons" of
Interactive at the time the alleged wrongs took place. During a mandatory
settlement conference on November 19, 1996, plaintiffs estimated their alleged
damages at $25 million. 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.
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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 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). 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 March 18,
1996. The plaintiffs have appealed the Circuit Court ruling to the Maryland
Court of Special Appeals and such appeal is pending. Based upon the facts
available, management believes that, although no assurance can be given as to
the outcome of this action, the ultimate disposition should not have a material
adverse effect upon the financial condition of the Company.
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. 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.
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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 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. 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 Court granted defendants Motion for Summary Judgment and plaintiff has
filed an appeal. 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.
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C. Lamont Smith, et al. v. Mile Hi Cable Partners, et al. 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; Steve Santamaria; Media Management Group, Inc. and
Virginia Butler. Plaintiffs assert, in part, that the defendants
misappropriated plaintiffs' concept for the development of a 24 hours a day,
seven days a week, cable or satellite premium channel which would broadcast
movies made by or featuring African Americans, as well as educational
programming and community oriented programming of interest to both the Hispanic
and Black communities. Plaintiffs claim anticipated annual net profits from
such a network would exceed $600 million. Plaintiffs also assert that the
franchise agreement with the City and County of Denver has been breached for
alleged implied covenants of good faith and fair dealing under the Denver
franchise; promissory estoppel and breach of implied contract; misappropriation
of confidential information and trade secrets; breach of confidence; breach of
fiduciary duty; as well as unjust enrichment; fraud; negligent
misrepresentation; non-disclosure and concealment; civil conspiracy; and
violation of the Colorado Antitrust Act of 1992. Plaintiffs seek an award of
consequential, special and restitutionary damages in an unspecified amount as
well as exemplary damages, prejudgment interest, expert witness fees, attorneys
fees and costs. 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.
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<PAGE> 22
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. The Company has not paid cash dividends on
its common stock and has no present intention of so doing. Payment of cash
dividends, if any, in the future will be determined by the board of directors
in light of the Company's earnings, financial condition and other relevant
considerations. The Company is a holding company and its assets consist almost
entirely of investments in its subsidiaries. As a holding company, the
Company's ability to pay dividends on any classes of its stock is dependent on
the earnings of, or other funds available to, the Company's subsidiaries and
the distribution or other payment of such earnings or other funds to the
Company in the form of dividends, loans or other advances, payment or
reimbursement of management fees and expenses and repayment of loans and
advances from the Company. Certain of the Company's subsidiaries are subject to
loan agreements that prohibit or limit the transfer of funds by such
subsidiaries to the Company in the form of dividends, loans, or advances, and
require that such subsidiaries' indebtedness to the Company be subordinate to
the indebtedness under such loan agreements. The amount of net assets of
subsidiaries subject to such restrictions exceeds the Company's consolidated
net assets.
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Item 6. Selected Financial Data.
The following tables present selected information relating to the
financial condition and results of operations of TCI Communications, Inc. (the
"Company") 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,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ---------- ---------- ---------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Property and equipment, net $ 7,192 6,988 5,579 4,935 4,562
Franchise costs, net $ 14,794 11,563 9,297 9,197 9,300
Total assets $ 23,136 20,364 15,880 16,527 16,315
Debt $ 14,318 12,635 10,712 9,900 10,285
Minority interests in equity of
consolidated subsidiaries $ 802 206 271 285 280
Redeemable preferred stock $ 232 -- -- 18 110
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts holding
solely subordinated debt securities
of the Company $ 1,000 -- -- -- --
Stockholder's(s') equity $ 14 1,729 683 2,116 1,728
Common shares outstanding (net of
shares held by subsidiaries in 1993
and 1992):
Class A common stock 1 1 1 403 382
Class B common stock -- -- -- 47 48
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ---------- ---------- --------
amounts in millions
<S> <C> <C> <C> <C> <C>
Summary Statement of
Operations Data:
Revenue $ 5,954 4,878 4,116 3,977 3,463
Operating income $ 753 803 818 916 864
Interest expense $(1,041) (962) (777) (731) (718)
Earnings (loss) from
continuing operations $ (452) (120) 94 (5) 8
Net earnings (loss) attributable
to common stockholder(s) $ (461) (120) 94 (7) (22)
</TABLE>
II-2
<PAGE> 24
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Summary of Operations
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. Due to the
significant economic interest held through its ownership of Liberty preferred
stock and Liberty common stock and other related party considerations, Old TCI
accounted for its investment in Liberty under the equity method prior to the
TCI/Liberty Combination. 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 reorganized (the "Reorganization")
it's operating structure. 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. and Discovery
Communications, Inc. were transferred to the Programming unit and (ii) Telewest
Communications, plc ("Telewest UK") was transferred to the International Cable
Programming unit ("TINTA"). In the first quarter of 1995, TCIC transferred
certain additional assets to TINTA.
The table below sets forth, for the periods presented, the percentage
relationship that certain items bear to revenue. This summary provides trend
data relating to the normal recurring operations of the Company. Other items of
significance are discussed under separate captions below.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- -------------------
dollar amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Revenue 100% $ 5,954 100% $ 4,878 100% $ 4,116
Operating 36 2,117 33 1,611 33 1,369
Selling, general and administrative 27 1,607 25 1,224 23 946
Compensation (adjustment to
compensation) relating to options
and stock appreciation rights -- (12) -- 17 -- (5)
Restructuring charges -- 36 -- -- -- --
Depreciation and amortization 24 1,453 25 1,223 24 988
--- --------- --- --------- --- ----------
Operating income 13% $ 753 17% $ 803 20% $ 818
=== ========= === ========= === ==========
</TABLE>
II-3
<PAGE> 25
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 (the "1992 Cable Act") and the
Telecommunications Act of 1996 (together with the 1992 Cable Act, 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. At December 31, 1996, 78% of the Company's basic customers were
served by cable television systems that were subject to such rate regulation.
During the year ended December 31, 1996, 66% 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 Tele-Communications, Inc. Series A TCI Group common stock and
Tele-Communications, Inc. Series B TCI Group common stock ("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 the Company's. See note 6 to the accompanying
consolidated financial statements for the effect of the Satellite Spin-Off on
the Company's results of operations and financial position.
Revenue increased 22% and 19% for the years ended December 31, 1996
and 1995, respectively, as compared to the prior years. In the Company's
regulated cable systems, the Company implemented rate increases for its
Regulated Services in June 1996. As allowed by Federal Communications
Commission regulations, such rate increases included amounts intended to
recover increased programming costs incurred during the first five months of
1996 and not previously recovered, as well as interest on said amounts.
The 1996 increase in revenue is due to the effect of certain
acquisitions (9%), increases in the rates charged to the Company's customers
due to inflation, programming cost increases as previously discussed and
channel additions (7%), growth in the Company's satellite customers through the
date of the Satellite Spin-off (3%), net growth in basic customer levels within
the Company's cable television systems (1%) and an increase in the Company's
advertising sales and other revenue (2%).
The 1995 increase in revenue is due to the effect of certain
acquisitions (8%), growth in the Company's satellite customers (4%), increases
in the rates charged to the Company's customers from inflation, programming
cost increases and channel additions (4%), net growth in basic customer levels
within the Company's cable television systems (3%) and an increase in the
Company's advertising sales and other revenue (2%), net of a decrease in
revenue due to the transfer of Netlink USA to the Programming unit in the
Reorganization (2%).
II-4
<PAGE> 26
Operating expenses increased 31% and 18% for the years ended December
31, 1996 and 1995, respectively, as compared to the prior year. Exclusive of
the effects of acquisitions (9% and 8%, respectively) and Primestar (3% and 4%,
respectively), such expenses increased 19% and 6%, respectively. Programming
expenses accounted for the majority of such increase. In this regard,
programming expenses represented $1,250 million (59%), $979 million (61%) and
$845 million (62%) of operating expenses during 1996, 1995 and 1994,
respectively. The Company cannot determine whether and to what extent increases
in the cost of programming will affect its future operating costs. However,
such programming costs have increased at a greater percentage than increases in
revenue of Regulated Services.
Selling, general and administrative expenses ("SG&A") increased 31%
and 29% for the years ended December 31, 1996 and 1995, respectively, as
compared to the prior year. Exclusive of the effects of acquisitions (9% and
9%, respectively) and Primestar (9% and 13%, respectively), SG&A increased 13%
and 7%, respectively. Such increases are due primarily to salaries and related
payroll expenses and those expenses that vary with revenue and/or subscribers.
During the fourth quarter of 1995, the Company incurred $25 million in expenses
related to payment of bonuses to the majority of its employees.
During the fourth quarter of 1996, the Company restructured certain of
its operating and accounting functions (the "Restructuring"). In connection
with the Restructuring, the Company recognized a charge of $36 million, of
which $27 million related to work force reductions and $9 million related to
the consolidation of the Company's accounting activities. As of December 31,
1996, $8 million of such restructuring charges had been paid. The Company
anticipates that the majority of the remaining charges will be paid during the
six months ended June 30, 1997.
The increase in the Company's depreciation expense in 1996 and 1995 is
due to acquisitions, as well as increased capital expenditures due to a program
to upgrade and install optical fiber technology in the Company's cable systems.
The increase in amortization expense in 1996 and 1995 is due to acquisitions.
The Company records compensation relating to variable plan options,
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 Expense
TCIC's interest expense increased $79 million or 8% during 1996 as
compared to 1995 and $185 million or 24% during 1995 as compared to 1994. The
increase in 1996 is the net result of increased debt balances partially offset
by lower weighted average interest rates. The 1995 increase is the result of
higher interest rates and debt balances. TCIC's weighted average interest rate
on borrowings was 7.8%, 8.1% and 7.5% during 1996, 1995 and 1994, respectively.
Included in share of losses of affiliates for the year ended December
31, 1996 is $168 million and $47 million attributable to Sprint Spectrum
Holding Company, L.P. ("Sprint Spectrum") and Teleport Communications Group
Inc. ("TCG"), respectively. Such amount for Sprint Spectrum includes $34
million associated with prior periods. Effective December 31, 1996, TCIC
transferred its 30% ownership interest in Sprint Spectrum and 31.1% ownership
in TCG to TCI. As such, TCIC will no longer reflect share of losses from such
investments.
II-5
<PAGE> 27
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 of TCIC's share of its affiliates' losses
in 1994. In addition, TCIC had other less significant investments in video
distribution and programming businesses located in the UK, other parts of
Europe, Asia, Latin America and certain other foreign countries. In the
aggregate, such other investments accounted for $44 million of TCIC's share of
its affiliates' losses in 1994. In connection with the Reorganization, TCIC's
ownership in the aforementioned entities was transferred to TINTA effective
December 1, 1994, and accordingly, TCIC will no longer 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 (pound)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.
TCG, a competitive local exchange carrier, conducted an initial public
offering (the "TCG IPO") on July 2, 1996 in which it sold 27,025,000 shares of
Class A common stock at $16.00 per share to the public for aggregate net
proceeds of approximately $410,000,000. As a result of the TCG IPO, TCIC's
ownership interest in TCG was reduced from approximately 35% to approximately
31%. Accordingly, TCIC recognized a gain amounting to $12 million (before
deducting deferred income tax expense of approximately $5 million).
During the year ended December 31, 1996, TCIC redeemed certain notes
payable which had an aggregate principle balance of $904 million and fixed
interest rates ranging from 7.88% to 10.44% (the "Redemption"). In connection
with the Redemption, TCIC recognized a loss on early extinguishment of debt of
$62 million. Such loss related to prepayment penalties amounting to $60 million
and the retirement of deferred loan costs.
Also, during the year ended December 31, 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 $9 million related to the retirement of
deferred loan costs.
During 1996, 1995 and 1994, TCIC recorded losses of $71 million, $6
million and $9 million, respectively, from early extinguishments of debt. There
may be additional losses associated with early extinguishments of debt in the
future.
Minority interests in earnings of consolidated subsidiaries aggregated
$72 million for the year ended December 31, 1996, as compared to minority
interests in losses of consolidated subsidiaries of $11 million and $6 million
in 1995 and 1994, respectively. Such change in 1996 is due primarily to the
accrual of dividends on preferred securities issued by certain subsidiaries of
TCIC.
II-6
<PAGE> 28
Net Earnings (Loss)
TCIC's net loss (before preferred stock dividend requirements) of $452
million for the year ended December 31, 1996 represents an increase of $332
million as compared to TCIC's net loss of $120 million for 1995. Such increase
is due primarily to the aforementioned share of losses from Sprint Spectrum and
an increase in share of losses from TCG, the accrual of dividends on preferred
securities discussed above, an increase in interest expense due to increased
debt balances partially offset by lower weighted average interest rates and the
loss on early extinguishment of debt resulting primarily from the prepayment of
certain fixed-rate indebtedness.
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.
Inflation has not had a significant impact on TCIC's results of
operations during the three-year period ended December 31, 1996.
Liquidity and Capital Resources
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. The Viacom
Acquisition has been accounted for by the purchase method and accordingly, TCIC
recorded Cable Sub's assets and liabilities at fair value.
II-7
<PAGE> 29
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 $625,796,100 in aggregate face
value of shares of 5% Class A Senior Cumulative Exchangeable Preferred Stock
(the "Exchangeable Preferred Stock") of Cable Sub with a stated value of $100
per share (the "Stated Value"). The Exchangeable Preferred Stock is
exchangeable, at the option of the holder commencing after the fifth
anniversary of the date of issuance, for shares of Series A TCI Group Stock at
an exchange rate of 5.447 shares of Series A TCI Group Stock for each share of
Exchangeable Preferred Stock exchanged. The Exchangeable Preferred Stock is
subject to redemption, at the option of Cable Sub, after the fifth anniversary
of the date of issuance, initially at a redemption price of $102.50 per share
and thereafter at prices declining ratably annually to $100 per share on and
after the eighth anniversary of the date of issuance, plus accrued and unpaid
dividends to the date of redemption. The Exchangeable Preferred Stock is also
subject to mandatory redemption on the tenth anniversary of the date of
issuance at a price equal to the Stated Value per share plus accrued and unpaid
dividends. Amounts payable by Cable Sub in satisfaction of its optional or
mandatory redemption obligations with respect to the Exchangeable Preferred
Stock may be made in cash or, at the election of Cable Sub, in shares of Series
A TCI Group Stock, or in any combination of the foregoing.
In addition to the Viacom Acquisition, TCIC consummated certain other
acquisitions during 1996. See note 2 to the accompanying consolidated financial
statements for additional information regarding assets acquired and liabilities
assumed in connection with all acquisitions.
During the year ended December 31, 1996, the Company, through certain
subsidiaries, issued (i) 4.6 million shares of Series A Cumulative Exchangeable
Preferred Stock in a public offering for net cash proceeds of $223 million,
(ii) $500 million in face value of 8.72% Trust Originated Preferred
SecuritiesSM for net cash proceeds of $486 million (through a special purpose
entity formed as a Delaware business trust) (iii) $500 million in face value of
10% Trust Preferred Securities for net cash proceeds of $485 million (through a
special purpose entity formed as a Delaware business trust) and (iv) $2.06
billion of publicly-placed senior and medium term notes with interest rates
ranging from 6.1% to 7.9% and maturity dates ranging through 2026. The Company
used the proceeds from the aforementioned debt and equity issuances to retire
commercial paper and to repay certain other indebtedness.
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.
II-8
<PAGE> 30
The Company is a holding company and its assets consist almost
entirely of investments in its subsidiaries. As a holding company, the
Company's ability to pay dividends on the preferred stock is dependent on the
earnings of, or other funds available to, the Company's subsidiaries and the
distribution or other payment of such earnings or other funds to the Company in
the form of dividends, loans or other advances, payment or reimbursement of
management fees and expenses. The Company's subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
the dividends on the preferred stock of TCIC or to make any funds available
therefor, whether by dividends, loans or other payments. The payment of
dividends or the making of loans and advances to the Company by its
subsidiaries may be subject to statutory or regulatory restrictions, are
contingent upon the earnings of those subsidiaries and are subject to various
business considerations. Further, certain of the Company's subsidiaries are
subject to loan agreements that prohibit or limit the transfer of funds by such
subsidiaries to the Company in the form of dividends, loans, or advances, and
require that such subsidiaries' indebtedness to the Company be subordinate to
the indebtedness under such loan agreements. The amount of net assets of
subsidiaries subject to such restrictions exceeds the Company's consolidated
net assets. The Company's subsidiaries currently have the ability to transfer
funds to the Company in amounts exceeding the Company's dividend requirement on
the preferred stock. Net cash provided by operating activities of subsidiaries
which are not restricted from making transfers to the parent company have been
and are expected to continue to be sufficient to enable the parent company to
meet its cash obligations.
Moreover, almost all of the consolidated liabilities of the Company
have been incurred by its subsidiaries. Therefore, the Company's rights, and
the extent to which the holders of the Company's preferred stock will be able
to participate in the distribution of assets of any subsidiary upon the
latter's liquidation or reorganization, will be subject to prior claims of the
subsidiary's creditors, including trade creditors, except to the extent that
the Company may itself be a creditor with recognized claims against such
subsidiary (in which case the claims of the Company would still be subject to
the prior claims of any secured creditor of such subsidiary and of any holder
of indebtedness of such subsidiary that is senior to that held by the Company).
During the second quarter of 1996, certain subsidiaries of the Company
terminated, at such subsidiaries' option, certain revolving bank credit
facilities with aggregate commitments of approximately $2 billion. The Company
does not believe that such terminations will adversely affect its future
liquidity. At December 31, 1996, subsidiaries of the Company had approximately
$1.4 billion 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 (which relate primarily to the maintenance of certain
ratios of cash flow to total debt and cash flow to debt service, as defined in
the credit facilities) after giving effect to such additional borrowings. See
note 7 to the accompanying consolidated financial statements for additional
information regarding the material terms of the subsidiaries' lines of credit.
II-9
<PAGE> 31
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, adjustment to compensation relating to stock
appreciation rights and restructuring charges) ($2,230 million, $2,043 million
and $1,801 million in 1996, 1995 and 1994, respectively) to interest expense
($1,041 million, $962 million and $777 million in 1996, 1995 and 1994,
respectively), is determined by reference to the consolidated statements of
operations. The Company's interest coverage ratio was 214%, 212% and 232% for
1996, 1995 and 1994, respectively. Management of the Company believes that the
foregoing interest coverage ratio is adequate in light of the consistency and
nonseasonal nature of its cable television operations and the relative
predictability of the Company's interest expense, almost half of which results
from fixed rate indebtedness. However, the Company's current intent is to reduce
its outstanding indebtedness such that its interest coverage ratio could be
increased. There can be no assurance that the Company will 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.
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 ($1,247 million, $1,263
million and $1,142 million in 1996, 1995 and 1994, respectively) reflects net
cash from the operations of the Company available for the Company's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow. Amounts expended
by the Company for its investing activities exceed net cash provided by
operating activities. However, management believes that net cash provided by
operating activities, the ability of the Company and its subsidiaries to obtain
additional financing (including the subsidiaries available lines of credit and
access to public debt markets), issuances and sales of the Company's equity or
equity of its subsidiaries 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.
The Company's subsidiaries generally finance acquisitions and capital
expenditures through net cash provided by operating and financing activities.
Historically, amounts expended for acquisitions and capital expenditures have
exceeded net cash provided by operating activities. In this regard, the amount
of capital expended by the Company for property and equipment was $1,930
million, $1,665 million and $1,235 million in 1996, 1995 and 1994,
respectively. 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. 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.
II-10
<PAGE> 32
In late April 1996, TCIC was notified by Moody's Investors Service,
Inc. and Duff & Phelps Credit Rating Co. that those rating agencies had
downgraded by one level their respective ratings of TCIC's senior debt to the
first level below investment grade. Fitch Investors Service, L.P. reaffirmed
its rating for TCIC's senior debt at the last level of investment grade. On
October 18, 1996, Standard and Poor's Securities, Inc. ("Standard & Poor's")
issued a press release stating that TCIC's senior debt would be placed on
CreditWatch with negative implications. On January 24, 1997, Standard & Poor's
removed TCIC's senior debt from CreditWatch. TCIC's senior debt is currently
rated BBB- by Standard & Poor's (the last level of investment grade) with a
negative outlook. These actions are expected to marginally increase TCIC's cost
of borrowings under certain bank credit facilities, and may adversely affect
TCIC's access to the public debt market and its overall cost of future
borrowings.
