<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-5550
TCI COMMUNICATIONS, INC.
----------------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-0588868
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5619 DTC Parkway
Englewood, Colorado 80111
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 267-5500
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
All of the Registrant's common stock is owned by Tele-Communications,
Inc. The number of shares outstanding of the Registrant's common stock as of
April 30, 1997, was:
Class A common stock - 811,655 shares; and
Class B common stock - 94,447 shares.
<PAGE> 2
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
Assets amounts in millions
<S> <C> <C>
Cash $ 36 --
Trade and other receivables, net 302 308
Investments in affiliates, accounted for under the equity method,
and related receivables (note 3) 307 317
Property and equipment, at cost:
Land 72 74
Distribution systems 9,533 9,726
Support equipment and buildings 1,414 1,423
------- -------
11,019 11,223
Less accumulated depreciation 4,041 4,031
------- -------
6,978 7,192
------- -------
Franchise costs 17,172 17,174
Less accumulated amortization 2,414 2,380
------- -------
14,758 14,794
------- -------
Other assets, at cost, net of amortization 391 525
------- -------
$22,772 23,136
======= =======
</TABLE>
(continued)
I-1
<PAGE> 3
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- -----------
Liabilities and Common Stockholder's Equity (Deficit) amounts in millions
<S> <C> <C>
Accounts payable $ 100 191
Accrued interest 165 268
Accrued programming expense 251 232
Other accrued expenses 514 536
Debt (note 5) 13,906 14,318
Deferred income taxes 5,414 5,459
Other liabilities 81 84
-------- --------
Total liabilities 20,431 21,088
-------- --------
Minority interests in equity of consolidated subsidiaries 791 802
Redeemable preferred stock 232 232
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts ("Trust Preferred Securities") holding solely
subordinated debt securities of the Company (note 6) 1,502 1,000
Common stockholder's equity (deficit):
Class A common stock, $1 par value. Authorized 910,553 shares;
issued and outstanding 811,655 shares 1 1
Class B common stock, $1 par value. Authorized, issued and
outstanding 94,447 shares -- --
Additional paid-in capital 2,128 2,234
Unrealized holding gains for available-for-sale securities, net
of taxes 5 --
Accumulated deficit (783) (822)
-------- --------
1,351 1,413
Investment in Tele-Communications, Inc. ("TCI"), at cost (note 1) (1,143) (1,143)
Intercompany receivable (note 7) (392) (256)
-------- --------
Total common stockholder's equity (deficit) (184) 14
-------- --------
Commitments and contingencies (note 8)
$ 22,772 23,136
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
I-2
<PAGE> 4
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
---------------------
1997 1996
--------- -----------
amounts in millions
<S> <C> <C>
Revenue $ 1,505 1,333
Operating costs and expenses:
Operating 544 464
Selling, general and administrative 282 371
Adjustment to compensation relating to options and stock
appreciation rights -- (4)
Depreciation 217 236
Amortization 114 96
------- -------
1,157 1,163
------- -------
Operating income 348 170
Other income (expense):
Interest expense (272) (246)
Interest income (note 7) 9 7
Share of losses of affiliates, net (note 3) (12) (60)
Minority interests in earnings of consolidated subsidiaries, net (26) (4)
Gain on disposition and exchange of assets, net 18 9
Other, net (4) (2)
------- -------
(287) (296)
------- -------
Earnings (loss) before income taxes 61 (126)
Income tax benefit (expense) (22) 46
------- -------
Net earnings (loss) 39 (80)
Preferred stock dividend requirements (2) (2)
------- -------
Net earnings (loss) attributable to common stockholder $ 37 (82)
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
I-3
<PAGE> 5
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statement of Common Stockholder's Equity (Deficit)
Three months ended March 31, 1997
(unaudited)
<TABLE>
<CAPTION>
Unrealized
holding
gains for
available-
Common stock Additional for-sale Investment
---------------- paid-in securities, Accumulated in Intercompany
Class A Class B capital net of taxes deficit TCI receivable
------- ------- ---------- ------------ ----------- ---------- ------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 1 -- 2,234 -- (822) (1,143) (256)
Net earnings -- -- -- -- 39 -- --
