<PAGE> 1
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
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____ to ____
Commission File Number 0-5550
TCI COMMUNICATIONS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its 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
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 30, 1998, was approximately $296,700,000.
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 30, 1998, 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 1998 Annual Meeting of Stockholders are incorporated by
reference in Part III of this Form 10-K.
<PAGE> 2
TCI COMMUNICATIONS, INC.
1997 ANNUAL REPORT ON FORM 10-K
Table of Contents
<TABLE>
<CAPTION>
Page
PART I ----
<S> <C> <C>
Item 1. Business .................................................................................. I-1
Item 2. Properties ................................................................................ I-15
Item 3. Legal Proceedings ......................................................................... I-15
Item 4. Submission of Matters to a Vote of Security Holders ....................................... I-21
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-15
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .................................................... II-16
PART III
Item 10. Directors and Executive Officers of the Registrant ........................................ III-1
Item 11. Executive Compensation .................................................................... III-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
</TABLE>
<PAGE> 3
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").
TCI common stock, par value $1.00 per share, is comprised of six
series: Tele-Communications, Inc. Series A TCI Group Common Stock ("TCI Group
Series A Stock"), Tele-Communications, Inc. Series B TCI Group Common Stock
("TCI Group Series B Stock" and, together with the TCI Group Series A Stock,
"TCI Group Stock"), Tele-Communications, Inc. Series A Liberty Media Group
Common Stock ("Liberty Group Series A Stock"), Tele-Communications, Inc. Series
B Liberty Media Group Common Stock ("Liberty Group Series B Stock" and, together
with the Liberty Group Series A Stock, the "Liberty Group Stock"),
Tele-Communications, Inc. Series A TCI Ventures Group Common Stock ("TCI
Ventures Group Series A Stock") and Tele-Communications, Inc. Series B TCI
Ventures Group Common Stock ("TCI Ventures Group Series B Stock" and, together
with the TCI Ventures Group Series A Stock, the "TCI Ventures Group Stock").
The Liberty Group Stock is intended to reflect the separate performance
of the "Liberty Media Group," which is comprised of TCI's assets which produce
and distribute programming services. The TCI Ventures Group Stock is intended to
reflect the separate performance of the "TCI Ventures Group," which is comprised
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets. The TCI Group Stock is intended to
reflect the separate performance of TCI and its subsidiaries and assets not
attributed to Liberty Media Group or TCI Ventures Group. Such subsidiaries and
assets are referred to as "TCI Group" and are comprised primarily of TCI's
domestic cable and communications business. TCIC is attributed to TCI Group.
On March 4, 1998, subsidiaries of TCI (including certain subsidiaries
of TCIC) contributed to Cablevision Systems Corporation ("CSC") certain of its
cable television systems serving approximately 830,000 basic customers in
exchange for approximately 12.2 million newly issued CSC Class A shares. Such
shares represent an approximate 33% equity interest in CSC's total outstanding
shares and an approximate 9% voting interest in CSC in all matters except for
the election of directors, in which case TCI has an approximate 47% voting
interest in the election of one-fourth of CSC's directors. CSC also assumed
approximately $669 million of TCI's debt. As a part of such transaction, TCIC
subsidiaries contributed to CSC cable television systems serving approximately
410,000 basic customers in exchange for approximately 7.0 million shares or 19%
of CSC's newly issued Class A shares, and CSC assumed approximately $78 million
of intercompany debt owed to TCIC. TCIC has also entered into letters of intent
with CSC which provide for TCIC to acquire a cable system in Michigan and an
additional 3% of CSC's Class A shares and for CSC to (i) acquire cable systems
serving approximately 250,000 basic customers in Connecticut and (ii) assume
$110 million of TCIC's debt. The ability of the Company to sell or increase its
investment in CSC is subject to certain restrictions and limitations set forth
in a stockholders agreement with CSC.
I-1
<PAGE> 4
Including the above-described CSC transactions and another transaction
that closed in February 1998, TCIC, as of February 28, 1998, has, since January
1, 1997, contributed, or signed agreements or letters of intent to contribute
within the next twelve months, certain cable television systems (the
"Contributed Cable Systems") serving approximately 3.4 million basic customers
to joint ventures in which TCIC will retain non-controlling ownership interests
(the "Contribution Transactions"). Following the completion of the Contribution
Transactions, TCIC will no longer consolidate the Contributed Cable Systems.
Accordingly, it is anticipated that the completion of the Contribution
Transactions, as currently contemplated, will result in aggregate estimated
reductions (based on 1997 amounts) to TCIC's debt, annual revenue and annual
operating income before depreciation, amortization, stock compensation and other
non-cash charges of approximately $4.0 billion, $1.5 billion and $700 million,
respectively. No assurance can be given that any of the pending Contribution
Transactions will be consummated.
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under the captions "Business" and "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations," are forward-looking. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company (or entities in which the Company has interests), or
industry results, to differ materially from future results, performance or
achievements expressed or implied by such forward-looking statements. Such
risks, uncertainties and other factors include, among others: general economic
and business conditions and industry trends; the regulatory and competitive
environment of the industries in which the Company, and the entities in which
the Company has interests, operate; uncertainties inherent in new business
strategies, new product launches and development plans; rapid technological
changes; the acquisition, development and/or financing of telecommunications
networks and services; the development and provision of programming for new
television and telecommunications technologies; future financial performance,
including availability, terms and deployment of capital; the ability of vendors
to deliver required equipment, software and services; availability of qualified
personnel; changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the FCC, and adverse
outcomes from regulatory proceedings; changes in the nature of key strategic
relationships with partners and joint venturers; competitor responses to the
Company's products and services, and the products and services of the entities
in which the Company has interests, and the overall market acceptance of such
products and services; and other factors. These forward-looking statements (and
such risks, uncertainties and other factors) speak only as of the date of this
Report, and the Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in the Company's expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based.
(b) Financial Information about Industry Segments
At December 31, 1997, the Company operated in the cable and
communications services industry.
I-2
<PAGE> 5
(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 customers. 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.
At December 31, 1997, approximately 59% of the Company's cable
television systems had bandwidth capacities ranging from 450 megahertz to 750
megahertz. The Company's cable television systems generally carry up to 78
analog channels. Compressed digital video technology converts on average as many
as twelve 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 retransmits the signal 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 into analog channels that can be viewed on a normal television
set.
TCIC began offering digital cable television service to selected
markets in 1997. In February 1998, TCIC initiated broader marketing efforts that
are intended to result in an increase in the number of digital cable television
customers. Such marketing efforts will encompass multi-media, product
enhancements, sales promotions and sales incentives. As of March 17, 1998,
digital video services were available to approximately 9.8 million of TCIC's
customers. Such amount excludes approximately 450,000 basic customers who had
obtained access to digital cable television from certain cable television
systems prior to the contribution of such cable systems to CSC and another joint
venture during the first quarter of 1998.
Service Charges. The Company offers a limited "basic service"
("Basic-TV") (primarily comprised of local broadcast signals and public,
educational and governmental ("PEG") 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 $9.00 to $12.00, and the monthly service fee for the
expanded tier generally ranges from $13.00 to $19.00. 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 $8.00 per month, pay-per-view movies offered separately at $3.00 to
$4.00 per movie and certain pay-per-view events offered separately at $6.00 to
$50.00 per event. Charges are usually discounted when multiple Pay-TV services
are ordered. Customers may also elect to subscribe to digital video services
comprised of up to 36 video and 10 audio channels featuring additional
specialized programming and premium services at an average incremental monthly
charge of $10.
I-3
<PAGE> 6
As further enhancements to their cable services, customers may
generally rent converters or converters with remote control devices for a
monthly charge ranging from $0.89 to $4.00 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 rules of the Federal Communications
Commission ("FCC") which regulate hourly service charges for each individual
cable system) ranging from $20.00 to $39.00 is usually charged.
Monthly fees for Basic-TV 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.
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") and the Telecommunications Act of 1996 (the "1996 Telecom
Act"), together with the 1992 Cable Act (the "Cable Acts"), established rules
under which the Company's basic service and expanded tier service rates and
equipment and installation charges are regulated if a complaint is filed or if
the appropriate franchise authority is certified. For additional information see
Regulation and Legislation below.
Customer Data. TCIC operates its cable television systems either
through its operating divisions or through certain other subsidiaries, including
affiliated companies. Domestic Basic-TV cable customers served by TCIC are
summarized as follows (amounts in millions):
<TABLE>
<CAPTION>
Basic-TV customers at December 31,
------------------------------------------
1997 1996 1995 1994 1993
------- -------- ------- ------ ----
<S> <C> <C> <C> <C> <C>
Managed through the Company's
operating divisions 13.7 13.4 11.9 10.7 9.8
Other non-managed subsidiaries 0.2 0.5 0.6 0.5 0.5
------ ------ ------ ------ ------
13.9 13.9 12.5 11.2 10.3
====== ====== ====== ====== ======
</TABLE>
TCIC operates cable television systems throughout the United States.
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 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 customers; 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.
Additionally, many franchises require payments to the franchising authority for
the funding of PEG access channels. Franchises usually require the consent of
the franchising authority prior to a transfer of the franchise or a transfer or
change in ownership or operating control of the franchisee.
I-4
<PAGE> 7
Subject to applicable law, a franchise may be terminated prior to its
expiration date if the cable television operator fails to comply with the
material terms and conditions thereof. Under the 1984 Cable Act, if a franchise
is lawfully terminated, and if the franchising authority acquires ownership of
the cable television system or effects a transfer of ownership to a third party,
such acquisition or transfer must be at an equitable price or, in the case of a
franchise existing on the effective date of the 1984 Cable Act, at a price
determined in accordance with the terms of the franchise, if any.
In connection with a renewal of a franchise, the franchising authority
may require the cable operator to comply with different and more stringent
conditions than those originally imposed, subject to the provisions of the 1984
Cable Act and other applicable federal, state and local law. The 1984 Cable Act,
as supplemented by the renewal provisions of the 1992 Cable Act, establishes an
orderly process for franchise renewal which protects cable operators against
unfair denials of renewals when the operator's past performance and proposal for
future performance meet the standards established by the 1984 Cable Act. The
Company believes that its cable television systems generally have been operated
in a manner which satisfies such standards and allows for the renewal of such
franchises; however, there can be no assurance that the franchises for such
systems will be successfully renewed as they expire.
Most of the Company's present franchises had initial terms of
approximately 10 to 15 years. The duration of the Company's outstanding
franchises presently varies from a period of months to an indefinite period of
time. Approximately 1,200 of the Company's franchises expire within the next
five years. This represents approximately twenty-five percent of the franchises
held by the Company and involves approximately 4.8 million basic customers.
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. The Cable Acts 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 the United States Congress ("Congress") and the FCC to
offer services in direct competition with existing cable systems.
DBS. During 1997, the Company has continued to experience 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,
L.P. ("Primestar") distributes a multi-channel programming service via a medium
power communications satellite to HSDs of approximately 27 inches to 36 inches
in diameter. Prior to the spin-off of the Company's interests in its digital
satellite businesses, 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. 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 6.2 million at the end of 1997, and the Company expects
that competition from DBS will continue to increase.
I-5
<PAGE> 8
DBS has advantages 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 customers 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 customers.
The primary disadvantage of DBS is its inability to provide local
broadcast television stations to customers in their local market. However,
EchoStar and other potential DBS providers have announced their intention to
retransmit local broadcast television stations back into a customer's local
market. Both Congress and the U.S. Copyright Office are currently reviewing
proposals to allow such transmission and it is possible that in the near future,
DBS systems will be retransmitting local television broadcast signals back into
local television markets. Additional DBS disadvantages presently include a
limited ability to tailor the programming package to the interests of different
geographic markets; 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 want 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
customers 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.
Furthermore, 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 customers.
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 below. 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 number 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.
Although long distance telephone companies are not prohibited from
providing 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 RBOCs.
I-6
<PAGE> 9
Utility Company Entry. 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. As
an example, in the Washington, D.C. metropolitan market, the local power utility
has entered into a partnership with an experienced cable television and open
video system company and is proposing to provide video and telecommunications
services throughout the Washington, D.C. metropolitan market.
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. 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.
Cable System Overbuilds. During 1997, there has been a significant
increase in the number of cities that have constructed their own cable
television systems in a manner similar to city-provided utility services. These
systems typically will compete directly with the existing cable operator without
the burdens of franchise fees or other local regulation. Although the total
number of municipal overbuild cable systems remains relatively small, 1997 would
indicate an increasing trend in cities authorizing such direct municipal
competition with cable operators. 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.
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 in 1997, adopted new rules that restrict the
ability of cable operators to maintain ownership of cable wiring inside
multi-unit buildings, thereby making it less expensive for SMATV competitors to
reach those customers. See Regulation and Legislation below.
I-7
<PAGE> 10
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. 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.
Cable Rate Regulation. The 1992 Cable Act imposed extensive rate
regulation on the cable television industry. All cable systems are subject to
rate regulation of their basic and upper tier programming services, as well as
their provision of customer equipment used to receive basic tier services,
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 occupied
households in the franchise area subscribe to basic service), or the presence
(measured collectively as 50% availability, 15% customer 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, and priced no higher than the operator's actual cost, plus
an 11.25% rate of return.
I-8
<PAGE> 11
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 customers 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" structure 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. However, certain members of
Congress and FCC officials have called for the delay of this regulatory sunset
and further have urged more rigorous rate regulation (including limits on
programming cost pass-throughs to cable customers) until a greater degree of
competition to incumbent cable operators has developed. On February 25, 1998,
legislation was introduced in the Congress which if enacted would repeal the
statutory "sunset" and extend FCC regulation of CPST rates beyond March 31,
1999. The 1996 Telecom Act 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 ("MDUs"), although complaints about predatory pricing in MDUs still may be
made to the FCC.
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.
I-9
<PAGE> 12
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. In July 1997, the Eighth
Circuit Court of Appeals vacated certain aspects of the FCC's initial
interconnection order, and that decision is now pending before the Supreme
Court. However, the underlying statutory obligation of local telephone companies
to interconnect with competitors remains in place.
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 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 among 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.
Electric Utility Entry Into Telecommunications/Cable Television. The
1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services, information services, and
other services or products subject to the jurisdiction of the FCC,
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.
I-10
<PAGE> 13
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 with an increase to 35% if the additional cable
systems are minority controlled. 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
attributable interests in additional cable systems. The FCC is currently
conducting a reconsideration of its national customer limit rules, and it is
possible the FCC will revise both the national customer reach percentage
limitation and/or the manner in which it attributes ownership to a cable
operator. Either of these revisions, which are expected to be completed in 1998,
could adversely affect various joint ventures, partnerships and equity ownership
arrangements announced by the Company in 1997 in the Company's effort to reduce
the number of cable systems over which it has control and management
responsibility.
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 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. These channel occupancy limits
apply only up to 75 activated channels on the cable system, 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.
I-11
<PAGE> 14
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 (e.g. a
requirement that the cable system also carry the local broadcaster's affiliated
cable programming service). Either option has a potentially adverse effect on
the Company's business. The burden associated with must-carry obligations could
dramatically increase if television broadcast stations proceed with planned
conversions to digital transmissions and if the FCC determines that cable
systems must carry all analog and digital signals transmitted by the television
stations. Additionally, cable systems are required to obtain retransmission
consent for all "distant" commercial television stations (except for certain
commercial satellite-delivered independent "superstations" such as WGN).
Access Channels. LFAs can include franchise provisions requiring cable
operators to set aside certain channels for PEG access programming. Federal law
also requires a cable system with 36 or more channels to designate a portion of
its activated 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 mandated a modest rate reduction which has made commercial leased access a
more attractive option for third party programmers, particularly for part-time
leased access carriage. Further, a group of commercial leased access users has
challenged the FCC's February 1997 Order as failing to reduce commercial leased
access rates by an appropriate amount. If this pending court challenge is
successful, the FCC will be forced to undertake a further rulemaking which could
result in significantly reduced commercial leased access rates thereby
encouraging a much more significant increase in the use of commercial leased
access channels.
"Anti-Buy Through" Provisions. Federal law requires each cable system
to permit customers 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 October 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 satellite video programmers affiliated with cable
operators from favoring cable operators over competing multichannel video
programming distributors (such as DBS and MMDS distributors). This provision
limits the ability of vertically integrated satellite cable programmers to offer
exclusive programming arrangements to the Company. Recently, both Congress and
the FCC have considered proposals that would expand the program access rights of
cable's competitors, including the possibility of subjecting video programmers
who are not affiliated with cable operators to all program access requirements.
I-12
<PAGE> 15
Inside Wiring. In a 1997 Order, the FCC established rules that require
an incumbent cable operator upon expiration or termination of an MDU service
contract to sell, abandon, or remove "home run" wiring that was installed by the
cable operator in a MDU building. These inside wiring rules will assist building
owners in their attempts to replace existing cable operators with new video
programming providers who are willing to pay the building owner a higher fee.
Additionally, the FCC has proposed abrogating all exclusive MDU contracts held
by cable operators, but at the same time allowing competitors to cable to enter
into exclusive MDU service contracts.
Other FCC Regulations. In addition to the FCC regulations noted above,
there are other FCC regulations covering such areas as equal employment
opportunity, customer 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. FCC requirements
imposed in 1997 for Emergency Alert Systems and for hearing-impaired Closed
Captioning on programming will result in new and potentially significant costs
for the Company. 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.
The FCC is currently 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.
Internet Service Regulation. The Company began offering high-speed
internet service to customers in 1997. At this time, there is no significant
federal or local regulation of cable system delivery of internet services.
However, as the cable industry's delivery of internet services develops, it is
possible that greater federal and/or local regulation could be imposed.
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.
I-13
<PAGE> 16
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 and funding for PEG channels 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.
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, 1997, the Company had approximately 31,500 employees.
I-14
<PAGE> 17
(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 leases its executive offices in a suburb of Denver,
Colorado, and 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").
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."
A settlement was reached in this action, for which final approval was
granted on January 7, 1998. The settlement did not have a material adverse
effect upon the financial condition of the Company. The Company is awaiting
receipt of final documentation for the court order. This case will not be
reported on in the future.
I-15
<PAGE> 18
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."
A settlement was reached in this action, for which final approval was
granted on January 7, 1998. The settlement did not have a material adverse
effect upon the financial condition of the Company. The Company is awaiting
receipt of final documentation for the court order. This case will not be
reported on in the future.
Intellectual Property Development Corporation v. UA-Columbia
Cablevision of Westchester, Inc. and Tele-Communications, Inc. On September 1,
1994, plaintiff filed suit in federal court in New York for the alleged
infringement of a patent for an invention used in broadcasting systems with
fiber optic transmission lines. Plaintiff seeks injunctive relief and
unspecified treble damages. The patent at issue expired on January 16, 1996,
thereby eliminating any claim for injunctive relief by plaintiff. The issues now
center around whether defendants owe past damages up to the time the patent
expired. Discovery is currently ongoing. Based upon the facts available,
management believes that, although no assurance can be given as to the outcome
of this action, the ultimate disposition of this action should not have a
material adverse effect upon the financial condition of the Company.
I-16
<PAGE> 19
Interactive Network, Inc. Shareholder Litigation (No. C95-0026 DLJ,
Northern District of California.) In January of 1995, two class action
complaints ("Actions") were filed against Interactive Network, Inc.