As security for borrowings under one of TCIC's bank credit facilities,
TCIC has pledged 116,853,195 shares of Series A TCI Group Stock held by a
subsidiary of TCIC.
TCIC has guaranteed notes payable and other obligations of Satellite
and affiliated companies with outstanding balances of approximately $175
million at December 31, 1996. Although there can be no assurance, management of
TCIC believes that it will not be required to meet its obligations under such
guarantees, or if it is required to meet any of such obligations, that they
will not be material to TCIC. Satellite 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 Satellite's behalf.
The Company is obligated to pay fees for the rights to exhibit certain
films that are released by various producers through 2009 (the "Film License
Obligations"). Based on customer levels at December 31, 1996, these agreements
require minimum payments aggregating approximately $120 million. The aggregate
amount of the Film License Obligations under other license agreements is not
currently estimable because such amount is dependent upon the number of
qualifying films 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)
and through net cash provided by their own operating activities.
II-11
<PAGE> 33
In order to achieve the desired balance between variable and fixed
rate indebtedness and to diminish its exposure to extreme increases in variable
interest rates, the Company has entered into various interest rate exchange
agreements. Pursuant to the interest rate exchange agreements, the Company (i)
pays fixed interest rates ranging from 7.2% to 9.3% and receives variable
interest rates on notional amounts of $310 million at December 31, 1996 (the
"Fixed Rate Agreements") and (ii) pays variable interest rates and receives
fixed interest rates ranging from 4.8% to 7.4% on notional amounts of $1,750
million at December 31, 1996 (the "Variable Rate Agreements"). During the year
ended December 31, 1996, 1995 and 1994, the Company's net payments pursuant to
the Fixed Rate Agreements were $14 million, $13 million and $26 million,
respectively; and the Company's net receipts (payments) pursuant to the
Variable Rate Agreements were $15 million, (less than $1 million) and $36
million, respectively. During the year ended December 31, 1996, the Company
terminated certain Variable Rate Agreements with an aggregate notional amount
of $700 million. The Company received $16 million upon such terminations. The
Company will amortize the termination settlement over the remainder of the
original terms of the terminated Variable Rate Agreements. 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.
At December 31, 1996, after considering the net effect of the
aforementioned interest rate exchange agreements, the Company had $6,741
million (or 47%) of fixed-rate debt with a weighted average interest rate of
8.4% and $7,577 million (or 53%) of variable-rate debt with a weighted average
interest rate of 6.3%.
Approximately twenty-seven percent of the franchises held by the
Company, involving approximately 4.5 million basic customers, 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.
II-12
<PAGE> 34
During 1996, the Company has experienced a competitive impact from
medium power and high power direct broadcast satellites ("DBS") that use high
frequencies to transmit signals that can be received by dish antennas ("HSDs")
much smaller in size than traditional HSDs. The Primestar partners distribute a
multi-channel programming service via a medium power communications satellite
to HSDs of approximately 3 feet in diameter. Prior to the Satellite Spin-off,
the Company provided this satellite service. DirecTv, Inc., United States
Satellite Broadcasting Corporation and EchoStar Communications Corp.
("EchoStar"), transmit from high power satellites and generally use smaller
dishes to receive their signals. Alphastar, Inc. began offering medium power
service in the second quarter of 1996. On February 24, 1997, News Corp. and
EchoStar announced that News Corp. will acquire a 50% interest in EchoStar and
that the companies will combine their DBS businesses into a new company, which
will operate under the name Sky. The two companies contend that Sky, which is
scheduled to launch in early 1998, will offer 500 channels of digital
television on a nationwide basis (not all of which would be available to each
subscriber), Internet services and local broadcast network television signals,
capable of reaching more than 50% of all television households upon the launch
of Sky and 75% of all television households by the end of 1998. DBS operators
have the right to distribute substantially all of the significant cable
television programming services currently carried by cable television systems.
Estimated DBS customers nationwide increased from approximately 2.2 million at
the end of 1995 to approximately 4.4 million at the end of 1996, and the
Company expects that competition from DBS will continue to increase. However,
the Company is unable to predict what effect such competition will have on the
Company's financial position.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of TCI Communications, Inc. are
filed under this Item, beginning on Page II-14. 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-13
<PAGE> 35
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, 1996 and 1995, and the related consolidated statements
of operations, stockholder's equity, and cash flows for each of the years in
the three-year period ended December 31, 1996. 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, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 24, 1997
II-14
<PAGE> 36
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------- ------
Assets amounts in millions
<S> <C> <C>
Trade and other receivables, net $ 308 262
Investments in affiliates, accounted for under the
equity method, and related receivables
(notes 4 and 6) 317 1,062
Property and equipment, at cost:
Land 74 63
Distribution systems 9,726 9,325
Support equipment and buildings 1,423 1,147
------- ------
11,223 10,535
Less accumulated depreciation 4,031 3,547
------- ------
7,192 6,988
------- ------
Franchise costs 17,174 13,618
Less accumulated amortization 2,380 2,055
------- ------
14,794 11,563
------- ------
Other assets, at cost, net of amortization 525 489
------- ------
$23,136 20,364
======= ======
</TABLE>
(continued)
II-15
<PAGE> 37
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
<TABLE>
<CAPTION>
1996 1995
-------- --------
Liabilities and Common Stockholder's Equity amounts in millions
<S> <C> <C>
Accounts payable $ 191 176
Accrued interest 268 226
Accrued programming expense 232 209
Other accrued expenses 536 856
Debt (note 7) 14,318 12,635
Deferred income taxes (note 11) 5,459 4,261
Other liabilities 84 66
-------- --------
Total liabilities 21,088 18,429
-------- --------
Minority interests in equity of consolidated subsidiaries 802 206
Redeemable preferred stock (note 8) 232 --
Company-obligated mandatorily redeemable
preferred securities of subsidiary trusts ("Trust
Securities") holding solely subordinated debt
securities of the Company (note 9) 1,000 --
Common stockholder's equity (notes 6 and 10):
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 2,234 3,122
Unrealized holding gains for available-
for-sale securities, net of taxes -- 7
Accumulated deficit (822) (370)
-------- --------
1,413 2,760
Investment in Tele-Communications, Inc.
("TCI"), at cost (notes 1 and 3) (1,143) (1,143)
Intercompany payable (receivable) (note 12) (256) 112
-------- --------
Total common stockholder's equity 14 1,729
-------- --------
Commitments and contingencies (note 14)
$ 23,136 20,364
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
II-16
<PAGE> 38
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
amounts in millions
<S> <C> <C> <C>
Revenue (notes 5 and 12) $ 5,954 4,878 4,116
Operating costs and expenses:
Operating 2,117 1,611 1,369
Selling, general and administrative 1,607 1,224 946
Compensation (adjustment to compensation)
relating to options and stock
appreciation rights (12) 17 (5)
Restructuring charges 36 -- --
Depreciation 1,029 848 685
Amortization 424 375 303
------- ------- -------
5,201 4,075 3,298
------- ------- -------
Operating income 753 803 818
Other income (expense):
Interest expense (1,041) (962) (777)
Interest income (note 12) 40 34 35
Share of earnings of Liberty Media Corporation ("Old
Liberty") (note 3) -- -- 128
Share of losses of other affiliates, net (note 4) (241) (43) (114)
Loss on early extinguishment of debt (note 7) (71) (6) (9)
Minority interests in losses (earnings) of
consolidated subsidiaries, net (72) 11 6
Gain (loss) on disposition of assets 47 9 (5)
Gain on sale of stock by equity investee (note 4) 12 -- 161
Other, net (18) (15) (17)
------- ------- -------
(1,344) (972) (592)
------- ------- -------
Earnings (loss) before income taxes (591) (169) 226
Income tax benefit (expense)(note 11) 139 49 (132)
------- ------- -------
Net earnings (loss) (note 5) (452) (120) 94
Preferred stock dividend requirements (9) -- --
------- ------- -------
Net earnings (loss) attributable to common
stockholder $ (461) (120) 94
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
II-17
<PAGE> 39
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Common Stockholder's Equity
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
holding
Cumulative gains for
foreign available-
Additional currency for-sale
Common stock paid-in translation securities,
Class A Class B capital adjustment net of taxes
------- ------- ------- ---------- ------------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 482 47 2,293 (29) --
Unrealized holding gains for
available-for-sale securities as
of January 1, 1994, net of taxes -- -- -- -- 297
Net earnings -- -- -- -- --
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) -- -- -- -- --
Reclassification and change of
common stock (note 3) (485) (47) 532 -- --
Foreign currency translation
adjustment -- -- -- 24 --
Reduction in unrealized holding
gains for available-for-sale
securities, net of taxes (note 1) -- -- -- -- (141)
Change in intercompany
payable/receivable -- -- -- -- --
Effect of Reorganization (note 1) -- -- -- 5 (154)
----- --- ----- --- ----
Balance at December 31, 1994 $ 1 -- 2,842 -- 2
----- --- ----- --- ----
<CAPTION>
Total
Investment Intercompany common
Accumulated Treasury in payable stockholder's
deficit stock TCI (receivable) equity
------- ----- --- ------------ ------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 (344) (333) -- -- 2,116
Unrealized holding gains for
available-for-sale securities as
of January 1, 1994, net of taxes -- -- -- -- 297
Net earnings 94 -- -- -- 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) -- 333 (651) -- (318)
Reclassification and change of
common stock (note 3) -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- 24
Reduction in unrealized holding
gains for available-for-sale
securities, net of taxes (note 1) -- -- -- -- (141)
Change in intercompany
payable/receivable -- -- -- (265) (265)
Effect of Reorganization (note 1) -- -- (451) (545) (1,145)
----- --- ------- ----- ------
Balance at December 31, 1994 (250) -- (1,102) (810) 683
----- --- ------- ----- ------
</TABLE>
(continued)
II-18
<PAGE> 40
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Common Stockholder's Equity, continued
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
holding
Cumulative gains for
foreign available-
Common stock Additional currency for-sale
------------ paid-in transaction securities,
Class A Class B capital adjustment net of taxes
------- ------- ------- ---------- ------------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 1 -- 2,842 -- 2
Net loss -- -- -- -- --
Effect of Reorganization (note 1) -- -- -- -- --
Effect of implementation of Tax
Sharing Agreement (note 11) -- -- -- -- --
Retirement of TCI Class A common
stock received in
Reorganization -- -- 37 -- --
TCI Class A common stock issued
in acquisition of remaining
minority interest of Heritage
Communications, Inc.
contributed to TCIC -- -- 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, net of taxes -- -- -- -- 5
Change in intercompany
payable/receivable -- -- -- -- --
------- ------- --------- ---------- ---------
Balance at December 31, 1995 $ 1 -- 3,122 -- 7
------ ------- --------- ---------- ---------
<CAPTION>
Total
Investment Intercompany common
Accumulated Treasury in payable stockholder's
deficit stock TCI (receivable) equity
------- ----- --- ------------ ------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 (250) -- (1,102) (810) 683
Net loss (120) -- -- -- (120)
Effect of Reorganization (note 1) -- -- (4) (77) (81)
Effect of implementation of Tax
Sharing Agreement (note 11) -- -- -- (76) (76)
Retirement of TCI Class A common
stock received in
Reorganization -- -- (37) -- --
TCI Class A common stock issued
in acquisition of remaining
minority interest of Heritage
Communications, Inc.
contributed to TCIC -- -- -- 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, net of taxes -- -- -- -- 5
Change in intercompany
payable/receivable -- -- -- (720) (720)
--------- ------- --------- ----------- -----------
Balance at December 31, 1995 (370) -- (1,143) 112 1,729
---------- ------- ---------- ---------- -----------
</TABLE>
(continued)
II-19
<PAGE> 41
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Common Stockholder's Equity, continued
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
holding
Cumulative gains for
foreign available-
Common stock Additional currency for-sale
------------ paid-in transaction securities,
Class A Class B capital adjustment net of taxes
------- ------- ------- ---------- ------------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1 -- 3,122 -- 7
Net loss -- -- -- -- --
TCI Group common stock issued
and debt assumed by TCI on
behalf of TCIC for acquisition
reflected as contribution -- -- 564 -- --
Accreted dividends on redeemable
preferred stock -- -- (9) -- --
Change in unrealized holding
gains for available-for-sale
securities, net of taxes -- -- -- -- (3)
Intercompany liability assumed
by TCIC upon contribution of
subsidiaries from TCI -- -- -- -- --
Spin-off of TCI Satellite
Entertainment, Inc. (note 6) -- -- (305) -- --
Recognition of unrecognized
holding gain on
available-for-sale securities -- -- -- -- (4)
Transfer of investments from
TCIC to TCI (note 4) -- -- (1,138) -- --
Change in intercompany
payable/receivable -- -- -- -- --
------- ------- --------- ---------- ---------
Balance at December 31, 1996 $ 1 -- 2,234 -- --
====== ======= ========= ========== =========
<CAPTION>
Total
Investment Intercompany common
Accumulated Treasury in payable stockholder's
deficit stock TCI (receivable) equity
------- ----- --- ------------ ------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 (370) -- (1,143) 112 1,729
Net loss (452) -- -- -- (452)
TCI Group common stock issued
and debt assumed by TCI on
behalf of TCIC for acquisition
reflected as contribution -- -- -- -- 564
Accreted dividends on redeemable
preferred stock -- -- -- -- (9)
Change in unrealized holding
gains for available-for-sale
securities, net of taxes -- -- -- -- (3)
Intercompany liability assumed
by TCIC upon contribution of
subsidiaries from TCI -- -- -- 140 140
Spin-off of TCI Satellite
Entertainment, Inc. (note 6) -- -- -- (100) (405)
Recognition of unrecognized
holding gain on
available-for-sale securities -- -- -- -- (4)
Transfer of investments from
TCIC to TCI (note 4) -- -- -- -- (1,138)
Change in intercompany
payable/receivable -- -- -- (408) (408)
--------- ------- --------- ---------- -----------
Balance at December 31, 1996 (822) -- (1,143) (256) 14
========= ======= ========= ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
II-20
<PAGE> 42
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
amounts in millions
(see note 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (452) (120) 94
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,453 1,223 988
Compensation (adjustment to compensation) relating to options
and stock appreciation rights (12) 17 (5)
Payments of stock appreciation rights (2) (4) --
Restructuring charges 36 -- --
Payments of restructuring charges (8) -- --
Share of earnings of Old Liberty -- -- (128)
Share of losses of affiliates 241 43 114
Loss on early extinguishment of debt 71 6 9
Minority interests in earnings (losses) of consolidated
subsidiaries, net 72 (11) (6)
Loss (gain) on disposition of assets (47) (9) 5
Gain on sale of stock by equity investee (12) -- (161)
Deferred income tax expense (benefit) (159) (56) 45
Other noncash credits (7) (15) (3)
Changes in operating assets and liabilities, net
of the effect of acquisitions:
Change in receivables (66) (52) 16
Change in accrued interest 41 42 22
Change in other accruals and payables 98 199 152
------- ------ ------
Net cash provided by operating activities 1,247 1,263 1,142
------- ------ ------
Cash flows from investing activities:
Cash paid for acquisitions (421) (259) (494)
Capital expended for property and equipment (1,930) (1,665) (1,235)
Cash proceeds from disposition of assets 174 49 36
Additional investments in and loans to affiliates and others (629) (764) (384)
Repayment of loans by affiliates and others 646 8 145
Other investing activities (46) (82) (71)
------- ------ ------
Net cash used in investing activities (2,206) (2,713) (2,003)
------- ------ ------
Cash flows from financing activities:
Borrowings of debt 7,348 7,719 4,409
Repayments of debt (7,039) (6,020) (3,348)
Prepayment penalties (60) -- --
Issuance of redeemable preferred stock 223 -- --
Issuance of Trust Securities 971 -- --
Change in intercompany payable/receivable (391) (249) (189)
Payment of dividends on subsidiary preferred
stock and Trust Securities (86) (6) (6)
Payment of redeemable preferred stock dividends (7) -- --
------- ------ ------
Net cash provided by financing activities 959 1,444 866
------- ------ ------
Net increase (decrease) in cash -- (6) 5
Cash at beginning of year -- 6 1
------- ------ ------
Cash at end of year $ -- -- 6
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
II-21
<PAGE> 43
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(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 and
Hawaii.
Receivables
Receivables are reflected net of an allowance for doubtful accounts.
Such allowance at December 31, 1996 and 1995 was not material.
Investments
All marketable equity securities held by TCIC are classified as
available-for-sale 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.
Realized gains and losses are determined on a specific-identification
basis.
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.
(continued)
II-22
<PAGE> 44
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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 1996, 1995
and 1994, 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.
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 negotiating and renewing franchise agreements are
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 adopted Statement No.
121 effective January 1, 1996. Such adoption did not have a
significant effect on the financial position or results of operations
of the Company.
(continued)
II-23
<PAGE> 45
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Pursuant to Statement No. 121, the Company periodically reviews the
carrying amounts of its long-lived assets, franchise costs and certain
other assets to determine whether current events or circumstances
warrant adjustments to such carrying amounts. The Company considers
historical and expected future net operating losses to be its primary
indicators of potential impairment. Assets are grouped and evaluated
for impairment at the lowest level for which there are identifiable
cash flows that are largely independent of the cash flows of other
groups of assets ("Assets"). The Company deems Assets to be impaired
if the Company is unable to recover the carrying value of such Assets
over their expected remaining useful life through a forecast of
undiscounted future operating cash flows directly related to the
Assets. If Assets are deemed to be impaired, the loss is measured as
the amount by which the carrying amount of the Assets exceeds their
fair value. The Company generally measures fair value by considering
sales prices for similar assets or by discounting estimated future
cash flows. Considerable management judgment is necessary to estimate
discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.
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 derivative financial instrument. 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 $672 million and $49 million in 1996 and 1995, respectively, of
preferred stocks (and accumulated dividends thereon) of certain
subsidiaries. The current dividend requirements on these preferred
stocks aggregate $37 million per annum and such dividend requirements
are reflected as minority interests in the accompanying consolidated
statements of operations.
(continued)
II-24
<PAGE> 46
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Investment in TCI
On August 3, 1995, the stockholders of TCI authorized the Board of
Directors of TCI to issue two new series of stock ("Liberty Group
Stock") which reflect the separate performance of TCI's business which
produces and distributes cable television programming services
("Liberty"). 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"). 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, in the
form of a dividend, one share of Liberty Group Stock for each four
shares of TCI Group Stock owned. Such distribution represented one
hundred percent of the equity value attributable to Liberty.
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 1496.65
shares of Series A TCI Group Stock. In addition, TCIC owns 116,853,195
shares of Series A TCI Group Stock. Such ownership of Series F
Preferred Stock and Series A TCI Group stock is reflected as
investment in TCI in the accompanying consolidated balance sheets, at
cost.
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. As allowed by
Statement No. 123, the Company continues to account for stock-based
employee compensation pursuant to APB Opinion No. 25. The Company has
included the disclosures required by Statement No. 123 in note 10.
Reorganization
During the fourth quarter of 1994, TCI reorganized (the
"Reorganization") it's operating structure. 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 the
International Cable Programming unit ("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.
(continued)
II-25
<PAGE> 47
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated 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 1996
presentation.
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $1,000 million, $920 million and $754
million for the years ended December 31, 1996, 1995 and 1994,
respectively. Also, during these years, cash paid for income taxes was
$8 million, $8 million and $14 million, respectively.
Significant noncash investing and financing activities are reflected
in the following table. See also note 6 for the impact of the spin-off
of TCI Satellite Entertainment, Inc.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995 1994
---- ---- ----
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 4,508 2,979 539
Liabilities assumed, net of current assets (1,419) (250) (13)
Deferred tax liability recorded in acquisitions (1,354) (913) --
Minority interests in equity of acquired entities 16 48 (32)
Preferred stock of subsidiary issued in acquisition (626) -- --
Common stock of TCI issued in acquisition
contributed to TCIC (564) (234) --
Increase in intercompany payable resulting from
common stock of TCI issued in acquisition -- (1,371) --
Increase in intercompany payable resulting from
TCI contributing subsidiaries to TCIC (140) -- --
------- ------ ----
Cash paid for acquisitions $ 421 259 494
======= ====== ====
</TABLE>
(continued)
II-26
<PAGE> 48
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1996 1995 1994
---- ---- ----
amounts in millions
Transfer of net assets to TCI:
<S> <C> <C> <C>
Fair value of assets, primarily investments in
affiliates $ 1,128 97 1,637
Liabilities, net of current assets 5 (1) (335)
Deferred tax asset (liability) 5 (8) (130)
Minority interests in equity -- -- (27)
Decrease in additional paid-in capital resulting
from transfer of net assets to TCI (1,138) -- --
Cumulative foreign currency translation adjustment -- -- 5
Unrealized holding gains for available- for-sale
securities, net of taxes -- -- (154)
Investment in TCI -- (4) (451)
Decrease in intercompany payable resulting from
transfer of net assets to TCI -- (84) (545)
------- --- ------
$ -- -- --
======= === ======
Reversal of deferred tax liability recorded in
TCI/Liberty Combination (note 3) $ -- -- 38
======= === ======
</TABLE>
(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.