Accreted dividends on redeemable
preferred stock -- -- (2) -- -- -- --
Change in unrealized holding gains for
available-for-sale securities, net of
taxes -- -- -- 5 -- -- --
Transfer of assets from TCI
Communications, Inc. to TCI (note 7) -- -- (104) -- -- -- 33
Change in intercompany receivable -- -- -- -- -- -- (169)
------ -- ------ ------ ------ ------ ------
Balance at March 31, 1997 $ 1 -- 2,128 5 (783) (1,143) (392)
====== == ====== ====== ====== ====== ======
<CAPTION>
Total
common
stockholder's
equity (deficit)
----------------
<S> <C>
Balance at January 1, 1997 14
Net earnings 39
Accreted dividends on redeemable
preferred stock (2)
Change in unrealized holding gains for
available-for-sale securities, net of
taxes 5
Transfer of assets from TCI
Communications, Inc. to TCI (note 7) (71)
Change in intercompany receivable (169)
-----
Balance at March 31, 1997 (184)
=====
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE> 6
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
------ ------
amounts in millions
(see note 2)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 39 (80)
Adjustments to reconcile net earnings (loss) to net cash provided by operating
activities:
Depreciation and amortization 331 332
Adjustment to compensation relating to options and stock appreciation
rights -- (4)
Payment of stock appreciation rights (1) (2)
Share of losses of affiliates 12 60
Deferred income tax benefit (30) (47)
Minority interests in earnings 26 4
Gain on disposition and exchange of assets, net (18) (9)
Intercompany tax allocation 51 2
Payments of restructuring charges (16) --
Other noncash charges (credits) 2 (2)
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Change in receivables 5 46
Change in accrued interest (103) (54)
Change in other accruals and payables (80) (17)
----- ------
Net cash provided by operating activities 218 229
----- ------
Cash flows from investing activities:
Capital expended for property and equipment (80) (389)
Cash paid for acquisitions (68) (77)
Cash received in exchanges 22 50
Cash proceeds from disposition of assets 140 40
Additional investments in and loans to affiliates and others -- (61)
Repayment of loans by affiliates and others 52 5
Other investing activities (72) (20)
----- ------
Net cash used in investing activities (6) (452)
----- ------
Cash flows from financing activities:
Borrowings of debt 284 1,112
Repayments of debt (695) (1,467)
Proceeds from issuance of redeemable preferred stock -- 223
Proceeds from issuance of Trust Preferred Securities 490 486
Payment of redeemable preferred stock dividends (2) --
Payment of dividends on subsidiary preferred stock and Trust Preferred
Securities (32) (1)
Change in intercompany payable/receivable (221) (49)
----- ------
Net cash provided by (used in) financing activities (176) 304
----- ------
Net increase in cash 36 81
Cash at beginning of period -- --
----- ------
Cash at end of period $ 36 81
===== ======
</TABLE>
See accompanying notes to consolidated financial statements
I-5
<PAGE> 7
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
March 31, 1997
(unaudited)
(1) General
The accompanying consolidated financial statements include the
accounts of TCI Communications, Inc. ("TCIC" or the "Company") and
those of all majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. TCIC
is a subsidiary of TCI.
The accompanying interim consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results for such periods. The results of
operations for any interim period are not necessarily indicative of
results for the full year. These consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto contained in TCIC's Annual Report on Form
10-K for the year ended December 31, 1996.
TCIC, through its subsidiaries and affiliates, is principally engaged
in the construction, acquisition, ownership, and operation of cable
television systems. TCIC operates its cable television systems
throughout the continental United States and Hawaii.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Certain amounts have been reclassified for comparability with the 1997
presentation.
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 common stock ("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.
(continued)
I-6
<PAGE> 8
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $375 million and $300 million for the three
months ended March 31, 1997 and 1996, respectively. Also during these
periods, cash paid for income taxes was not material.