("Interactive") and certain of its then current and former officers and
directors (collectively the "Interactive Defendants") in the United States
District Court for the Northern District of California which sought unspecified
damages for alleged violations of the disclosure requirements of the federal
securities laws. The actions were filed on behalf of a class of shareholders
that purchased the stock of Interactive during the period of August 15, 1994
through November 22, 1994. Pursuant to an order of the Court, the Actions were
consolidated and in April 1995, a Consolidated Amended Class Action Complaint
captioned In re Interactive Network Inc. Securities Litigation ("Consolidated
Case") was filed in the same court which sought damages against the Interaction
Defendants for violation of the federal securities law disclosure requirements
during the class period May 2, 1994 through March 31, 1995. On or about January
13, 1997, Plaintiffs filed a Fourth Amended Complaint, seeking damages against
the Interactive Defendants and Tele-Communications, Inc., TCI Communications,
Inc., TCI Development Corporation, and Gary Howard (collectively, "the TCI
Defendants") for violation of federal securities law disclosure requirements
during the class period May 16, 1994 through March 31, 1995. In addition, the
Fourth Amended Complaint sought damages against the TCI Defendants based upon
the allegation that they were "controlling persons" of Interactive at the time
the alleged wrongs took place. On January 30, 1997, the TCI Defendants and the
Interactive Defendants separately moved to dismiss the Fourth Amended Complaint
on the ground that it failed to state a cause of action against them. On April
4, 1997, the Court issued an order dismissing, with prejudice, the primary
liability claims against the TCI Defendants. The Court granted the Plaintiffs
leave to amend their Complaint as to their claim for violation of federal
securities law disclosure requirements against the Interactive Defendants. The
Court further granted Plaintiffs leave to amend their "controlling person" claim
against the TCI Defendants. On or about April 30, 1997, Plaintiffs filed a Fifth
Amended Complaint seeking damages for violation of federal securities law
disclosure requirements against the Interactive and TCI Defendants during the
class period January 19, 1994 through March 31, 1995. The Fifth Amended
Complaint also seeks damages against the TCI Defendants as "controlling
persons." On October 9, 1997, the Court granted the Interactive Defendants'
Motion to Dismiss with Prejudice substantial portions of the Fifth Amended
Complaint. The remaining claims are limited to a class of just several months.
On January 16, 1998, the Court entered a scheduling order establishing pre-trial
deadlines, including a May 6, 1998 deadline for class certification. 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.
I-17
<PAGE> 20
Interactive Network, Inc. v. Tele-Communications, Inc., et al.(Alameda
County Superior Court, Case No. 754933-7). On October 20, 1995, Interactive
Network, Inc. ("Interactive") filed a complaint in the Superior Court of
California for the county of Alameda naming Tele-Communications, Inc., TCI
Communications, Inc., TCI Development Corporation, TCI Programming Holding Co.,
TCI Cablevision of California, Inc. ("the TCI defendants") and Gary Howard as
defendants. The Complaint alleges claims for breach of fiduciary duty, abuse of
control, intentional interference with prospective business advantage,
intentional interference with contractual relations, breach of contract,
constructive fraud, fraud and deceit, negligent misrepresentation,
misappropriation of corporate assets, unfair competition and unjust enrichment
arising out of the business relationship between the TCI defendants and
Interactive. Plaintiffs twice amended the complaint, following a series of
motions attacking the pleadings by the TCI defendants, resulting in the "Third
Amended Complaint". The Third Amended Complaint alleges that the TCI defendants
breached various duties owed to Interactive as a result of the TCI defendants'
purported status as a controlling shareholder. The Complaint further alleges
that the TCI defendants fraudulently promised to provide financing to
Interactive and fraudulently induced Interactive to enter into various
transactions. The Third Amended Complaint seeks various unspecified compensatory
and punitive damages as well as injunctive relief. On June 17, 1996, certain of
the TCI defendants, on their own behalf and as the agent of various additional
secured creditors, denied all claims and filed a cross-complaint for breach of
contract against Interactive seeking in excess of $24 million pursuant to
various promissory notes entered into by Interactive. On July 22, 1996,
Interactive filed a "cross-complaint to the cross-complaint" alleging economic
duress, breach of the implied covenant of good faith and fair dealing, fraud and
breach of contract in connection with the promissory notes entered into by
Interactive. On February 25, 1998, the parties agreed to a settlement, subject
to final execution of settlement documents. The settlement did not have a
material adverse effect upon the financial condition of the Company. This case
will not be reported on in the future.
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. On
September 24, 1997, the Maryland Court of Special Appeals affirmed in all but
one respect the Circuit Court's summary judgment in favor of the defendants. The
court found that the settlement agreement at issue is ambiguous concerning the
number of Limited Partnership units the plaintiffs were entitled to purchase
(186.6 or 311), but ruled in favor of defendants concerning the price at which
the units must be sold and all other issues.
I-18
<PAGE> 21
Plaintiffs have filed a motion for reconsideration, and have filed a
petition for certiorari in the Court of Appeals on December 24, 1997 as their
motion for reconsideration is denied. If the Court of Special Appeals decision
is not disturbed, the only issue for trial will be the number of units
Plaintiffs are entitled to purchase at fair market value, as determined in
accordance with the appraisal previously obtained by defendants. Based upon the
facts available, management believes that, although no assurance can be given as
to the outcome of this action, the ultimate disposition should not have a
material adverse effect upon the financial condition of the Company.
Les Dunnaville v. United Artists Cable, et al. 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 appealed the Circuit Court ruling to the Maryland Court of Special
Appeals. In a decision dated June 5, 1997, the Maryland Court of Special Appeals
affirmed the trail court's grant of summary judgment in all respects except for
one portion of the defamation claim involving alleged statements of Roy Harbert.
The trial court is scheduled to try the one remaining claim on April 2, 1998.
Based upon the facts available, management believes that, although no assurance
can be given as to the outcome of this action, the ultimate disposition should
not have a material adverse effect upon the financial condition of the Company.
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 each 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. In an
order dated September 25, 1997, the Court granted summary judgment in favor of
defendants on the claims of intentional misrepresentations, tortious
interference with prospective advantage, tortious interference with contract,
and discrimination on the basis of race. The remaining claims will be tried at
some date in the future. Based upon the facts available, management believes
that, although no assurance can be given as to the outcome of this action, the
ultimate disposition should not have a material adverse effect upon the
financial condition of the Company.
I-19
<PAGE> 22
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. On August 5, 1997, the trial court
entered an Order dismissing all of plaintiffs' claims against defendants Liberty
and Encore as well as plaintiffs' first, second, fifth, and a portion of the
twelfth claim for relief against the remaining Company defendants. The motion
for judgment on the pleadings with respect to plaintiffs' other claims was
granted in part. The court dismissed three additional claims. We anticipate the
parties will stipulate to certification of an immediate appeal, which will take
from 12 to 18 months. 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.
TCG Shareholder Litigation. In December of 1997 and January of 1998, in
the Court of the Chancery of the State of Delaware, New Castle County the
following three actions were filed: Sternberg v. TCI Communications, Inc., et
al., Case No. 16092-NC, Cirillo v. Tele-Communications, Inc., et al., Case No.
16139-NC, and Blain v. Tele-Communications, Inc., et al., Case No. 16161-NC.
Plaintiffs filed suit against the Company and officers, directors, and
controlling shareholders of TCG. These class action complaints were brought on
behalf of the public stockholders of TCG alleging defendants breached fiduciary
duties by proceeding with the proposed merger of TCG with AT&T. The Complaints
allege, among other things, breach of fiduciary duties. The Complaints seek
class certification, injunctive relief, attorney fees, and costs. Plaintiffs did
not demand a jury trial. Based upon the facts available, management believes
that, although no assurances can be given as to the outcome of this action, the
ultimate disposition of this matter should not have a material adverse effect
upon the financial condition of the Company.
I-20
<PAGE> 23
Late Fee Litigation. The Company has been named in a number of
purported and certified class actions in various jurisdictions concerning late
fee charges and practices. Certain cable systems directly or indirectly owned or
managed by the Company charge late fees to customers who do not pay their cable
bills on time. These late fee cases challenge the amount of the late fees and
the practices under which they are imposed. The Plaintiffs raise claims under
state consumer protection statutes, other state statutes, and the common law.
Plaintiffs generally allege that the late fees charged by various cable systems
are not reasonably related to the costs incurred by the cable systems as a
result of the late payment. Plaintiffs seek to require cable systems to reduce
their late fees on a prospective basis and to provide compensation for alleged
excessive late fee charges for past periods. These cases are at various stages
of the litigation process. Based upon the facts available management believes
that, although no assurances can be given as to the outcome of these actions,
the ultimate disposition of these matters should not have a material adverse
effect upon the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
I-21
<PAGE> 24
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
All of TCI Communications, Inc.'s ("TCIC" or the "Company") common
stock is owned by Tele-Communications, Inc. ("TCI"). 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 of TCIC (the "Board") 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.
II-1
<PAGE> 25
Item 6. Selected Financial Data.
The following tables present selected information relating to the
financial condition and results of operations of TCI Communications, Inc. for
the past five years. The following data should be read in conjunction with the
Company's consolidated financial statements.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1997 1996(a) 1995(a) 1994(a) 1993(a)
----- ------- ------- ------- -------
amounts in millions
<S> <C> <C> <C> <C> <C>
Summary Balance Sheet Data:
Property and equipment, net $ 6,524 7,192 6,988 5,579 4,935
Franchise costs, net $ 14,443 14,794 11,563 9,297 9,197
Total assets $ 21,858 23,011 20,216 15,752 16,351
Debt $ 13,528 14,318 12,635 10,712 9,900
Minority interests in equity of
consolidated subsidiaries $ 787 802 206 271 285
Redeemable preferred stock $ 232 232 -- -- 18
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trusts holding
solely subordinated debt securities
of the Company $ 1,500 1,000 -- -- --
Stockholder's(s') equity (deficit) $ (801) (61) 1,640 606 2,010
Common shares outstanding
(net of shares held by
subsidiaries in 1993):
Class A common stock 1 1 1 1 403
Class B common stock -- -- -- -- 47
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------
1997 1996(a) 1995(a) 1994(a) 1993(a)
------- -------- -------- --------- -------
amounts in millions
<S> <C> <C> <C> <C> <C>
Summary Statement of
Operations Data:
Revenue $ 6,167 5,954 4,878 4,116 3,977
Operating income $ 1,228 753 803 818 916
Interest expense $(1,064) (1,041) (962) (777) (731)
Earnings (loss) from
continuing operations $ (60) (438) (132) 123 (13)
Net earnings (loss) attributable
to common stockholder(s) $ (70) (447) (132) 123 (15)
</TABLE>
- -----------------------
(a) Restated - see note 13 of the accompanying consolidated financial
statements.
II-2
<PAGE> 26
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company. Such
discussion should be read in conjunction with the accompanying consolidated
financial statements and notes thereto of the Company.
TCI Targeted Stock
TCI common stock, par value $1.00 per share, is comprised of six
series: Tele-Communications, Inc. Series A TCI Group Common Stock ("TCI Group
Series A Stock"), Tele-Communications, Inc. Series B TCI Group Common Stock
("TCI Group Series B Stock" and, together with the TCI Group Series A Stock,
"TCI Group Stock"), Tele-Communications, Inc. Series A Liberty Media Group
Common Stock ("Liberty Group Series A Stock"), Tele-Communications, Inc. Series
B Liberty Media Group Common Stock ("Liberty Group Series B Stock" and, together
with the Liberty Group Series A Stock, the "Liberty Group Stock"),
Tele-Communications, Inc. Series A TCI Ventures Group Common Stock ("TCI
Ventures Group Series A Stock") and Tele-Communications, Inc. Series B TCI
Ventures Group Common Stock ("TCI Ventures Group Series B Stock" and, together
with the TCI Ventures Group Series A Stock, the "TCI Ventures Group Stock").
The Liberty Group Stock is intended to reflect the separate performance
of the "Liberty Media Group," which is comprised of TCI's assets which produce
and distribute programming services. The TCI Ventures Group Stock is intended to
reflect the separate performance of the "TCI Ventures Group," which is comprised
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets. The TCI Group Stock is intended to
reflect the separate performance of TCI and its subsidiaries and assets not
attributed to Liberty Media Group or TCI Ventures Group. Such subsidiaries and
assets are referred to as "TCI Group" and are comprised primarily of TCI's
domestic cable and communications business. TCIC is attributed to TCI Group.
The TCI Ventures Group Stock was issued in August 1997 pursuant to
TCI's offers (the "Exchange Offers") to exchange shares of TCI Ventures Group
Series A Stock and TCI Ventures Group Series B Stock for up to 188,661,300
shares of TCI Group Series A Stock and up to 16,266,400 shares of TCI Group
Series B Stock, respectively. The exchange ratio for the Exchange Offers was two
shares (as adjusted for a stock dividend) of the applicable series of TCI
Ventures Group Stock for each share of the corresponding series of TCI Group
Stock properly tendered, up to the indicated maximum numbers. Upon the September
10, 1997 consummation of the Exchange Offers, 188,661,300 shares of TCI Group
Series A Stock and 16,266,400 shares of TCI Group Series B Stock were exchanged
for 377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
shares of TCI Ventures Group Series B Stock, respectively (as adjusted for a
stock dividend) (the "TCI Ventures Exchange").
Accounting Standards
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 establishes standards for reporting and displaying of
comprehensive income and its components in the financial statements. It does
not, however, require a specific format for the statement, but requires the
Company to display an amount representing total comprehensive income for the
period in that financial statement. The Company is in the process of determining
its preferred format. SFAS 130 is effective for fiscal years beginning after
December 15, 1997.
II-3
<PAGE> 27
Year 2000
During 1997, TCIC began an enterprise-wide comprehensive review of its
computer systems and related software to ensure systems properly recognize the
year 2000 and continue to process business information. The systems being
evaluated include all internal use software and devices and those systems and
devices that manage the distribution of TCIC's products. Additionally, TCIC has
initiated formal communications with its significant suppliers and affiliated
companies to determine the readiness of third parties and the impact on TCIC if
those third parties fail to remediate their own year 2000 issues.
Over the past three years, TCIC began an effort to convert a
substantial portion of its financial applications to commercial products which
are anticipated to be year 2000 ready, or to outsource portions of financial
applications to third party vendors who are expected to be year 2000 ready.
Notwithstanding such effort, TCIC is in the process of finalizing its assessment
of the impact of year 2000. TCIC is utilizing both internal and external
resources to identify, correct or reprogram, and test systems for year 2000
readiness. To date, TCIC has inventoried substantially all of its cable systems
and is currently evaluating the results of such inventory. TCIC expects that it
will have to modify or replace certain portions of its cable distribution plant,
although TCIC has not yet completed its assessment. Confirmations have been
received from certain primary suppliers indicating that they are either year
2000 ready or have plans in place to ensure readiness. As part of TCIC's manual
assessment of its year 2000 issue, it is evaluating the level of validation it
will require of third parties to ensure their year 2000 readiness. TCIC's
assessment of the impact of the year 2000 date change should be complete by
mid-1998.
Management of TCIC has not yet determined the cost associated with its
year 2000 readiness efforts and the related potential impact on TCIC's results
of operations. Amounts expended to date have not been material, although there
can be no assurance that costs ultimately required to be paid to ensure TCIC's
year 2000 readiness will not have an adverse effect on TCIC's financial
position. Additionally, there can be no assurance that the systems of other
companies on which TCIC relies will be converted in time or that any such
failure to convert by another company will not have an adverse effect on TCIC's
financial condition or position.
II-4
<PAGE> 28
Summary of Operations
TCIC operates principally in the domestic cable and communications
industry. 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,
-----------------------------------------------------------------
1997 1996 (a) 1995 (a)
-------------------- -------------------- -------------------
dollar amounts in millions
<S> <C> <C> <C> <C> <C> <C>
Revenue 100% $ 6,167 100% $ 5,954 100% $ 4,878
Operating 36 (2,196) 36 (2,117) 33 (1,611)
Selling, general and administrative 20 (1,236) 27 (1,607) 25 (1,224)
Stock compensation 2 (114) -- 12 -- (17)
Restructuring charges -- -- -- (36) -- --
Depreciation and amortization 22 (1,393) 24 (1,453) 25 (1,223)
------- ------- ------- ------- ------- -------
Operating income 20% $ 1,228 13% $ 753 17% $ 803
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------------
(a) Restated - see note 13 to the accompanying consolidated financial
statements.
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 (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 by a
customer or if the appropriate franchise authority is certified by the Federal
Communications Commission ("FCC") to regulate rates. At December 31, 1997,
approximately 71% 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, 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.
II-5
<PAGE> 29
TCIC has completed a number of acquisitions during the three-year
period ended December 31, 1997. The most significant of such acquisitions was
consummated on July 31, 1996 when TCIC acquired from Viacom, Inc. an entity that
owned cable television assets valued at $2.326 billion at the acquisition date.
Upon consummation of such acquisition (the "Viacom Acquisition"), the acquired
entity was renamed TCI Pacific Communications, Inc. ("TCI Pacific"). For
additional information concerning the Viacom Acquisition, see note 5 to the
accompanying consolidated financial statements. The following table sets forth
summary information with respect to the operating results of TCI Pacific that
have been included in the Company's results of operations since the July 31,
1996 acquisition date (amounts in millions):
<TABLE>
<CAPTION>
Year ended Five months ended
December 31, 1997 December 31, 1996
----------------- ---------------------
<S> <C> <C>
Revenue $ 509 216
Operating costs and expenses
before depreciation and
amortization (295) (133)
Depreciation and amortization (121) (45)
----- -----
Operating income $ 93 38
===== =====
</TABLE>
Through December 4, 1996, TCIC had an investment in Primestar Partners
L.P. ("Primestar"). Primestar provided programming and marketing support to each
of its cable partners who provided 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 TCIC's
interest in Primestar, TCIC's business of distributing Primestar programming and
two communications satellites. As a result of the Satellite Spin-off,
Satellite's operations subsequent to December 4, 1996 are not consolidated with
those of the Company.
The following table sets forth summary information with respect to the
operating results of Satellite for the period from January 1, 1996 through date
of the Satellite Spin-off (amounts in millions):
<TABLE>
<S> <C>
Revenue $ 377
Operating expenses (373)
Depreciation (166)
------------
Operating income $ (162)
============
</TABLE>
TCIC's revenue increased 4% and 22% for the years ended December 31,
1997 and 1996, respectively, as compared to the prior year. Exclusive of the
effects of acquisitions, the Satellite Spin-off and another disposition, revenue
from TCIC's customers accounted for 3% of such 1997 increase in revenue,
primarily as a result of a 7% increase in basic revenue and a 5% decrease in
premium revenue. TCIC experienced a 9% increase in its average basic rate, a 1%
decrease in the number of average basic customers, a 7% increase in its average
premium rate and an 11% decrease in the number of average premium subscriptions.
In addition, TCIC's revenue increased 5% due to acquisitions and decreased 7%
due to the Satellite Spin-off and another disposition. Advertising sales and
other revenue accounted for the remaining 3% increase in revenue.
II-6
<PAGE> 30
Exclusive of the effects of acquisitions, revenue from TCIC's cable
customers accounted for 8% of such 1996 increase in revenue, primarily as a
result of an 11% increase in basic revenue and a 1% increase in premium revenue.
TCIC experienced an 8% increase in its average basic rate, a 4% increase in the
number of average basic customers, an 11% decrease in its average premium rate
and an 11% increase in the number of average premium subscriptions. In addition,
TCIC's revenue increased 9% due to acquisitions and increased 3% due to an
increase in TCIC's satellite customers through the date of the Satellite
Spin-off. Advertising sales and other revenue accounted for the remaining 2%
increase in revenue.
Operating expenses increased 4% and 31% for the years ended December
31, 1997 and 1996, respectively. Exclusive of the effects of acquisitions, the
Satellite Spin-off and another disposition, such expenses increased 6% and 19%,
respectively. Programming expenses accounted for the majority of such increases.
TCIC cannot determine whether and to what extent increases in the cost of
programming will affect its future operating costs. However, due to TCIC's
obligations under a 25 year affiliation agreement (the "EMG Affiliation
Agreement") with Encore Media Group LLC ("Encore Media Group"), a subsidiary of
TCI that is a member of the Liberty Media Group, it is anticipated that TCIC's
programming costs with respect to the "STARZ!" and "Encore" premium services
will increase in 1998 and future periods. See note 12 to the accompanying
consolidated financial statements.