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".
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-27
<PAGE> 49
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(4) Investments in Affiliates
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, the carrying value
of such investments was $1,116 million at December 31, 1996 and
accounted for $215 million of TCIC's share of its affiliates' losses
in 1996.
TCG, a competitive local exchange carrier, conducted an initial public
offering (the "TCG IPO") on July 2, 1996 in which it sold 27,025,000
shares of Class A common stock at $16.00 per share to the public for
aggregate net proceeds of approximately $410,000,000. As a result of
the TCG IPO, TCIC's ownership interest in TCG was reduced from
approximately 35% to approximately 31%. Accordingly, TCIC recognized a
gain amounting to $12 million (before deducting deferred income tax
expense of approximately $5 million).
Summarized unaudited financial information for affiliates accounted
for under the equity method (including Sprint Spectrum, TCG and
certain other affiliates transferred to TCI) is as follows:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
Combined Financial Position amounts in millions
<S> <C> <C>
Property and equipment, net $ 368 637
Franchise costs, net 824 152
Other assets, net 162 3,180
------ -----
Total assets $1,354 3,969
====== =====
Debt $ 909 896
Due (from) to TCIC -- 137
Other liabilities 278 289
Owners' equity 167 2,647
------ -----
Total liabilities and equity $1,354 3,969
====== =====
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995 1994
---- ---- ----
Combined Operations amounts in millions
<S> <C> <C> <C>
Revenue $ 954 547 651
Operating expenses (1,187) (559) (688)
Depreciation and amortization (344) (97) (139)
------- ---- ----
Operating loss (577) (109) (176)
Interest expense (135) (39) (46)
Other, net (85) (12) 128
------- ---- ----
Net loss $ (797) (160) (94)
======= ==== ====
</TABLE>
(continued)
II-28
<PAGE> 50
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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 of TCIC's share of its
affiliates' losses in 1994. In addition, TCIC had other less
significant investments in video distribution and programming
businesses located in the UK, other parts of Europe, Asia, Latin
America and certain other foreign countries. In the aggregate, such
other investments accounted for $44 million of TCIC's share of its
affiliates' losses in 1994. In connection with the Reorganization,
TCIC's ownership in the aforementioned entities was transferred to
TINTA effective December 1, 1994.
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 was transferred to TINTA 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
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)
II-29
<PAGE> 51
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 (the "Exchangeable Preferred Stock") of
Cable Sub with a stated value of $100 per share. The Exchangeable
Preferred Stock is exchangeable, at the option of the holder
commencing after the fifth anniversary of the date of issuance, for
shares of Series A TCI Group Stock.
The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of Cable Sub have been
consolidated with those of TCIC since the date of acquisition, and
TCIC recorded Cable Sub's assets and liabilities at fair value. On a
pro forma basis, TCIC's revenue and net loss would have been increased
by $280 million and $55 million, respectively, for the year ended
December 31, 1996; and revenue and net loss would have been increased
by $440 million and $115 million, respectively, for the year ended
December 31, 1995 had Cable Sub been consolidated with TCIC on January
1, 1995. The foregoing unaudited pro forma financial information is
based upon historical results of operations adjusted for acquisition
costs and, in the opinion of management, is not necessarily indicative
of the results had TCIC operated Cable Sub since January 1, 1995.
As of January 26, 1995, TCI, TCIC and TeleCable Corporation
("TeleCable") consummated a transaction, whereby TeleCable was merged
into TCIC. The TeleCable acquisition has been accounted for by the
purchase method. 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.
(continued)
II-30
<PAGE> 52
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(6) Spin-Off of TCI Satellite Entertainment, Inc.
Through December 4, 1996, the Company had an investment in a direct
broadcast satellite partnership, PRIMESTAR Partners L.P.
("Primestar"), which the Company accounted for under the equity
method. 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 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 the Company's.
Summarized financial information of Satellite as of December 4, 1996
and for the period from January 1, 1996 through the date of the
Satellite Spin-off is as follows (amounts in millions):
<TABLE>
<CAPTION>
Financial Position
<S> <C>
Cash, receivables and other assets $ 104
Investment in PRIMESTAR Partners L.P. 32
Property and equipment, net 1,111
-------
$ 1,247
=======
Accounts payable and accrued liabilities $ 60
Due to PRIMESTAR Partners L.P. 458
Due to TCI 324
Equity 405
-------
$ 1,247
=======
Operations
Revenue $ 377
Operating expenses (373)
Depreciation (166)
-------
Loss before income tax benefit (162)
Income tax benefit 53
-------
Net loss $ (109)
=======
</TABLE>
(continued)
II-31
<PAGE> 53
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(7) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted average December 31,
interest rate at -----------------------
December 31, 1996 1996 1995
----------------- ------------- ----------
amounts in millions
<S> <C> <C> <C>
Parent company debt:
Notes payable 8.1% $ 8,031 6,713
Commercial paper 6.1% 638 1,440
Bank credit facilities -- -- 179
Other debt -- 1
------- -------
8,669 8,333
Debt of subsidiaries:
Bank credit facilities 6.6% 4,810 3,258
Notes payable 9.7% 768 934
Convertible notes (a) 9.5% 43 45
Commercial paper -- -- 29
Other debt 28 36
------- -------
$14,318 12,635
======= =======
</TABLE>
(a) These convertible notes, which are stated net of unamortized
discount of $178 million and $186 million on December 31,
1996 and 1995, respectively, mature on December 18, 2021. The
notes require (so long as conversion of the notes has not
occurred) an annual interest payment through 2003 equal to
1.85% of the face amount of the notes. At December 31, 1996,
the notes were convertible, at the option of the holders,
into an aggregate of 37,083,773 shares of Series A TCI Group
Stock and 13,906,404 shares of Series A Liberty Group Stock.
During the year ended December 31, 1996, in order to reduce future
interest costs, TCIC redeemed certain notes payable which had an
aggregate principle balance of $904 million and fixed interest rates
ranging from 7.88% to 10.44% (the "Redemption"). In connection with
the Redemption, TCIC recognized a loss on early extinguishment of debt
of $62 million. Such loss related to prepayment penalties amounting to
$60 million and the retirement of deferred loan costs.
During the year ended December 31, 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
$9 million related to the retirement of deferred loan costs.
(continued)
II-32
<PAGE> 54
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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 116,853,195 shares of Series A TCI Group Stock held
by a subsidiary of TCIC.
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 $14,318 million, was $15 billion
at December 31, 1996.
In order to achieve the desired balance between variable and fixed
rate indebtedness, TCIC has entered into various interest rate
exchange agreements pursuant to which it (i) pays fixed interest rates
(the "Fixed Rate Agreements") ranging from 7.2% to 9.3% and receives
variable interest rates on notional amounts of $310 million at
December 31, 1996 and (ii) pays variable interest rates (the "Variable
Rate Agreements") and receives fixed interest rates ranging from 4.8%
to 7.4% on notional amounts of $1,750 million at December 31, 1996.
During the years ended December 31, 1996, 1995 and 1994, TCIC's net
payments pursuant to the Fixed Rate Agreements were $14 million, $13
million and $26 million, respectively; and TCIC's net receipts
(payments) pursuant to the Variable Rate Agreements were $15 million,
(less than $1 million) and $36 million, respectively. During the year
ended December 31, 1996, TCIC terminated certain Variable Rate
Agreements with an aggregate notional amount of $700 million. The
Company received $16 million upon such terminations. After giving
effect to TCIC's interest rate exchange agreements, approximately 47%
of TCIC's indebtedness bears interest at fixed rates.
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 7.2%-9.3% $ 80 April 1997 7.0% $ 200
December 1997 8.7% 230 September 1998 4.8%-5.4% 450
----
April 1999 7.4% 50
$310 February 2000 5.8%-6.6% 300
====
March 2000 5.8%-6.0% 675
September 2000 5.1% 75
------
$1,750
======
</TABLE>
(continued)
II-33
<PAGE> 55
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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, 1996, taking into consideration current
interest rates and assuming the current creditworthiness of the
counterparties. At December 31, 1996, TCIC would be required to pay an
estimated $15 million to terminate the Variable Rate Agreements and an
estimated $7 million to terminate the Fixed Rate Agreements.
TCIC is required to maintain unused availability under bank credit
facilities to the extent of outstanding commercial paper. At December
31, 1996, TCIC had approximately $1.4 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
------ -----
amounts in millions
<S> <C> <C>
1997 $715* $1,212*
1998 233 459
1999 432 712
2000 434 759
2001 357 1,070
</TABLE>
*Includes $638 million of commercial paper.
(8) Redeemable Preferred Stock
In January 1996, TCIC issued 4,600,000 shares of a series of TCIC
preferred stock designated Cumulative Exchangeable Preferred Stock,
Series A, ("Series A Preferred Stock") with a stated value of $50 per
share in a public offering for net cash proceeds of $223 million.
Dividends accrue cumulatively and are payable quarterly in arrears on
each January 15, April 15, July 15 and October 15 or, if any such date
is not a business day, on the next succeeding business day, at the
rate per annum of 4.25% of the stated value per share when, as and if
declared by the Board of Directors. The Company may elect to make
dividend payments (i) in cash, (ii) by delivery of Series A TCI Group
Stock or (iii) by any combination of the foregoing forms of
consideration elected by the Board of Directors in its sole
discretion.
(continued)
II-34
<PAGE> 56
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Each of the 4,600,000 shares of Series A Preferred Stock is
exchangeable, commencing January 15, 2001, at the option of the holder
(unless previously redeemed), in whole or in part, for 2.119 shares of
Series A TCI Group Stock, subject to adjustment in certain events. The
value of the shares of Series A TCI Group Stock received upon any
exchange will vary depending upon the market price of the Series A TCI
Group Stock at the time of such exchange.
The Series A Preferred Stock is not redeemable prior to January 15,
2001. At any time and from time to time on or after that date, the
Company may redeem any or all of the outstanding shares of Series A
Preferred Stock, initially at a redemption price of $50.94 per share
and thereafter at prices declining ratably on each January 15 to $50
per share on and after January 15, 2005, plus accrued and unpaid
dividends to the date of redemption. The Company may elect to make any
optional redemption payment (i) in cash, (ii) by delivery of Series A
TCI Group Stock or (iii) by any combination of the foregoing forms of
consideration elected by the Board of Directors in its sole
discretion.
The Series A Preferred Stock is subject to mandatory redemption by the
Company on January 15, 2006, at a redemption price of $50 per share,
plus accrued and unpaid dividends to the date of redemption. The
Company may elect to make any mandatory redemption payment (i) in
cash, (ii) by delivery of Series A TCI Group Stock or (iii) by any
combination of the foregoing forms of consideration elected by the
Board of Directors in its sole discretion.
The Company may elect to make dividend payments, redemption payments
(optional or mandatory) or payments on any dissolution, liquidation or
winding up of the Company to holders of Series A Preferred Stock (i)
in cash, (ii) by delivery of Series A TCI Group Stock or (iii) by any
combination of the foregoing forms of consideration elected by the
Board of Directors in its sole discretion. If the Company elects to
make any such payment, in whole or in part, through the delivery of
shares of Series A TCI Group Stock (the portion paid through the
delivery of shares being referred to herein as the "Stock Portion"),
each holder will receive a number of shares of Series A TCI Group
Stock determined by dividing the dollar amount of such Stock Portion
by the Cash Equivalent Amount. Any portion of a dividend, redemption
or liquidation payment that is not paid through the delivery of shares
of Series A TCI Group Stock will be paid in cash. The "Cash Equivalent
Amount" means an amount equal to 95% of the Average Market Price of a
share of Series A TCI Group Stock. The "Average Market Price" is
defined as the average of the closing sale prices for a share of
Series A TCI Group Stock on the Nasdaq National Market for the 10
consecutive trading days ending on the third trading day prior to (i)
in the case of dividends, the relevant record date and (ii) in the
case of a redemption or the dissolution, liquidation or winding up of
the Company, the date of the redemption or liquidation payment. The
market price of the Series A TCI Group Stock may vary between the date
of determination of the Cash Equivalent Amount and the subsequent
delivery of shares.
(continued)
II-35
<PAGE> 57
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
If the Company elects to make a dividend, redemption or liquidation
payment with shares of Series A TCI Group Stock, the number of such
shares that a holder of Series A Preferred Stock will receive in
connection with such dividend, redemption of liquidation payment will
vary depending on the Average Market Price of the Series A TCI Group
Stock at the time of the record date for such dividend or at the time
of such redemption or liquidation payment, as the case may be.
In the case of a dividend or redemption payment that is made through
delivery of shares of Series A TCI Group Stock, if the market value of
such shares on the dividend payment date or the redemption date is
more than 5% lower than the Average Market Price upon which the Cash
Equivalent Amount is determined and the holder sells such shares of
Series A TCI Group Stock at such lower price, (x) in the case of such
dividend, the holder's actual dividend yield for the dividend period
in respect of which such dividend was paid would be lower than the
stated dividend yield on the Series A Preferred Stock and (y) in the
case of such redemption, the actual sales proceeds received by such
holder would be lower than the stated redemption price for the Series
A Preferred Stock. In addition, in connection with any such sale the
holder is likely to incur commissions and other transaction costs.
(continued)
II-36
<PAGE> 58
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The Series A Preferred Stock and the Company's common stock will vote
as a single class in any general election of directors of the Company.
The Series A Preferred Stock will have 2.6% of the combined voting
power of all outstanding classes of capital stock of the Company
entitled to vote in any general election of directors of the Company.
If at any time accrued dividends on the Series A Preferred Stock are
in arrears and unpaid for six or more quarterly dividend periods
(whether or not consecutive), holders of the Series A Preferred Stock
will have the right to elect two additional directors to the Company's
Board of Directors, voting as a separate class with the holders of any
Parity Stock (as defined herein) upon which like voting rights have
been conferred and are vested, until such dividend arrearage is
eliminated. The holders of Series A Preferred Stock will have no other
voting rights, except that the affirmative vote of at least 66 2/3% of
the Series A Preferred Stock (voting separately as a class) will be
required before (i) the Company may amend, alter or repeal any
provision of the Company's Restated Certificate of Incorporation which
would adversely affect the powers, preferences or rights of the
holders of the shares of Series A Preferred Stock, (ii) the Company or
the Board of Directors may authorize the creation of or issue any
class or series of preferred stock of the Company (the "Preferred
Stock") that ranks senior to the Series A Preferred Stock as to
dividend payments, payments on redemption or payments of amounts
distributable upon the dissolution, liquidation or winding up of the
Company ("Senior Stock") or (iii) the Company may effect a
reclassification of the Series A Preferred Stock, in each case subject
to certain exceptions. However, the Company may create additional
classes and series of Preferred Stock, ranking pari passu with the
Series A Preferred Stock as to dividend payments, payments on
redemption or payments of amounts distributable upon the dissolution,
liquidation or winding up of the Company ("Parity Stock") and
additional classes and series of junior stock, increase the number of
authorized shares of Preferred Stock (other than Series A Preferred
Stock) or decrease (but not below the number of authorized shares then
outstanding) the number of authorized shares of Preferred Stock (other
than Series A Preferred Stock) without the consent of any holder of
Series A Preferred Stock.
(9) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of the
Company.
In January 1996, TCI Communications Financing I ("Trust I"), an
indirect wholly-owned subsidiary of the Company, issued $16 million in
common securities to the Company, and issued $500 million of 8.72%
Trust Originated Preferred SecuritiesSM (the "Trust I Preferred
Securities" and together with the common securities, the "Trust I
Securities") to the public. Trust I exists for the exclusive purposes
of issuing Trust I Securities and investing the proceeds thereof into
an aggregate principal amount of $516 million of 8.72% Subordinated
Deferrable Interest Notes due January 31, 2045 (the "8.72%
Subordinated Debt Securities") of the Company. The 8.72% Subordinated
Debt Securities are unsecured obligations of the Company and are
subordinate and junior in right of payment to certain other
indebtedness of the Company. Upon redemption of the 8.72% Subordinated
Debt Securities, the Trust I Preferred Securities will be mandatorily
redeemable. The Company effectively provides a full and unconditional
guarantee of Trust I's obligations under the Trust I Preferred
Securities.
(continued)
II-37
<PAGE> 59
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
In May 1996, TCI Communications Financing II ("Trust II"), an indirect
wholly-owned subsidiary of the Company, issued $16 million in common
securities to the Company, and issued $500 million of 10% Trust
Preferred Securities (the "Trust II Preferred Securities" and together
with the common securities, the "Trust II Securities") to the public.
Trust II exists for the exclusive purposes of issuing Trust II
Securities and investing the proceeds thereof into an aggregate
principal amount of $516 million of 10% Subordinated Deferrable
Interest Notes due May 31, 2045 (the "10% Subordinated Debt
Securities") of the Company. The 10% Subordinated Debt Securities are
unsecured obligations of the Company and are subordinate and junior in
right of payment to certain other indebtedness of the Company. Upon
redemption of the 10% Subordinated Debt Securities, the Trust II
Preferred Securities will be mandatorily redeemable. The Company
effectively provides a full and unconditional guarantee of Trust II's
obligations under the Trust II Preferred Securities.
The Trust I and Trust II Preferred Securities are presented together
in a separate line item in the accompanying consolidated balance sheet
captioned "Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely subordinated debt
securities of the Company." Dividends accrued on the Trust I and Trust
II Preferred Securities are included in minority interests in losses
(earnings) of consolidated subsidiaries in the accompanying
consolidated statements of operations.
(10) Stockholder's Equity
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, 1996
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 $34 million, $27 million and $19 million for 1996, 1995 and
1994, respectively.
(continued)
II-38
<PAGE> 60
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 common
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, 1996
pursuant to APB Opinion No. 25. Such estimates 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.
Had TCIC accounted for its stock based compensation pursuant to the
fair value based accounting method in Statement No. 123, the amount of
compensation would not have been materially different from what has
been reflected in the accompanying consolidated financial statements.
The following table presents the number and weighted average exercise
price ("WAEP") of certain options in tandem with SARs to purchase TCI
Class A common stock, Series A TCI Group Stock and Series A Liberty
Group Stock granted to certain officers and other key employees of the
Company:
<TABLE>
<CAPTION>
TCI
TCI TCI Series A
Class A Series A Liberty
common TCI Group Group
stock WAEP stock WAEP stock WAEP
------- ---- --------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
January 1, 1994 3,274,336 $ 16.40 -- --
Granted 1,453,000 22.00 -- --
Exercised (217,483) 17.26 -- --
Canceled (45,625) 20.13 -- --
--------- --------- ---------
Outstanding at
December 31, 1994 4,464,228 18.14 -- --
Converted from
Class A options (4,444,514) 18.16 4,444,514 $13.58 --
Adjustment for
distribution -- -- 1,657,511 $12.11
Granted -- 3,142,000 17.00 -- --
Exercised (9,714) 10.30 (414,764) 12.40 (138,004) 11.03
Canceled (10,000) 17.25 (90,500) 13.07 (33,936) 11.66
--------- --------- ---------
Outstanding at
December 31, 1995 -- 7,081,250 15.17 1,485,571 12.22
Exercised -- (141,300) 12.78 (63,355) 11.96
Canceled -- (118,200) 15.17 (25,200) 12.47
--------- --------- ---------
Outstanding at
December 31, 1996 -- 6,821,750 13.09 1,397,016 12.22
========= ========= =========
Exercisable at
December 31, 1994 1,099,678 15.61 -- --
========= ========= =========
Exercisable at
December 31, 1995 -- 1,729,090 12.67 653,432 11.29
========= ========= =========
Exercisable at
December 31, 1996 -- 3,020,068 11.93 904,424 11.68
========= ========= =========
Vesting Period 4-5 yrs 4-5 yrs
========= =========
</TABLE>
On December 13, 1995, TCI awarded 205,000 restricted shares of Series A
TCI Group common stock to certain officers and other key employees of
the Company. Such restricted shares vest as to 50% on December 13, 2000
and as to the remaining 50% on December 13, 2001.