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
------ -------
amounts in millions
<S> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ 67 881
Liabilities assumed, net of current assets (2) 4
Deferred tax liability recorded in acquisitions -- (240)
Minority interests in equity of acquired entities 3 (4)
Common stock of TCI issued in acquisition contributed to
TCIC -- (564)
----- ----
Cash paid for acquisitions $ 68 77
===== ====
Cash received in exchanges:
Aggregate cost basis of assets acquired $ 294 193
Historical cost of assets given up (305) (222)
Gain recorded on exchange of assets (11) (21)
----- ----
Cash received in exchanges $ (22) (50)
===== ====
Transfer of net assets:
Fair value of assets transferred to (from) TCI $ 90 (27)
Deferred tax liability transferred from (to) TCI (19) 17
Minority interests in equity -- (14)
Decrease in additional paid-in-capital resulting from
transfer of net assets to TCI (104) --
Decrease in intercompany receivable resulting from transfer
of net assets 33 24
----- ----
$ -- --
===== ====
Change in unrealized gains, net of deferred taxes, on
available-for-sale securities $ 5 3
===== ====
Accrued preferred stock dividends $ 2 2
===== ====
</TABLE>
(continued)
I-7
<PAGE> 9
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(3) Investments in Affiliates
Summarized unaudited results of operations for affiliates accounted
for under the equity method are as follows:
<TABLE>
<CAPTION>
Three months ended
Combined Operations March 31,
-------------------
1997 1996
-------- --------
amounts in millions
<S> <C> <C>
Revenue $ 82 171
Operating expenses (50) (186)
Depreciation and amortization (35) (22)
---- ----
Operating loss (3) (37)
Interest expense (19) (7)
Other, net 2 24
---- ----
Net loss $(20) (20)
==== ====
</TABLE>
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 $61 million of TCIC's share of its affiliates' losses
for the three months ended March 31, 1996.
Certain of TCIC's affiliates are general partnerships and any
subsidiary of TCIC that is a general partner in a general partnership
is, as such, liable as a matter of partnership law for all debts of
that partnership in the event liabilities of that partnership were to
exceed its assets.
(4) Acquisition
On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI, Viacom International, Inc. and Viacom, Inc. ("Viacom"),
TCIC acquired all of the common stock of a subsidiary of Viacom
("Cable Sub") which owned Viacom's cable systems and related assets
(the "Viacom Acquisition").
The transaction was structured as a tax-free reorganization in which
Cable Sub transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to a new subsidiary of
Viacom ("New Viacom Sub"). Cable Sub also transferred to New Viacom
Sub the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility
(the "Loan Facility") arranged by TCIC, TCI and Cable Sub. Following
these transfers, Cable Sub retained cable assets with a value at
closing of approximately $2.326 billion and the obligation to repay
the Loan Proceeds. Neither Viacom nor New Viacom Sub has any obligation
with respect to repayment of the Loan Proceeds.
(continued)
I-8
<PAGE> 10
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Prior to the consummation of the Viacom Acquisition, Viacom offered to
the holders of shares of Viacom Class A Common Stock and Viacom Class
B Common Stock (collectively, "Viacom Common Stock") the opportunity
to exchange (the "Exchange Offer") a portion of their shares of Viacom
Common Stock for shares of Class A Common Stock, par value $100 per
share, of Cable Sub ("Cable Sub Class A Stock"). Immediately following
the completion of the Exchange Offer, TCIC acquired from Cable Sub
shares of Cable Sub Class B Common Stock (the "Share Issuance") for
$350 million (which was used to reduce Cable Sub's obligations under
the Loan Facility). At the time of the Share Issuance, the Cable Sub
Class A Stock received by Viacom stockholders pursuant to the Exchange
Offer automatically converted into 5% Class A Senior Cumulative
Exchangeable Preferred Stock of Cable Sub with a stated value of $100
per share.