Selling, general and administrative expenses decreased 23% and
increased 31% for the years ended December 31, 1997 and 1996, respectively.
Exclusive of the effects of acquisitions, the Satellite Spin-off and another
disposition, such expenses decreased 9% and increased 13%, respectively. The
1997 decrease is due primarily to lower marketing costs due primarily to launch
and other incentives from programming suppliers, a reduction in salaries and
related payroll expenses due to work force reductions in the fourth quarter of
1996 and other reductions in general and administrative expenses in 1997. The
1996 increase is due primarily to an increase in salaries and related payroll
expenses, as well as increased marketing and general and administrative
expenses.
During the fourth quarter of 1996, TCIC restructured certain of its
operating and accounting functions. In connection with such restructuring, TCIC
recognized a charge of $36 million related primarily to work force reductions.
Through December 31, 1997, $24 million of such charge had been paid.
Depreciation expense decreased 9% and increased 21% for the years ended
December 31, 1997 and 1996, respectively. The 1997 decrease represents the net
effect of a decrease due to the Satellite Spin-off and another disposition that
more than offset increases attributable to acquisitions and capital
expenditures. The 1996 increase is attributable to acquisitions and capital
expenditures.
Amortization expense increased 7% and 13% for the years ended December
31, 1997 and 1996, respectively. Such increases are primarily attributable to
the effects of acquisitions.
TCIC records stock compensation relating to restricted stock awards,
options and/or stock appreciation rights granted by TCI to certain TCIC
employees and members of the Board. The amount of expense associated with stock
compensation is based on the vesting of the related stock options and stock
appreciation rights and the market price of the underlying common stock as of
the date of the accompanying consolidated financial statements. The expense
associated with stock appreciation rights is subject to future adjustment based
upon market value fluctuation and, ultimately, on the final determination of
market value when the rights are exercised.
II-7
<PAGE> 31
Other Income and Expenses
TCIC's interest expense increased $23 million or 2% from 1996 to 1997
and $79 million or 8% from 1995 to 1996. The increase in 1997 is primarily the
result of higher average debt balances, as a result of the Viacom Acquisition on
July 31, 1996. The 1996 increase is the net result of higher average debt
balances, partially offset by a decrease due to a lower weighted average
interest rate. TCIC's weighted average interest rate on borrowings was 7.8%,
7.8% and 8.1% during 1997, 1996 and 1995, respectively.
During the years ended December 31, 1997 and 1996, TCIC purchased, in
the open market, certain notes payable which had an aggregate principle balance
of $409 million and $904 million, respectively. Fixed interest rates on notes
payable ranged from 8.75% to 10.13% for purchases made during 1997, and ranged
from 7.88% to 10.44% for purchases made during 1996. In connection with such
purchases, TCIC recognized losses on early extinguishment of debt of $39 million
and $62 million, respectively. Such losses related to prepayment penalties
amounting to $33 million and $60 million for the years ended December 31, 1997
and 1996, respectively, 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.
At December 31, 1997, TCIC's investments in affiliates were comprised
of limited partnerships and other entities that are primarily engaged in the
domestic cable business. TCIC's share of losses of affiliates was $54 million,
$218 million and $63 million in 1997, 1996 and 1995, respectively. TCIC's share
of losses of affiliates includes $215 million in 1996 and $27 million in 1995
representing TCIC's aggregate share of losses of Sprint Spectrum Holding
Company, L.P. ("Sprint Spectrum") and another equity affiliate. The 1996 amount
includes $34 million associated with prior periods. Effective December 31, 1996,
TCIC transferred its ownership interests in Sprint Spectrum and such other
equity affiliate to TCI. As such, the Company no longer reflects share of losses
from such investments. Excluding the effects of such transfers, TCIC's share of
losses of affiliates increased $51 million and decreased $33 million in 1997 and
1996, respectively. The 1997 increase is primarily attributable to TCIC's share
of losses of a 49%-owned cable television partnership that was acquired by TCIC
in July 1996. The 1996 decrease is primarily due to TCIC's share of a 1996
nonrecurring gain recognized by an equity investee.
Minority interests in earnings of consolidated subsidiaries aggregated
$157 million and $72 million for the years ended December 31, 1997 and 1996, as
compared to minority interests in losses of consolidated subsidiaries of $11
million in 1995. The majority of the 1997 and 1996 amounts represent the accrual
of dividends on the Trust Preferred Securities issued in 1997 and 1996 and the
accrual of dividends on preferred securities issued in August 1996 by TCI
Pacific in connection with the Viacom Acquisition. See notes 5 and 9 to the
accompanying consolidated financial statements.
II-8
<PAGE> 32
Teleport Communications Group Inc. ("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.
Net Loss
As a result of the above described fluctuations in the Company's
results of operations, (i) TCIC's net loss (before preferred stock dividend
requirements) of $60 million for the year ended December 31, 1997 changed by
$378 million, as compared to TCIC's net loss (before preferred stock dividend
requirements) of $438 million for the year ended December 31, 1996, and (ii)
TCIC's net loss (before preferred stock dividend requirements) of $438 million
for the year ended December 31, 1996 changed by $306 million, as compared to
TCIC's net loss (before preferred stock dividend requirements) of $132 million
for the year ended December 31, 1995.
Inflation has not had a significant impact on TCIC's results of
operations during the three-year period ended December 31, 1997.
Liquidity and Capital Resources
On March 4, 1998, subsidiaries of TCI (including certain subsidiaries
of TCIC) contributed to Cablevision Systems Corporation ("CSC") certain of its
cable television systems serving approximately 830,000 basic customers in
exchange for approximately 12.2 million newly issued CSC Class A shares. Such
shares represent an approximate 33% equity interest in CSC's total outstanding
shares and an approximate 9% voting interest in CSC in all matters except for
the election of directors, in which case TCI has an approximate 47% voting
interest in the election of one-fourth of CSC's directors. CSC also assumed
approximately $669 million of TCI's debt. As a part of such transaction, TCIC
subsidiaries contributed to CSC cable television systems serving approximately
410,000 basic customers in exchange for approximately 7.0 million shares or 19%
of CSC's newly issued Class A shares, and CSC assumed approximately $78 million
of intercompany debt owed to TCIC. TCIC has also entered into letters of intent
with CSC which provide for TCIC to acquire a cable system in Michigan and an
additional 3% of CSC's Class A shares and for CSC to (i) acquire cable systems
serving approximately 250,000 basic customers in Connecticut and (ii) assume
$110 million of the Company's debt. The ability of the Company to sell or
increase its investment in CSC is subject to certain restrictions and
limitations set forth in a stockholders agreement with CSC.
II-9
<PAGE> 33
Including the above-described CSC transactions and another transaction
that closed in February 1998, TCIC, as of February 28, 1998, has, since January
1, 1997, contributed, or signed agreements or letters of intent to contribute
within the next twelve months, certain cable television systems (the
"Contributed Cable Systems") serving approximately 3.4 million basic customers
to joint ventures in which TCIC will retain non-controlling ownership interests
(the "Contribution Transactions"). Following the completion of the Contribution
Transactions, TCIC will no longer consolidate the Contributed Cable Systems.
Accordingly, it is anticipated that the completion of the Contribution
Transactions, as currently contemplated, will result in aggregate estimated
reductions (based on 1997 amounts) to TCIC's debt, annual revenue and annual
operating income before depreciation, amortization, stock compensation and
non-cash charges of approximately $4.0 billion, $1.5 billion and $700 million,
respectively. No assurance can be given that any of the pending Contribution
Transactions will be consummated.
In connection with the TCI Ventures Exchange, TCI consummated a
restructuring on October 1, 1997 that resulted in, among other things, the
transfer of substantially all of the attributed assets of the TCI Ventures Group
into TCI Ventures Group, LLC, a newly formed first tier subsidiary of TCI. In
connection with such restructuring, certain assets of the Company, including (i)
a wholly-owned subsidiary of the Company that owned cash, warrants and
contingent royalties from the sale of certain internally developed software
assets, and (ii) another wholly-owned subsidiary that provides analog and
digital television services (including the digital compression of television and
multimedia programming) were transferred to TCI Ventures Group, LLC in exchange
for nominal consideration, and a $291 million distribution from the Company to
TCI, representing the difference between such consideration and the carrying
value of such transferred assets on October 1, 1997, was recorded.
In January 1998, TCI's interest in DigiVentures, LLC ("DigiVentures")
was transferred to the Company. In connection therewith, TCIC assumed
DigiVentures' capital lease obligations totaling $176 million and paid $7
million in cash to 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 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.
II-10
<PAGE> 34
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
"Viacom 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 Viacom 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 Viacom
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 TCI Group Series A Stock at an exchange rate of 5.447
shares of TCI Group Series A 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 TCI Group Series A Stock, or in any
combination of the foregoing. Upon completion of the Viacom Acquisition, Cable
Sub was renamed TCI Pacific.
The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of TCI Pacific have been combined with
those of TCIC since the date of acquisition, and TCIC recorded TCI Pacific's
assets and liabilities at fair value.
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 therefore, 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.
II-11
<PAGE> 35
Moreover, certain 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).
At December 31, 1997, subsidiaries of the Company had approximately
$1.4 billion of availability in unused lines of credit, excluding amounts
related to lines of credit which provide availability to support commercial
paper. Although such subsidiaries were in compliance with the restrictive
covenants contained in its credit facilities at said date, additional borrowings
under the credit facilities are subject to the subsidiaries' continuing
compliance with such restrictive covenants after giving effect to such
additional borrowings. Such restrictive covenants require, among other things,
the maintenance of certain earnings, specified cash flow and financial ratios
(primarily the ratios of cash flow to total debt and cash flow to debt service,
as defined), and include certain limitations on indebtedness, investments,
guarantees, dispositions, stock repurchases and/or dividend payments. See note 7
to the accompanying consolidated financial statements for additional information
regarding the material terms of the subsidiaries' lines of credit.
One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of "Operating Cash
Flow" (operating income before depreciation, amortization, stock compensation
and other non-cash charges) ($2,735 million, $2,230 million and $2,043 million
in 1997, 1996 and 1995, respectively) to interest expense ($1,064 million,
$1,041 million and $962 million in 1997, 1996 and 1995, respectively), is
determined by reference to the consolidated statements of operations. The
Company's interest coverage ratio was 257%, 214% and 212% for 1997, 1996 and
1995, respectively. Management of the Company believes that the foregoing
interest coverage ratio is adequate in light of the relative predictability of
its cable television operations and interest expense. 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 ($1,664 million, $1,259 million
and $1,262 million in 1997, 1996 and 1995, respectively) generally reflects net
cash from the operations of the Company available for the Company's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow.
II-12
<PAGE> 36
Amounts expended by TCIC for its investing activities exceeded net cash
provided by operating activities during the years ended December 31, 1996 and
1995. However, during the year ended December 31, 1997, TCIC's net cash provided
by operating activities exceeded amounts expended by its investing activities.
The amount of capital expended by TCIC for property and equipment was $571
million during 1997, as compared to $1,930 million and $1,665 million during
1996 and 1995, respectively. In light of TCIC's plans to upgrade the capacity of
its cable distribution systems, and its plans to increase the number of
customers subscribing to digital video services, TCIC anticipates that its
annual capital expenditures during the next several years will significantly
exceed the amount expended during 1997. In this regard, TCIC estimates that it
will expend approximately $1.7 billion to $1.9 billion over the next three years
to expand the capacity of its cable distribution systems. TCIC expects that the
actual amount of capital that will be required in connection with its plans to
increase the number of digital video service customers will be significant.
However, TCIC cannot reasonably estimate such actual capital requirement since
such actual capital requirement is dependent upon the extent of any customer
increases and the average installed per-unit cost of digital set-top devices. As
described below, TCIC is obligated to purchase a significant number of digital
set-top devices over the next three years.
In the event the Company is unable to achieve such objectives,
management believes that net cash provided by operating activities, the ability
of the Company and its subsidiaries to obtain additional financing (including
the subsidiaries available lines of credit and access to public debt markets),
issuances and sales of equity of its subsidiaries and proceeds from disposition
of assets will provide adequate sources of short-term and long-term liquidity in
the future. See the Company's consolidated statements of cash flows included in
the accompanying consolidated financial statements.
TCIC has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $186 million at
December 31, 1997. With respect to TCIC's guarantees of $166 million of such
obligations, TCIC has been indemnified for any loss, claim or liability that
TCIC may incur, by reason of such guarantees. Although there can be no
assurance, management of TCIC believes that it will not be required to meet its
obligations under such guarantees, or if it is required to meet any of such
obligations, that they will not be material to TCIC.
TCIC has agreed to make fixed monthly payments to Liberty Media Group
pursuant to the EMG Affiliation Agreement. The fixed annual amounts increase
annually from $220 million in 1998 to $315 million in 2003, and will increase
with inflation through 2022.
The Company is a party to affiliation agreements with several of its
programming suppliers. Pursuant to these agreements, the Company is committed to
carry such suppliers programming on its cable systems. Several of these
agreements provide for penalties and charges in the event the programming is not
carried or not delivered to a contractually specified number of customers.
During the third quarter of 1997, TCIC committed to purchase billing
services pursuant to three successive five year agreements. Pursuant to such
arrangement, TCIC is obligated to make minimum payments aggregating
approximately $1.6 billion through December 2012. Such minimum payments are
subject to inflation and other adjustments pursuant to the terms of the
underlying agreements.
II-13
<PAGE> 37
Pursuant to certain agreements between TCI and TCI Music, Inc. ("TCI
Music"), TCIC is obligated to make minimum revenue and license fee payments to
TCI Music aggregating approximately $445 million through 2017. Such minimum
payments are subject to inflation and other adjustments pursuant to the terms of
the underlying agreements.
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 December 31, 1997, the 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.
Effective as of December 16, 1997, the National Digital Television
Center, Inc. ("NDTC"), a subsidiary of TCI and a member of TCI Ventures Group,
on behalf of TCIC and other cable operators that may be designated from time to
time by NDTC ("Approved Purchasers"), entered into an agreement (the "Digital
Terminal Purchase Agreement") with General Instrument Corporation (formerly
NextLevel Systems, Inc., "GI") to purchase advanced digital set-top devices. The
hardware and software incorporated into these devices will be designed and
manufactured to be compatible and interoperable with the OpenCable(TM)
architecture specifications adopted by CableLabs, the cable television
industry's research and development consortium, in November 1997. NDTC has
agreed that Approved Purchasers will purchase, in the aggregate, a minimum of
6.5 million set-top devices over the next three years at an average price of
$318 per basic set-top device (including a required royalty payment). GI agreed
to provide NDTC and its Approved Purchasers the most favorable prices, terms and
conditions made available by GI to any customer purchasing advanced digital
set-top devices. In connection with NDTC's purchase commitment, GI agreed to
grant warrants to purchase its common stock proportional to the number of
devices ordered by each organization, which as of the effective date of the
Digital Terminal Purchase Agreement, would have represented at least a 10%
equity interest in GI (on a fully diluted basis). It is anticipated that the
value associated with such equity interest would be attributed to TCI Group upon
purchase and deployment of the digital set-top devices.
The Company's various partnerships and other affiliates accounted for
by the equity method generally fund their acquisitions, required debt repayments
and capital expenditures through borrowings under and refinancing of their own
credit facilities (which are generally not guaranteed by the Company), through
net cash provided by their own operating activities and in certain circumstances
through required capital contributions from their partners.
In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company has entered into various interest rate exchange
agreements ("Interest Rate Swaps") pursuant to which it (i) paid fixed interest
rates and received variable interest rates through December 1997 (the "Fixed
Rate Agreements") and (ii) pays variable interest rates and receives fixed
interest rates ranging from 4.8% to 9.7% on notional amounts of $2,400 million
at December 31, 1997 (the "Variable Rate Agreements"). During the years ended
December 31, 1997, 1996 and 1995, the Company's net payments pursuant to the
Fixed Rate Agreements were $7 million, $14 million and $13 million,
respectively; and the Company's net receipts (payments) pursuant to the Variable
Rate Agreements were (less than $1 million), $15 million and (less than $1
million), respectively. At December 31, 1997, all of the Company's Fixed Rate
Agreements had expired.
II-14
<PAGE> 38
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.
In addition to the Variable Rate Agreements, the Company entered into
an Interest Rate Swap in September 1997 pursuant to which it pays a variable
rate based on the London Interbank Offered Rate (6.1% at December 31, 1997) and
receives a variable rate based on the Constant Maturity Treasury Index (6.4% at
December 31, 1997) on a notional amount of $400 million through September 2000.
During the year ended December 31, 1997, TCIC's net receipts pursuant to such
agreement aggregated less than $1 million. At December 31, 1997, the Company
would have been required to pay an estimated $3 million to terminate such
Interest Rate Swap.
The Company is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of nonperformance by the
other parties to the agreements. However, the Company does not anticipate that
it will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, TCIC does not anticipate material
near-term losses in future earnings, fair values of cash flows resulting from
derivative financial instruments as of December 31, 1997. See note 7 to the
accompanying consolidated financial statements for additional information
regarding Interest Rate Swaps.
At December 31, 1997, after considering the net effect of the
aforementioned Interest Rate Swaps, TCIC has $6,098 million (45%) of fixed rate
debt and $7,430 million (55%) of variable-rate debt. Accordingly, in an
environment of rising interest rates, TCIC expects that it would experience an
increase in interest expense.
Approximately twenty-five percent of the franchises held by the
Company, involving approximately 4.8 million basic customers, expire within five
years. 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 Cable
Acts and other applicable federal, state and local law. Such provisions
establish 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 established standards. 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.
During 1997, the Company has continued to experience a competitive
impact from medium power and high power direct broadcast satellite ("DBS")
operators that use high frequencies to transmit signals that can be received by
home satellite dishes ("HSDs") much smaller in size than traditional HSDs. 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 6.2 million at the end of 1997, 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-17. The financial statement
schedules required by Regulation S-X are filed under Item 14 of this Annual
Report on Form 10-K.
II-15
<PAGE> 39
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
II-16
<PAGE> 40
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, 1997 and 1996, and the related consolidated statements
of operations, common stockholder's equity (deficit) and cash flows for each of
the years in the three-year period ended December 31, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Denver, Colorado
March 20, 1998
II-17
<PAGE> 41
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996*
------- -------
Assets amounts in millions
<S> <C> <C>
Cash and cash equivalents $ 36 --
Trade and other receivables, net 319 308
Investments in affiliates, accounted for under the
equity method, and related receivables (notes
4 and 13) 231 287
Property and equipment, at cost:
Land 70 74
Distribution systems 9,547 9,726
Support equipment and buildings 1,351 1,423
------- -------
10,968 11,223
Less accumulated depreciation 4,444 4,031
------- -------
6,524 7,192
------- -------
Franchise costs 17,154 17,174
Less accumulated amortization 2,711 2,380
------- -------
14,443 14,794
------- -------
Other assets, net of amortization 305 430
------- -------
$21,858 23,011
======= =======
</TABLE>
* Restated - see note 13.
(continued)
II-18
<PAGE> 42
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Balance Sheets, continued
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996*
-------- --------
Liabilities and Common Stockholder's Deficit amounts in millions
<S> <C> <C>
Accounts payable $ 131 191
Accrued interest 248 268
Accrued programming expense 242 232
Other accrued expenses 651 536
Debt (note 7) 13,528 14,318
Deferred income taxes (note 11) 5,215 5,409
Other liabilities 125 84
-------- --------
Total liabilities 20,140 21,038
-------- --------
Minority interests in equity of consolidated subsidiaries 787 802
Redeemable preferred stock (note 8) 232 232
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts ("Trust Preferred
Securities") holding solely subordinated debt
securities of the Company (note 9) 1,500 1,000
Common stockholder's deficit (note 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 1,857 2,234
Unrealized holding gains for available-
for-sale securities, net of taxes 4 --
Accumulated deficit (957) (897)
-------- --------
905 1,338
Investment in Tele-Communications, Inc. ("TCI"), at
cost (note 1) (1,143) (1,143)
Due from related parties (note 12) (563) (256)
-------- --------
Total common stockholder's deficit (801) (61)
-------- --------
Commitments and contingencies (note 14)
$ 21,858 23,011
======== ========
</TABLE>
* Restated - see note 13.