(11) 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 intercompany payable or
receivable included as a component of stockholder's equity.
(continued)
II-39
<PAGE> 61
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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 intercompany payable of $76 million in 1995.
Income tax benefit (expense) for the years ended December 31, 1996,
1995 and 1994 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1996:
Intercompany allocation $ (12) 137 125
State and local (8) 22 14
----- ---- ----
$ (20) 159 139
===== ==== ====
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)
===== ==== ====
</TABLE>
(continued)
II-40
<PAGE> 62
Tci COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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,
---------------------------
1996 1995 1994
---- ---- ----
amounts in millions
<S> <C> <C> <C>
Computed "expected" tax benefit (expense) $ 207 59 (79)
Amortization not deductible for tax purposes (17) (18) (12)
Minority interest in losses (earnings)
of consolidated subsidiaries 1 4 (1)
Recognition of losses of consolidated partnership -- -- (10)
State and local income taxes, net of federal
income tax benefit 7 2 (21)
Valuation allowance for net operating loss
carryforward -- (6) --
Valuation allowance for foreign corporation -- -- (9)
Gain recognized for tax purposes on sale of
investments (61) -- --
Other 2 8 --
----- ---- ----
$ 139 49 (132)
===== ==== ====
</TABLE>
(continued)
II-41
<PAGE> 63
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, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 509 470
Less - valuation allowance (88) (88)
Investment tax credit carryforwards 116 116
Less - valuation allowance (41) (41)
Investments in affiliates, due principally to
losses of affiliates recognized for financial
statement purposes in excess of losses
recognized for income tax purposes 149 169
Future deductible amounts principally due to
non-deductible accruals 25 25
Other 9 11
------- ------
Net deferred tax assets 679 662
------- ------
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 1,163 1,161
Franchise costs, principally due to differences in
amortization 4,491 3,403
Investment in affiliates, due principally to
undistributed earnings of affiliates 335 191
Leases capitalized for tax purposes 73 53
Other 76 115
------- ------
Total gross deferred tax liabilities 6,138 4,923
------- ------
Net deferred tax liability $ 5,459 4,261
======= ======
</TABLE>
The valuation allowance for deferred tax assets as of December 31,
1996 was $129 million. Such balance did not change from December 31,
1995.
The tax attributes disclosed above are those determined pursuant to
the Tax Sharing Agreement.
(continued)
II-42
<PAGE> 64
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
At December 31, 1996, TCIC had net operating loss carryforwards for
income tax purposes aggregating approximately $995 million of which,
if not utilized to reduce taxable income in future periods, $132
million expires in 2003, $115 million in 2004, $342 million in 2005,
$230 million in 2006, $72 million in 2010 and $104 million in 2011.
Certain subsidiaries of TCIC had additional net operating loss
carryforwards for income tax purposes aggregating approximately $236
million and these net operating losses are subject to certain rules
limiting their usage. Pursuant to the Tax Sharing Agreement, the
Company has not received benefit for approximately $42 million of the
net operating loss carryforward disclosed above. TCI is responsible to
the Company to the extent such amounts are utilized by TCI in future
periods.
At December 31, 1996, 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, 1996 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 ("IRS") for the years 1992
through 1995 (the "IRS Examinations"). Certain income tax issues
related to the years 1981 through 1991 have been resolved in TCIC's
favor. The IRS has until April 1997 to appeal such decisions (the "IRS
Appeals"). In the opinion of management, any additional tax liability,
not previously provided for, resulting from the IRS Examinations or
the IRS Appeals, ultimately determined to be payable, should not have
a material adverse effect on the consolidated financial position of
TCIC.
(continued)
II-43
<PAGE> 65
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(12) 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 $76 million, $73 million
and $59 million for the years ended December 31, 1996 and 1995 and
1994, respectively. Such amounts are included in operating expenses in
the accompanying consolidated statements of operations. In April of
1996, certain of such Liberty subsidiaries were contributed to a newly
formed joint venture, of which Liberty owns a 50% interest.
Liberty leases satellite transponder facilities from TCIC. Charges by
TCIC for such arrangements for the years ended December 31, 1996, 1995
and 1994, aggregated $12 million, $15 million and $8 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+ with
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 1996 and
1995 were approximately $52 million and $31 million, respectively. The
affiliation agreement also provides that QE+ will not grant materially
more favorable terms and conditions to other cable system operators
unless such more favorable terms and conditions are made available to
TCIC. The affiliation agreement also requires TCIC to make payments to
QE+ with respect to a guaranteed minimum number of subscribers
totaling approximately $339 million for the years 1997 and 1998.
At December 31, 1996, TCIC had an $203 million intercompany receivable
from TCI Starz, Inc. which represented the net effect of advances to
TCI Starz, Inc., who in turn paid such amount to QE+ offset by TCIC's
purchase of programming from QE+. Such receivable is non-interest
bearing for five years from the date of the advances.
A former consolidated subsidiary of Liberty, Home Shopping Network,
Inc. ("HSN") paid a commission to TCIC for merchandise sales to
customers who are subscribers of TCIC's cable systems. Aggregate
commissions to TCIC were $7 million, $6 million and $7 million for the
years ended December 31, 1996, 1995 and 1994, respectively. Such
amounts are recorded in revenue in the accompanying consolidated
statements of operations. Effective December 20, 1996, Liberty entered
into a series of transactions whereby it decreased its ownership
interest in HSN such that Liberty no longer consolidates HSN.
(continued)
II-44
<PAGE> 66
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Intercompany amounts at December 31, 1996 represent non-interest
bearing intercompany advances aggregating $95 million from certain
subsidiaries of TCI offset by the aforementioned $203 million
intercompany receivable from TCI Starz, Inc. and interest-bearing
loans to certain subsidiaries of TCI. Such interest-bearing loans plus
accrued interest aggregated $148 million and $134 million at December
31, 1996 and 1995, respectively. Interest earned by TCIC on such
intercompany loans aggregated $12 million for each of the years ended
December 31, 1996, 1995 and 1994. Such interest amounts are included
in interest income in the accompanying consolidated statements of
operations.
(13) Transactions with Officers and Directors
Effective January 31, 1996, a director of the Company 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. ("WestMarc", 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
$3,000,000.
On July 1, 1996, pursuant to a Restricted Stock Award Agreement, an
executive officer of TCI was transferred all of TCI's right title and
interest in and to 62 shares of the 12% Series C Cumulative
Compounding Preferred Stock of WestMarc owned by TCI. Such preferred
stock has a liquidation value of $1,999,500 and is subject to
forfeiture by such officer in the event of certain circumstances from
the date of grant through December 13, 2005.
Effective December 1, 1996, an executive officer of TCI and an
executive officer of TCIC were each granted options representing 1.0%
of TCI's common equity in TCI Telephony Services, Inc., a consolidated
subsidiary of TCI, ("Telephony Services"). The aggregate exercise
price for each such option is equal to 1.0% of (i) TCI's cumulative
investment in Telephony Services as of December 1, 1996, adjusted for
a 6% per annum interest factor from the date each such investment was
made to the date of such exercise, less (ii) the sum of (x) $500
million and (y) the amount of the tax benefits generated by Telephony
Services (up to $500 million) as and when used by TCI. Each such
executive officer was also granted a similar option representing 1.0%
of TCI's common equity in TCI Wireline, Inc., another consolidated
subsidiary of TCI, ("Wireline"). The aggregate exercise price for each
such Wireline option is equal to 1.0% of TCI's cumulative investment
in Wireline as of December 1, 1996, adjusted for a 6% per annum
interest factor from the date each such investment was made to the
date of such exercise. Any exercise by one of such executive officers
of all or part of one of such options (as to either the Telephony
Services option or the Wireline option) would need to be accompanied
by the exercise by such executive officer of a pro rata portion of the
other such option. All of such options vest 20% per annum beginning
February 1, 1997, and expire on February 1, 2006.
(continued)
II-45
<PAGE> 67
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
On the date of the Satellite Spin-off, TCI granted options to two of
its executive officers to purchase 1.0% and an option to an employee
of TCIC to acquire 0.5% of Satellite's issued and outstanding common
stock. The exercise price for each such option is equal to 1.0% or
0.5%, as applicable, of TCI's net investment in Satellite on the date
of the Satellite Spin-off. Such options vest 20% per annum beginning
February 1, 1997 and expire on February 1, 2006.
Estimated compensation relating to the aforementioned restricted stock
award and options has been recorded through December 31, 1996 pursuant
to APB Opinion No. 25. Such estimate 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. Had TCIC accounted for its stock based compensation
pursuant to the fair value based accounting method in Statement No.
123, the amount of compensation would not have been materially
different from what has been reflected in the accompanying
consolidated financial statements.
(14) Commitments and Contingencies
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. 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.
(continued)
II-46
<PAGE> 68
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC has guaranteed notes payable and other obligations of Satellite
and affiliated companies with outstanding balances of approximately
$175 million at December 31, 1996. Although there can be no assurance,
management of TCIC believes that it will not be required to meet its
obligations under such guarantees, or if it is required to fulfill any
of such obligations, that they will not be material to TCIC. Satellite
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 Satellite's behalf.
In connection with the launch of STARZ! 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, 1996, the maximum amount of such
obligations or guarantees was approximately $120 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.
TCIC leases business offices, has entered into converter lease
agreements, pole rental agreements, transponder lease agreements and
uses certain equipment under lease arrangements. Minimum rental
expense under such arrangements amounted to $147 million, $112 million
and $76 million in 1996, 1995 and 1994, respectively.
Future minimum lease payments under noncancellable operating leases
for each of the next five years are summarized as follows (amounts in
millions):
<TABLE>
<CAPTION>
Years ending
December 31,
<S> <C> <C>
1997 $ 115
1998 110
1999 108
2000 97
2001 91
Thereafter 263
</TABLE>
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 1997.
(continued)
II-47
<PAGE> 69
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Certain key employees of TCIC hold restricted stock awards, options
and options with tandem SARs to acquire shares of certain TCI
subsidiaries' common stock. Estimates of the compensation related to
the restricted stock awards and options and/or SARs have been recorded
in the accompanying consolidated financial statements pursuant to APB
Opinion No. 25. Such estimates 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. Had TCIC accounted for its stock
based compensation pursuant to the fair value based accounting method
in Statement No. 123, the amount of compensation would not have been
materially different from what has been reflected in the accompanying
consolidated financial statements.
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.
(15) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions
1996
<S> <C> <C> <C> <C>
Revenue:
As previously reported $ 1,402 1,504 1,648
Adjustment to reclassify franchise
fee revenue (65) (70) (74)
Adjustment to reflect optical fiber
leases as capital leases (4) (4) (3)
------- ------ ------
As adjusted $ 1,333 1,430 1,571 1,620
======= ====== ====== ======
Operating income:
As previously reported $ 174 201 240
Adjustment to reflect optical fiber
leases as capital leases (4) (4) (3)
------- ------ ------
As adjusted $ 170 197 237 149
======= ====== ====== ======
Net loss:
As previously reported $ (77) (111) (72)
Adjustment to reflect optical fiber
leases as capital leases (3) (3) (2)
------- ------ ------
As adjusted $ (80) (114) (74) (184)
======= ====== ====== ======
1995:
Revenue:
As previously reported $ 1,169 1,262 1,310 1,377
Adjustment to reclassify
franchise fee revenue (55) (60) (63) (62)
------- ------ ------ ------
As adjusted $ 1,114 1,202 1,247 1,315
======= ====== ====== ======
Operating income $ 230 208 222 143
Net earnings (loss) $ 4 (28) (26) (70)
</TABLE>
II-48
<PAGE> 70
PART III.
The information required by Part III (Items 10, 11, 12 and 13) has
been incorporated herein by reference to the Company's definitive Proxy
Statement (the "1997 Proxy Statement") to be used in connection with the 1997
Annual Meeting of Stockholders as set forth below, in accordance with General
Instruction G(3) of Form 10-K.
Item 10. Directors and Executive Officers of the Registrant.
Information relating to directors and executive officers of the
Company is set forth in the sections entitled "Election of Directors Proposal"
and "Concerning Management" in the 1997 Proxy Statement and is incorporated
herein by reference.
Item 11. Executive Compensation.
Information regarding compensation of officers and directors of the
Company is set forth in the section entitled "Executive Compensation" in the
1997 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding ownership of certain of the Company's securities
is set forth in the section entitled "Security Ownership of Certain Beneficial
Owners and Management" in the 1997 Proxy Statement and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions
with the Company is set forth in the section entitled "Certain Relationships
and Related Transactions" in the 1997 Proxy Statement and is incorporated
herein by reference.
III-1
<PAGE> 71
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-14
Consolidated Balance Sheets,
December 31, 1996 and 1995 II-15 to II-16
Consolidated Statements of Operations,
Years ended December 31, 1996, 1995 and 1994 II-17
Consolidated Statements of Stockholder's Equity,
Years ended December 31, 1996, 1995 and 1994 II-18 to II-20
Consolidated Statements of Cash Flows,
Years ended December 31, 1996, 1995 and 1994 II-21
Notes to Consolidated Financial Statements,
December 31, 1996, 1995 and 1994 II-22 to II-48
IV-1
<PAGE> 72
(a) (2) Financial Statement Schedules
Included in Part IV of this Report:
<TABLE>
<CAPTION>
(i) Financial Statement Schedules required to be filed: Page No.
<S> <C>
Independent Auditors' Report IV-11
Schedule I - Condensed Information as to the Financial Position
of the Registrant, December 31, 1996 and 1995; Condensed
Information as to the Operations and Cash Flows of the
Registrant, Years ended
December 31, 1996, 1995 and 1994 IV-12 to IV-14
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1996, 1995 and 1994 IV-15
(ii) Separate financial statements for Sprint Spectrum
Holding Company, L.P. and Subsidiaries
Consolidated Financial Statements
Independent Auditors' Report IV-16
Report of Independent Accountants IV-17
Consolidated Balance Sheets IV-18
Consolidated Statements of Operations IV-19
Consolidated Statements of Changes in
Partners' Capital IV-20
Consolidated Statements of Cash Flows IV-21
Notes to Consolidated Financial Statements IV-22 to IV-35
</TABLE>
IV-2
<PAGE> 73
(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:
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation, dated as of January 11, 1996, as amended on January 11, 1996 and
February 6, 1996.
Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-5550).
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 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).
10.4 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).
10.5 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).
10.6 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).
</TABLE>
IV-3
<PAGE> 74
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.7 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 (Commission File No. 0-20421).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
</TABLE>
(continued)
IV-4
<PAGE> 75
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.14 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).
10.15 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).
10.16 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).
10.17 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 (Commission File No. 0-20421).
10.18 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 (Commission File No. 0-20421).
10.19 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 (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 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 (Commission File No. 0-20421).
</TABLE>
(continued)
IV-5
<PAGE> 76
10 - Material contracts, continued:
<TABLE>
<S> <C>
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 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 (Commission File No. 0-20421).
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 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 (Commission File No. 0-20421).
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 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 (Commission File No. 0-20421).
10.24 Restricted Stock Award Agreement, made as of July 1, 1996, among Tele-Communications, Inc., Brendan
Clouston and WestMarc Communi-cations, Inc.*
Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the
year ended December 31, 1996 (Commission File No. 0-20421).
10.25 Option Agreement, dated as of December 4, 1996, by and between TCI Satellite Entertainment, Inc. and
Brendan R. Clouston.*
Incorporated herein by reference to the TCI Satellite Entertainment, Inc. Annual Report on Form 10-K
for the year ended December 31, 1996 (Commission File No. 0-21317).
10.26 Form of Option to Purchase Common Stock Agreement made as of the 1st day of December 1996 by and among TCI
Telephony Services, Inc., Grantee and Tele-Communications, Inc.*
Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the
year ended December 31, 1996 (Commission File No. 0-20421).
10.27 Form of Option to Purchase Common Stock Agreement made as of the 1st day of December 1996 by and among TCI
Wireline, Inc., Grantee and Tele-Communications, Inc.*
Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the
year ended December 31, 1996 (Commission File No. 0-20421).
</TABLE>
(continued)
IV-6
<PAGE> 77
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.28 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).
10.29 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).
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
</TABLE>
(continued)
IV-7
<PAGE> 78
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.35 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 (Commission File No. 0-20421).
10.36 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 (Commission File No. 0-20421).
10.37 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 (Commission File No. 0-20421).
10.38 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 (Commission File No. 0-20421).
10.39 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 (Commission File No. 0-20421).
10.40 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 (Commission File No. 0-20421).
10.41 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 (Commission File No. 0-20421).
</TABLE>
(continued)
IV-8
<PAGE> 79
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.42 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 (Commission File No. 0-20421).
10.43 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 (Commission File No. 0-20421).
10.44 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 (Commission File No. 0-20421).
10.45 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 (Commission File No. 0-20421).
10.46 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 (Commission File No. 0-20421).
10.47 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 (Commission File No. 0-20421).
10.48 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 (Commission File No. 0-20421).
21- Subsidiaries of TCI Communications, Inc.
23.1- Consent of KPMG Peat Marwick LLP.
23.2- Consent of Deloitte & Touche LLP.
23.3- Consent of Price Waterhouse LLP.
27- Financial data schedule
</TABLE>
*Constitutes management contract or compensatory arrangement.
IV-9
<PAGE> 80
(b) Report on Form 8-K filed during the quarter ended December 31, 1996:
<TABLE>
<CAPTION>
Item
Date of Report Reported Financial Statements Filed
-------------- -------- --------------------------
<S> <C> <C>
December 17, 1996 Item 5 None.
</TABLE>
IV-10
<PAGE> 81
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TCI Communications, Inc.:
Under date of March 24, 1997, we reported on the consolidated balance sheets of
TCI Communications, Inc. and subsidiaries (a subsidiary of Tele-Communications,
Inc.) as of December 31, 1996 and 1995, and the related consolidated statements
of operations, stockholder's equity, and cash flows for each of the years in
the three-year period ended December 31, 1996, which are included in the
December 31, 1996 annual report on Form 10-K. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related consolidated 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 24, 1997
IV-11
<PAGE> 82
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, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
- ------ ---- ----
amounts in millions
<S> <C> <C>
Investments in and advances to consolidated
subsidiaries - eliminated upon consolidation $ 9,299 10,348
Other assets, at cost, net of amortization 213 116
------- ------
$ 9,512 10,464
======= ======
Liabilities and Stockholder's Equity
Accrued liabilities $ 597 402
Debt 8,669 8,333
------- ------
Total liabilities 9,266 8,735
Redeemable preferred stock 232 --
Stockholder's equity (see detail on page II-16) 14 1,729
------- ------
$ 9,512 10,464
======= ======
Guarantees $ 22 22
======= ======
</TABLE>
IV-12
<PAGE> 83
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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
amounts in millions
<S> <C> <C> <C>
Management costs reimbursed by subsidiaries $ 247 152 115
----- ---- ----
Operating expenses (income):
Selling, general and administrative 184 116 103
Compensation (adjustment to compensation) relating to
options and stock appreciation rights (12) 17 (5)
Interest expense 707 624 471
Interest income, principally from consolidated
subsidiaries (707) (625) (472)
Restructuring charges 5 -- --
Depreciation and amortization 31 19 13
Loss on early extinguishment of debt 40 -- --
Loss (gain) on disposition of assets (1) 1 5
----- ---- ----
247 152 115
----- ---- ----
Earnings from operations before share of losses
(earnings) of consolidated subsidiaries -- -- --
Share of losses (earnings) of consolidated subsidiaries 452 120 (94)
----- ---- ----
Net loss (earnings) 452 120 (94)
Preferred stock dividend requirements 9 -- --
----- ---- ----
Net loss (earnings) attributable to common
stockholder $ 461 120 (94)
===== ==== ====
</TABLE>
IV-13
<PAGE> 84
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, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
amounts in millions
<S> <C> <C> <C>
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 31 19 13
Compensation (adjustment to compensation) relating to
options and stock appreciation rights (12) 17 (5)
Payments of stock appreciation rights (2) (4) --
Loss on early extinguishment of debt 40 -- --
Loss (gain) on disposition of assets (1) 1 5
Amortization of debt discount 4 1 1
Change in accrued liabilities 195 77 43
------- ------ ------
Net cash provided by operating activities 255 111 57
------- ------ ------
Cash flows from investing activities:
Reduction in or additional investments in and advances to
consolidated subsidiaries, net (258) (2,592) (1,376)
Capital expended for property and equipment (120) -- --
Cash Proceeds on disposition of assets 7 -- --
Other investing activities (6) (52) (45)
------- ------ ------
Net cash used in investing activities (377) (2,644) (1,421)
------- ------ ------
Cash flows from financing activities:
Borrowings of debt 1,617 5,255 2,227
Repayments of debt (1,285) (3,651) (678)
Prepayment penalties (35) -- --
Issuance of redeemable preferred stock 223 -- --
Change in intercompany payable/receivable (391) 929 (189)
Payment of redeemable preferred stock dividends (7) -- --
------- ------ ------
Net cash provided by financing activities 122 2,533 1,360
------- ------ ------
Net decrease in cash -- -- (4)
Cash at beginning of year -- -- 4
------- ------ ------
Cash at end of year $ -- -- --
======= ====== ======
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 738 576 448
======= ====== ======
</TABLE>
See also note 2 to the consolidated financial statements.