(5) Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
amounts in millions
<S> <C> <C>
Parent company debt:
Notes payable $ 8,002 8,031
Commercial paper 404 638
Other debt 28 --
------- ------
8,434 8,669
Debt of subsidiaries:
Bank credit facilities 4,645 4,810
Notes payable 762 768
Convertible notes (a) 41 43
Other debt 24 28
------- ------
$13,906 14,318
======= ======
</TABLE>
(a) These convertible notes, which are stated net of unamortized
discount of $168 million and $178 million at March 31, 1997
and December 31, 1996, respectively, mature on December 18,
2021. The notes require (so long as conversion of the notes
has not occurred) an annual interest payment through 2003
equal to 1.85% of the face amount of the notes. The notes are
convertible, at the option of the holders, into shares of
Series A TCI Group Stock and TCI Series A Liberty Media Group
common stock.
TCIC's bank credit facilities and various other debt instruments
generally contain restrictive covenants which require, among other
things, the maintenance of certain earnings, specified cash flow and
financial ratios (primarily the ratios of cash flow to total debt and
cash flow to debt service, as defined), and include certain
limitations on indebtedness, investments, guarantees, dispositions,
stock repurchases and 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.
(continued)
I-9
<PAGE> 11
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The fair value of TCIC's debt is estimated based on 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 $13,906 million, was $14,042
million at March 31, 1997.
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 7.1% to 9.3% and receives
variable interest rates on notional amounts of $410 million at March
31, 1997 and (ii) pays variable interest rates (the "Variable Rate
Agreements") and receives fixed interest rates ranging from 4.8% to
9.7% on notional amounts of $2,250 million at March 31, 1997. During
the three months ended March 31, 1997 and 1996, TCIC's net receipts
pursuant to the Fixed Rate Agreements were $3 million and $5 million,
respectively; and TCIC's net receipts pursuant to the Variable Rate
Agreements were $1 million and $8 million, respectively.
TCIC's Fixed Rate Agreements and Variable Rate Agreements expire as
follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Fixed Rate Agreements Variable Rate Agreements
--------------------- ------------------------
Expiration Interest Rate Notional Expiration Interest Rate Notional
Date To Be Paid Amount Date To Be Received Amount
------------ ------------- -------- -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
October 1997 7.1%-9.3% $ 180 April 1997 7.0% $ 200
December 1997 8.7% 230 September 1998 4.8%-5.4% 450
------ April 1999 7.4% 50
$ 410 February 2000 5.8%-6.6% 300
====== March 2000 5.8%-6.0% 675
September 2000 5.1% 75
March 2027 9.7% 300
December 2036 9.7% 200
-------
$ 2,250
=======
</TABLE>
TCIC is exposed to credit losses for the periodic settlements of
amounts due under these interest rate exchange agreements in the event
of nonperformance by the other parties to the agreements. However,
TCIC does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.
The fair value of the interest rate exchange agreements is the
estimated amount that TCIC would pay or receive to terminate the
agreements at March 31, 1997, taking into consideration current
interest rates and assuming the current creditworthiness of the
counterparties. At March 31, 1997, TCIC would be required to pay an
estimated $7 million to terminate the Fixed Rate Agreements and an
estimated $47 million to terminate the Variable Rate Agreements.
(continued)
I-10
<PAGE> 12
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
TCIC is required to maintain unused availability under bank credit
facilities to the extent of outstanding commercial paper At March 31,
1997, TCIC had approximately $1.5 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.
(6) Company-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trusts Holding Solely Subordinated Debt Securities of the
Company
In 1996 and 1997, the Company, through certain subsidiary trusts, (the
"Trusts"), issued preferred securities as follows:
<TABLE>
<CAPTION>
Subsidiary Trust Interest Rate Face Amount
---------------- ------------- -----------
in millions
<S> <C> <C>
TCI Communications Financing I 8.72% $ 500
TCI Communications Financing II 10.00% 500
TCI Communications Financing III 9.65% 300
TCI Communications Financing IV 9.72% 200
------
$1,500
======
</TABLE>
The Trusts exist for the exclusive purpose of issuing the Trust
Preferred Securities and investing the proceeds thereof into
Subordinated Deferrable Interest Notes (the "Subordinated Debt
Securities") of the Company. The Subordinated Debt Securities have
interest rates equal to the interest rate of the corresponding Trust
Preferred Securities and have maturity dates ranging from 30 to 49
years from the date of issuance. The Subordinated Debt Securities are
unsecured obligations of the Company and are subordinate and junior in
right of payment to certain other indebtedness of the Company. Upon
redemption of the Subordinated Debt Securities, the Trust Preferred
Securities will be mandatorily redeemable. The Company effectively
provides a full and unconditional guarantee of the Trusts' obligations
under the Trust Preferred Securities.