See accompanying notes to consolidated financial statements.
II-19
<PAGE> 43
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
---------- ----------- ---------
amounts in millions
<S> <C> <C> <C>
Revenue $ 6,167 5,954 4,878
Operating costs and expenses:
Operating (note 12) 2,196 2,117 1,611
Selling, general and administrative 1,236 1,607 1,224
Stock compensation (note 10) 114 (12) 17
Restructuring charges -- 36 --
Depreciation 940 1,029 848
Amortization 453 424 375
------- ------ ------
4,939 5,201 4,075
------- ------ ------
Operating income 1,228 753 803
Other income (expense):
Interest expense (1,064) (1,041) (962)
Interest income (note 12) 26 40 34
Share of losses of affiliates, net (notes 4 and 13) (54) (218) (63)
Loss on early extinguishment of debt (note 7) (39) (71) (6)
Minority interests in losses (earnings) of consolidated
subsidiaries, net (note 9) (157) (72) 11
Gain (loss) on disposition and exchange of assets, net (13) 47 9
Gain on sale of stock by equity investee (note 4) -- 12 --
Other, net (26) (18) (15)
------- ------ ------
(1,327) (1,321) (992)
------- ------ ------
Loss before income taxes (99) (568) (189)
Income tax benefit (note 11) 39 130 57
------- ------ ------
Net loss (60) (438) (132)
Dividend requirements on preferred stock (10) (9) --
------- ------ ------
Net loss attributable to common stockholder $ (70) (447) (132)
======= ====== ======
</TABLE>
* Restated - see note 13.
See accompanying notes to consolidated financial statements.
II-20
<PAGE> 44
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Common Stockholder's Equity (Deficit)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
holding
gains for
available-
Common stock Additional for-sale Investment Due to (from)
------------ paid-in securities, Accumulated in related
Class A Class B capital net of taxes deficit* TCI parties
------- ------- ------- ------------ -------- --- -------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 1 -- 2,842 2 (327) (1,102) (810)
Net loss -- -- -- -- (132) -- --
Effect of Reorganization (note 1) -- -- -- -- -- (4) (77)
Effect of implementation of Tax
Sharing Agreement (note 11) -- -- -- -- -- -- (76)
Retirement of TCI Class A common
stock received in
Reorganization -- -- 37 -- -- (37) --
TCI Class A common stock issued
in acquisition of remaining
minority interest of Heritage
Communications, Inc.
contributed to TCI
Communications, Inc. ("TCIC"
or the "Company") -- -- 234 -- -- -- 58
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
Turner Broadcasting System, Inc.
stock received in acquisition
transferred to a subsidiary of
TCI -- -- -- -- -- -- (7)
Proceeds from issuance of TCI
Class A common stock to public -- -- -- -- -- -- 401
Proceeds from issuance of TCI
Class A common stock in
private offering -- -- -- -- -- -- 30
Change in unrealized holding
gains for available-for-sale
securities, net of taxes -- -- -- 5 -- -- --
Change in due to (from) related
parties -- -- -- -- -- -- (720)
------ ------- --------- --------- --------- --------- -----------
Balance at December 31, 1995 $ 1 -- 3,122 7 (459) (1,143) 112
------ ------- --------- --------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Total
common
stockholder's
equity (deficit)*
-----------------
<S> <C>
Balance at January 1, 1995 606
Net loss (132)
Effect of Reorganization (note 1) (81)
Effect of implementation of Tax
Sharing Agreement (note 11) (76)
Retirement of TCI Class A common
stock received in
Reorganization --
TCI Class A common stock issued
in acquisition of remaining
minority interest of Heritage
Communications, Inc.
contributed to TCI
Communications, Inc. ("TCIC"
or the "Company") 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
Turner Broadcasting System, Inc.
stock received in acquisition
transferred to a subsidiary of
TCI (7)
Proceeds from issuance of TCI
Class A common stock to public 401
Proceeds from issuance of TCI
Class A common stock in
private offering 30
Change in unrealized holding
gains for available-for-sale
securities, net of taxes 5
Change in due to (from) related
parties (720)
--------
Balance at December 31, 1995 1,640
--------
</TABLE>
(continued)
- --------------------------
* Restated - see note 13.
II-21
<PAGE> 45
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Common Stockholder's Equity (Deficit)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
holding
gains for
available-
Common stock Additional for-sale Investment Due to (from)
------------ paid-in securities, Accumulated in related
Class A Class B capital net of taxes deficit* TCI parties
------- ------- ------- ------------ -------- --- -------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 1 -- 3,122 7 (459) (1,143) 112
Net loss -- -- -- -- (438) -- --
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
Spin-off of TCI Satellite
Entertainment, Inc. (note 6) -- -- (305) -- -- -- (100)
Recognition of unrecognized
holding gain on available-for-
sale securities -- -- -- (4) -- -- --
Transfer of investments from
TCIC to TCI (note 4) -- -- (1,138) -- -- -- --
Change in due to (from) related
parties -- -- -- -- -- -- (408)
------ ------- --------- --------- --------- ---------- ---------
Balance at December 31, 1996 $ 1 -- 2,234 -- (897) (1,143) (256)
====== ======= ========= ========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Total
common
stockholder's
equity (deficit)*
-----------------
<S> <C>
Balance at December 31, 1995 1,640
Net loss (438)
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
Spin-off of TCI Satellite
Entertainment, Inc. (note 6) (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 due to (from) related
parties (408)
---------
Balance at December 31, 1996 (61)
=========
</TABLE>
- ----------------
* Restated -- see note 13.
(continued)
II-22
<PAGE> 46
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Common Stockholder's Equity (Deficit), continued
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
holding
gains for
available-
Common stock Additional for-sale
------------ paid-in securities, Accumulated
Class A Class B capital net of taxes deficit*
------- ------- ------- ------------ -----------
amounts in millions
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $1 -- 2,234 -- (897)
Net loss -- -- -- -- (60)
Accreted dividends on redeemable
preferred stock -- -- (10) -- --
Change in unrealized holding
gains for available-for-sale
securities, net of taxes -- -- -- 4 --
Transfer of assets from TCI
Communications, Inc. to TCI
(note 12) -- -- (367) -- --
Change in due to (from) related
parties -- -- -- -- --
----- ----- ------ ----- ----
Balance at December 31, 1997 $ 1 -- 1,857 4 (957)
===== ===== ====== ===== ====
</TABLE>
<TABLE>
<CAPTION>
Total
Investment Due to (from) common
in related stockholder's
TCI parties equity (deficit)*
--- ------- ----------------
<S> <C> <C> <C>
Balance at December 31, 1996 (1,143) (256) (61)
Net loss -- -- (60)
Accreted dividends on redeemable
preferred stock -- -- (10)
Change in unrealized holding
gains for available-for-sale
securities, net of taxes -- -- 4
Transfer of assets from TCI
Communications, Inc. to TCI
(note 12) -- 5 (362)
Change in due to (from) related
parties -- (312) (312)
-------- ---------- -----------
Balance at December 31, 1997 (1,143) (563) (801)
======== ========== ===========
</TABLE>
- ---------------------
* Restated - see note 13.
See accompanying notes to consolidated financial statements.
II-23
<PAGE> 47
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
------- ------- ------
amounts in millions
(see note 3)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (60) (438) (132)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 1,393 1,453 1,223
Stock compensation 114 (12) 17
Payments of obligation relating to stock compensation (13) (2) (4)
Restructuring charges -- 36 --
Payments of restructuring charges (24) (8) --
Share of losses of affiliates, net 54 218 63
Loss on early extinguishment of debt 39 71 6
Minority interests in (losses) earnings of consolidated
subsidiaries, net 157 72 (11)
Loss (gain) on disposition and exchange of assets, net 13 (47) (9)
Gain on sale of stock by equity investee -- (12) --
Intercompany tax allocation 160 12 (1)
Deferred income tax benefit (219) (150) (64)
Other noncash charges (credits) 4 (7) (15)
Changes in operating assets and liabilities, net of the effect of
acquisitions:
Change in receivables (23) (66) (52)
Change in accrued interest (20) 41 42
Change in other accruals and payables 89 98 199
------- ------- -------
Net cash provided by operating activities 1,664 1,259 1,262
------- ------- -------
Cash flows from investing activities:
Capital expended for property and equipment (571) (1,930) (1,665)
Cash paid for acquisitions (158) (487) (270)
Cash received in exchanges 18 66 11
Proceeds from disposition of assets 339 174 49
Additional investments in and loans to affiliates and others (34) (609) (766)
Repayment of loans to affiliates and others 16 625 7
Other investing activities (12) (45) (79)
------- ------- -------
Net cash used in investing activities (402) (2,206) (2,713)
------- ------- -------
Cash flows from financing activities:
Borrowings of debt $ 1,716 7,348 7,719
Repayments of debt (2,553) (7,039) (6,020)
Prepayment penalties (33) (60) --
Proceeds from issuance of redeemable preferred stock -- 223 --
Proceeds from issuance of Trust Preferred Securities 490 971 --
Net change in due to (from) related parties (561) (403) (248)
Payment of dividends on subsidiary preferred stock and Trust
Preferred Securities (169) (86) (6)
Cash distribution to TCI (106) -- --
Payment of redeemable preferred stock dividends (10) (7) --
------- ------- -------
Net cash provided (used) by financing activities (1,226) 947 1,445
------- ------- -------
Net increase (decrease) in cash and cash equivalents
36 -- (6)
Cash and cash equivalents at beginning of year -- -- 6
------- ------- -------
Cash and cash equivalents at end of year $ 36 -- --
======= ======= =======
</TABLE>
* Restated - see note 13.
See accompanying notes to consolidated financial statements.
II-24
<PAGE> 48
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts
of TCIC and those of all majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. TCI owns 100% of the common stock of TCIC.
TCIC, through its subsidiaries and affiliates, is principally engaged
in the construction, acquisition, ownership and operation of cable
television systems. TCIC operates its cable television systems
throughout the United States.
TCI common stock, par value $1.00 per share, is comprised of six
series: Tele-Communications, Inc. Series A TCI Group Common Stock ("TCI
Group Series A Stock"), Tele-Communications, Inc. Series B TCI Group
Common Stock ("TCI Group Series B Stock" and, together with the TCI
Group Series A Stock, "TCI Group Stock"), Tele-Communications, Inc.
Series A Liberty Media Group Common Stock ("Liberty Group Series A
Stock"), Tele-Communications, Inc. Series B Liberty Media Group Common
Stock ("Liberty Group Series B Stock" and, together with the Liberty
Group Series A Stock, the "Liberty Group Stock"), Tele-Communications,
Inc. Series A TCI Ventures Group Common Stock ("TCI Ventures Group
Series A Stock") and Tele-Communications, Inc. Series B TCI Ventures
Group Common Stock ("TCI Ventures Group Series B Stock" and, together
with the TCI Ventures Group Series A Stock, the "TCI Ventures Group
Stock").
The Liberty Group Stock is intended to reflect the separate performance
of the "Liberty Media Group," which is comprised of TCI's assets which
produce and distribute programming services. The TCI Ventures Group
Stock is intended to reflect the separate performance of the "TCI
Ventures Group," which is comprised of TCI's principal international
assets and businesses and substantially all of TCI's non-cable and
non-programming assets. The TCI Group Stock is intended to reflect the
separate performance of TCI and its subsidiaries and assets not
attributed to Liberty Media Group or TCI Ventures Group. Such
subsidiaries and assets are referred to as "TCI Group" and are
comprised primarily of TCI's domestic cable and communications
business. TCIC is attributed to TCI Group.
(continued)
II-25
<PAGE> 49
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The TCI Ventures Group Stock was issued in August 1997 pursuant to
TCI's offers (the "Exchange Offers") to exchange shares of TCI Ventures
Group Series A Stock and TCI Ventures Group Series B Stock for up to
188,661,300 shares of TCI Group Series A Stock and up to 16,266,400
shares of TCI Group Series B Stock, respectively. The exchange ratio
for the Exchange Offers was two shares (as adjusted for a stock
dividend) of the applicable series of TCI Ventures Group Stock for each
share of the corresponding series of TCI Group Stock properly tendered,
up to the indicated maximum numbers. Upon the September 10, 1997
consummation of the Exchange Offers, 188,661,300 shares of TCI Group
Series A Stock and 16,266,400 shares of TCI Group Series B Stock were
exchanged for 377,322,600 shares of TCI Ventures Group Series A Stock
and 32,532,800 shares of TCI Ventures Group Series B Stock,
respectively (as adjusted for a stock dividend) (the "TCI Ventures
Exchange").
(2) Summary of Significant Accounting Policies
Cash Equivalents
Cash equivalents consist of investments which are readily convertible
into cash and have maturities of three months or less at the time of
acquisition.
Receivables
Receivables are reflected net of an allowance for doubtful accounts.
Such allowance at December 31, 1997 and 1996 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 deficit.
Realized gains and losses are determined on a specific-identification
basis.
Other investments in which the ownership interest is less than 20% and
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 earnings or losses of the
affiliates as they occur rather than as dividends or as 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.
(continued)
II-26
<PAGE> 50
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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.
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 1997, 1996 and 1995, 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.
Franchise Costs
Franchise costs include the difference between the cost of acquiring
cable television systems and amounts allocated 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.
Impairment of Long-Lived Assets
TCIC periodically reviews the carrying amounts of property, plant and
equipment and its identifiable intangible assets to determine whether
current events or circumstances warrant adjustments to such carrying
amounts. If an impairment adjustment is deemed necessary, such loss is
measured by the amount that the carrying value of such assets exceeds
their fair value. Considerable management judgment is necessary to
estimate the fair value of assets, accordingly, actual results could
vary significantly from such estimates. Assets to be disposed of are
carried at the lower of their financial statement carrying amount or
fair value less costs to sell.
(continued)
II-27
<PAGE> 51
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Derivative Financial Instruments
TCIC has entered into variable and fixed interest rate exchange
agreements ("Interest Rate Swaps") which it uses to manage interest
rate risk arising from its financial liabilities. Such Interest Rate
Swaps are accounted for as hedges; and accordingly, amounts receivable
or payable under Interest Rate Swaps are recognized as adjustments to
interest expense. Gains and losses on early terminations of Interest
Rate Swaps are included in the carrying amount of the related debt and
amortized as yield adjustments over the remaining term of the
derivative financial instruments or the remaining term of such related
debt, whichever is shorter. 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 $676 million in both 1997 and 1996, 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.
Investment in TCI
TCIC owns an aggregate of 189,867 shares of TCI Convertible Redeemable
Participating Preferred Stock, Series F ("Series F Preferred Stock").
Each share of Series F Preferred Stock is convertible into 1,496.65
shares of TCI Group Series A Stock. In addition, TCIC owns 116,853,195
shares of TCI Group Series A Stock. Such ownership of Series F
Preferred Stock and TCI Group Series A Stock is reflected as investment
in TCI in the accompanying consolidated balance sheets, at cost.
Revenue Recognition
Cable revenue for customer fees, equipment rental, advertising,
pay-per-view programming and revenue sharing agreements is recognized
in the period that services are delivered. Installation revenue is
recognized in the period the installation services are provided to the
extent of direct selling costs. Any remaining amount is deferred and
recognized over the estimated average period that customers are
expected to remain connected to the cable television system.
(continued)
II-28
<PAGE> 52
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 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 SFAS
123, the Company continues to account for stock-based compensation
pursuant to Accounting Principles Board Opinion No. 25 ("APB Opinion
No. 25"). See note 10.
Reorganization
During the fourth quarter of 1994 and the first quarter of 1995,
certain assets of TCIC were transferred at historical cost to
another operating unit of TCI (the "Reorganization").
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
Certain amounts have been reclassified for comparability with the 1997
presentation.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $1,084 million, $1,000 million and $920
million for the years ended December 31, 1997, 1996 and 1995,
respectively. Cash paid for income taxes was $20 million, $8 million
and $8 million in 1997, 1996 and 1995, respectively.
(continued)
II-29
<PAGE> 53
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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,
-------------------------------
1997 1996 1995
------- ----- -----
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired $ (213) (4,574) (2,990)
Liabilities assumed, net of current
assets 52 1,419 250
Deferred tax liability recorded in
acquisitions 6 1,354 913
Minority interests in equity of
acquired entities (3) (16) (48)
Preferred stock of subsidiary issued in
acquisition -- 626 --
Common stock of TCI issued in acquisition
contributed to TCIC -- 564 234
Change in due from related parties resulting from
common stock of TCI issued in acquisition -- -- 1,371
Change in due from related parties resulting from
TCI contributing subsidiaries to TCIC -- 140 --
------- ------- -------
Cash paid for acquisitions $ (158) (487) (270)
======= ======= =======
Cash received in exchanges:
Aggregate cost basis of assets acquired $ (392) (709) (10)
Historical cost of assets exchanged 399 754 13
Gain recorded on exchange of assets 11 21 8
------- ------- -------
Cash received in exchanges $ 18 66 11
======= ======= =======
Transfer of net assets:
Historical cost of assets transferred to (from)
TCI $ 290 1,128 97
Liabilities assumed, net of current assets -- 5 (1)
Deferred tax asset (liability) transferred to TCI (21) 5 (8)
Decrease in additional paid-in capital resulting
from transfer of net assets to TCI (261) (1,138) --
Investment in TCI -- -- (4)
Decrease in due from related parties resulting
from transfer of net assets to TCI (8) -- (84)
------- ------- -------
-- -- --
======= ======= =======
</TABLE>
(continued)
II-30
<PAGE> 54
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(4) Investments in Affiliates
TCIC's investments in affiliates are comprised of limited partnerships
and other entities that are primarily engaged in the domestic cable
business. The most significant of such cable television limited
partnerships is InterMedia Capital Partners IV, L.P. ("InterMedia IV").
In July 1996, the Company completed a series of transactions that
resulted in the transfer of all or part of the Company's ownership
interests in certain cable television systems to InterMedia IV in
exchange for a 49% limited partnership interest in InterMedia IV and
assumed debt of approximately $120 million. Simultaneously, the Company
received a cable television system and cash from InterMedia IV in
exchange for a cable television system that had been recently acquired
by the Company. The Company recognized no gain or loss in connection
with the above-described transactions. The $225 million excess of the
Company's investment in InterMedia IV over the Company's share of the
partners' capital of InterMedia IV is being amortized over an estimated
useful life of 20 years. Including such amortization, the Company's
share of InterMedia IV's losses was $46 million and $16 during the
years ended December 31, 1997 and 1996, respectively. Summarized
unaudited combined financial information for affiliates accounted for
under the equity method is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1996
------- -------
Combined Financial Position amounts in millions
- ----------------------------
<S> <C> <C>
Property and equipment, net $ 522 428
Franchise costs, net 721 878
Other assets, net 178 172
------ ------
Total assets $1,421 1,478
====== ======
Debt $1,154 1,117
Other liabilities 97 294
Owners' equity 170 67
------ ------
Total liabilities and equity $1,421 1,478
====== ======
</TABLE>
(continued)
II-31
<PAGE> 55
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1997 1996 1995
------ ----- -----
Combined Operations amounts in millions
- -------------------
<S> <C> <C> <C>
Revenue $ 401 1,033 626
Operating expenses (230) (1,230) (604)
Depreciation and amortization (172) (378) (143)
------ ------ ------
Operating loss (1) (575) (121)
Interest expense (86) (159) (63)
Other, net 58 (20) (14)
------ ------ ------
Net loss $ (29) (754) (198)
====== ====== ======
</TABLE>
Effective December 31, 1996, TCIC transferred its 30% ownership
interest in Sprint Spectrum Holding Company, L.P., 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 the date of transfer 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 million. 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.