IV-14
<PAGE> 85
Schedule II
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
<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
- ----------- ------- -------- ---------- -------
amounts in millions
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful receivables
- trade $ 24 112 (111) 25
======== === ==== ==
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
======== === ==== ==
</TABLE>
IV-15
<PAGE> 86
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Partners of Sprint Spectrum Holding Company, L.P.
Kansas City, Missouri
We have audited the accompanying consolidated balance sheets of Sprint Spectrum
Holding Company, L.P. and subsidiaries (the "Partnership"), development stage
enterprises, as of December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in partners' capital and cash flows for each
of the two years in the period ended December 31, 1996, for the period from
October 24, 1994 (date of inception) to December 31, 1994 and for the
cumulative period from October 24, 1994 (date of inception) to December 31,
1996. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
1996 financial statements of American PCS, L.P. ("APC") an investment of the
Partnership which is accounted for by use of the equity method. The
Partnership's share of APC's net loss for the year ended December 31, 1996 was
$96,850,000 and is included in the accompanying consolidated financial
statements. The financial statements of APC were audited by other auditors
whose reports have been furnished to us, and our opinion, insofar as it relates
to the amounts included for APC, is based solely on the reports of such other
auditors.
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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, such
consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Sprint Spectrum Holding Company, L.P. and
subsidiaries at December 31, 1996 and 1995 and the results of their operations
and their cash flows for the years then ended and for the period from October
24, 1994 (date of inception) to December 31, 1994 and for the cumulative period
from October 24, 1994 (date of inception) to December 31, 1996, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, Sprint
Spectrum Holding Company, L.P. and its subsidiaries are in the development
stage as of December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 14, 1997
IV-16
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
In our opinion, the balance sheet and the related statements of loss, of
changes in partners capital and cash flows (not presented separately herein)
present fairly, in all material respects, the financial position of American
PCS, L.P. at December 31, 1996, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnerships management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, DC
March 7, 1997
IV-17
<PAGE> 88
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 69,988 $ 1,123
Accounts receivable, net ........................... 3,310 --
Receivable from affiliates ......................... 12,901 340
Inventory .......................................... 72,414 --
Prepaid expenses and other assets, net ............. 14,260 188
Note receivable--unconsolidated partnership ........ 226,670 655
------------ ------------
Total current assets ............................. 399,543 2,306
INVESTMENT IN PCS LICENSES, net ....................... 2,122,908 2,124,594
INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS ............ 179,085 85,546
PROPERTY, PLANT AND EQUIPMENT, net .................... 1,408,680 31,897
MICROWAVE RELOCATION COSTS, net ....................... 135,802 --
OTHER ASSETS, net ..................................... 77,383 --
------------ ------------
TOTAL ASSETS .......................................... $ 4,323,401 $ 2,244,343
============ ============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Advances from partners ............................. $ 167,818 $ --
Accounts payable ................................... 196,146 41,950
Payable to affiliate ............................... 5,626 7,598
Accrued expenses ................................... 81,230 1,700
Current maturities of long-term debt ............... 49 --
------------ ------------
Total current liabilities ........................ 450,869 51,248
LONG-TERM COMPENSATION OBLIGATION ..................... 11,356 1,856
CONSTRUCTION OBLIGATIONS .............................. 714,934 --
LONG-TERM DEBT ........................................ 686,192 --
COMMITMENTS AND CONTINGENCIES
LIMITED PARTNER INTEREST IN CONSOLIDATED
SUBSIDIARY ......................................... 13,397 13,170
PARTNERS' CAPITAL AND ACCUMULATED DEFICIT:
Partners' capital .................................. 3,003,484 2,291,806
Deficit accumulated during the development stage ... (556,831) (113,737)
------------ ------------
Total partners' capital .......................... 2,446,653 2,178,069
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL ............... $ 4,323,401 $ 2,244,343
============ ============
</TABLE>
See notes to consolidated financial statements
IV-18
<PAGE> 89
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994
(DATE OF (DATE OF
YEAR ENDED YEAR ENDED INCEPTION) TO INCEPTION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996
------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Service ................................ $ 33 $ -- $ -- $ 33
Equipment .............................. 4,142 -- -- 4,142
------------ ------------ ---------------- ----------------
Total operating revenues ............. 4,175 -- -- 4,175
OPERATING EXPENSES:
Cost of service ........................ 21,928 -- -- 21,928
Cost of equipment ...................... 14,148 -- -- 14,148
Selling ................................ 38,345 145 -- 38,490
General and administrative ............. 274,352 66,195 3,294 343,841
Depreciation and amortization .......... 11,275 211 38 11,524
------------ ------------ ---------------- ----------------
Total operating expenses ............. 360,048 66,551 3,332 429,931
------------ ------------ ---------------- ----------------
LOSS FROM OPERATIONS ...................... (355,873) (66,551) (3,332) (425,756)
OTHER INCOME (EXPENSE):
Interest income ........................ 8,593 460 24 9,077
Interest expense, net .................. (323) -- -- (323)
Other income ........................... 1,586 38 -- 1,624
Equity in loss of unconsolidated ....... (96,850) (46,206) -- (143,056)
partnership
Limited partner interest in net loss
of consolidated subsidiary ........... (227) 1,830 -- 1,603
------------ ------------ ---------------- ----------------
Total other income (expense) ......... (87,221) (43,878) 24 (131,075)
------------ ------------ ---------------- ----------------
NET LOSS .................................. $ (443,094) $ (110,429) $ (3,308) $ (556,831)
============ ============ ================ ================
</TABLE>
See notes to consolidated financial statements
IV-19
<PAGE> 90
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' ACCUMULATED
CAPITAL DEFICIT TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE, October 24, 1994 .......... $ -- $ -- $ --
Contributions of capital ........... 123,438 -- 123,438
Net loss ........................... -- (3,308) (3,308)
----------- ----------- -----------
BALANCE, December 31, 1994 ......... 123,438 (3,308) 120,130
Contributions of capital ........... 2,168,368 -- 2,168,368
Net loss ........................... -- (110,429) (110,429)
----------- ----------- -----------
BALANCE, December 31, 1995 ......... 2,291,806 (113,737) 2,178,069
Contributions of capital ........... 711,678 -- 711,678
Net loss ........................... -- (443,094) (443,094)
----------- ----------- -----------
BALANCE, December 31, 1996 ......... $ 3,003,484 $ (556,831) $ 2,446,653
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
IV-20
<PAGE> 91
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM PERIOD FROM
OCTOBER 24, 1994 OCTOBER 24, 1994
(DATE OF (DATE OF
YEAR ENDED DECEMBER 31, INCEPTION) TO INCEPTION) TO
---------------------------- DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996
------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .......................................... $ (443,094) $ (110,429) $ (3,308) $ (556,831)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in loss of unconsolidated partnership ... 96,850 46,206 -- 143,056
Limited partner interest in net loss of
consolidated subsidiary ...................... 227 (1,830) -- (1,603)
Depreciation and amortization .................. 11,275 211 38 11,524
Amortization of debt discount and
issuance costs ............................... 14,008 -- -- 14,008
Loss on disposal of non-network equipment ...... -- 31 -- 31
Changes in assets and liabilities:
Receivables ................................. (15,871) (340) -- (16,211)
Inventory ................................... (72,414) -- -- (72,414)
Prepaid expenses and other assets ........... (21,608) (178) (10) (21,796)
Accounts payable and accrued expenses ....... 231,754 47,503 3,745 283,002
Long-term compensation obligation ........... 9,500 1,856 -- 11,356
------------ ------------ ---------------- ----------------
Net cash provided by (used in)
operating activities .................... (189,373) (16,970) 465 (205,878)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................. (683,886) (31,763) (451) (716,100)
Proceeds on sale of equipment ..................... -- 37 -- 37
Microwave relocation costs ........................ (123,354) -- -- (123,354)
Purchase of PCS licenses .......................... -- (2,006,156) (118,438) (2,124,594)
Investment in unconsolidated partnerships ......... (190,390) (131,752) -- (322,142)
Loan to unconsolidated partnership ................ (231,964) (655) -- (232,619)
Payment received on loan to unconsolidated
partnership ..................................... 5,950 -- -- 5,950
------------ ------------ ---------------- ----------------
Net cash used in investing activities ..... (1,223,644) (2,170,289) (118,889) (3,512,822)
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from partners ............................ 167,818 -- -- 167,818
Proceeds from issuance of long-term debt .......... 674,201 -- -- 674,201
Payments on long-term debt ........................ (24) -- -- (24)
Debt issuance costs ............................... (71,791) -- -- (71,791)
Partner capital contributions ..................... 711,678 2,183,368 123,438 3,018,484
------------ ------------ ---------------- ----------------
Net cash provided by financing
activities .............................. 1,481,882 2,183,368 123,438 3,788,688
------------ ------------ ---------------- ----------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................. 68,865 (3,891) 5,014 69,988
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ...... 1,123 5,014 -- --
------------ ------------ ---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............ $ 69,988 $ 1,123 $ 5,014 $ 69,988
============ ============ ================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
- Interest paid, net of amount capitalized ..... $ 323 $ -- $ -- $ 323
NON-CASH INVESTING ACTIVITIES:
- Capital expenditures and microwave
relocation costs of $807,241 for the
year ended December 31, 1996 are net
of construction obligations of $714,934.
</TABLE>
See notes to consolidated financial statements
IV-21
<PAGE> 92
SPRINT SPECTRUM HOLDING COMPANY, L.P. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Sprint Spectrum Holding Company, L.P. (the "Company" and "Holdings") is a
limited partnership formed in Delaware on March 28, 1995, by Sprint
Enterprises, L.P., TCI Spectrum Holdings, Inc. (formerly known as TCI Telephony
Services, Inc. as successor to TCI Network Services), Cox Telephony Partnership
and Comcast Telephony Services (together the "Partners"). Holdings was formed
pursuant to a reorganization of the operations of an existing partnership,
WirelessCo, L.P. ("WirelessCo") which transferred certain operating functions
to Holdings. The Partners are subsidiaries of Sprint Corporation ("Sprint"),
Tele-Communications, Inc. ("TCI"), Comcast Corporation ("Comcast") and Cox
Communications, Inc. ("Cox", and together with Sprint, TCI and Comcast, the
"Parents"), respectively. The Company and certain other affiliated partnerships
offer services as Sprint PCS.
The Partners of the Company have the following ownership interests as of
December 31, 1996 and 1995:
<TABLE>
<S> <C>
Sprint Enterprises, L.P. 40%
TCI Spectrum Holdings, Inc. 30%
Cox Telephony Partnership 15%
Comcast Telephony Services 15%
</TABLE>
Each Partner's ownership interest consists of a 99% general partner interest
and a 1% limited partnership interest.
The Company is consolidated with certain subsidiaries, including NewTelco, L.P.
and Sprint Spectrum L.P. which, in turn, has several subsidiaries. Sprint
Spectrum L.P.'s subsidiaries are Sprint Spectrum Equipment Company, L.P.
("EquipmentCo"), Sprint Spectrum Realty Company, L.P. ("RealtyCo"), Sprint
Spectrum Finance Corporation ("FinCo"), and WirelessCo. MinorCo, L.P.
("MinorCo") held the remaining ownership interests in NewTelco, L.P., Sprint
Spectrum L.P., EquipmentCo, RealtyCo and WirelessCo at December 31, 1996.
RealtyCo and EquipmentCo were organized on May 15, 1996 for the purpose of
holding PCS network-related real estate interests and assets. FinCo was formed
on May 20, 1996 to be a co-obligor of the debt obligations discussed in Note 5.
VENTURE FORMATION AND AFFILIATED PARTNERSHIPS - A Joint Venture Formation
Agreement (the "Formation Agreement"), dated as of October 24, 1994, and
subsequently amended as of March 28, 1995, and January 31, 1996, was entered
into by the Parents, pursuant to which the Parents agreed to form certain
entities to (i) provide national wireless telecommunications services,
including acquisition and development of personal communications service
("PCS") licenses, (ii) develop a PCS wireless system in the Los Angeles-San
Diego Major Trading Area ("MTA") and (iii) take certain other actions.
On October 24, 1994, WirelessCo was formed and on March 28, 1995, additional
partnerships were formed consisting of Holdings, MinorCo, NewTelco, L.P., and
Sprint Spectrum L.P. The Partners'
IV-22
<PAGE> 93
ownership interests in WirelessCo were initially held directly by the Partners
as of October 24, 1994, the formation date of WirelessCo, but were subsequently
contributed to Holdings and then to Sprint Spectrum L.P. on March 28, 1995.
Prior to July 1, 1996, substantially all wireless operations of Sprint Spectrum
L.P. and subsidiaries were conducted at Holdings and substantially all
operating assets and liabilities, with the exception of the interest in an
unconsolidated subsidiary and the ownership interest in PCS licenses, were held
at Holdings. As of July 1, 1996, Holdings transferred these net assets, and
assigned agreements related to the wireless operations to which it was a party
to Sprint Spectrum L.P., EquipmentCo and RealtyCo.
SPRINT SPECTRUM HOLDING COMPANY, L.P. (FORMERLY KNOWN AS MAJORCO, L.P.)
PARTNERSHIP AGREEMENT - The Amended and Restated Agreement of Limited
Partnership of MajorCo, L.P. (the "MajorCo Agreement"), dated as of January 31,
1996, among Sprint Enterprises, L.P., TCI Spectrum Holdings, Inc., Comcast
Telephony Services and Cox Telephony Partnership provides that the purpose of
the Company is to engage in wireless communications services. The MajorCo
Agreement provides for the governance and administration of partnership
business, allocation of profits and losses (including provisions for special
and curative allocations), tax allocations, transactions with partners,
disposition of partnership interests and other matters.
The MajorCo Agreement generally provides for the allocation of profits and
losses according to each Partner's proportionate percentage interest, after
giving effect to special allocations. After special allocations, profits are
allocated to partners to the extent of and in proportion to cumulative net
losses previously allocated. Losses are allocated, after considering special
allocations, according to each Partner's allocation of net profits previously
allocated.
The MajorCo Agreement provides for a planned capital amount to be contributed by
the Partners ("Total Mandatory Contributions"), which represents the sum of $4.2
billion, which includes agreed upon values attributable to the contributions of
certain additional PCS licenses by a Partner. The Total Mandatory Contributions
amount is required to be contributed in accordance with capital contribution
schedules to be set forth in approved annual budgets. The partnership board of
Holdings may request capital contributions to be made in the absence of an
approved budget or more quickly than provided for in an approved budget, but
always subject to the Total Mandatory Contributions limit. The proposed budget
for fiscal 1997 has not yet been approved by the partnership board. An
additional Amended and Restated Capital Contribution Agreement (the "Amended
Agreement") was executed effective October 2, 1996. The Amended Agreement
recognizes that through December 31, 1995, approximately $2.2 billion of the
Total Mandatory Contributions had been contributed to Sprint Spectrum L.P., and
designates that $1.0 billion of the balance of the Total Mandatory Contributions
amount shall be contributed to Sprint Spectrum L.P.
At December 31, 1996, approximately $3.0 billion of the Total Mandatory
Contributions had been contributed by the Partners to Holdings and its
affiliated partnerships, of which $2.6 billion had been contributed to Sprint
Spectrum L.P.
PARENT UNDERTAKING - Each Parent has entered into an agreement which provides
for certain undertakings by each Parent in favor of other Partners and which
addresses certain obligations of the Parent pertaining to items including
provision of services, confidentiality, foreign ownership, purchasing,
restrictions on disposition and certain other matters.
IV-23
<PAGE> 94
DEVELOPMENT STAGE ENTERPRISES - The Company and its subsidiaries are
development stage enterprises. The success of the Company's development is
dependent on a number of business factors, including securing financing to
complete network construction and fund initial operations, successfully
deploying the PCS network and attaining profitable levels of market demand for
Company products and services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements have been
prepared from the date of inception, October 24, 1994, for WirelessCo, and from
the dates of inception, for other consolidated subsidiaries, through December
31, 1996. The assets, liabilities, results of operations and cash flows of
entities in which the Company has a controlling interest have been
consolidated. All significant intercompany accounts and transactions have been
eliminated.
MinorCo, the limited partner, has been allocated approximately $227,000 in
income and $1,830,000 of losses incurred by NewTelco, L.P. for the years ended
December 31, 1996 and 1995, respectively, as losses in excess of the general
partner's capital account (which consisted of $1,000) are to be allocated to
the limited partner to the extent of its capital account.
TRADEMARK AGREEMENT - Sprint(R) is a registered trademark of Sprint
Communications Company, L.P. and is licensed to the Company on a royalty-free
basis pursuant to a trademark license agreement between the Company and Sprint.
REVENUE RECOGNITION - Operating revenues for PCS services are recognized as
service is rendered. Operating revenues for equipment sales are recognized at
the time the equipment is sold to a customer or an unaffiliated agent.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments
with original maturities of three months or less to be cash equivalents. Under
the Company's cash management system, checks issued but not presented to banks
frequently result in overdraft balances for accounting purposes and are
included in Accounts payable in the consolidated balance sheets.
ACCOUNTS RECEIVABLE - Accounts receivable are net of an allowance for doubtful
accounts of approximately $202,000 at December 31, 1996. No allowance was
recorded for the year ended December 31, 1995.
INVENTORY - Inventory consists of wireless communication equipment (primarily
handsets). Inventory is stated at lower of cost or replacement cost. Gains and
losses on the sales of handsets are recognized at the time of sale.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Construction work in progress represents costs incurred to design and
construct the PCS network. Repair and maintenance costs are charged to expense
as incurred. When network equipment is retired, or otherwise disposed of, its
book value, net of salvage, is charged to accumulated depreciation. When
non-network equipment is sold, retired or abandoned, the cost and accumulated
depreciation are removed from the accounts and any gain or loss is recognized.
Property, plant and equipment are
IV-24
<PAGE> 95
depreciated using the straight-line method based on estimated useful lives of
the assets. Depreciable lives range from 3 to 20 years.
INVESTMENT IN PCS LICENSES AND OTHER INTANGIBLES - During 1994 and 1995, the
Federal Communications Commission ("FCC") auctioned PCS licenses in specific
geographic service areas. The FCC grants licenses for terms of up to ten years,
and generally grants renewals if the licensee has complied with its license
obligations. The Company believes it has and will continue to meet all
requirements necessary to secure renewal of its PCS licenses. The Company has
also incurred costs associated with microwave relocation in the construction of
the PCS network. Amortization of PCS licenses and microwave relocation costs
will commence as each service area becomes operational, over estimated useful
lives of 40 years. Amortization expense of $1,711,000 is included in
Depreciation and amortization expense in the consolidated statement of
operations for the year ended December 31, 1996. No amortization expense was
recorded in 1995 or 1994. Interest expense capitalized pertaining to the
acquisition of the PCS licenses has been included in Property, plant and
equipment.
The ongoing value and remaining useful life of intangible assets are subject to
periodic evaluation. The Company currently expects the carrying amounts to be
fully recoverable. Impairments of intangibles and long-lived assets are
assessed based on an undiscounted cash flow methodology.
CAPITALIZED INTEREST - Interest costs associated with the construction of
capital assets incurred during the period of construction are capitalized. The
total capitalized in 1996 was approximately $30,461,000. There were no amounts
capitalized in 1995 or 1994.