The Trust Preferred Securities are presented together in a separate
line item in the accompanying consolidated balance sheets captioned
"Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely subordinated debt securities of the
Company." Dividends accrued on the Trust Preferred Securities are
included in minority interests in earnings of consolidated
subsidiaries in the accompanying consolidated financial statements.
(continued)
I-11
<PAGE> 13
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(7) Transactions with Related Parties
A tax sharing agreement (the "Tax Sharing Agreement") among TCIC and
certain other subsidiaries of TCI was implemented effective July 1,
1995. The Tax Sharing Agreement formalizes certain elements of
pre-existing tax sharing arrangements and contains additional
provisions regarding the allocation of certain consolidated income tax
attributes and the settlement procedures with respect to the
intercompany allocation of current tax attributes. The Tax Sharing
Agreement encompasses U.S. federal, state, local and foreign tax
consequences and relies upon the U.S. Internal Revenue Code of 1986 as
amended, and any applicable state, local and foreign tax law and
related regulations. Beginning on the July 1, 1995 effective date,
TCIC is responsible to TCI for its share of current consolidated
income tax liabilities. TCI 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.
TCIC purchases sports and other programming from certain subsidiaries
of TCI's business which produces and distributes programming services,
("Liberty"). Charges to TCIC (which are based upon customary rates
charged to others) for such programming were $11 million and $27
million for the three months ended March 31, 1997 and 1996,
respectively. Such amounts are included in operating expenses in the
accompanying consolidated statements of operations.
Liberty leases satellite transponder facilities from TCIC. Charges by
TCIC for such arrangements for the three month periods ended March 31,
1997 and 1996, aggregated $2 million and $3 million, respectively.
TCI Starz, Inc., a subsidiary of TCI, has a 50.1% general partnership
interest in QE+ Ltd Limited Partnership ("QE+"), which distributes
STARZ!, a first-run movie premium programming service. Liberty holds
the remaining 49.9% partnership interest.
TCIC has entered into a long-term affiliation agreement with QE+
related to the distribution of the STARZ! service. Rates per
subscriber specified in the agreement are based upon customary rates
charged to other cable system operators. Payments to QE+ for the three
months ended March 31, 1997 and 1996 were approximately $26 million
and $18 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.
(continued)
I-12
<PAGE> 14
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
At March 31, 1997, TCIC had a $199 million intercompany receivable
from TCI Starz, Inc. which represented the net effect of advances to
TCI Starz, Inc., who in turn paid such amounts to QE+, offset by
TCIC's purchase of programming from QE+. Such receivable is
non-interest bearing for five years from the date of the advances.
Effective January 2, 1997, TCIC transferred its business of providing
long-distance transport of video, voice and data traffic and other
telecommunications services to TCI. Such transfer has been reflected
as a net decrease in common stockholder's equity.
Intercompany amounts at March 31, 1997 represent non-interest bearing
intercompany advances aggregating $18 million from certain
subsidiaries of TCI offset by the aforementioned $199 million
intercompany receivable from TCI Starz, Inc. and interest-bearing
loans to certain subsidiaries of TCI. Such interest-bearing loans plus
accrued interest aggregated $211 million and $148 million at March 31,
1997 and December 31, 1996, respectively. Interest earned by TCIC on
such intercompany loans aggregated $3 million and $2 million for the
three months ended March 31, 1997 and 1996, respectively.
(8) Commitments and Contingencies
TCIC has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $175
million at March 31, 1997. 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. A certain
company 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 the company's behalf.
TCIC is a direct obligor or guarantor of the payment of certain
amounts that may be due pursuant to motion picture output,
distribution, and license agreements. As of March 31, 1997, the amount
of such obligations or guarantees was approximately $97 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.