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 (other
than non-recourse debts) of that partnership in the event liabilities
of that partnership were to exceed its assets.
(continued)
II-32
<PAGE> 56
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(5) Acquisitions
On March 4, 1998, subsidiaries of TCI (including certain subsidiaries
of TCIC) contributed to Cablevision Systems Corporation ("CSC") certain
of its cable television systems serving approximately 830,000 basic
customers in exchange for approximately 12.2 million newly issued CSC
Class A shares. Such shares represent an approximate 33% equity
interest in CSC's total outstanding shares and an approximate 9% voting
interest in CSC in all matters except for the election of directors, in
which case TCI has an approximate 47% voting interest in the election
of one-fourth of CSC's directors. CSC also assumed approximately $669
million of TCI's debt. As a part of such transaction, TCIC subsidiaries
contributed to CSC cable television systems serving approximately
410,000 basic customers in exchange for approximately 7.0 million
shares or 19% of CSC's newly issued Class A shares, and CSC assumed
approximately $78 million of intercompany debt owed to TCIC. TCIC has
also entered into letters of intent with CSC which provide for TCIC to
acquire a cable system in Michigan and an additional 3% of CSC's Class
A shares and for CSC to (i) acquire cable systems serving approximately
250,000 basic customers in Connecticut and (ii) assume $110 million of
the Company's debt. The ability of the Company to sell or increase its
investment in CSC is subject to certain restrictions and limitations
set forth in a stockholders agreement with CSC. In light of TCI's
overall ownership interest in CSC of approximately 33%, TCIC will
account for its approximate 19% ownership interest in CSC under the
equity method.
Including the above-described CSC transactions and another transaction
that closed in February 1998, TCIC, as of February 28, 1998, has, since
January 1, 1997, contributed, or signed agreements or letters of intent
to contribute within the next twelve months, certain cable television
systems (the "Contributed Cable Systems") serving approximately 3.4
million basic customers to joint ventures in which TCIC will retain
non-controlling ownership interests (the "Contribution Transactions").
Following the completion of the Contribution Transactions, TCIC will no
longer consolidate the Contributed Cable Systems. Accordingly, it is
anticipated that the completion of the Contribution Transactions, as
currently contemplated, will result in aggregate estimated reductions
(based on 1997 amounts) to TCIC's debt, annual revenue and annual
operating income before depreciation, amortization, stock compensation
and non-cash charges of approximately $4.0 billion, $1.5 billion and
$700 million, respectively. No assurance can be given that any of the
pending Contribution Transactions will be consummated.
On July 31, 1996, pursuant to certain agreements entered into among
TCIC, TCI, Viacom International, Inc. and Viacom, Inc. ("Viacom"), TCIC
acquired all of the common stock of a subsidiary of Viacom ("Cable
Sub") which owned Viacom's cable systems and related assets (the
"Viacom Acquisition").
(continued)
II-33
<PAGE> 57
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The transaction was structured as a tax-free reorganization in which
Cable Sub transferred all of its non-cable assets, as well as all of
its liabilities other than current liabilities, to a new subsidiary of
Viacom ("New Viacom Sub"). Cable Sub also transferred to New Viacom Sub
the proceeds (the "Loan Proceeds") of a $1.7 billion loan facility (the
"Loan Facility") arranged by TCIC, TCI and Cable Sub. Following these
transfers, Cable Sub retained cable assets with a value at closing of
approximately $2.326 billion and the obligation to repay the Loan
Proceeds. Neither Viacom nor New Viacom Sub has any obligation with
respect to repayment of the Loan Proceeds.
Prior to the consummation of the Viacom Acquisition, Viacom offered to
the holders of shares of Viacom Class A Common Stock and Viacom Class B
Common Stock (collectively, "Viacom Common Stock") the opportunity to
exchange (the "Viacom 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 Viacom 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 Viacom 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 TCI Group Series A Stock. The
Exchangeable Preferred Stock is included in "Minority interests in
equity of consolidated subsidiaries" in the accompanying consolidated
balance sheets. Upon completion of the Viacom Acquisition, Cable Sub
was renamed TCI Pacific Communications, Inc. ("TCI Pacific").
The Viacom Acquisition has been accounted for by the purchase method.
Accordingly, the results of operations of TCI Pacific have been
consolidated with those of TCIC since the date of the acquisition, and
TCIC recorded TCI Pacific'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 if TCI Pacific had been consolidated with the Company
since January 1, 1996.
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
shareholders 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-34
<PAGE> 58
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 from
January 1, 1996 through December 4, 1996 is as follows (amounts in millions):
<TABLE>
<CAPTION>
Financial Position
- ------------------
<S> <C>
Cash, receivables and other assets $ 104
Investment in Primestar 32
Property and equipment, net 1,111
-------
$ 1,247
=======
Accounts payable and accrued liabilities $ 60
Due to Primestar 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-35
<PAGE> 59
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, 1997 1997 1996
------------------ ------- -----
amounts in millions
<S> <C> <C> <C>
Parent company debt:
Notes payable (a) 8.0% $ 7,949 8,031
Commercial paper 6.3% 533 638
------- -------
8,482 8,669
Debt of subsidiaries:
Bank credit facilities (b) 6.9% 4,268 4,810
Notes payable (a) 9.7% 723 768
Convertible notes (c) 9.5% 40 43
Other debt, at varying rates 15 28
------- -------
$13,528 14,318
======= =======
</TABLE>
(a) During the year ended December 31, 1997, TCIC purchased in the
open market certain notes payable which had an aggregate
principal balance of $409 million and fixed interest rates
ranging from 8.75% to 10.13% (the "1997 Purchases"). In
connection with the 1997 Purchases, TCIC recognized a loss on
early extinguishment of debt of $39 million. Such loss related
to prepayment penalties amounting to $33 million and the
retirement of deferred loan costs.
During the year ended December 31, 1996, TCIC purchased in the
open market certain notes payable which had an aggregate
principle balance of $904 million and fixed interest rates
ranging from 7.88% to 10.44% (the "1996 Purchases"). In
connection with the 1996 Purchases, TCIC recognized a loss on
early extinguishment of debt of $62 million. Such loss related
to prepayment penalties amounting to $60 million and the
retirement of deferred loan costs.
(b) At December 31, 1997, TCIC had approximately $1.4 billion of
availability in unused lines of credit, excluding amounts
related to lines of credit which provide availability to
support commercial paper.
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-36
<PAGE> 60
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(c) These convertible notes, which are stated net of unamortized
discount of $166 million and $178 million at December 31, 1997
and 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. During the year ended December 31,
1997, certain of these notes were converted, pursuant to their
existing terms, into 2,533,116 shares of TCI Group Series A
Stock, 1,448,341 shares of Liberty Group Series A Stock,
63,432 shares of TCI Ventures Group Series A Stock and 256,484
shares of Series A Common Stock, $1.00 par value per share, of
Satellite ("Satellite Series A Common Stock"). At December 31,
1997, the notes were convertible, at the option of the
holders, into an aggregate of 24,163,259 shares of TCI Group
Series A Stock, 19,416,889 shares (as adjusted for a stock
dividend) of Liberty Group Series A Stock, 20,711,364 shares
(as adjusted for a stock dividend) of TCI Ventures Group
Series A Stock and 3,451,897 shares of Satellite Series A
Common Stock.
TCIC's bank credit facilities and various other debt instruments
generally contain restrictive covenants which require, among other
things, the maintenance of certain earnings, specified cash flow and
financial ratios (primarily the ratios of cash flow to total debt and
cash flow to debt service, as defined), and include certain limitations
on indebtedness, investments, guarantees, dispositions, stock
repurchases and/or dividend payments.
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. At December 31,
1997, the fair value of TCIC's debt was $14,365 million, as compared to
a carrying value of $13,528 million on such date.
In order to achieve the desired balance between variable and fixed rate
indebtedness, TCIC has entered into various Interest Rate Swaps
pursuant to which it (i) paid fixed interest rates and received
variable interest rates through December 1997 (the "Fixed Rate
Agreements") and (ii) pays variable interest rates and receives fixed
interest rates ranging from 4.8% to 9.7% on notional amounts of $2,400
million at December 31, 1997 (the "Variable Rate Agreements"). During
the years ended December 31, 1997, 1996 and 1995, TCIC's net payments
pursuant to the Fixed Rate Agreements were $7 million, $14 million and
$13 million, respectively; and TCIC's net receipts (payments) pursuant
to the Variable Rate Agreements were (less than $1 million), $15
million and (less than $1 million), respectively. At December 31, 1997,
all of TCIC's Fixed Rate Agreements had expired.
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. The
Company will amortize such termination settlement over the remainder of
the original terms of such Variable Rate Agreements.
(continued)
II-37
<PAGE> 61
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Information concerning TCIC's Variable Rate Agreements at December 31,
1997 is as follows (dollar amounts in millions):
<TABLE>
<CAPTION>
Amount to
be paid
Expiration Interest rate Notional (received) upon
date to be received amount termination (a)
---------- -------------- -------- ---------------
<S> <C> <C> <C>
September 1998 4.8%-5.4% $ 450 $ 4
April 1999 7.4% 50 (1)
September 1999 6.4% 350 (1)
February 2000 5.8%-6.6% 300 (2)
March 2000 5.8%-6.0% 675 1
September 2000 5.1% 75 2
March 2027 9.7% 300 (15)
December 2036 9.7% 200 (6)
------ ------
$2,400 $ (18)
====== ======
</TABLE>
- ------------------
(a) The estimated amount that TCIC would pay or receive to
terminate the agreements at December 31, 1997, taking into
consideration current interest rates and the current
creditworthiness of the counterparties, represents the fair
value of the Interest Rate Swaps.
In addition to the Variable Rate Agreements, TCIC entered into an
Interest Rate Swap in September 1997 pursuant to which it pays a
variable rate based on the London Interbank Offered Rate ("LIBOR")
(6.1% at December 31, 1997) and receives a variable rate based on the
Constant Maturity Treasury Index (6.4% at December 31, 1997) on a
notional amount of $400 million through September 2000. During the year
ended December 31, 1997, TCIC's net receipts pursuant to such agreement
aggregated less than $1 million. At December 31, 1997, TCIC would be
required to pay an estimated $3 million to terminate such Interest Rate
Swap.
TCIC is exposed to credit losses for the periodic settlements of
amounts due under the Interest Rate Swaps in the event of
nonperformance by the other parties to the agreements. However, TCIC
does not anticipate that it will incur any material credit losses
because it does not anticipate nonperformance by the counterparties.
Further, TCIC does not anticipate material near-term losses in future
earnings, fair values or cash flows resulting from derivative financial
instruments as of December 31, 1997.
TCIC is required to maintain unused availability under bank credit
facilities to the extent of outstanding commercial paper. Also, TCIC
pays fees ranging from 1/4% to 1/2% per annum on the average unborrowed
portion of the total amount available for borrowings under bank credit
facilities.
(continued)
II-38
<PAGE> 62
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Annual maturities of debt for each of the next five years are as
follows (amounts in millions):
<TABLE>
<CAPTION>
Parent Total
------ -----
<S> <C> <C>
1998 $ 767* $ 912*
1999 783 941
2000 834 1,098
2001 357 1,164
2002 382 1,081
</TABLE>
* Includes $533 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 of TCIC (the "Board"). The Company
may elect to make dividend payments (i) in cash, (ii) by delivery of
TCI Group Series A Stock or (iii) by any combination of the foregoing
forms of consideration elected by the Board in its sole discretion.
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
TCI Group Series A Stock, subject to adjustment in certain events. The
value of the shares of TCI Group Series A Stock received upon any
exchange will vary depending upon the market price of the TCI Group
Series A 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 TCI Group
Series A Stock or (iii) by any combination of the foregoing forms of
consideration elected by the Board in its sole discretion.
(continued)
II-39
<PAGE> 63
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
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 TCI Group Series A Stock or (iii) by any
combination of the foregoing forms of consideration elected by the
Board 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 TCI Group Series A Stock or (iii) by any
combination of the foregoing forms of consideration elected by the
Board in its sole discretion. If the Company elects to make any such
payment, in whole or in part, through the delivery of shares of TCI
Group Series A 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 TCI Group Series A 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 TCI Group Series A
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 TCI Group
Series A Stock. The "Average Market Price" is defined as the average of
the closing sale prices for a share of TCI Group Series A Stock on the
Nasdaq National Market Tier of the Nasdaq Stock 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 TCI Group Series A Stock may vary between the date of
determination of the Cash Equivalent Amount and the subsequent delivery
of shares.
If the Company elects to make a dividend, redemption or liquidation
payment with shares of TCI Group Series A 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 TCI Group Series A
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 TCI Group Series A 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 TCI
Group Series A 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-40
<PAGE> 64
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 Board, 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 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 on parity
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
The Company, through certain subsidiary trusts, (the "Trusts"), had
preferred securities outstanding at December 31, 1997 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>
(continued)
II-41
<PAGE> 65
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The Trusts exist for the exclusive purpose of issuing the Trust
Preferred Securities and investing the proceeds thereof into
Subordinated Deferrable Interest Notes (the "Subordinated Debt
Securities") of the Company. The Subordinated Debt Securities have
interest rates equal to the interest rate of the corresponding Trust
Preferred Securities and have maturity dates ranging from 30 to 49
years from the date of issuance. The Subordinated Debt Securities are
unsecured obligations of the Company and are subordinate and junior in
right of payment to certain other indebtedness of the Company. Upon
redemption of the Subordinated Debt Securities, the Trust Preferred
Securities will be mandatorily redeemable. The Company effectively
provides a full and unconditional guarantee of the Trusts' obligations
under the Trust Preferred Securities.
The Trust Preferred Securities are presented together in a separate
line item in the accompanying consolidated balance sheets captioned
"Company-obligated mandatorily redeemable preferred securities of
subsidiary trusts holding solely subordinated debt securities of the
Company." Dividends accrued on the Trust Preferred Securities
aggregated $132 million and $71 million for the years ended December
31, 1997 and 1996, respectively, and are included in minority interests
in earnings of consolidated subsidiaries in the accompanying
consolidated financial statements.
(10) Common Stockholder's Deficit
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, 1997
all of the common stock of TCIC is owned by TCI.
Employee Benefit Plans
TCI has several employee stock purchase plans to provide employees an
opportunity to create a retirement fund, including ownership interests
in TCI. The primary employee stock purchase plan provides for employees
to contribute up to 10% of their compensation to a trust for investment
in several diversified investment choices, including investment in TCI
common stock. TCI, by annual resolution of its Board of Directors,
generally contributes up to 100% of the amount contributed by
employees. Such TCI contribution is invested in TCI Group Stock,
Liberty Group Stock and TCI Ventures Group Stock. Certain of TCIC's
subsidiaries have their own employee benefit plans. Contributions to
all plans aggregated $36 million, $34 million and $27 million for 1997,
1996 and 1995, respectively.
(continued)
II-42
<PAGE> 66
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Stock Options and Stock Appreciation Rights
Certain officers and other key employees of TCIC hold options with
tandem stock appreciation rights ("SARs") to acquire TCI Group Series A
Stock, Liberty Group Series A Stock and TCI Ventures Group Series A
Stock as well as restricted stock awards of TCI Group Series A Stock,
Liberty Group Series A Stock and TCI Ventures Group Series A Stock.
Estimates of compensation relating to SARs granted to such employees of
TCIC have been recorded in the accompanying consolidated financial
statements pursuant to APB Opinion No. 25. Such estimates are subject
to future adjustment based upon vesting of the related stock options
and SARs and the market value of TCI Group Series A Stock, Liberty
Group Series A Stock and TCI Ventures Group Series A Stock (see note 1)
and, ultimately, on the final determination of market value when the
rights are exercised. Had TCIC accounted for its stock based
compensation pursuant to the fair value based accounting method in SFAS
123, the amount of compensation would not have been 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 Class
A common stock, TCI Group Series A Stock, Liberty Group Series A Stock
(as adjusted for a stock dividend) and TCI Ventures Group Series A
Stock (as adjusted for a stock dividend) granted to certain officers
and other key employees of the Company.
(continued)
II-43
<PAGE> 67
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
TCI TCI
Class A Ventures
common TCI Group Liberty Group Group
stock WAEP Series A Stock WAEP Series A Stock WAEP Series A Stock WAEP
----------- -------- -------------- ---------- -------------- --------- -------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding at
January 1, 1995 4,464,228 18.14 -- -- --
Converted from
Class A options (4,444,514) 18.16 4,444,514 $ 13.58 -- --
Adjustment for
Liberty
Distribution -- -- 2,486,267 $ 8.07 --
Granted -- 3,142,000 17.00 -- -- --
Exercised (9,714) 10.30 (414,764) 12.40 (207,006) 7.35 --
Canceled (10,000) 17.25 (90,500) 13.07 (50,904) 7.77 --
----------- ---------- ---------- ------------
Outstanding at
December 31, 1995 -- 7,081,250 15.17 2,228,357 8.15 --
Exercised -- (141,300) 12.78 (95,033) 7.97 --
Canceled -- (118,200) 15.17 (37,800) 8.31 --
----------- ---------- ---------- ------------
Outstanding at
December 31, 1996 -- 6,821,750 13.09 2,095,524 8.15 --
Adjustment for TCI
Ventures
Exchange -- (3,233,895) 14.52 -- 6,467,790 7.26
Adjustment for
transfer of
employees -- (2,197,000) 13.34 (579,375) 8.13 --
Granted -- 6,523,000 15.51 125,001 16.75 --
Exercised -- (723,890) 12.24 (278,815) 8.11 (194,040) 5.84
Canceled -- (47,200) 14.37 (15,975) 9.78 --
----------- ---------- ---------- ------------
Outstanding at
December 31, 1997 -- 7,142,765 14.66 1,346,360 8.95 6,273,750 7.31
========== ========== ============
Exercisable at
December 31, 1997 -- 1,630,433 12.34 1,025,624 7.83 1,499,022 6.16
=========== ========== ========== ============
Vesting Period 5 yrs 5 yrs 5 yrs
========== ========== ============
</TABLE>
(continued)
II-44
<PAGE> 68
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
On December 13, 1995, TCI awarded 205,000 restricted shares of TCI
Group Series A Stock to persons who at the time were officers and key
employees of the Company. Based on the terms at the date of grant, such
restricted shares vest as to 50% in December 1999 and as to the
remaining 50% in December 2000. Such restricted shares had a fair value
of $20.625 on the date of grant.
(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. 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
due from related parties included as a component of common
stockholder's deficit.
A tax sharing agreement (as amended, the "Old Tax Sharing Agreement")
among TCI, the Company and certain other subsidiaries of TCI was
implemented effective July 1, 1995. The Old Tax Sharing Agreement
formalized certain of the elements of a pre-existing tax sharing
arrangement and contains additional provisions regarding the allocation
of certain consolidated income tax attributes and the settlement
procedures with respect to the intercompany allocation of current tax
attributes. Under the Old Tax Sharing Agreement, the Company was
responsible to TCI for its share of consolidated income tax liabilities
(computed as if TCI were not liable for the alternative minimum tax)
determined in accordance with the Old Tax Sharing Agreement, and TCI
was responsible to the Company to the extent that the income tax
attributes generated by the Company and its subsidiaries were utilized
by TCI to reduce its consolidated income tax liabilities (computed as
if TCI were not liable for the alternative minimum tax). The tax
liabilities and benefits of such entities so determined are charged or
credited to an intercompany account between TCI and the Company. Such
intercompany account is required to be settled only upon the date that
an entity ceases to be a member of TCI's consolidated group for federal
income tax purposes. Under the Old Tax Sharing Agreement, TCI retains
the burden of any alternative minimum tax and has the right to receive
the tax benefits from an alternative minimum tax credit attributable to
any tax period beginning on or after July 1, 1995 and ending on or
before October 1, 1997. In connection with the implementation of the
Old Tax Sharing Agreement, TCIC recorded an increase to its deferred
income tax liability and an increase to due from related parties of $76
million in 1995.