DEBT ISSUANCE COSTS - Included in Other assets are costs associated with
obtaining financing. Such costs are capitalized and amortized to interest
expense over the term of the related debt instruments using the effective
interest method. Amortization expense for the year ended December 31, 1996 was
approximately $1,944,000.
MAJOR CUSTOMER - The Company markets its products through multiple distribution
channels, including Company-owned retail stores and third-party retail outlets.
Sales to one third-party retail customer exceeded 10% of Equipment revenue in
the consolidated statement of operations for the year ended December 31, 1996.
INCOME TAXES - The Company has not provided for federal or state income taxes
since such taxes are the responsibility of the individual Partners.
FINANCIAL INSTRUMENTS - The carrying value of the Company's short-term
financial instruments, including cash and cash equivalents, receivables from
customers and affiliates and accounts payable approximates fair value. The fair
value of the Company's long-term debt is based on quoted market prices for the
same issues or current rates offered to the Company for similar debt. A summary
of the fair value of the Company's long-term debt at December 31, 1996 is
included in Note 5.
USE OF 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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
IV-25
<PAGE> 96
RECLASSIFICATIONS - Certain reclassifications have been made to the 1995 and
1994 financial statements to conform to the 1996 financial statement
presentation.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1996
and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land ....................................................... $ 905 $ --
Buildings and leasehold improvements ....................... 86,467 --
Office furniture and fixtures .............................. 68,210 2,902
Network equipment .......................................... 255,691 --
Telecommunications plant - construction work in progress ... 1,006,990 29,200
---------- ----------
1,418,263 32,102
Less accumulated depreciation .............................. (9,583) (205)
---------- ----------
$1,408,680 $ 31,897
========== ==========
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED PARTNERSHIPS
AMERICAN PCS, L.P. - On January 9, 1995, WirelessCo acquired a 49% limited
partnership interest in American PCS, L.P. ("APC"). American Personal
Communications II, L.P. ("APC II") holds a 51% partnership interest in APC and
is the general managing partner. The investment in APC is accounted for under
the equity method. Concurrently with the execution of the partnership
agreement, the Company entered into an affiliation agreement with APC which
provides for the reimbursement of certain allocable costs and payment of
affiliate fees. Effective August 31, 1996, WirelessCo's interest in APC, the
existing loans to APC, and obligations to provide additional funding to APC
were transferred to Holdings pursuant to an amendment to the partnership
agreement. Summarized financial information is as follows (in thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Total assets ..................................... $ 331,556 $ 237,326
Total liabilities ................................ 450,690 171,180
Total revenues ................................... 71,838 5,153
Net loss ......................................... 202,626 51,551
</TABLE>
The partnership agreement between the Company and APC II specifies that losses
are allocated based on percentage ownership interests and certain other
factors. In January 1997, the Company and APC II amended the APC partnership
agreement with respect to the allocation of profits and losses. For financial
reporting purposes, profits and losses are to be allocated in proportion to
Holdings' and APC
IV-26
<PAGE> 97
II's respective partnership interests, except for costs related to stock
appreciation rights and interest expense attributable to the FCC interest
payments which shall be allocated entirely to APC II.
Holding's investment in APC was approximately $75,546,000 at December 31, 1995.
Holdings share of the losses of APC for the year ended December 31, 1996,
totaling approximately $96,850,000, has exceeded its investment balance by
approximately $20,554,000.
The unamortized excess of the Company's investment over its equity in the
underlying net assets of APC at the date of acquisition was approximately
$10,139,000. This excess investment has been eliminated as a result of the
recognition of Holding's equity in APC's losses. Amortization included in
equity in loss of unconsolidated partnership prior to such elimination totaled
approximately $128,000 and $240,000 for the years ended December 31, 1996 and
1995, respectively.
The call option in APC acquired on January 9, 1995, provides the Company with
the right to purchase an additional interest in APC from APC II in annual
increments beginning five years after the initial PCS network build-out is
completed. The first increment, an additional 20% of the APC II ownership
interest, can be acquired in each of the fifth through seventh years with the
remaining interest available for purchase in the eighth through tenth year. APC
II also has the right to put a portion of its ownership interest to the Company
on an annual basis beginning after the completion of the initial PCS network
build-out, through the fifth anniversary date the greater of (i) one-fifth of
APC II's initial percentage interest of 51% in APC or (ii) the portion of APC
II's interest equal to APC II's obligation for annual FCC payments to be made
by APC. The exercise price of the call and put options are based on the Fair
Value, as defined, of APC at the date of exercise. The amount recorded at
December 31, 1996 and 1995 for such option, net of accumulated amortization,
was $9,250,000 and $10,000,000, respectively. As of December 31, 1996, APC II
has not exercised any put options. The Company is committed to arrange or
provide certain funding for procurement of APC's CDMA network. APC is under a
contractual obligation to repay any amounts provided by the Company, plus
interest.
During the initial five year build-out period, which began in December 1994,
APC II and the Company are obligated as follows: (a) APC II is obligated to
make capital contributions in an amount equal to the aggregate principal and
interest payments to the FCC, provided APC II has sufficient cash flows or can
obtain financing from a third party; (b) if APC II is unable to meet such
obligation, the Company is required to contribute the shortfall, upon ten days
prior notice. Under certain circumstances, APC II has the right and is
obligated to exercise its put right to the extent necessary to fund additional
capital contributions; (c) the Company is required to contribute to APC cash
necessary for operations up to an amount of approximately $98 million; and (d)
the Company is obligated to fund the cash requirements of APC in excess of that
described in (a), (b), and (c) above, in the form of either loans or additional
capital up to $275 million. As of December 31, 1996, $98 million of equity had
been contributed and approximately $232 million of partner advances had been
extended, fulfilling the Company's obligations under (c) and (d) above. In
January 1997, additional advances of $20 million were extended. All advances
were repaid in full in February 1997 and no further obligation for (c) and (d)
above exists.
COX COMMUNICATIONS PCS, L.P. - On December 31, 1996, the Company acquired a 49%
limited partner interest in Cox Communications PCS, L.P. ("Cox PCS"). Cox
Pioneer Partnership ("CPP") holds a 50.5% general and a 0.5% limited partner
interest and is the general and managing partner. The investment in Cox PCS is
accounted for under the equity method. As of December 31, 1996, approximately
$168 million in equity, including $2.45 million to PCS Leasing Co, L.P.
IV-27
<PAGE> 98
("LeasingCo"), a wholly owned subsidiary of Cox PCS, had been contributed to
Cox PCS by the Company. The excess of the Company's investment over its equity
in the underlying net assets on December 31, 1996 was approximately $32.7
million. A portion of the initial contribution totaling approximately $23
million was payable at December 31, 1996.
Under the terms of the partnership agreement, CPP and the Company are obligated
as follows: (a) if the FCC consents to the assumption and recognition of the
license payment obligations by Cox PCS, CPP is obligated to make capital
contributions in an amount equal to such liability and related interest; (b) if
the FCC does not consent, Cox PCS is obligated to reimburse Cox Communications,
Inc. for interest payments exceeding the amount that would have been payable by
Cox Communications, Inc. to the FCC had the interest rate been 5.875% through
the date that Cox Communications, Inc. completes refinancing of the FCC
liability; (c) the Company is obligated to make capital contributions of
approximately $369,908,000 to Cox PCS; (d) the Company is not obligated to make
any cash capital contributions upon the assumption by Cox PCS of the FCC
payment obligations until CPP has contributed cash in an amount equal to the
aggregate principal and interest of such obligations; and, (e) CPP and the
Company are obligated to make additional capital contributions in an amount
equal to such partner's percentage interest times the amount of additional
capital contributions being requested. Additionally, the Company acquired a 49%
limited partner interest in LeasingCo. LeasingCo is a limited partnership
formed to acquire, construct or otherwise develop equipment and other personal
property to be leased to Cox PCS. The Company is not obligated to make
additional capital contributions beyond the initial funding of approximately
$2,450,000.
Concurrently with the execution of the partnership agreement, the Company
entered into an affiliation agreement with Cox PCS which provides for the
reimbursement of certain allocable costs and payment of affiliate fees. For the
year ended December 31, 1996, allocable costs of approximately $7,339,000 are
netted against the related operating expense captions in the accompanying
consolidated statement of operations and in receivables from affiliates in the
consolidated balance sheet. In addition, the Company purchases certain
equipment, such as handsets, on behalf of Cox PCS. Receivables from affiliates
for handsets and related equipment were approximately $6 million at December
31, 1996.
5. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consists of the following at of December 31, 1996 (in
thousands):
<TABLE>
<S> <C>
11% Senior Notes due in 2006 ........................................ $250,000
12 1/2% Senior Discount Notes due in 2006, net
of unamortized discount of $214,501 .............................. 285,499
Credit facility - term loan ......................................... 150,000
Other ............................................................... 742
--------
Total debt .......................................................... 686,241
Less current maturities ............................................. 49
--------
Long-term debt ...................................................... $686,192
========
</TABLE>
IV-28
<PAGE> 99
SENIOR NOTES AND SENIOR DISCOUNT NOTES - In August 1996, Sprint Spectrum L.P.
and Sprint Spectrum Finance Corporation (together, the "Issuers") issued $250
million aggregate principal amount of 11% Senior Notes due 2006 ("the Senior
Notes"), and $500 million aggregate principal amount at maturity of 12 1/2%
Senior Discount Notes due 2006 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"). The Senior Discount Notes were issued at a
discount to their aggregate principal amount at maturity and generated proceeds
of approximately $273 million. Cash interest on the Senior Notes will accrue at
a rate of 11% per annum and is payable semi-annually in arrears on each
February 15 and August 15, commencing February 15, 1997. Cash interest will not
accrue or be payable on the Senior Discount Notes prior to August 15, 2001.
Thereafter, cash interest on the Senior Discount Notes will accrue at a rate of
12 1/2% per annum and will be payable semi-annually in arrears on each February
15 and August 15, commencing February 15, 2002.
On August 15, 2001, the Issuers will be required to redeem an amount equal to
$384.772 per $1,000 principal amount at maturity of each Senior Discount Note
then outstanding ($192 million in aggregate principal amount at maturity,
assuming all of the Senior Discount Notes remain outstanding at such date).
The Notes are redeemable at the option of the Issuers, in whole or in part, at
any time on or after August 15, 2001 at the redemption prices set forth below,
respectively, plus accrued and unpaid interest, if any, to the redemption date,
if redeemed during the 12 month period beginning on August 15 of the years
indicated below:
<TABLE>
<CAPTION>
SENIOR DISCOUNT
SENIOR NOTES NOTES
REDEMPTION REDEMPTION
YEAR PRICE PRICE
---- ------------ ---------------
<S> <C> <C>
2001 ....................................... 105.500% 110.000%
2002 ....................................... 103.667% 106.500%
2003 ....................................... 101.833% 103.250%
2004 and thereafter ........................ 100.000% 100.000%
</TABLE>
In addition, prior to August 15, 1999, the Issuers may redeem up to 35% of the
originally issued principal amount of the Notes. The redemption price of the
Senior Notes is equal to 111.0% of the principal amount of the Senior Notes so
redeemed, plus accrued and unpaid interest, if any, to the redemption date with
the net proceeds of one or more public equity offerings, provided that at least
65% of the originally issued principal amount of Senior Notes would remain
outstanding immediately after giving effect to such redemption. The redemption
price of the Senior Discount Notes is equal to 112.5% of the accreted value at
the redemption date of the Senior Discount Notes so redeemed, with the net
proceeds of one or more public equity offerings, provided that at least 65% of
the originally issued principal amount at maturity of the Senior Discount Notes
would remain outstanding immediately after giving effect to such redemption.
The Notes contain certain restrictive covenants, including (among other
requirements) limitations on additional indebtedness, limitations on restricted
payments, limitations on liens, and limitations on dividends and other payment
restrictions affecting certain restricted subsidiaries.
IV-29
<PAGE> 100
BANK CREDIT FACILITY - Sprint Spectrum L.P. (the "Borrower") entered into an
agreement with The Chase Manhattan Bank ("Chase") as administrative agent for a
group of lenders for a $2 billion bank credit facility dated October 2, 1996.
The proceeds of this facility are to be used to finance working capital needs,
subscriber acquisition costs, capital expenditures and other general Borrower
purposes.
The facility consists of a revolving credit commitment of $1.7 billion and a
$300 million term loan commitment, $150 million of which was drawn down
subsequent to closing and $150 million of which was to be drawn within 90 days
after closing. The amount available under the revolving credit facility was
$450 million on December 31, 1996. There were no borrowings under the revolving
credit facility as of December 31, 1996. The availability will be increased
upon the achievement of certain financial and operating conditions as defined
in the agreement. Commitment fees for the revolving portion of the agreement
are payable quarterly based on average unused revolving commitments.
The revolving credit commitment expires July 13, 2005. Availability will be
reduced in quarterly installments ranging from $75 million to $175 million
commencing January 2002. Further reductions may be required after January 1,
2000, to the extent that the Borrower meets certain financial conditions.
Subsequent to December 31, 1996, the Borrower drew down $200 million under the
revolving credit facility.
The term loans are due in sixteen consecutive quarterly installments beginning
January 2002 in aggregate principal amounts of $125,000 for each of the first
fifteen payments with the remaining aggregate outstanding principal amount of
the term loans due as the last installment.
Interest on the term loans and/or the revolving credit loans is at the
applicable LIBOR rate plus 2.5% ("Eurodollar Loans"), or the greater of the
prime rate or 0.5% plus the Federal Funds effective rate, plus 1.5% ("ABR
Loans"), at the Company's option. The interest rate may be adjusted downward
for improvements in the bond rating and/or leverage ratios. Interest on ABR
Loans and Eurodollar Loans with interest period terms in excess of 3 months is
payable quarterly. Interest on Eurodollar Loans with interest period terms of
less than 3 months is payable on the last day of the interest period. As of
December 31, 1996, the interest rate on the first $150 million term loan was
8.19%.
Borrowings under the Bank Credit Facility are secured by the Company's
interests in WirelessCo, RealtyCo and EquipmentCo and certain other personal
and real property (the "Shared Lien"). The Shared Lien equally and ratably
secures the Bank Credit Facility, the Vendor Financing (Note 6) and certain
other indebtedness of the Company. The credit facility is jointly and severally
guaranteed by WirelessCo, RealtyCo and EquipmentCo and is non-recourse to the
Parents and the Partners.
The Bank Credit Facility agreement and Vendor Financing agreements (Note 6)
contain certain restrictive financial and operating covenants, including (among
other requirements) maximum debt ratios (including debt to total
capitalization), limitations on capital expenditures, limitations on additional
indebtedness and limitations on dividends and other payment restrictions
affecting certain restricted subsidiaries. The loss of the right to use the
Sprint trademark, the termination or non-renewal of any FCC license that
reduces population coverage below specified limits, or changes in controlling
interest in the Company, as defined, among other provisions, constitute events
of default.
IV-30
<PAGE> 101
The estimated fair value of the Company's long-term debt at December 31, 1996
is as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
-------- ----------
<S> <C> <C>
11% Senior Notes $250,000 $270,625
12 1/2% Senior Discount Notes 285,499 337,950
Credit facility - term loan 150,000 151,343
</TABLE>
At December 31, 1996, scheduled maturities of long-term debt during each of the
next five years are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 49
1998 54
1999 60
2000 66
2001 192,459
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - Minimum rental commitments as of December 31, 1996, for all
noncancelable operating leases, consisting principally of leases for cell and
switch sites and office space, are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 68,616
1998 61,186
1999 57,407
2000 38,356
2001 13,468
</TABLE>
Gross rental expense for cell and switch sites aggregated approximately
$13,097,000 for the year ended December 31, 1996. Gross rental expense for
office space approximated $11,432,000, $687,000 and $105,000 for the years
ended December 31, 1996 and 1995, and the period from October 24, 1994 (date of
inception) through December 31, 1994, respectively. Certain leases contain
renewal options that may be exercised from time to time and are excluded from
the above amounts.
PROCUREMENT CONTRACTS - On January 31, 1996, the Company entered into
procurement and services contracts with AT&T Corp. (subsequently assigned to
Lucent Technologies, Inc., "Lucent") and Northern Telecom, Inc. ("Nortel" and
together with Lucent, the "Vendors") for the engineering and construction of a
PCS network. Each contract provides for an initial term of ten years with
renewals for additional one-year periods. The Vendors must achieve substantial
completion of the PCS network within an established time frame and in
accordance with criteria specified in the procurement contracts. Pricing for
the initial equipment, software and engineering services has been established
in the procurement contracts. The procurement contracts provide for payment
terms based on delivery dates, substantial completion dates, and final
acceptance dates. In the event of delay in the completion
IV-31
<PAGE> 102
of the PCS network, the procurement contracts provide for certain amounts to be
paid to the Company by the Vendors. The minimum commitments for the initial
term are $0.8 billion and $1.0 billion from Lucent and Nortel, respectively,
which include, but are not limited to, all equipment required for the
establishment and installation of the PCS network.
HANDSET PURCHASE AGREEMENTS - In June, 1996, the Company entered into a
three-year purchase and supply agreement with a vendor for the purchase of
handsets and other equipment totaling approximately $500 million. During 1996,
the Company purchased $85 million under the agreement. The total purchase
commitment must be satisfied by April 30, 1998.
In September, 1996, the Company entered into a second three-year purchase and
supply agreement for the purchase of handsets and other equipment totaling more
than $600 million. Purchases under the second agreement will commence on or
after April 1, 1997, and the total purchase commitment must be satisfied during
the three-year period after the initial handset purchase.
VENDOR FINANCING - As of October 2, 1996, the Company entered into financing
agreements with Nortel and Lucent for multiple drawdown term loan facilities
totaling $1.3 billion and $1.8 billion, respectively. The proceeds of such
facilities are to be used to finance the purchase of goods and services
provided by the Vendors.
Nortel has committed to provide financing in two phases. During the first
phase, Nortel will finance up to $800 million. Once the full $800 million has
been utilized and the Company obtains additional equity commitments and/or
subordinated unsecured loans of at least $400 million and achieves certain
operating conditions, Nortel will finance up to an additional $500 million. The
amount available under the Nortel facility was $1.3 billion on December 31,
1996. In addition, the Company will be obligated to pay origination fees on the
date of the initial draw down loan under the first and second phases. The
Nortel agreement terminates on the earliest of (a) the date the availability
under the commitments is reduced to zero, (b) December 31, 2000, or (c) March
31, 1997 if no borrowings under the agreements have been drawn.
Lucent has committed to financing up to $1.5 billion through December 31, 1997,
and up to an aggregate of $1.8 billion thereafter. The Company pays a facility
fee on the daily amount of loans outstanding under the agreement, payable
quarterly. The Lucent agreement terminates June 30, 2001. Subsequent to
December 31, 1996, the Company borrowed approximately $274 million under the
Lucent facility.
Certain amounts included under Construction Obligations on the consolidated
balance sheet may be financed under the Vendor Financing agreements.
The principal amounts of the loans drawn under both the Nortel and Lucent
agreements are due in twenty consecutive quarterly installments, commencing on
the date which is thirty-nine months after the last day of such "Borrowing
Year" (defined in the agreements as any one of the five consecutive 12-month
periods following the date of the initial drawdown of the loan). The aggregate
amount due each year is equal to percentages ranging from 10% to 30% multiplied
by the total principal amount of loans during each Borrowing Year.
The agreements provide two borrowing rate options. During the first phase of
the Nortel agreement and throughout the term of the Lucent agreement "ABR
Loans" bear interest at the greater of the
IV-32
<PAGE> 103
prime rate or 0.5% plus the Federal Funds effective rate, plus 2%. "Eurodollar
Loans" bear interest at the London interbank (LIBOR) rate (any one of the 30-,
60- or 90-day rates, at the discretion of the Company), plus 3%. During the
second phase of the Nortel agreement, ABR Loans bear interest at the greater of
the prime rate or 0.5% plus the Federal Funds effective rate, plus 1.5%; and
Eurodollar loans bear interest at the LIBOR rate plus 2.5%. Interest from the
date of each loan through one year after the last day of the Borrowing Year is
added to the principal amount of each loan. Thereafter, interest is payable
quarterly.
Borrowings under the Vendor Financing are secured by the Shared Lien (Note 5).
The Vendor Financing is jointly and severally guaranteed by WirelessCo,
RealtyCo and EquipmentCo and is non-recourse to the Parents and the Partners.