Certain key employees of TCIC hold restricted stock awards, options
and options with tandem SARs to acquire shares of TCI and certain TCI
subsidiaries' common stock. Estimates of the compensation related to
the restricted stock awards and options and/or SARs have been recorded
in the accompanying consolidated financial statements, but are subject
to future adjustment based upon the market value of the respective
common stock and, ultimately, on the final market value when the
rights are exercised or the restricted stock awards are vested.
(continued)
I-13
<PAGE> 15
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to 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.
I-14
<PAGE> 16
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction
with the Company's Management's Discussion and Analysis of Financial Condition
and Results of Operations included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. The following discussion focuses on
material changes in the trends, risks and uncertainties affecting the Company's
results of operations and financial condition. Reference should also be made to
the Company's consolidated financial statements included herein.
(1) Material changes in financial condition:
During March 1997, the Company, through special purpose entities
formed as Delaware business trusts, issued $300 million in face value of 9.65%
Capital Securities and $200 million in face value of 9.72% Trust Preferred
Securities. The Company used the net proceeds from such issuances to retire
commercial paper and repay certain other indebtedness.
On July 31, 1996, TCIC consummated the Viacom Acquisition whereby TCIC
acquired all of the common stock of Cable Sub which owned Viacom's cable
systems and related assets. The transaction was structured as a tax-free
reorganization in which Cable Sub initially transferred all of its non-cable
assets, as well as all of its liabilities other than current liabilities, to
New Viacom Sub. Cable Sub also transferred to New Viacom Sub the proceeds of
the Loan Facility. Following these transfers, Cable Sub retained cable assets
with a value at closing of approximately $2.326 billion and the obligation to
repay the Loan Proceeds borrowed under the Loan Facility. Neither Viacom nor
New Viacom Sub has any obligation with respect to repayment of the Loan
Proceeds. For additional discussion of the Viacom Acquisition, see note 4 to
the accompanying consolidated financial statements.
At March 31, 1997, subsidiaries of the Company had approximately $1.5
billion of availability in unused lines of credit, excluding amounts related to
lines of credit which provide availability to support commercial paper.
Although such subsidiaries of the Company were in compliance with the
restrictive covenants contained in their credit facilities at said date,
additional borrowings under the credit facilities are subject to the
subsidiaries' continuing compliance with such restrictive covenants (which
relate primarily to the maintenance of certain ratios of cash flow to total
debt and cash flow to debt service, as defined in the credit facilities). See
note 5 to the accompanying consolidated financial statements for additional
information regarding the material terms of the subsidiaries' lines of credit.
(continued)
I-15
<PAGE> 17
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(1) Material changes in financial condition (continued):
One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of Operating Cash
Flow (operating income before depreciation, amortization, compensation relating
to stock appreciation rights and adjustments to compensation relating to stock
appreciation rights) ($679 million and $498 million, for the three months ended
March 31, 1997 and 1996, respectively) to interest expense ($272 million and
$246 million, for the three months ended March 31, 1997 and 1996,
respectively), is determined by reference to the consolidated statements of
operations. The Company's interest coverage ratio was 250% and 202% for the
three month period ended March 31, 1997 and 1996. Management of the Company
believes that the foregoing interest coverage ratio is adequate in light of the
relative predictability of its cable television operations and interest
expense, 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 is no assurance that
the Company will be able to achieve such objective. Operating Cash Flow is a
measure of value and borrowing capacity within the cable television industry
and is not intended to be a substitute for cash flows provided by operating
activities, a measure of performance prepared in accordance with generally
accepted accounting principles, and should not be relied upon as such.
Operating Cash Flow, as defined, does not take into consideration substantial
costs of doing business, such as interest expense, and should not be considered
in isolation to other measures of performance.
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 ($218 million and $229 million
for the three months ended March 31, 1997 and 1996, 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. 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, investments and capital
expenditures have exceeded net cash provided by operating activities. However,
during the three months ended March 31, 1997, cash provided by operating
activities exceeded cash used in investing activities. The Company has
reevaluated its capital expenditure strategy and currently anticipates that it
will expend significantly less for property and equipment in 1997 than it did
in 1996. In this regard, the amount of capital expended by the Company for
property and equipment was $80 million during the three months ended March 31,
1997, as compared to $389 million during the corresponding period in 1996. The
Company currently estimates that it will spend approximately $750 million for
capital expenditures during 1997. To the extent that net cash provided by
operating activities exceeds net cash used in investing activities, the Company
will use such excess cash to reduce outstanding debt.