(continued)
II-45
<PAGE> 69
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Effective October 1, 1997 (the "Effective Date"), the Old Tax Sharing
Agreement was replaced by a new tax sharing agreement, as amended by
the First Amendment thereto (the "New Tax Sharing Agreement"), which
governs the allocation and sharing of income taxes by TCI Group,
Liberty Media Group and TCI Ventures Group (each a "Group"). The
Company and its subsidiaries are members of the TCI group for purposes
of the New Tax Sharing Agreement. Effective for periods on and after
the Effective Date, federal income taxes will be computed based upon
the type of tax paid by TCI (on a regular tax or alternative minimum
tax basis) on a separate basis for each Group. Based upon these
separate calculations, an allocation of tax liabilities and benefits
upon these separate calculations, an allocation of tax liabilities and
benefits will be made such that each Group will be required to make
cash payments to TCI based on its allocable share of TCI's consolidated
federal income tax liabilities (on a regular tax or alternative minimum
tax basis, as applicable) attributable to such Group and actually used
by TCI in reducing its consolidated federal income tax liability. Tax
attributes and tax basis in assets would be inventoried and tracked for
ultimate credit to or charge against each Group. Similarly, in each
taxable period that TCI pays alternative minimum tax, the federal
income tax benefits of each Group, computed as if such Group were
subject to regular tax, would be inventoried and tracked for payment to
or payment by each Group in years that TCI utilizes the alternative
minimum tax credit associated with such taxable period. The Group
generating the unutilized tax benefits would receive a cash payment
only if, and when, the unutilized taxable losses of the other Group are
actually utilized. If the unutilized taxable losses expire without ever
being utilized, the Group generating the utilized tax benefits will
never receive payment for such benefits. Pursuant to the New Tax
Sharing Agreement, state and local income taxes are calculated on a
separate return basis for each Group (applying provisions of state and
local tax law and related regulations as if the Group were a separate
unitary or combined group for tax purposes), and TCI's combined or
unitary tax liability is allocated among the Groups based upon such
separate calculation.
Notwithstanding the foregoing, items of income, gain, loss, deduction
or credit resulting from certain specified transactions that are
consummated after the Effective Date pursuant to a letter of intent or
agreement that was entered into prior to the Effective Date will be
shared and located pursuant to the terms of the Old Tax Sharing
Agreement, as amended.
TCIC's intercompany tax allocation was calculated in accordance with
(i) a tax sharing arrangement from January 1, 1995 through June 30,
1995, (ii) the Old Tax Sharing Agreement from July 1, 1995 through
September 30, 1997 and (iii) the New Tax Sharing Agreement from October
1, 1997 through December 31, 1997.
(continued)
II-46
<PAGE> 70
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Income tax benefit (expense) for the years ended December 31, 1997, 1996 and
1995 consists of:
<TABLE>
<CAPTION>
Current Deferred Total
amounts in millions
<S> <C> <C> <C>
Year ended December 31, 1997:
Intercompany allocation $(160) -- (160)
Federal -- 182 182
State and local (20) 37 17
----- ----- -----
$(180) 219 39
===== ===== =====
Year ended December 31, 1996:
Intercompany allocation $ (12) -- (12)
Federal -- 128 128
State and local (8) 22 14
----- ----- -----
$ (20) 150 130
===== ===== =====
Year ended December 31, 1995:
Intercompany allocation $ 1 -- 1
Federal -- 54 54
State and local (8) 10 2
----- ----- -----
$ (7) 64 57
===== ===== =====
</TABLE>
Income tax benefit (expense) differs from the amounts computed by applying the
federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
Years ended
December 31,
--------------------------------
1997 1996 1995
----- ----- -----
amounts in millions
<S> <C> <C> <C>
Computed "expected" tax benefit $ 35 199 66
Amortization not deductible for tax purposes (14) (17) (18)
Minority interest of consolidated subsidiaries 13 1 4
State and local income taxes, net of federal
income tax benefit 11 6 3
Valuation allowance for net operating loss
carryforward -- -- (6)
Gain recognized for tax purposes on sale of
investments -- (61) --
Other (6) 2 8
----- ----- -----
$ 39 130 57
===== ===== =====
</TABLE>
(continued)
II-47
<PAGE> 71
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, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
------- -------
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 522 509
Less - valuation allowance (88) (88)
Investment tax credit carryforwards 115 116
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 45 199
Future deductible amounts principally due to
non-deductible accruals 111 25
Future deductible amount attributable to accrued stock
appreciation rights and deferred compensation 40 --
Other 8 9
------- -------
Net deferred tax assets 712 729
------- -------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation 1,219 1,163
Franchise costs, principally due to differences in
amortization 4,259 4,491
Investment in affiliates, due principally to undistributed
earnings of affiliates 321 335
Leases capitalized for tax purposes -- 73
Other 128 76
------- -------
Total gross deferred tax liabilities 5,927 6,138
------- -------
Net deferred tax liability $ 5,215 5,409
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1997
and 1996 was $129 million.
The tax attributes disclosed above are those determined pursuant to the
New Tax Sharing Agreement.
(continued)
II-48
<PAGE> 72
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
At December 31, 1997, TCIC had net operating loss carryforwards for
income tax purposes aggregating approximately $1,130 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, $104 million in 2011 and
$115 million in 2012. 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 Old and New Tax
Sharing Agreement, the Company has already received benefit for
approximately $49 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, 1997, TCIC had remaining available investment tax
credits of approximately $60 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
Old 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, 1997 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 1993 through 1995
(the "IRS Examinations"). In the opinion of management, any additional
tax liability, not previously provided for, resulting from the IRS
Examinations, ultimately determined to be payable, should not have a
material adverse effect on the consolidated financial position of TCIC.
(continued)
II-49
<PAGE> 73
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(12) Related Party Transactions
At December 31, 1997, amounts due from related parties include (i) $222
million representing the net amount due from TCI and certain
subsidiaries of TCI pursuant to promissory notes, including accrued
interest, and (ii) $341 million representing the net amount due from
TCI pursuant to a non-interest bearing intercompany account. The net
intercompany interest income earned on the promissory notes aggregated
$17 million, $12 million and $12 million during the years ended
December 31, 1997, 1996 and 1995, respectively.
Through June 30, 1997, TCI Starz, Inc. ("TCI Starz"), a subsidiary of
TCI, had a 50.1% partnership interest in QE+Ltd. ("QE+"), which
distributes STARZ!, a first-run movie premium programming service
launched in 1994. Another subsidiary of TCI, Liberty Media Corporation
("Liberty") held the remaining 49.9% partnership interest. TCIC entered
into an affiliation agreement (the "Old Affiliation Agreement") with
QE+ related to the distribution of the STARZ! service. Rates per
customer specified in the Old Affiliation Agreement were based upon
customary rates charged to other cable system operators.
In July and December 1997, Liberty and TCI Starz entered into a series
of transactions pursuant to which, among other matters, the business of
STARZ! and Encore Media Corporation ("Encore") were contributed to a
newly formed limited liability company ("Encore Media Group"). Upon
consummation of the transactions, Liberty owned 100% of Encore Media
Group.
In connection with the formation of Encore Media Group, the Old
Affiliation Agreement was canceled, and the Company and a subsidiary of
Encore Media Group entered into a new affiliation agreement (the
"Encore Media Affiliation Agreement"). Pursuant to the Encore Media
Affiliation Agreement, the Company will pay fixed monthly amounts in
exchange for unlimited access to all of the existing Encore and STARZ!
services. The fixed annual amounts increase annually from $220 million
in 1998 to $315 million in 2003, and will increase with inflation
through 2002.
Charges to TCIC for programming pursuant to the Old Affiliation
Agreement, the Encore Media Affiliation Agreement and other related
party programming agreements aggregated $168 million, $128 million and
$104 million for the years ended December 31, 1997, 1996 and 1995,
respectively.
(continued)
II-50
<PAGE> 74
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Pursuant to an agreement between TCI Music, Inc., a subsidiary of TCI
("TCI Music"), and TCI, certain subsidiaries of TCIC are required to
deliver to TCI Music monthly revenue payments aggregating $18 million
annually (adjusted annually for inflation) through 2017. In addition,
TCIC purchases certain audio programming from TCI Music pursuant to a
ten-year affiliation agreement. During the year ended December 31,
1997, the aggregate amount paid by TCIC to TCI Music pursuant to such
arrangements was $13 million. Such amount is included in operating
costs and expenses in the accompanying consolidated statements of
operations.
In connection with the TCI Ventures Exchange, TCI consummated a
restructuring on October 1, 1997 that resulted in, among other things,
the transfer of substantially all of the attributed assets of the TCI
Ventures Group into TCI Ventures Group, LLC, a newly formed first tier
subsidiary of TCI. In connection with such restructuring, certain
assets of the Company, including (i) a wholly-owned subsidiary of the
Company that owned cash, warrants and contingent royalties from the
sale of certain internally developed software assets, and (ii) another
wholly-owned subsidiary that provides analog and digital television
services (including the digital compression of television and
multimedia programming) were transferred to TCI Ventures Group, LLC in
exchange for nominal consideration, and a $291 million distribution
from the Company to TCI. The amount of such distribution represents
the excess of the carrying value of the transferred assets over the
nominal consideration received by TCIC.
Through September 30, 1997, Liberty Media Group leased satellite
transponder facilities from a subsidiary of TCIC. Such subsidiary was
included in the assets transferred to TCI on October 1, 1997, as
described above. Charges by TCIC for such arrangements for the nine
month period ended September 30, 1997, and the years ended December 31,
1996 and 1995, aggregated $14 million, $8 million and $15 million,
respectively.
Effective January 2, 1997, TCIC transferred its business of providing
long-distance transport of video, voice and data traffic and other
telecommunications services to TCI. Such transfer has been recorded at
carryover basis and is reflected as a $71 million net increase in
common stockholder's deficit.
DigiVentures, LLC ("DigiVentures"), a member of TCI Ventures Group,
leases certain digital boxes under a capital lease. During 1997, such
digital boxes were subleased to TCIC under an operating lease. TCIC
recognized lease expense of $15 million during the year ending December
31, 1997 in connection with such lease. In January 1998, TCI Ventures
Group's interest in DigiVentures was assigned to TCIC. In connection
therewith, TCIC assumed DigiVentures' capital lease obligations
totaling $176 million and paid $7 million in cash to TCI Ventures
Group. Such transfer will be recorded at historical cost due to the
related party nature of the transaction.
(continued)
II-51
<PAGE> 75
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Home Shopping Network, Inc. ("HSN"), a former attributed subsidiary of
Liberty Media Group, paid a commission to TCIC for merchandise sales to
customers who are customers of TCIC's cable systems. Effective December
20, 1996, Liberty Media Group entered into a series of transactions
whereby it decreased its ownership interest in HSN such that HSN is no
longer included in the combined financial statements of Liberty Media
Group. Aggregate commissions to TCIC were $7 million and $6 million for
the years ended December 31, 1996 and 1995, respectively. Such amounts
are recorded in revenue in the accompanying consolidated statements of
operations.
(13) Transactions with Officers and Directors
On September 25, 1997, TCIC entered into an Asset Contribution
Agreement with, among others, Fisher Communications Associates, L.L.C.,
which is controlled by a director of TCIC. On January 15, 1998, the
cable television assets of the applicable cable systems of TCIC were
contributed to Peak Cablevision, LLC ("Peak Cablevision") in exchange
for a 66.7% partnership interest in Peak Cablevision. Additionally,
cable television assets of Fisher Communications, L.L.C. were
contributed in 1998 in exchange for a 33.3% interest in Peak
Cablevision.
On June 10, 1997 (the "IP Phase I Closing Date"), TCI issued 139,513
shares of TCI Group Series B Stock (the "IP I Shares") to the IP Series
B Trust I ("Trust"). An executive officer who is also a director of
TCIC is the trustee of the Trust. The IP I Shares were issued in
connection with a partial closing under two Partnership Interest
Purchase Agreements both dated as of June 10, 1997 (the "IP-I and
IP-III Purchase Agreements"), pursuant to which TCIC acquired on the IP
Phase I Closing Date (a) a 99.998% limited partnership interest in
InterMedia Capital Management III, L.P., (b) a 75% limited partnership
interest in InterMedia CM - LP, and (c) a 99.998% limited partnership
interest in InterMedia Capital Management, L.P. in exchange for total
consideration of the IP I Shares and cash and assumption of current
liabilities in an aggregate amount of $6 million. As a result of such
transactions, the Company adopted the equity method of accounting for
its investment in InterMedia Partners, a California limited
partnership, and restated its financial statements. Such restatement
resulted in a $125 million decrease to its investment in InterMedia
Partners, a $50 million decrease to its deferred tax liability and a
$75 million increase to its accumulated deficit at December 31, 1996.
In addition, such restatement resulted in a $14 million decrease and a
$12 million increase to its net loss in 1996 and 1995, respectively.
On August 5, 1997 (the "IP Phase II Closing Date") TCI issued 2,405,942
shares of TCI Group Series B Stock (the "IP II Shares") to the IP
Series B Trust II ("Trust II"). An executive officer who is also a
director of TCIC is the trustee of the Trust II. The IP II Shares were
issued in connection with the closing under the Partnership Interest
Purchase Agreement dated as of August 5, 1997, and a partial and final
closing under the IP-I and IP-III Purchase Agreements, pursuant to
which TCIC acquired on the IP Phase II Closing Date a 99.997% limited
partnership interest in InterMedia Capital Management IV, L.P. and an
additional .001% limited partnership interest in InterMedia Capital
Management, L.P. in exchange for total consideration of the IP II
Shares and cash and assumption of liabilities in an aggregate of $18
million. See note 4.
(continued)
II-52
<PAGE> 76
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
In connection with the three Partnership Interest Purchase Agreements,
a director of TCIC received a consulting fee in the amount of $400,000
in cash and 31,030 shares of TCI Group Series B Stock and the son of a
director of TCIC received an advisory fee in the amount of 36,364
shares of TCI Group Series B Stock.
On March 4, 1997, an executive officer and director of TCIC received an
advance from a wholly-owned subsidiary of TCIC in the amount of $6
million. On March 5, 1997, such executive officer and director received
a second advance from a wholly-owned subsidiary of TCIC in the amount
of $6 million. The terms of the advances were memorialized by a
promissory note. The interest rate on such loans is 1% over the
one-month LIBOR rate compounded annually. Principal outstanding on the
note is due March 31, 1999 and interest is payable annually on March 1
of each year. The loan is unsecured.
On the date of the Satellite Spin-off, TCI granted options to two of
its executive officers and a key employee of TCIC to acquire an
aggregate of 1,660,190 shares of Satellite Series A Common Stock. The
exercise price for each such option is equal to $8.86 per share. Such
options vest 20% per annum beginning February 1, 1997 and expire on
February 1, 2006.
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 were exercised during the first quarter of 1998. The aggregate
exercise price of $3 million was satisfied with five non-interest
bearing promissory notes that are due and payable to TCIC in 2008.
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.
(continued)
II-53
<PAGE> 77
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
(14) Commitments and Contingencies
On October 5, 1992, the United States 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 is filed by a customer, or the
appropriate franchise authority, if such authority has been certified
by the FCC to regulate rates. 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.
TCIC has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $186
million at December 31, 1997. With respect to TCIC's guarantees of $166
million of such obligations, TCIC has been indemnified for any loss,
claim or liability that TCIC may incur, by reason of such guarantees.
Although there can be no assurance, management of TCIC believes that it
will not be required to meet its obligations under such guarantees, or
if it is required to meet any of such obligations, that they will not
be material to TCIC.
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 December 31, 1997, the 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.
As described in note 12, TCIC has agreed to make fixed monthly payments
through 2022 to the Liberty Media Group pursuant to the Encore Media
Affiliation Agreement.
(continued)
II-54
<PAGE> 78
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
The Company is a party to affiliation agreements with several of its
programming suppliers. Pursuant to these agreements, the Company is
committed to carry such suppliers programming on its cable systems.
Several of these agreements provide for penalties and charges in the
event the programming is not carried or not delivered to a
contractually specified number of customers.
During the third quarter of 1997, TCIC committed to purchase billing
services pursuant to three successive five year agreements. Pursuant to
such arrangement, TCIC is obligated to make minimum payments
aggregating approximately $1.6 billion through 2012. Such minimum
payments are subject to inflation and other adjustments pursuant to the
terms of the underlying agreements.
Pursuant to certain agreements between TCI and TCI Music, TCIC is
obligated to make minimum revenue and license fee payments to TCI Music
aggregating approximately $445 million through 2017. Such minimum
payments are subject to inflation and other adjustments pursuant to the
terms of the underlying agreements.
TCIC leases business offices, has entered into converter lease
agreements, pole rental agreements, transponder lease agreements and
uses certain equipment under lease arrangements. Rental expense under
such arrangements amounted to $171 million, $147 million and $112
million in 1997, 1996 and 1995, 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>
1998 $ 92
1999 73
2000 62
2001 50
2002 41
Thereafter 209
</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 1998.
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.
(continued)
II-55
<PAGE> 79
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Effective as of December 16, 1997, the NDTC, on behalf of TCIC and
other cable operators that may be designated from time to time by NDTC
("Approved Purchasers"), entered into an agreement (the "Digital
Terminal Purchase Agreement") with General Instrument Corporation
(formerly NextLevel Systems, Inc., "GI") to purchase advanced digital
set-top devices. The hardware and software incorporated into these
devices will be designed and manufactured to be compatible and
interoperable with the OpenCable(TM) architecture specifications
adopted by CableLabs, the cable television industry's research and
development consortium, in November 1997. NDTC has agreed that Approved
Purchasers will purchase, in the aggregate, a minimum of 6.5 million
set-top devices over the next three years at an average price of $318
per basic set-top device (including a required royalty payment). GI
agreed to provide NDTC and its Approved Purchasers the most favorable
prices, terms and conditions made available by GI to any customer
purchasing advanced digital set-top devices. In connection with NDTC's
purchase commitment, GI agreed to grant warrants to purchase its common
stock proportional to the number of devices ordered by each
organization, which as of the effective date of the Digital Terminal
Purchase Agreement, would have represented at least a 10% equity
interest in GI (on a fully diluted basis). It is anticipated that the
value associated with such equity interest would be attributed to TCI
Group upon purchase and deployment of the digital set-top devices.
During 1997, TCIC began an enterprise-wide comprehensive review of its
computer systems and related software to ensure systems properly
recognize the year 2000 and continue to process business information.
The systems being evaluated include all internal use software and
devices and those systems and devices that manage the distribution of
TCIC's products. Additionally, TCIC has initiated formal communications
with its significant suppliers and affiliated companies to determine
the readiness of third parties and the impact on TCIC if those third
parties fail to remediate their own year 2000 issues.
Over the past three years, TCIC began an effort to convert a
substantial portion of its financial applications to commercial
products which are anticipated to be year 2000 ready, or to outsource
portions of financial applications to third party vendors who are
expected to be year 2000 ready. Notwithstanding such effort, TCIC is in
the process of finalizing its assessment of the impact of year 2000.
TCIC is utilizing both internal and external resources to identify,
correct or reprogram, and test systems for year 2000 readiness. To
date, TCIC has inventoried substantially all of its cable systems and
is currently evaluating the results of such inventory. TCIC expects
that it will have to modify or replace certain portions of its cable
distribution plant, although TCIC has not yet completed its assessment.
Confirmations have been received from certain primary suppliers
indicating that they are either year 2000 ready or have plans in place
to ensure readiness. As part of TCIC's manual assessment of its year
2000 issue, it is evaluating the level of validation it will require of
third parties to ensure their year 2000 readiness. TCIC's assessment of
the impact of the year 2000 date change should be complete by mid-1998.