SERVICE AGREEMENT - The Company has entered into an agreement with a vendor to
provide PCS call record and retention services. Monthly rates per subscriber
are variable based on overall subscriber volume. If subscriber fees are less
than specified annual minimum charges, the Company will be obligated to pay the
difference between the amounts paid for processing fees and the annual minimum.
Annual minimums range from $20 million to $60 million through 2001.
The agreement extends through December 31, 2001, with two automatic, two-year
renewal periods, unless terminated by the Company. The company may terminate
the agreement prior to the expiration date, but would be subject to specified
termination penalties.
8. EMPLOYEE BENEFITS
Employees performing services for the Company were employed by Sprint
Corporation through December 31, 1995. Amounts paid to Sprint Corporation
relating to pension expense and employer contributions to the Sprint
Corporation 401(k) plan for these employees approximated $323,000 in 1995. No
expense was incurred through December 31, 1994.
The Company maintains short-term and long-term incentive plans. All salaried
employees are eligible for the short-term incentive plan commencing at date of
hire. Short-term incentive compensation is based on incentive targets
established for each position based on the Company's overall compensation
strategy. Targets contain both an objective Company component and a personal
objective component. Charges to operations for the short-term plan approximated
$12,332,000 and $3,491,000 for the years ended December 31, 1996 and 1995,
respectively. No expense was incurred through December 31, 1994.
LONG-TERM COMPENSATION OBLIGATION - Effective July 1, 1996, a long-term
compensation plan was adopted. Employees meeting certain eligibility
requirements are considered to be participants in the plan. Participants will
receive 100% of the pre-established targets for the period from July 1, 1995 to
June 30, 1996 (the "Introductory Term"). Participants may elect a payout of the
amount due or convert 50% or 100% of the award to appreciation units. Unless
converted to appreciation units, payment for the Introductory Term will be made
in the third quarter of 1998. Appreciation units vest 25% per year commencing
on the second anniversary of the date of grant. Participants have until March
15, 1997 to make payout or conversion elections. For the years ended December
31, 1996 and 1995, $9.5 million and $1.9 million, respectively, has been
expensed. The ultimate liability will be based on actual payout vs. conversion
elections and the final results of an independent valuation of the
IV-33
<PAGE> 104
Company as of June 30, 1997. The Company has applied APB Opinion No. 25,
"Accounting for Stock Issued to Employees" for 1996. No significant difference
would have resulted if SFAS No. 123, "Accounting for Stock-Based Compensation"
had been applied.
SAVINGS PLAN - Effective January, 1996, the Company established a savings and
retirement program (the "Savings Plan") for certain employees, which is
intended to qualify under Section 401(k) of the Internal Revenue Code. Most
permanent full-time, and certain part-time, employees are eligible to become
participants in the plan after one year of service or upon reaching age 35,
whichever occurs first. Participants make contributions to a basic before tax
account and supplemental before tax account. The maximum contribution for any
participant for any year is 16% of such participant's compensation. For each
eligible employee who elects to participate in the Savings Plan and makes a
contribution to the basic before tax account, the Company makes a matching
contribution. The matching contributions equal 50% of the amount of the basic
before tax contribution of each participant up to the first 6% that the
employee elects to contribute. Contributions to the Savings Plan are invested,
at the participants discretion, in several designated investment funds.
Distributions from the Savings Plan generally will be made only upon retirement
or other termination of employment, unless deferred by the participant. Expense
under the Savings Plan approximated $1,125,000 in 1996.
PROFIT SHARING (RETIREMENT) PLAN - Effective January, 1996, the Company
established a profit sharing plan for its employees. Employees are eligible to
participate in the plan after completing one year of service. Profit sharing
contributions are based on the compensation, age, and years of service of the
employee. Profit sharing contributions are deposited into individual accounts
of the Company's 401(k) plan. Vesting occurs once a participant completes five
years of service. For the year ended December 31, 1996, expense under the
profit sharing plan approximated $726,000.
9. RELATED PARTY TRANSACTIONS
BUSINESS SERVICES - The Company reimburses Sprint Corporation for certain
accounting and data processing services, for participation in certain
advertising contracts, for certain cash payments made by Sprint Corporation on
behalf of the Company and other management services. The Company is allocated
the costs of such services based on direct usage. Allocated expenses of
approximately $11,900,000 and $2,646,000 are included in Selling and General
and administrative expense in the consolidated statement of operations for 1996
and 1995, respectively. No reimbursement was made through December 31, 1994.
PAGING SERVICES - In 1996, the Company commenced paging services pursuant to
agreements with Paging Network Equipment Company ("PageNet") and Sprint
Communications Company, L.P. ("Sprint Communications"). For the year ended
December 31, 1996, Sprint Communications received agency fees of approximately
$4.9 million.
ADVANCES FROM PARTNERS - In December 1996, the Partners advanced approximately
$168 million to the Company, which was contributed to Cox PCS (Note 4). The
advances bear interest at the prime rate (8.25% at December 31, 1996) and were
repaid in February 1997.
IV-34
<PAGE> 105
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 1996 and 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 First Second Third Fourth
---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Operating revenues ................. $ -- $ -- $ -- $ 4,175
Operating expenses ................. 30,978 46,897 87,135 195,038
Net loss ........................... 67,425 90,770 101,497 183,402
1995
----
Operating revenues ................. $ -- $ -- $ -- $ --
Operating expenses ................. 3,655 4,589 11,844 46,463
Net loss ........................... 6,789 9,718 19,488 74,434
</TABLE>
IV-35
<PAGE> 106
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.
Dated: March 28, 1997 By /s/ Leo J. Hindery, Jr.
--------------------------
Leo J. Hindery, Jr.
President and Chief
Executive Officer
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John C. Malone Chairman of the Board March 28, 1997
- --------------------------------------- and Director
John C. Malone
/s/ Donne F. Fisher Director March 28, 1997
- ---------------------------------------
Donne F. Fisher
/s/ Leo J. Hindery, Jr. President, Chief Executive March 28, 1997
- --------------------------------------- Officer and Director
Leo J. Hindery, Jr.
/s/ Stephen M. Brett Senior Vice President March 28, 1997
- --------------------------------------- and Secretary
Stephen M. Brett
/s/ Brendan R. Clouston Senior Vice President March 28, 1997
- --------------------------------------- and Chief Financial Officer
Brendan R. Clouston (Principal Financial Officer)
/s/ Gary K. Bracken Senior Vice President and March 28, 1997
- --------------------------------------- Controller
Gary K. Bracken (Principal Accounting Officer)
</TABLE>
IV-36
<PAGE> 107
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:
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation, dated as of January 11, 1996, as amended on January 11, 1996 and
February 6, 1996.
Incorporated herein by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-5550).
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 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).
10.4 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).
10.5 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).
10.6 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).
</TABLE>
(continued)
<PAGE> 108
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.7 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 (Commission File No. 0-20421).
10.8 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).
10.9 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).
10.10 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).
10.11 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).
10.12 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).
10.13 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).
</TABLE>
(continued)
<PAGE> 109
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.14 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).
10.15 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).
10.16 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).
10.17 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 (Commission File No. 0-20421).
10.18 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 (Commission File No. 0-20421).
10.19 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 (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 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 (Commission File No. 0-20421).
</TABLE>
(continued)
<PAGE> 110
10 - Material contracts, continued:
<TABLE>
<S> <C>
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 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 (Commission File No. 0-20421).
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 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 (Commission File No. 0-20421).
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 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 (Commission File No. 0-20421).
10.24 Restricted Stock Award Agreement, made as of July 1, 1996, among Tele-Communications, Inc., Brendan
Clouston and WestMarc Communi-cations, Inc.*
Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the
year ended December 31, 1996 (Commission File No. 0-20421).
10.25 Option Agreement, dated as of December 4, 1996, by and between TCI Satellite Entertainment, Inc. and
Brendan R. Clouston.*
Incorporated herein by reference to the TCI Satellite Entertainment, Inc. Annual Report on Form 10-K
for the year ended December 31, 1996 (Commission File No. 0-21317).
10.26 Form of Option to Purchase Common Stock Agreement made as of the 1st day of December 1996 by and among TCI
Telephony Services, Inc., Grantee and Tele-Communications, Inc.*
Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the
year ended December 31, 1996 (Commission File No. 0-20421).
10.27 Form of Option to Purchase Common Stock Agreement made as of the 1st day of December 1996 by and among TCI
Wireline, Inc., Grantee and Tele-Communications, Inc.*
Incorporated herein by reference to the Tele-Communications, Inc. Annual Report on Form 10-K for the
year ended December 31, 1996 (Commission File No. 0-20421).
</TABLE>
(continued)
<PAGE> 111
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.28 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).
10.29 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).
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
</TABLE>
(continued)
<PAGE> 112
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.35 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 (Commission File No. 0-20421).
10.36 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 (Commission File No. 0-20421).
10.37 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 (Commission File No. 0-20421).
10.38 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 (Commission File No. 0-20421).
10.39 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 (Commission File No. 0-20421).
10.40 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 (Commission File No. 0-20421).
10.41 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 (Commission File No. 0-20421).
</TABLE>
(continued)
<PAGE> 113
10 - Material contracts, continued:
<TABLE>
<S> <C>
10.42 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 (Commission File No. 0-20421).
10.43 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 (Commission File No. 0-20421).
10.44 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 (Commission File No. 0-20421).
10.45 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 (Commission File No. 0-20421).
10.46 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 (Commission File No. 0-20421).
10.47 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 (Commission File No. 0-20421).
10.48 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 (Commission File No. 0-20421).
21- Subsidiaries of TCI Communications, Inc.
23.1- Consent of KPMG Peat Marwick LLP.
23.2- Consent of Deloitte & Touche LLP.
23.3- Consent of Price Waterhouse LLP.
27- Financial data schedule
</TABLE>
*Constitutes management contract or compensatory arrangement.
<PAGE> 1
EXHIBIT 21
A table of the subsidiaries of TCI Communications, Inc. as of December 31, 1996,
is set forth below, indicating as to each the state or the jurisdiction of
incorporation or organization and the names under which such subsidiaries do
business (Trade Names). Subsidiaries not included in the table are inactive or,
considered in the aggregate as a single subsidiary, would not constitute a
significant subsidiary.
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
Alabama T.V. Cable, Inc. AL
American Cable Of Redlands Joint Venture [jv] CO
American Cable TV Investors 2 [lp] CA
American Cable TV Investors 3 [lp] CA
American Cable TV Investors 4, Ltd. [lp] CO
American Cable TV Investors 5, Ltd. [lp] CO Amercian Cable TV of Lower Delaware
Amercian 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
Antares Satellite Corporation CO
ARP Partnership [gp] 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
TCI Media Services
Atlantic American Cablevision, Inc. DE
Atlantic American Holdings, Inc. FL
Atlantic Cablevision of Florida, Inc. FL
Baton Rouge Cablevision Associates, L.P. [lp] CO
Bay Area Interconnect [gp] CA Bay Cable Advertising
BCA
Beatrice Cable TV Company NE TCI Cable of Beatrice
Bellevue Cablevision, Inc. DE TCI Media Services
Billings Tele-Communications, Inc. OR
Bob Magness, Inc. WY
Bresnan Communications Company Limited Partnership [lp] MI
Brigand Pictures, Inc. NY
Broadview Television Company WA
Brookhaven Cable TV, Inc. NY TCI Cable of Brookhaven
</TABLE>
Page 1 of 17
<PAGE> 2
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
Brookings Cablevision [gp] CO
Brookside Antenna Company OH
Cable Accounting, Inc. CO
Cable AdNet Partners [gp] DE Cable Adnet
Hudson Valley Cable Group
TCI Media Services
Cable Advertising Partners[gp] CA
Cable Network Television, Inc. NV
Cable Shopping Investment, Inc. CO
Cable Television Advertising Group, Inc. WY
Cable Television of Gary, Inc. IN
Cable TV of Marin, Inc. CA
Cable TV Puget Sound, Inc. WA TCI of Washington
Cabletime, Inc. CO
Cablevision Associates of Gary Joint Venture[jv] IN
Cablevision IV, Ltd. (Corp) IA
Cablevision of Arcadia/Sierra Madre, Inc. DE
Cablevision of Baton Rouge, Ltd. [lp] CO
Cablevision V, Inc. IA
Cablevision VI, Inc. IA TCI Cablevision of the Rockies, Inc.
TCI of the Heartlands
Cablevision VII, Inc. IA TCI Cablevision of the Rockies, Inc.
TCI of the Heartlands
TCI of Eastern Iowa
TCI Media Services
Capital Region Cable Advertising Interconnect, L.P. [lp] NY Capital Region Cable Advertising Network
CAT Partnership [gp] DE
CATV Facility Co., Inc. CO
Channel 3 Everett, Inc. WA
Channel 64 Acquisition, Inc. DE
Chicago Cable Network Joint Venture [jv] IL
Cincinnati Cable Advertising Interconnect, L.P. DE
Clear View Cable Systems, Inc. CA
Clinton Cablevision [gp] IA
Clinton TV Cable Company, Inc. IA
Coconut Creek Cable T.V., Inc. FL TCI of North Broward
Colorado Cablevision Company [lp] CO TCI of Colorado
Colorado Terrace Tower II Corporation CO
Com-Cable TV, Inc. DE
Command Cable of Eastern Illinois LP NJ TCI Cablevision of Southern Illinois
Communication Investment Corporation VA
Communications & Cable of Chicago, Inc. IL Chicago Cable TV
Communications Services, Inc. KS TCI Cablevision of Central Texas
TCI Cablevision of East Oklahoma
</TABLE>
Page 2 of 17
<PAGE> 3
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI Cablevision of North Texas
TCI Cablevision of Northeast Texas
TCI Cablevision of Oklahoma (CSI), Inc.
TCI Cablevision of Texas (CSI), Inc.
TCI Communications Services, Inc.
TCI Media Services
TCI of Arkansas
TCI of Arkansas (CSI), Inc.
TCI of Kansas (CSI), Inc.
TCI of Louisiana
TCI of Louisiana (CSI), Inc.
Community Cable Television (gp) WY TCI Cablevision of Southwest Texas
TCI Cablevision of West Oakland County
Community Realty, Inc. NV Nevada Community Realty, Inc.
Community Telecable of Bellevue, Inc. WA TCI of Washington
Community Telecable of Seattle, Inc. WA
Community Television Systems, Inc. DE TCI Cablevision of South Central Connecticut
Connecticut Cable Advertising, L.P. DE
Connecticut Cable Advertising, L.P. DE
Consumer Entertainment Services, Inc. WY
Contra Costa Cable Co. WA
Corsair Pictures, Inc. DE Brigand Pictures, Inc.
Crockett Cable System, Inc. WA
Daniels Communication Partners Limited Partnership [lp] DE
Daniels Hauser-Holdings [gp] CO
Davis County Cablevision, Inc. UT
DCP-85, Ltd. [lp] CO
DigiVentures, LLC DE
Direct Broadcast Satellite Services, Inc. DE
Discovery Programming Investment, Inc. CO
District Cablevision Limited Partnership [lp] DC TCI Media Services
East Arkansas Cablevision, Inc. AR TCI Media Services
TCI of Arkansas
East Arkansas Investments, Inc. CO
Eastex Microwave, Inc. TX
ECP Holdings, Inc. OK
Elbert County Cable Partners, L. P. [lp] CO TCI of Colorado
Everett Cablevision, Inc. WA TCI of Washington
FAB Communications, Inc. OK
Far-West Communications, Inc. OR TCI of Oregon
Foothills Cablevision, Ltd. [lp] CO
Four Flags Cable TV [jv] MI
Four Flags Cablevision [jv] MI
General Communications and Entertainment Company, Inc. DE
</TABLE>
Page 3 of 17
<PAGE> 4
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
Gill Bay Interconnect, Inc. CA
Greater Birmingham Interconnect[gp] AL GBI
Guide Investments, Inc. CO
H-C-G Cablevision, Inc. CA
Halcyon Communications Limited Partnership[lp] OK TCI Cablevision of East Oklahoma
Halcyon Communications Partners [gp] OK
Harbor Communications Joint Venture [jv] WA
Harris County Cable TV, Inc. VA
Hawkeye Communications of Clinton, Inc. IA
Heritage Cable Partners, Inc. IA
Heritage Cablevision Associates, a Limited Partnership [lp] IA TCI of Bedford
TCI of Michiana
Heritage Cablevision of California, Inc. DE TCI of San Jose
Heritage Cablevision of Colorado, Inc. CO TCI Cablevision of Southern Colorado, Inc.
Heritage Cablevision of Dallas, Inc. IA Bay Cablevision
Cable Oakland
TCI Cablevision of California
TCI Cablevision of New Castle County
TCI Media Services
TCI of Colorado
TCI of Fort Collins
Heritage Cablevision of Delaware, Inc. DE
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. TX
Heritage Cablevision, Inc. IA TCI Media Services
TCI of the Heartlands
TCI of Central Iowa
TCI of Southern Iowa
TCI of Northern Iowa
TCI of Eastern Iowa
Heritage Cablevue, Inc. DE TCI Cablevision of New England
Heritage Communications Products Corp. IA
Heritage Communications, Inc. IA
Heritage Investments, Inc. IA
Heritage Media Corporation
Heritage ROC Holdings Corp. IA
Heritage/Indiana Cablevision II, Inc. CO
Heritage/Indiana Cablevision, Inc. IA
Hillcrest Cablevision Company OH
Home Sports Network, Inc. CO
</TABLE>
Page 4 of 17
<PAGE> 5
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
Independence Cable TV Company [jv] MI TCI Cablevision of Oakland County, Inc.