(continued)
I-16
<PAGE> 18
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(1) Material changes in financial condition (continued):
TCIC is a direct obligor or guarantor of the payment of certain
amounts that may be due pursuant to motion picture output, distribution, and
license agreements. As of March 31, 1997, the amount of such obligations or
guarantees was approximately $97 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 has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $175 million at
March 31, 1997. 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. A certain company 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 the company's behalf.
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.
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 7.1% to 9.3% and receives variable
interest rates on notional amounts of $410 million at March 31, 1997 and (ii)
pays variable interest rates and receives fixed interest rates ranging from
4.8% to 9.7% on notional amounts of $2,250 million at March 31, 1997. During
the three months ended March 31, 1997 and 1996, the Company's net receipts
pursuant to its Fixed Rate Agreements were $3 million and $5 million,
respectively; and the Company's net receipts pursuant to the Variable Rate
Agreements were $1 million and $8 million, respectively. The Company is exposed
to credit losses for the periodic settlements of amounts due under the interest
rate exchange agreements in the event of nonperformance by the other parties to
the agreements. However, the Company does not anticipate that it will incur any
material credit losses because it does not anticipate nonperformance by the
counterparties.
(2) Material changes in results of operations:
Revenue
The operation of the Company's cable television systems is regulated
at the federal, state and local levels. The Cable Television Consumer
Protection and Competition Act of 1992 and the Telecommunications Act of 1996
(collectively, the "Cable Acts") established rules under which the Company's
basic and tier service rates and its equipment and installation charges (the
"Regulated Services") are regulated if a complaint is filed or if the
appropriate franchise authority is certified. At March 31, 1997, 78% of the
Company's basic customers were served by cable television systems that were
subject to such rate regulation.
(continued)
I-17
<PAGE> 19
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(2) Material changes in results of operations (continued):
During the three months ended March 31, 1997, 73% of the Company's
revenue was derived from Regulated Services. As noted above, any increases in
rates charged for Regulated Services are regulated by the Cable Acts. Moreover,
competitive factors may limit the Company's ability to increase its service
rates.
Through December 4, 1996, the Company had an investment in a direct
broadcast satellite partnership, PRIMESTAR Partners L.P. ("Primestar").
Primestar provides programming and marketing support to each of its cable
partners who provide satellite television service to their customers. On
December 4, 1996, TCI distributed (the "Satellite Spin-off") to the holders of
shares of Series A TCI Group Stock and Series B TCI Group Stock all of the
issued and outstanding common stock of TCI Satellite Entertainment, Inc.
("Satellite"). At the time of the Satellite Spin-off, Satellite's assets and
operations included the Company's interest in Primestar, the Company's business
of distributing Primestar programming and two communications satellites. As a
result of the Satellite Spin-off, Satellite's operations are no longer
consolidated with those of the Company.
Revenue increased 13% for the three months ended March 31, 1997, as
compared to the corresponding period of 1996. Exclusive of an increase in
revenue due to acquisitions (13%), and a decrease in revenue due to the
Satellite Spin-off (6%), revenue increased 6%. Such increase was the result of
an 11% increase in the Company's average basic rate, a 1% increase in the
Company's average premium rate and a 3% decrease in the number of average
premium subscribers. The number of average basic customers increased less than
1% from 1996 to 1997.
Operating Costs and Expenses
Operating expenses increased 17% for the three months ended March 31,
1997, respectively, as compared to the corresponding period of 1996. Exclusive
of the effects of acquisitions, net of dispositions, such expenses increased
9%. Programming expenses accounted for the majority of such increases. The
Company cannot determine whether and to what extent increases in the cost of
programming will affect its future operating costs.