(continued)
II-56
<PAGE> 80
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Notes to Consolidated Financial Statements
Management of TCIC has not yet determined the cost associated with its
year 2000 readiness efforts and the related potential impact on TCIC's
results of operations. Amounts expended to date have not been material,
although there can be no assurance that costs ultimately required to be
paid to ensure TCIC's year 2000 readiness will not have an adverse
effect on TCIC's financial position. Additionally, there can be no
assurance that the systems of other companies on which TCIC relies will
be converted in time or that any such failure to convert by another
company will not have an adverse effect on TCIC's financial condition
or position.
(15) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions
1997
<S> <C> <C> <C> <C>
Revenue $ 1,505 1,545 1,562 1,555
Operating income $ 348 308 313 259
Net earnings (loss) $ 39 (13) (38) (48)
1996
Revenue $ 1,333 1,430 1,571 1,620
Operating income $ 170 197 237 149
Net loss:
As previously reported $ (80) (114) (74) (184)
Adjustment for effect of adopting
equity method of accounting for
investee (2) (2) 20 (2)
------- ------- ------- -------
As adjusted $ (82) (116) (54) (186)
======= ======= ======= =======
</TABLE>
II-57
<PAGE> 81
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 "1998 Proxy Statement") to be used in connection with the 1998
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 1998 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
1998 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 1998 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 1998 Proxy Statement and is incorporated
herein by reference.
III-1
<PAGE> 82
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
<TABLE>
<CAPTION>
Included in Part II of this Report: Page No.
<S> <C>
Independent Auditors' Report II-17
Consolidated Balance Sheets,
December 31, 1997 and 1996 II-18 to II-19
Consolidated Statements of Operations,
Years ended December 31, 1997, 1996 and 1995 II-20
Consolidated Statements of Common Stockholder's Equity (Deficit),
Years ended December 31, 1997, 1996 and 1995 II-21 to II-23
Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996 and 1995 II-24
Notes to Consolidated Financial Statements,
December 31, 1997, 1996 and 1995 II-25 to II-57
</TABLE>
IV-1
<PAGE> 83
(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, 1997 and 1996; Condensed
Information as to the Operations and Cash Flows of the
Registrant, Years ended
December 31, 1997, 1996 and 1995 IV- 12 to IV-14
Schedule II - Valuation and Qualifying Accounts,
Years ended December 31, 1997, 1996 and 1995 IV-15
(ii) Separate financial statements for InterMedia Capital Partners, IV,
L.P.
Consolidated Financial Statements
Index to Financial Statements IV-16
Report of Independent Accountants IV-17
Consolidated Balance Sheets
as of December 31, 1996 and 1997 IV-18
Consolidated Statements of Operations
for the years ended December 31, 1996 and 1997 IV-19
Consolidated Statement of Changes in
Partners' Capital for the years ended
December 31, 1996 and 1997 IV-20
Consolidated Statements of Cash Flows
for the years ended December 31, 1996 and 1997 IV-21
Notes to Consolidated Financial Statements IV- 22 to IV-33
Schedule I - Condensed Financial Information IV- 34 to IV-38
Schedule II - Valuation and Qualifying Accounts IV-39
</TABLE>
IV-2
<PAGE> 84
(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):
<TABLE>
<CAPTION>
3 - Articles of Incorporation and Bylaws:
<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 Amended and Restated Tele-Communications, Inc. 1994 Stock
Incentive Plan.*
Amended and Restated Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan.*
Amended and Restated Tele-Communications, Inc. 1996 Incentive
Plan.
Incorporated herein by reference to the Tele-
Communications, Inc. Registration Statement on
Form S-8 (Commission File No. 333-40141).
10.2 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).
10.3 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).
</TABLE>
(continued)
IV-3
<PAGE> 85
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.4 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).
10.5 Consulting Agreement, dated as of August 28, 1997, between
Tele-Communications, Inc. and Brendan R. Clouston.
10.6 Amended Consulting Agreement, dated as of February 9, 1998,
between Tele-Communications, Inc. and Brendan R. Clouston.
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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 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).
</TABLE>
(continued)
IV-4
<PAGE> 86
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.12 Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A for the year ended
December 31, 1993 (Commission File No. 0-5550).
10.13 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).
10.14 TCI 401(k) Stock Plan, restated effective January 1, 1998.*
Incorporated herein by reference to the
Tele-Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File
No. 0-20421).
10.15 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).
10.16 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).
10.17 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 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).
10.18 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 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).
</TABLE>
(continued)
IV-5
<PAGE> 87
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
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 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).
10.20 Form of Non-Qualified Stock Option and Stock Appreciation
Rights Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 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).
10.21 Form of Non-Qualified Stock Option and Stock Appreciation
Rights Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 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 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).
10.23 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).
</TABLE>
(continued)
IV-6
<PAGE> 88
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.24 Form of Non-Qualified Stock Option and Stock Appreciation
Rights Agreement for 1997 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.*
Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Ventures Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.*
Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 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.*
Form of Restricted Stock Award Agreement for 1997 Award of
Series A TCI Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*
Form of Restricted Stock Award Agreement for 1997 Award of
Series A TCI Ventures Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*
Incorporated herein by reference to the
Tele-Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File
No. 0-20421).
10.25 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Wireless Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and
Tele-Communications, Inc.*
Form of Stock Appreciation Rights Agreement made as of the 1st day
of December, 1996, by and among TCI Teleport Holdings, Inc.,
Grantee, TCI Telephony Services, Inc. and Tele-Communications,
Inc.*
Form of Amended and Restated Option Agreement made as of the 1st
day of December, 1996, by and among TCI Wireline, Inc., Grantee
and Tele-Communications, Inc.*
Form of Option to Purchase Common Stock Agreement made as of the
1st day of December, 1996, by and among TCI.Net, Inc., Grantee
and Tele-Communications, Inc.*
Form of Stock Appreciation Right Agreement made as of the 1st
day of December, 1996, by and among TCI Internet Services,
Inc., Tele-Communications, Inc. and Grantee.*
Incorporated herein by reference to the
Tele-Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File
No. 0-20421).
10.26 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).
10.27 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).
</TABLE>
(continued)
IV-7
<PAGE> 89
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.28 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).
10.29 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P., dated as of January 31, 1996, among Sprint
Spectrum, L.P., TCI Network Services, Comcast Telephony
Services and Cox Telephony Partnership.
Second Amended and Restated Joint Venture Formation Agreement,
dated as of January 31, 1996, by and between Sprint
Corporation, Tele-Communications, Inc., Comcast Corporation and
Cox Communications, Inc.
Parents Agreement, dated as of January 31, 1996, by
Tele-Communications, Inc. and Sprint Corporation.
Incorporated herein by reference to Tele-Communications,
Inc.'s Current Report on Form 8-K, dated February 9,
1996 (Commission File No. 0-20421).
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
</TABLE>
(continued)
IV-8
<PAGE> 90
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.35 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).
10.36 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).
10.37 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).
10.38 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).
10.39 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).
10.40 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).
10.41 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).
</TABLE>
(continued)
IV-9
<PAGE> 91
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.42 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).
10.43 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).
10.44 InterMedia Capital Management, L.P. Agreement of Limited
Partnership, dated as of June 10, 1997 and effective as of May
22, 1997, by and between InterMedia Management, Inc., Leo J.
Hindery, Jr. and TCI ICM I, Inc.
InteMedia Capital Management III, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of June 10, 1997,
by and among Leo J. Hindery, Jr., InterMedia Management, Inc.
and TCI ICM III, Inc.
InterMedia Capital Management IV, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of August 5, 1997,
by and between InterMedia Management, Inc., TCI ICM IV, Inc.
and Leo J. Hindery, Jr.
Incorporated herein by reference to the
Tele-Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File
No. 0-20421).
10.45 Tax Sharing Agreement, effective for periods on and after
October 1, 1997, among TCI and certain entities attributed to
each of TCI Group, Liberty Media Group and TCI Ventures Group,
as amended by the First Amendment to the Tax Sharing
Agreements, dated as of October 1, 1997, among TCI and certain
entities attributed to each of TCI Group, Liberty Media Group
and TCI Ventures Group.
Incorporated herein by reference to Exhibit 9(c)2 to TCI's
Schedule 13E-4/A (Amendment No. 2), Issuer Tender
Offer Statement, dated September 5, 1997 (Commission
File No. 0-20421).
21- Subsidiaries of TCI Communications, Inc.
23- Consent of Experts and Counsel
23.1- Consent of KPMG Peat Marwick LLP.
23.2- Consent of Price Waterhouse LLP.
27- Financial data schedule
</TABLE>
*Constitutes management contract or compensatory arrangement.
(b) Report on Form 8-K filed during the quarter ended December 31, 1997:
None.
IV-10
<PAGE> 92
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TCI Communications, Inc.:
Under date of March 20, 1998, we reported on the consolidated balance sheets of
TCI Communications, Inc. and subsidiaries (a subsidiary of Tele-Communications,
Inc.) as of December 31, 1997 and 1996, and the related consolidated statements
of operations, common stockholder's equity (deficit), and cash flows for each of
the years in the three-year period ended December 31, 1997, which are included
in the December 31, 1997 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 20, 1998
IV-11
<PAGE> 93
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, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996*
- ------ ---- -----
<S> <C> <C>
Investments in and advances to consolidated subsidiaries - eliminated upon
consolidation $ 8,429 9,224
Other assets, net of amortization 215 213
------- -------
$ 8,644 9,437
======= =======
Liabilities and Common Stockholder's Deficit
Accrued liabilities $ 731 597
Debt 8,482 8,669
------- -------
Total liabilities 9,213 9,266
Redeemable preferred stock 232 232
Common stockholder's deficit (see detail on page II-19) (801) (61)
------- -------
$ 8,644 9,437
======= =======
Guarantees $ 25 22
======= =======
</TABLE>
* Restated - see note 13 to the consolidated financial statements.
IV-12
<PAGE> 94
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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
---- ----- -----
amounts in millions
<S> <C> <C> <C>
Management costs reimbursed by subsidiaries
$ 392 247 152
----- ----- -----
Income (expense):
Selling, general and administrative (201) (184) (116)
Stock compensation (114) 12 (17)
Interest expense (683) (707) (624)
Interest income, principally from consolidated
subsidiaries 683 707 625
Restructuring charges -- (5) --
Depreciation and amortization (43) (31) (19)
Loss on early extinguishment of debt (37) (40) --
Loss (gain) on disposition and exchange of assets, net
3 1 (1)
----- ----- -----
(392) (247) (152)
----- ----- -----
Earnings from operations before share of losses of
consolidated subsidiaries -- -- --
Share of losses of consolidated subsidiaries (60) (438) (132)
----- ----- -----
Net loss (60) (438) (132)
Dividend requirements on preferred stock (10) (9) --
----- ----- -----
Net loss attributable to common stockholder
$ (70) (447) (132)
===== ===== =====
</TABLE>
* Restated - see note 13 to the consolidated financial statements.
IV-13
<PAGE> 95
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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996* 1995*
---- ---- -----
amounts in millions
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings before share of losses of consolidated subsidiaries $ -- -- --
Adjustments to reconcile earnings before share of losses of consolidated
subsidiaries to net cash provided by operating activities:
Depreciation and amortization 43 31 19
Stock compensation 114 (12) 17
Payments of obligation relating to stock compensation (13) (2) (4)
Loss on early extinguishment of debt 37 40 --
Loss (gain) on disposition and exchange of assets, net (3) (1) 1
Other noncash charges 4 4 1
Change in accrued liabilities 139 195 77
------ ------ ------
Net cash provided by operating activities 321 255 111
------ ------ ------
Cash flows from investing activities:
Reduction in or additional investments in and advances to
consolidated subsidiaries, net 540 (258) (2,592)
Capital expended for property and equipment (65) (120) --
Proceeds on disposition of assets -- 7 --
Other investing activities (164) (6) (52)
------ ------ ------
Net cash provided (used) by investing activities 311 (377) (2,644)
------ ------ ------
Cash flows from financing activities:
Borrowings of debt 750 1,617 5,255
Repayments of debt (938) (1,285) (3,651)
Prepayment penalties (33) (35) --
Proceeds from issuance of redeemable preferred stock -- 223 --
Net change in due from related parties (401) (391) 929
Payment of redeemable preferred stock dividends (10) (7) --
------ ------ ------
Net cash provided (used) by financing activities (632) 122 2,533
------ ------ ------
Net change in cash -- -- --
Cash at beginning of year -- -- --
------ ------ ------
Cash at end of year $ -- -- --
====== ====== ======
Supplemental disclosure of cash flow information -
Cash paid during the year for interest $ 695 738 576
</TABLE>
* Restated - see note 13 to the consolidated financial statements
See also note 3 to the consolidated financial statements.
IV-14
<PAGE> 96
Schedule II
------------
TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
(A Subsidiary of Tele-Communications, Inc.)
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
<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, 1997:
Allowance for doubtful receivables
- trade $ 25 86 (91) 20
====== =========== =========== ===========
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
====== =========== =========== ===========
</TABLE>
IV-15
<PAGE> 97
INTERMEDIA CAPITAL PARTNERS IV, L.P.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Reference Page
Form 10-K
---------
<S> <C>
Report of Independent Accountants............................................. IV-17
Consolidated Balance Sheets as of December 31, 1996 and 1997.................. IV-18
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1997.................................................. IV-19
Consolidated Statement of Changes in Partners' Capital for the years
ended December 31, 1996 and 1997............................................ IV-20
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1997.................................................. IV-21
Notes to Consolidated Financial Statements.................................... IV-22
Schedule I -- Condensed Financial Information of InterMedia Capital
Partners IV, L.P............................................................ IV-34
Schedule II -- Valuation and Qualifying Accounts.............................. IV-39
</TABLE>
IV-16
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of InterMedia Capital Partners IV, L.P.
In our opinion, the consolidated financial statements listed
in the accompanying index present fairly, in all material respects, the
financial position of InterMedia Capital Partners IV, L.P. and its subsidiaries
at December 31, 1996 and 1997, and the results of their operations and their
cash flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits 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 audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Francisco, California
February 27, 1998
IV-17
<PAGE> 99
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................... $ 8,770 $ 6,388
Accounts receivable, net of allowance for doubtful accounts of
$2,130 and $1,685, respectively ......................... 17,539 23,163
Escrowed investments held to maturity ........................ 28,237 29,359
Interest receivable on escrowed investments .................. 2,194 1,418
Receivable from affiliate .................................... 923 686
Prepaids ..................................................... 2,768 599
Other current assets ......................................... 232 359
--------- ---------
Total current assets ....................... 60,663 61,972
Escrowed investments held to maturity ........................ 60,518 31,148
Intangible assets, net ....................................... 631,732 550,726
Property & equipment, net .................................... 232,410 310,455
Deferred income taxes ........................................ 9,910 14,221
Other non-current assets ..................................... 1,466 2,242
--------- ---------
Total assets ............................... $ 996,699 $ 970,764
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities ..................... $ 28,973 $ 32,708
Payable to affiliates ........................................ 3,408 3,813
Deferred revenue ............................................. 11,753 15,856
Accrued interest ............................................. 20,322 22,076
--------- ---------
Total current liabilities .................. 64,456 74,453
Deferred channel launch revenue .............................. 4,154
Long-term debt ............................................... 846,000 876,500
Other non-current liabilities ................................ 70 131
--------- ---------
Total liabilities .......................... 910,526 955,238
--------- ---------
Commitments and contingencies
Minority interest
Mandatorily redeemable preferred shares ...................... 12,357 13,239
PARTNERS' CAPITAL
Preferred limited partnership interest ....................... 24,888 24,888
General and limited partners' capital ........................ 50,778 (20,751)
Note receivable from partner ................................. (1,850) (1,850)
--------- ---------
Total partners' capital .................... 73,816 2,287
--------- ---------
Total liabilities and partners' capital .... $ 996,699 $ 970,764
========= =========
</TABLE>
See accompanying notes to the consolidated financial statements
IV-18
<PAGE> 100
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1996 1997
---------- ----------
<S> <C> <C>
REVENUES
Basic and cable services ................................................ $ 73,392 $ 171,622
Pay service ............................................................. 17,932 41,054
Other service ........................................................... 15,093 38,995
---------- ----------
106,417 251,671
---------- ----------
COSTS AND EXPENSES
Program fees ............................................................ 22,881 53,903
Other direct expenses ................................................... 13,148 26,529
Depreciation and amortization ........................................... 64,707 130,428
Selling, general and administrative expenses ............................ 20,337 48,334
Management and consulting fees .......................................... 1,558 3,350
---------- ----------
122,631 262,544
---------- ----------
Loss from operations .................................................... (16,214) (10,873)
---------- ----------
OTHER INCOME (EXPENSE):
Interest and other income ............................................ 6,398 5,148
Gain on sale of cable system ......................................... 10,006
Gain on sale of investments .......................................... 286
Interest expense ..................................................... (37,742) (78,185)
Other expense ........................................................ (1,216) (853)
---------- ----------
(32,274) (63,884)
---------- ----------
Loss before income tax benefit, extraordinary items and minority interest (48,488) (74,757)
Income tax benefit ...................................................... 2,596 4,026
---------- ----------
Net loss before extraordinary items and minority interest ............... (45,892) (70,731)
Extraordinary gain on early extinguishments of debt, net of tax ......... 18,483
Minority interest ....................................................... (320) (882)
---------- ----------
Net loss ................................................................ $ (27,729) $ (71,613)
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
IV-19
<PAGE> 101
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
LIMITED GENERAL LIMITED NOTES
PARTNER PARTNER PARTNERS RECEIVABLE TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Syndication costs .......................... $ (43) $ (7) $ (575) $ $ (625)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 ............... (43) (7) (575) (625)
Cash contributions ......................... 1,913 188,637 190,550
Notes receivable from General Partner ...... 1,850 (1,850)
In-kind contributions, historical cost basis 237,805 237,805
Conversion of GECC debt to equity .......... 25,000 11,667 36,667
Allocation of RMG's and IPWT's historical
equity balances ....................... (2,719) (239,368) (242,087)
Distribution ............................... (119,775) (119,775)
Syndication costs .......................... (69) (10) (911) (990)
Net loss ................................... (311) (27,418) (27,729)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 ............... 24,888 716 50,062 (1,850) 73,816
Cash contributions ......................... 84 84
Transfer and conversion of General Partner
Interest to Limited Partner Interest .. (799) 799
Net loss ................................... (1) (71,612) (71,613)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 ............... $ 24,888 $ $ (20,751) $ (1,850) $ 2,287
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
IV-20
<PAGE> 102
INTERMEDIA CAPITAL PARTNERS IV, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------- ----------
1996 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................... $ (27,729) $ (71,613)
Minority interest ............................................. 320 882
Loss on disposal of fixed assets .............................. 324 263
Depreciation and amortization ................................. 65,905 131,830
Gain on sale of investment .................................... (286)
Gain on sale of cable system .................................. (10,006)
Extraordinary gain on early extinguishments of debt, net of tax (18,483)
Changes in assets and liabilities:
Accounts receivable ..................................... (2,798) (5,569)
Receivable from affiliate ............................... 151 237
Prepaids ................................................ (1,922) 2,169
Interest receivable ..................................... (2,633) 776
Other current assets .................................... 8 (127)
Deferred income taxes ................................... (2,596) (4,311)
Other non-current assets ................................ 379 (776)
Accounts payable and accrued liabilities ................ 4,826 4,395
Payable to affiliates ................................... 1,531 405
Deferred revenue ........................................ 394 4,103
Accrued interest ........................................ 20,322 1,754
Deferred channel launch revenue ......................... 4,154
Other non-current liabilities ........................... (16) 61
---------- ----------
Cash flows from operating activities .......................... 37,697 58,627
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of cable systems, net of cash acquired .............. (415,806)
Proceeds from sale of cable system ............................ 11,157
Purchase of RMG Class A Common Stock .......................... (329)
Property and equipment ........................................ (38,167) (129,573)
Intangible assets ............................................. (37) (1,041)
Notes receivable .............................................. (15,000)
Purchases of escrowed investments ............................. (88,755)
Proceeds from maturity of escrowed investments ................ 28,248
Proceeds from sale of investment .............................. 1,081
---------- ----------
Cash flows from investing activities .......................... (557,013) (91,209)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt .................................. 850,000 30,500
Repayment of long-term debt ................................... (369,504)
Call premium and other fees on early extinguishment of debt ... (4,716)
Contributed capital ........................................... 190,550 84
Partner distribution .......................................... (119,775)
Debt issue costs .............................................. (17,479) (384)
Syndication costs ............................................. (990)
---------- ----------
Cash flows from financing activities .......................... 528,086 30,200
---------- ----------
Net change in cash ................................................... 8,770 (2,382)
Cash and cash equivalents, beginning of period ....................... 8,770
---------- ----------
Cash and cash equivalents, end of period ............................. $ 8,770 $ 6,388
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
IV-21
<PAGE> 103
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE COMPANY AND BASIS OF PRESENTATION:
InterMedia Capital Partners IV, L.P. ("ICP-IV" or the "Company"), a
California limited partnership, was formed on March 19, 1996, as a successor to
InterMedia Partners IV, L.P. ("IP-IV") which was formed in October 1994, for the
purpose of acquiring and operating cable television systems in three geographic
clusters, all located in the southeastern United States.