InterMedia Capital Management II, L.P. CA
Intermedia Capital Partners IV, L.P.(ICP-IV) CA
Intermedia Partners Limited Partnership (IP-I) CA
International Telemeter Corporation NV
IR-TCI Partners II, L.P. [lp] CA
IR-TCI Partners III, L.P. [lp] CA
IR-TCI Partners IV, L. P. [lp] CO
IR-TCI Partners V, L. P. [lp] CO
Knox Cable T.V., Inc. TN
KTMA-TV, Inc. TX
LaSalle Telecommunications, Inc. IL Chicago Cable TV-IV
Lawrence County Cable Partners CO
Liberty - CSI, Inc. CO
Liberty Cable Partner, Inc. WY
Liberty Capital Corp. WY
Liberty Command II, Inc. CO
Liberty Command, Inc. CO
Liberty of Northern Indiana, Inc. DE
Liberty of Paterson II, Inc. CO
Liberty of Paterson, Inc. NV
LVO Cable Properties, Inc. OK
LVOC Management, Inc. OK
Margate Video Systems, Inc. FL TCI Media Services
TCI of North Broward
Marin Cable Television, Inc. CA
Miami Tele-Communications, Inc. FL
Micro-Relay, Inc. MD
Mid-Kansas, Inc. KS
Mile Hi Cable Partners, L.P. [lp] CO TCI of Colorad
Mississippi Cablevision, Inc. MS TCI of North Mississippi
TCI of Kansas
Moonlight Bowl, Inc. CA
Mountain Cable Network, Inc. NV Mountain Cable Advertising
TCI Media Services
Mountain States General Partner Co. CO
Mountain States Limited Partner Co. CO
Mountain States Video [gp] CO TCI Media Services
Mountain States Video Communications Co., Inc. CO TCI of Colorado
Mountain States Video, Inc. CO TCI of Colorado
TCI Media Services
MSV Subsidiary, Inc. CO
Muskegon Cable TV Co. [gp] MI
Narragansett Cablevision Corporation RI Heritage Cablevision of Narragansett
</TABLE>
Page 5 of 17
<PAGE> 6
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
National Digital Television Center, Inc. DE
Newport News Cablevision Associates, L. P. [lp] CO
Newport News Cablevision Ltd. [lp] CO
Northern Video, Inc. MN TCI of Central Minnesota
Northwest Cable Advertising [gp] NY TV Mart
TCI Media Services
Northwest Illinois Cable Corporation DE
Northwest Illinois TV Cable Co. DE TCI Cablevision of Galesburg/Monmouth
Northwest Illinois TV Cable Company [lp] IL
NTT, Inc. TX
Ohio Cablevision Network, Inc. IA TCI Cablevision of Northwestern Ohio
Ottumwa Cablevision, Inc. IA TCI of Southen Iowa
Pacific Microwave Joint Venture [jv] CA
Parkland Cablevision, Inc. FL TCI of North Broward
Pennsylvania Educational Communications Systems PA
Pittsburg Cable TV, Inc. KS TCI of Pittsburg
Portland Cable Advertising, L.P. [lp] DE
Preview Magazine Corporation NY
Prime Cable II Systems, Inc. TX
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 Partnership AZ TCI Media Services
TCI of Tucson
Tucson Cablevision
S/D Cable Partners Ltd. [lp] 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 Company NM TCI Cablevision of Santa Fe
TCI Media Services
Santa Fe Cablevison Co. [lp] NM
Satellite Services of Puerto Rico, Inc. DE
Satellite Services, Inc. DE
SCC Programs, Inc. IL
Semaphore Partners [gp] CO
Silver Spur Land and Cattle Co. WY Silver Spur Ranch
Skyview TV, Inc. MT
South Chicago Cable, Inc. IL Chicago Cable TV-V
TCI Chicago
South Florida Cable Advertising[gp] FL
Southwest TeleCable, Inc. TX
Southwest Washington Cable, Inc. WA
Southwestern Satellite, Inc. TX
SSI 2, Inc. NV
St. Louis Tele-Communications, Inc. MO TCI Cablevision of St. Louis
</TABLE>
Page 6 of 17
<PAGE> 7
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
Tampa Bay Interconnect [gp] FL TBI
TCC Spectrum, Inc. DE
TCI-UC, INC. DE
TCI AIT, Inc. CO
TCI American Cable Holdings II, L.P. [lp] CO
TCI American Cable Holdings, L.P. [lp] CO TCI of Washington
TCI Baton Rouge Ventures, Inc. CO
TCI Bay Interconnect, Inc. CA
TCI Cable Adnet, Inc. CO
TCI Cable Management Corporation CO TCI Media Services
TCI Cable Partners of St. Louis, L.P. CO TCI of Illinois
TCI Cablevision Associates, Inc. DE
TCI Cablevision of Alabama, Inc. AL TCI Media Services
TCI Cablevision of Arizona, Inc. AZ TCI Customer Satisfaction Center
TCI Cablevision of Baker/Zachary, Inc. DE TCI of Louisiana
TCI Cablevision of California, Inc. CA TCI Media Services
TCI Cablevision of Canon City, Ltd. [lp] CO
TCI Cablevision of Colorado, Inc. CO TCI Customer Satisfaction Center
TCI Media Services
TCI of Colorado
TCI Cablevision of Dallas, Inc. TX TCI Media Services
TCI Cablevision of Florida, Inc. FL TCI Media Services
TCI of Colorado
TCI Southeast - South Region
TCI Cablevision of Georgia, Inc. GA TCI Media Services
TCI of Louisiana
TCI Cablevision of Great Falls, Inc. DE
TCI Cablevision of Idaho, Inc. ID TCI Customer Satisfaction Center
TCI Cablevision of Kentucky, Inc. KY
TCI Cablevision of Kiowa, Inc. CO
TCI Cablevision of Leesville, Inc. DE
TCI Cablevision of Maryland, Inc. MD TCI Media Services
TCI Cablevision of Massachusetts, Inc. MA
TCI Cablevision of Michigan, Inc. MI TCI North Central Region
TCI Cablevision of Minnesota, Inc. MN TCI of Minnesota
TCI Cablevision of Missouri, Inc. MO TCI Media Services
TCI Cablevision of Montana, Inc. MT TCI Media Services
TCI Cablevision of Nebraska, Inc. NE TCI Media Services
TCI Cablevision of Nevada, Inc. NV TCI Media Services
TCI Cablevision of New Hampshire, Inc. NH
TCI Cablevision of New Mexico, Inc. NM TCI Media Servies
TCI Cablevision of North Central Kentucky, Inc. KY
TCI Cablevision of Ohio, Inc. OH TCI Media Services
TCI Cablevision of Okanogan Valley, Inc. WA TCI of Washington
</TABLE>
Page 7 of 17
<PAGE> 8
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI Cablevision of Oklahoma, Inc. OK
TCI Cablevision of Oregon, Inc. OR TCI Media Services
TCI of Oregon
TCI Cablevision of Pasco County [gp] FL TCI Media Services
TCI Cablevision of Pinellas County, Inc. FL
TCI Cablevision of Sierra Vista II, Inc. CO
TCI Cablevision of Sierra Vista, Inc. CO
TCI Cablevision of South Dakota, Inc. SD TCI Media Services
TCI Cablevision of St. Bernard, Inc. LA TCI of Louisiana
TCI Cablevision of Texas, Inc. TX TCI Media Services
TCI Cablevision of Tucson, Inc. CO
TCI Cablevision of Tuscon II, Inc. CO
TCI Cablevision of Twin Cities, Inc. WA TCI of Washington'
TCI Cablevision of Utah, Inc. UT TCI Media Services
TCI Cablevision of Vermont, Inc. DE
TCI Cablevision of Washington, Inc. WA TCI Media Services
TCI of Washington
TV Mart
TCI Cablevision of Wisconsin, Inc. WI TCI Media Services
TCI Cablevision of Wyoming, Inc. WY TCI Media Services
TCI Cablevision of Yakima Valley, Inc. WA TCI of Washington
TCI Cablevision of Yakima, Inc. WA TCI of Washington
TCI Central, Inc. DE
TCI Challenger, Inc. CO
TCI Communications Financing I DE
TCI Communications Financing II DE
TCI Communications Financing III DE
TCI Communications Financing IV DE
TCI Communications Financing V DE
TCI Communications Financing VI DE
TCI Development Corporation CO
TCI Digital TV, Inc. CO
TCI East, Inc. DE
TCI Fleet Services, Inc. CO
TCI Great Lakes, Inc. DE
TCI Hits At Home, Inc. CO
TCI Hits, Inc. CO
TCI Holdings II, Inc. CO
TCI Holdings, Inc. CO
TCI Investments, Inc. CO
TCI IP, Inc. DE
TCI IP-1, Inc. CO
TCI K-1, Inc. CO
</TABLE>
Page 8 of 17
<PAGE> 9
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI Liberty, Inc. DE
TCI Materials Management, Inc. CO
TCI Microwave, Inc. DE
TCI National Digital Television Center - Hong Kong, Inc. DE
TCI News, Inc. CO
TCI News-Damn Right, Inc. CO
TCI News-Presidential, Inc. CO
TCI North Central, Inc. DE
TCI Northeast, Inc. DE
TCI of Arkansas, Inc. AR
TCI of Arlington, Inc. OK
TCI of Beckley, Inc. WV TCI Media Services
TCI of Bloomington/Normal, Inc. VA
TCI of Cleveland, Inc. TN TCI Media Services
TCI of Columbus, Inc. GA TCI Media Services
TCI of Connecticut, Inc. CT
TCI of Council Bluffs, Inc. IA
TCI of D.C., Inc. DC
TCI of Dayton, Inc. DE
TCI of Decatur, Inc. AL TCI Media Services
TCI of Delaware, Inc. DE
TCI of Greensburg [gp] CO
TCI of Greenville, Inc. SC TCI Media Services
TCI of Hawaii, Inc. CO TCI
TCI of Houston, Inc. CO TCI Media Services
TCI of Illinois, Inc. IL TCI Cablevision of Dubuque, Inc.
TCI Media Services
TCI of Indiana, Inc. IN TCI Media Services
TCI Midwest Region
TCI of Iowa, Inc. IA TCI Cablevision of Dubuque, Inc.
TCI Media Services
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 Media Services
TCI of Maine, Inc. ME
TCI of Mississippi, Inc. MS
TCI of New Jersey, Inc. NV
TCI of New York, Inc. NY TCI Media Services
TCI Northeast Region
TCI Telemarketing
TCI of North Broward, Inc. FL
</TABLE>
Page 9 of 17
<PAGE> 10
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI of North Central Kentucky, Inc. KY
TCI of North Dakota, Inc. ND
TCI of Northern California, Inc. CA
TCI of Northern New Jersey, Inc. WA TCI Cablevision of Cental Colorado
TCI Cablevision of Northeastern Oregon
TCI Cablevision of the Treasure Coast
TCI Media Services
TCI of Northern New Jersey
TCI of Oregon
TCI of Washington
TCI of Overland Park, Inc. KS
TCI of Pennsylvania, Inc. PA TCI East Region
TCI Media Services
TCI of California
TCI of Piedmont, Inc. SC
TCI of Plano, Inc. TX
TCI of Princeton, Inc. VA
TCI of Racine, Inc. WI TCI Media Services
TCI of Radcliff, Inc. KY TCI Media Services
TCI of Rhode Island, Inc. RI
TCI of Richardson, Inc. TX
TCI of Roanoke Rapids, Inc. VA
TCI of Selma, Inc. AL
TCI of South Carolina, Inc. SC
TCI of Southern Maine, Inc. ME
TCI of Southern Minnesota, Inc. DE TCI Media Services
TCI of Southern Minnesota
TCI of Southern Washington [gp] WA TCI of Washington
TCI of Spartanburg, Inc. SC
TCI of Springfiled, Inc. MO TCI Media Services
TCI of Tacoma, Inc. DE TCI of Washington
TCI of Tennessee, Inc. TN
TCI of the Blufflands, Inc. DE TCI Cable of La Crosse
TCI Media Services
TCI of Southern Minnesota
TCI of Tualatin Valley, Inc. OR TCI of Oregon
TCI of Virginia, Inc. VA TCI Media Services
TCI of Watertown, Inc. IA
TCI of West Virginia, Inc. WV TCI Media Services
TCI of Wytheville, Inc. VA
TCI Oscar I, Inc. CO
TCI Pacific Communications, Inc DE TCI Media Services
TCI Pacific Microwave, Inc. CO Pacific Microwave
TCI Pacific, Inc. DE
</TABLE>
Page 10 of 17
<PAGE> 11
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI PCS Holdings, Inc. DE
TCI Private Ventures, Inc. CO
TCI Realty Investments Company DE
TCI Southeast Divisional Headquarters, Inc. AL
TCI Southeast, Inc. DE
TCI Sports, Inc. NV
TCI Sports[gp] UT
TCI STS, Inc. CO
TCI STS-MTVI, Inc. TX
TCI Summitrack of Texas, Inc. CO
TCI Telecom, Inc. DE
TCI Teleport of Houston, Inc. TX
TCI TKR Cable I, Inc. DE
TCI TKR Cable II, Inc. DE
TCI TKR Cable III, Inc. DE
TCI TKR Limited Partnership [lp] CO
TCI TKR of Alabama, Inc. DE TCI Media Services
TCI of Alabama
TCI TKR of Central Florida, Inc. FL TCI Media Services
TCI of Central Florida
TCI TKR of Dallas, Inc. DE
TCI TKR of Florida, Inc. DE
TCI TKR of Georgia, Inc. DE TCI Media Services
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 TKR 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 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 Media Services
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 TVC, Inc. CA
TCI UA I, Inc. CO
TCI UA, Inc. DE
TCI VCI, Inc. CA
TCI Ventures Five, Inc. CO
</TABLE>
Page 11 of 17
<PAGE> 12
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI Ventures Four, Inc. CO
TCI Ventures, Inc. CO
TCI Washington Associates, L.P. DE
TCI West, Inc. DE
TCI Woodlands Ventures, Inc. CO The Woodlands Security Company
TCI/CA Acquisition Sub Corp. CO
TCI/CI Merger Sub Corp. DE
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
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
TCI Media Services
TCID of Michigan, Inc. NV
TCID of South Chicago, Inc. IL
TCID Partners II, Inc. CO
TCID Partners, Inc. CO
TCID VFC, Inc. CO
TCID Video Enterprises, Inc. CO
TCID X*PRESS, Inc. CO
TCIP, Inc. CO
Tele-Communications of Colorado, Inc. CO TCI Colorado Community Cable Television, Inc.
Tele-Communications of South Suburbia, Inc. IL
Tele-Vue Systems, Inc. WA TCI of Washington
TCI of Houston
Telecommunications Cable Systems, Inc. LA TCI Media Services
TCI of Louisiana
TCI Southeast - Southwest Region
Telenois, Inc. IL
Televents Group Joint Venture [gp] CO TCI of Central Iowa
TCI of Eastern Iowa
TCI of the Heartlands
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
</TABLE>
Page 12 of 17
<PAGE> 13
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
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
TCI Cablevision of East Texas
TCI Cablevision of Perryton
TCI Cablevision of West Texas
TCI Media Services
Television Signal Corporation CA
TEMPO Cable, Inc. OK TCI Cablevision of Central Oklahoma, Inc.
TCI Cablevision of Nocona
TCI Cablevision of Oklahoma (Tempo), Inc.
TCI Cablevision of Texas (Tempo), Inc.
TCI of Arkansas (Tempo), Inc.
TEMPO Development Corporation OK
TEMPO Television, Inc. OK
The Chicago Cable Interconnect[gp] IL GCCI
The Detroit Cable Interconnect L.P. DE The Detroit Cable Interconnect Limited Partners
The Greater Philadelphia Cable Advertising Interconnect[gp] PA PCA
Trans-Muskingum, Incorporated WV
Tribune-United Cable of Oakland County [jv] MI TCI Cablevision of Oakland County, Inc.
Tribune Company Cable of Michigan, Inc. DE Tribune-United Cable of Oakland County [jv]
Tulsa Cable Television, Inc. OK TCI Cablevision of Tulsa
TCI Media Services
UA-Columbia Alpine Tower, Inc. NJ
UA-Columbia Cablevision of Massachusetts, Inc. MA TCI Cablevision of North Attlebboro/Taunton
UA-Columbia Cablevision of New Jersey, Inc. NJ
UA-Columbia Cablevision of Westchester, Inc. NY TCI Media Services
TCI Cable of Westchester
TCI of Northern New Jersey
UA Think, Inc. CO
UACC Midwest, Inc. DE TCI Media Services
TCI of South Mississippi
TCI Cablevision of Asheville
TCI Cablevision of Decatur
TCI Cablevision of Central Illinois
TCI of Central Indiana
TCI of Evansville
TCI Cablevision of West Michigan, Inc.
TCI Cablevision of Merced County
TCI Cablevision of Santa Cruz County
TCI Cablevision of Tracy
</TABLE>
Page 13 of 17
<PAGE> 14
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI Cablevision of Vacaville
TCI Cablevision of Walnut Creek
TCI Cablevision of Northshore
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
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 Cablevisi of Hayward
TCI Cablevision of Treasure Valley
TCI Media Services
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 UCT of Alameda, Inc. #2
</TABLE>
Page 14 of 17
<PAGE> 15
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI Cablevision of Alameda
United Cable Television of Baldwin Park, Inc. CO TCI Cablevision of Los Angeles County
United Cable Television of Baltimore Limited Partnership [lp] CO TCI Communications of Baltimore
TCI Media Services
United Cable Television of Bossier City, Inc. DE TCI Media Services
TCI of Louisiana
United Cable Television of California, Inc. CA TCI Cablevision of Cupertion/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 of Cupertino/Los Altos Colorado
United Cable Television of East San Fernando Valley, Ltd. [lp] CO
United Cable Television of Eastern Shore, Inc. DE TCI of Eastern Shore
TCI Media Services
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. [lp] CO
United Cable Television of Pico Rivera, Inc. CO
United Cable Television of Santa Cruz, Inc. CO TCI Cablevisionof Santa Cruz County
United Cable Television of Sarpy County, Inc. NE TCI Cable of the Midlands
TCI Media Services
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.
TCI Media Services
United Cable Television Real Estate Corporation CO
United Cable Television Services Corporation OK TCI Cablevision of Central Connecticut
TCI Media Services
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
TCI Media Services
United Community Antenna System, Inc. WA TCI of Washington
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.
Tribune/United Cable of Oakland County
United Paging Corporation CO
</TABLE>
Page 15 of 17
<PAGE> 16
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
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.
TCI Media Services
US Cable of Allamuchy, LP NJ
US Cable of Paterson (gp) NJ
UTI Purchase Company CO
Vacationland Cablevision, Inc. WI TCI of South Central Wisconsin
Valley Cable TV, Inc. TX
Vista Television, Inc. WA TCI of Washington
VSC Cable, Inc. DE
W.A.V., Inc. CA
Waltham Tele-Communications [gp] MA TCI Cablevision of Waltham
Waltham Tele-Communications, Inc. CO
Wasatch Community T.V., Incorporated UT
Wentronics, Inc. NM TCI Cablevision of Western Colorado, Inc.
TCI Cablevision of Casper
TCI Cablevision of Gallup
TCI Cablevision of Moab
TCI Media Services
Western Community TV, Inc. MT
Western New York Cable Advertising L.P.[lp] NY
Western Satellite 2, Inc. CO
WestMarc Cable Group, Inc. DE
WestMarc Cable Holding, Inc. DE TCI Media Services
TCI of Central Minnesota
TCI of Northern Iowa
TCI of Northern Minnesota
TCI of the Valley
WestMarc Communications of Minnesota, Inc. DE TCI of Central Minnesota
TCI of Southern Minnesota
WestMarc Communications, Inc. NV
WestMarc Development II, Inc. CO
WestMarc Development III, Inc. CO
WestMarc Development IV, Inc. CO
WestMarc Development Joint Venture[gp] CO TCI Cablevision of Greater Michigan, Inc.
TCI Cablevision of Northwestern Connecticut
TCI Cablevision of Cape Cod
TCI Cablevision of Nantucket
TCI Media Services
TCI Twin State Cable TV
TCI/Twin Valley Cable
TCI Cable of Vermont
</TABLE>
Page 16 of 17
<PAGE> 17
<TABLE>
<CAPTION>
STATE OR JURISDICATION
SUBSIDIARY OF INCORPORATION TRADE NAMES
OR ORGANIZATION
<S> <C> <C>
TCI Media Services
WestMarc Development, Inc. CO TCI Cablevision of Greater Michigan, Inc.
WestMarc Realty, Inc. CO
WTCI Uplink, Inc. PA
</TABLE>
Page 17 of 17
<PAGE> 1
Exhibit 23.1
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, 33-64525 and 333-16985) on Form
S-3 of TCI Communications, Inc. of our reports dated March 24, 1997, relating
to the consolidated balance sheets of TCI Communications, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1996, and all related schedules, which
reports appear in the December 31, 1996 annual report on Form 10-K of TCI
Communications, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
March 27, 1997
<PAGE> 1
EXHIBIT 23.2
[DELOITTE & TOUCHE LLP LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
(Nos. 33-60982, 33-63139, 33-64127, 33-64329, 33-64525 and 333-16985) on Form
S-3 of TCI Communications, Inc. of our report dated March 14, 1997 on the
consolidated financial statements of Sprint Spectrum Holding Company, L.P. and
subsidiaries (which expresses an unqualified opinion and includes an
explanatory paragraph referring to the developmental stage of Sprint Spectrum
Holding Company, L.P. and subsidiaries) for each of the two years in the period
ended December 31, 1996, for the period from October 24, 1994 (date of
inception) to December 31, 1994 and for the cumulative period from October 24,
1994 (date of inception) to December 31, 1996 appearing in the Annual Report on
Form 10-K of TCI Communications, Inc. for the year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Kansas City, Missouri
March 24, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements (Nos. 33-60982, 33-63139,
33-64127, 33-64329, 33-64525 and 333-16985) on Form S-3 of TCI Communications,
Inc. of our report dated March 7, 1997 on the financial statements of American
PCS, L.P. (a Delaware Limited Partnership) as of and for the year ended December
31, 1996 referred to in the consolidated financial statements of Sprint Spectrum
Holding Company, L.P. and subsidiaries, which appear in the Annual Report on
Form 10-K of TCI Communications, Inc. for the year ended December 31, 1996.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Washington, D.C.
March 25, 1997
<TABLE> <S> <C>
<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 FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000096903
<NAME> TCI COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 308
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,223
<DEPRECIATION> 4,031
<TOTAL-ASSETS> 23,136
<CURRENT-LIABILITIES> 0
<BONDS> 14,318
232
0
<COMMON> 1
<OTHER-SE> 13
<TOTAL-LIABILITY-AND-EQUITY> 23,136
<SALES> 0
<TOTAL-REVENUES> 5,954
<CGS> 0
<TOTAL-COSTS> 2,117
<OTHER-EXPENSES> 1,453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,041
<INCOME-PRETAX> (591)
<INCOME-TAX> (139)
<INCOME-CONTINUING> (452)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (452)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>