Selling, general and administrative expenses decreased 24% for the
three months ended March 31, 1997, as compared to the corresponding period of
1996. Exclusive of the effects of acquisitions, net of dispositions, such
expenses decreased 17%. Such decrease is due primarily to a reduction in
salaries and related payroll expenses due to work force reductions in the
fourth quarter of 1996, as well as reduced marketing and general overhead
expenses.
The decrease in the Company's depreciation expense in 1997 is the
result of the net effect of a decrease due to the Satellite Spin-off partially
offset by increases due to acquisitions and capital expenditures. The increase
in the Company's amortization expense in 1997 is due to acquisitions.
(continued)
I-18
<PAGE> 20
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
(2) Material changes in results of operations (continued):
The Company records compensation relating to stock appreciation rights
and restricted stock awards granted to certain employees. Such compensation is
subject to future adjustment based upon market value, and ultimately, on the
final determination of market value when the rights are exercised or the
restricted stock awards are vested.
Other Income and Expenses
Included in share of losses of affiliates for the three months ended
March 31, 1996 was $61 million, attributable to the Company's investment in
Sprint Spectrum and TCG. Effective December 31, 1996, the Company transferred
these investments to TCI. As such, the Company no longer reflects share of
losses from such investments.
Minority interests in earnings of consolidated subsidiaries aggregated
$26 million for the three months ended March 31, 1997, as compared to $4
million for the corresponding period in 1996. Such change is due primarily to
the accrual of dividends on the Trust Preferred Securities in 1997. See note 6
to the accompanying consolidated financial statements.
Net Earnings (Loss)
TCIC's net earnings (before preferred stock dividend requirements) of
$39 million for the three months ended March 31, 1997 represented an increase of
$119 million as compared to TCIC's net loss (before preferred stock dividend
requirements) of $80 million for the corresponding period of 1996. Such increase
is primarily the net result of an increase in operating income and a decrease in
share of losses of affiliates partially offset by an increase in interest
expense and an increase in the aforementioned dividends on Trust Preferred
Securities reflected as minority share of earnings.
I-19
<PAGE> 21
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There were no new material legal proceedings or material developments
in previously reported legal proceedings during the quarter ended
March 31, 1997 to which TCIC or any of its consolidated subsidiaries
is a party or of which any of its property is the subject.
Item 6. Exhibit and Reports on Form 8-K.
(a) Exhibit -
(27) TCI Communications, Inc. Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31, 1997:
<TABLE>
<CAPTION>
Date of Item
Report Reported Financial Statements Filed
------- -------- --------------------------
<S> <C> <C>
January 22, 1997 Item 5 None.
March 11, 1997 Item 5 None.
</TABLE>
II-1
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TCI COMMUNICATIONS, INC.
Date: May 13, 1997 By: /s/ Leo J. Hindery, Jr.
--------------------------------------
Leo J. Hindery, Jr.
President and
Chief Executive Officer
Date: May 13, 1997 By: /s/ Stephen M. Brett
--------------------------------------
Stephen M. Brett
Senior Vice President
Date: May 13, 1997 By: /s/ Bernard W. Schotters
--------------------------------------
Bernard W. Schotters
Senior Vice President
(Principal Financial Officer)
Date: May 13, 1997 By: /s/ Gary K. Bracken
--------------------------------------
Gary K. Bracken
Senior Vice President
and Controller
(Principal Accounting Officer)
II-2
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 TCI Communications, Inc. Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN TCI COMMUNICATIONS, INC.'S QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000096903
<NAME> TCI COMMUNICATIONS, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 302
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 11,019
<DEPRECIATION> 4,041
<TOTAL-ASSETS> 22,772
<CURRENT-LIABILITIES> 0
<BONDS> 13,906
232
0
<COMMON> 1
<OTHER-SE> (185)
<TOTAL-LIABILITY-AND-EQUITY> 22,772
<SALES> 0
<TOTAL-REVENUES> 1,505
<CGS> 0
<TOTAL-COSTS> 544
<OTHER-EXPENSES> 331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 272
<INCOME-PRETAX> 61
<INCOME-TAX> 22
<INCOME-CONTINUING> 39
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