As of December 31, 1997, ICP-IV's systems served the following number of
basic subscribers and encompassed the following number of homes passed:
<TABLE>
<CAPTION>
Basic Homes
Subscribers Passed
----------- -------
(unaudited)
<S> <C> <C>
Nashville/Mid-Tennessee Cluster .................. 332,769 525,140
Greenville/Spartanburg Cluster ................... 144,484 203,519
Knoxville/East Tennessee Cluster ................. 100,380 145,162
------- -------
Total .................................. 577,633 873,821
======= =======
</TABLE>
During 1996, ICP-IV obtained capital contributions from its limited and
general partners of $360,000, including cable television properties and debt and
equity interests in InterMedia Partners of West Tennessee, L.P. ("IPWT"), an
affiliated entity. The limited partner contributions are from various
institutional investors and include a preferred limited partner interest of
$25,000, which General Electric Capital Corporation ("GECC") received in
exchange for a portion of its note receivable from IPWT.
ICP-IV is the successor partnership to IP-IV. Upon formation of ICP-IV,
the previous general and limited partners of IP-IV became the general and
limited partners of ICP-IV. Simultaneously, ICP-IV became the 99.99% limited
partner of IP-IV. InterMedia Capital Management, LLC ("ICM-IV LLC"), the .001%
general partner of ICP-IV, is the .01% general partner of IP-IV (see Note
13--Related Party Transactions).
The Company's acquisitions of its cable television systems were
structured as leveraged transactions and a significant portion of the assets
acquired are intangible assets which are being amortized over one to twelve
years. Therefore, as was planned, the Company has incurred substantial book
losses. Of the total cumulative loss before income tax benefit, extraordinary
items and minority interest of $123,245, non-cash charges have aggregated
$198,322. These charges consist of $72,550 of depreciation of property and
equipment, $125,185 of amortization of intangible assets, predominately related
to franchise rights and goodwill, and $587 of loss on disposal of fixed assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of ICP-IV and
its majority owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
Cash equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Revenue recognition
Cable television service revenue is recognized in the period in which
the services are provided to customers. Deferred revenue represents revenue
billed in advance and deferred until cable service is provided.
IV-22
<PAGE> 104
Escrowed investments held to maturity
Escrowed investments held to maturity are carried at amortized cost and
consist of U.S. Treasury Notes with maturities ranging from one to nineteen
months. The investments are held in an escrow account to be used by the Company
to make interest payments on the Company's senior notes (see Note 9 -- Long-Term
Debt).
Property and equipment
Additions to property and equipment, including new customer
installations, are recorded at cost. Self constructed fixed assets include
materials, labor and overhead. Costs of disconnecting and reconnecting cable
service are expensed. Expenditures for maintenance and repairs are charged to
expense as incurred. Expenditures for major renewals and improvements are
capitalized. Capitalized plant is written down to recoverable values whenever
recoverability through operations or sale of the systems becomes doubtful.
Depreciation is computed using the double-declining balance method over
the following estimated useful lives:
<TABLE>
<CAPTION>
Years
---------
<S> <C>
Cable television plant ........................................ 5--10
Buildings and improvements .................................... 10
Furniture and fixtures ........................................ 3--7
Equipment and other ........................................... 3--10
</TABLE>
Intangible assets
The Company has franchise rights to operate cable television systems in
various towns and political subdivisions. Franchise rights are being amortized
over the lesser of the remaining lives of the franchises or the base twelve-year
term of ICP-IV which expires on December 31, 2007. Remaining franchise lives
range from one to nineteen years.
Goodwill represents the excess of acquisition cost over the fair value
of net tangible and franchise assets acquired and liabilities assumed and is
being amortized on a straight line basis over the twelve-year term of ICP-IV.
Debt issue costs are included in intangible assets and are being
amortized over the terms of the related debt.
Costs associated with potential acquisitions are initially deferred. For
acquisitions which are completed, related costs are capitalized as part of the
purchase price of assets acquired. For those acquisitions not completed, related
costs are expensed in the period the acquisition is abandoned.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the systems becomes doubtful. Each
year, the Company evaluates the recoverability of the carrying value of its
intangible assets by assessing whether the projected cash flows, including
projected cash flows from sale of the systems, is sufficient to recover the
unamortized costs of these assets.
Interest rate swaps
Under an interest rate swap, the Company agrees with another party to
exchange interest payments at specified intervals over a defined term. Interest
payments are calculated by reference to the notional amount based on the
difference between the fixed and variable rates pursuant to the swap agreement.
The net interest received or paid as part of the interest rate swap is accounted
for as an adjustment to interest expense.
Long-lived assets and long-lived assets to be disposed of
ICP-IV has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." ICP-IV reviews property and equipment and intangible assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. No impairment losses have
been recognized by ICP-IV.
IV-23
<PAGE> 105
Income taxes
Income taxes reported in ICP-IV's financial statements represent the tax
effects of Robin Media Group, Inc.'s ("RMG") results of operations. RMG, a
subsidiary of ICP-IV, is the only entity within the Company's organization
structure which reports provision/benefit for income taxes. No provision or
benefit for income taxes is reported by any of ICP-IV's other subsidiaries or by
ICP-IV because, as partnerships, the tax effects of these entities' results of
operations accrue to the partners. ICP-IV and its partnership subsidiaries are
registered with the Internal Revenue Service as tax shelters under Internal
Revenue Code Section 6111(b).
RMG accounts for income taxes using the asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
Partners' capital
Syndication costs incurred to raise capital have been charged to
partners' capital.
Allocation of profits and losses
Profits and losses are allocated in accordance with the provisions of
ICP-IV's amended and restated partnership agreement, dated August 5, 1997,
generally as follows:
Losses are allocated first to the partners other than the
preferred limited partner, and thereafter to the preferred limited
partner, in each case to the extent of and in accordance with relative
capital contributions; second, to the partners which loaned money to the
Partnership to the extent of and in accordance with relative loan
amounts; and third, to the partners in accordance with relative capital
contributions.
Profits are allocated first to the preferred limited partner in
an amount sufficient to yield an 11.75% return compounded semi-annually
on its capital contributions; second, to the partners which loaned money
to the Partnership to the extent of and proportionate to previously
allocated losses relating to such loans; third, among the partners,
other than the preferred limited partner, in accordance with relative
capital contributions, in an amount sufficient to yield a pre-tax return
of 15% per annum on their capital contributions; and fourth, 20% to a
certain limited partner and 80% to the limited and general partners,
other than the preferred limited partner, in accordance with relative
capital contributions.
Use of estimates in the preparation of financial statements
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 the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
Reclassifications
Certain amounts in the 1996 financial statements have been reclassified
to conform to the 1997 presentation.
Disclosures about fair value of financial instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate the fair value:
Current assets and current liabilities: The carrying value of
receivables, payables, deferred revenue, and accrued liabilities
approximates fair value due to their short maturity.
Escrowed investments: The fair value of the escrowed investments
held to maturity is based on quoted market prices (see Note 4).
IV-24
<PAGE> 106
Long-term debt: The fair value of the Company's borrowings under
the bank term loan and revolving credit facility are estimated based on
the borrowing rates currently available to the Company for obligations
with similar terms. The fair value of the senior notes is based on
recent trading prices (see Note 9).
3. ACQUISITIONS AND SALE OF CABLE PROPERTIES
Acquisitions
On July 30, 1996 and August 1, 1996, the Company borrowed $558,000 under
a new bank term loan and revolving credit agreement (the "Bank Facility"),
issued $292,000 in senior notes (the "Notes"), and received equity contributions
from its partners of $360,000, consisting of: $190,550 in cash; $117,600
representing the fair market value of certain cable television systems (the
"Greenville/Spartanburg System") contributed, net of cash paid to the
contributing partner of $119,775; $13,333 representing the fair market value of
general and limited partner interests in IPWT, an affiliate; $36,667 in exchange
for notes receivable from IPWT; and $1,850 in the form of a note receivable from
InterMedia Capital Management IV, L.P. ("ICM-IV"), the former 1.1% general
partner of ICP-IV (see Note 13--Related Party Transactions). The Bank Facility,
the Notes and the equity contributions are referred to as the "Financing."
On July 30, 1996, the Company acquired cable television systems serving
as of the acquisition date approximately 360,100 basic subscribers in Tennessee,
South Carolina and Georgia through the Company's acquisition of controlling
equity interests in IPWT and Robin Media Holdings, Inc. ("RMH"), an affiliate,
and through the equity contribution of the Greenville/Spartanburg System to the
Company by affiliates of Tele-Communications, Inc. ("TCI").
The Company acquired all of the general and limited partner interests of
IPWT in exchange for a $13,333 limited partner interest in ICP-IV. Concurrently,
GECC transferred to ICP-IV its $55,800 note receivable from IPWT and related
interest receivable of $3,356 in exchange for an $11,667 limited partner
interest in ICP-IV, a $25,000 preferred limited partner interest in ICP-IV and
cash of $22,489.
InterMedia Partners V, L.P. ("IP-V"), a former affiliate, owned all of
the outstanding equity of RMH prior to the Company's acquisition of a majority
of the voting interests in RMH. In conjunction with a recapitalization of RMH,
ICP-IV purchased 3,285 shares of RMH's Class A Common Stock for $329.
Concurrently, a wholly owned subsidiary of TCI converted its outstanding loan to
IP-V into a limited partnership interest and, in dissolution of the IP-V
partnership, received 365 shares of RMH Class B Common Stock valued at $37 and
12,000 shares of RMH Redeemable Preferred Stock valued at $12,000. Upon
completion of the recapitalization, the Company has 60% of the voting interests
of RMH, with TCI owning the remaining 40%. In connection with the acquisition,
the Company assumed approximately $331,450 of long-term debt and $11,565 of
accrued interest, which was repaid with proceeds from the Financing. Upon
consummation of the acquisition, RMH merged into its wholly owned operating
subsidiary Robin Media Group, Inc. ("RMG"). All of the RMH stock just described
was converted as a result of the merger into capital stock of RMG with the same
terms.
Affiliates of TCI contributed cash and transferred their interests in
the Greenville/Spartanburg System to the Company in exchange for a 49.0% limited
partner interest in ICP-IV and an assumption of $119,775 of debt which was
simultaneously repaid by the Company with proceeds from the Financing. The cash
paid of $119,775 for debt assumed has been recorded as a distribution to TCI in
the accompanying consolidated financial statements.
TCI held substantial direct and indirect ownership interests in each of
RMH, IPWT and the Greenville/Spartanburg System. As a result of TCI's
substantial continuing interest in RMG, IPWT and the Greenville/Spartanburg
System after the Company's acquisitions, the acquired assets of these entities
have been accounted for at their historical basis as of the acquisition date.
Results of operations for these entities have been included in the Company's
consolidated results only from the acquisition date. The historical cost basis
of RMH's, IPWT's and the Greenville/Spartanburg System's assets purchased and
liabilities assumed as of July 30, 1996 was as follows:
IV-25
<PAGE> 107
<TABLE>
<S> <C>
Current assets ............................................... $ 19,368
Property and equipment ....................................... 107,504
Franchise rights ............................................. 270,593
Goodwill ..................................................... 59,532
Other non-current assets ..................................... 8,124
---------
Total assets ....................................... $ 465,121
=========
Current liabilities .......................................... $ 33,283
Long-term debt ............................................... 543,434
Other non-current liabilities ................................ 87
---------
Total liabilities .................................. 576,804
---------
Mandatorily redeemable preferred stock ....................... 12,000
Minority interest ............................................ 37
Total equity ................................................. (123,720)
---------
Total liabilities and equity ....................... $ 465,121
=========
</TABLE>
On May 8, 1996, the Company acquired the Houston, Texas cable television
assets of Prime Cable ("the Prime Houston System") with the intent of exchanging
with TCI the Prime Houston System for cable television systems of Viacom serving
approximately 147,600 basic subscribers in metropolitan Nashville, Tennessee
(the "Nashville System"). The purchase price for the Prime Houston System of
approximately $300,000 was financed entirely with non-recourse debt from TCI
Communications, Inc. ("TCIC"), a wholly owned subsidiary of TCI, and Bank of
America which was repaid with the proceeds from the Financing. As was planned,
on July 31, 1996, TCI and TCIC consummated the acquisition of all of Viacom's
cable television systems including the Nashville System. On August 1, 1996, the
Company acquired the Nashville System in exchange for the Prime Houston System
and cash equal to the difference between the fair market values of the systems.
The aggregate purchase price of the Nashville System pursuant to the exchange
was $315,333. TCI managed the Prime Houston System during the Company's
ownership period, and, under the terms of the exchange agreement, the Company
was obligated to sell to TCIC and TCIC was obligated to purchase the Prime
Houston System from the Company for an amount in cash sufficient to repay the
outstanding balances of the TCIC and bank loans in the event that TCI had been
unable to complete the Viacom acquisition by October 1, 1996. Under the terms of
the various agreements with TCIC, the Company could not dispose of and did not
have effective control over the use of the Prime Houston assets, and there was
no economic effect to the Company from the Prime Houston assets during the
Company's ownership of the Prime Houston System. Accordingly, the accounts of
the Prime Houston System and the related debt and interest expense have been
excluded from the Company's consolidated financial statements. The Company's
acquisition of the Nashville System has been accounted for as a purchase in
accordance with Accounting Principles Board Opinion No. 16 ("APB16") and the
Nashville System's results of operations have been included in the Company's
consolidated results only from August 1, 1996, the date of the exchange.
During the year ended December 31, 1996, the Company acquired other
cable television systems serving as of the acquisition dates approximately
59,600 basic subscribers primarily in central and eastern Tennessee for an
aggregate purchase price of $102,701 (the "Miscellaneous Acquisitions"). These
acquisitions have also been accounted for as purchases in accordance with APB16.
Accordingly, results of operations of the Miscellaneous Acquisitions have been
included in the Company's consolidated results only from the dates of
acquisition.
Total acquisition costs of the Nashville System and the Miscellaneous
Tennessee Acquisitions are as follows:
<TABLE>
<S> <C>
Cash paid to sellers, net of liabilities assumed ............ $415,390
Other acquisition costs ..................................... 2,644
--------
Total acquisition costs ........................... $418,034
========
</TABLE>
The Company's allocation of acquisition costs for the Nashville System
and the Miscellaneous Tennessee Acquisitions is as follows:
<TABLE>
<S> <C>
Current assets ......................................... $ 8,454
Property and equipment ................................. 90,421
Franchise rights ....................................... 306,607
Goodwill ............................................... 21,583
Other non-current assets ............................... 376
--------
Total assets ................................. 427,441
Current liabilities .................................... 9,407
--------
Net assets acquired .......................... $418,034
========
</TABLE>
IV-26
<PAGE> 108
Had the acquisitions and the Financing been completed as of January 1,
1996, pro forma revenues, net loss before extraordinary gain on early
extinguishment of debt and minority interest and net loss for the year ended
December 31, 1996 would have been $228,272 (unaudited), $108,193 (unaudited) and
$90,530 (unaudited), respectively.
Sale
On December 5, 1997, the Company sold its cable television assets
serving approximately 7,400 basic subscribers in and around Royston and Toccoa,
Georgia. The sale resulted in a gain, calculated as follows:
<TABLE>
<S> <C>
Proceeds from sale ...................... $ 11,212
Net book value of assets sold ........... (1,206)
--------
Gain on sale ............................ $ 10,006
========
</TABLE>
4. ESCROWED INVESTMENTS HELD TO MATURITY
The Company's escrowed investments (see Note 9) held to maturity consist
of U.S. Treasury Notes with fair value amounts and maturities as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1996 1997
--------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Matures within 1 year $ 28,237 $ 28,333 $ 29,359 $ 29,805
Matures between 1 and 2 years 60,518 61,019 31,148 31,552
---------- ---------- ---------- ----------
Total $ 88,755 $ 89,352 $ 60,507 $ 61,357
========== ========== ========== ==========
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1997
---------- ----------
<S> <C> <C>
Franchise rights ....... $ 577,786 $ 577,921
Goodwill ............... 78,760 78,828
Debt issue costs ....... 17,479 17,863
Other .................. 294 614
---------- ----------
674,319 675,226
Accumulated amortization (42,587) (124,500)
---------- ----------
$ 631,732 $ 550,726
========== ==========
</TABLE>
IV-27
<PAGE> 109
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
---------- ----------
<S> <C> <C>
Land ..................... $ 3,089 $ 3,204
Cable television plant ... 192,888 251,034
Buildings and improvements 2,977 3,369
Furniture and fixtures ... 1,999 3,595
Equipment and other ...... 15,255 17,045
Construction in progress . 38,489 101,368
---------- ----------
254,697 379,615
Accumulated depreciation . (22,287) (69,160)
---------- ----------
$ 232,410 $ 310,455
========== ==========
</TABLE>
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
Accounts payable ............... $ 1,391 $ 3,969
Accrued program costs .......... 1,431 2,442
Accrued franchise fees ......... 4,895 5,636
Accrued copyright fees ......... 1,064 1,089
Accrued capital expenditures ... 8,720 8,060
Accrued payroll costs .......... 1,973 2,640
Accrued property and other taxes 2,829 3,174
Other accrued liabilities ...... 6,670 5,698
---------- ----------
$ 28,973 $ 32,708
========== ==========
</TABLE>
8. CHANNEL LAUNCH REVENUE
During the year ended December 31, 1997, the Company received payments
of $8,014 from certain programmers to launch and promote their new channels. Of
the total amount received, the Company recognized advertising revenue of $1,998
for advertisements provided by the Company to promote the new channels. The
remaining payments received from the programmers are being amortized over the
respective terms of the program agreements which range between five and ten
years. $1,487 was amortized and recorded as other service revenue for the year
ended December 31, 1997.
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
---------- ----------
<S> <C> <C>
Bank revolving credit facility, $475,000 commitment as
of December 31, 1997, interest currently at LIBOR
plus 1.00% (6.75%) or ABR (8.5%) payable quarterly,
matures July 1, 2004 ............................... $ 334,000 $ 364,500
Bank term loan; interest at LIBOR plus 2.00%
(7.75%) payable quarterly, matures
January 1, 2005 .................................... 220,000 220,000
11 1/4% senior notes, interest payable semi-annually,
due August 1, 2006 ................................. 292,000 292,000
---------- ----------
$ 846,000 $ 876,500
========== ==========
</TABLE>
IV-28
<PAGE> 110
The Company's bank debt is outstanding under the revolving credit
facility and term loan agreement executed by IP-IV and dated July 30, 1996. The
revolving credit facility currently provides for $475,000 of available credit.
Starting January 1, 1999, revolving credit facility commitments will be
permanently reduced semiannually by increments ranging from $22,500 to $47,500
through maturity on July 1, 2004. The term loan requires semiannual principal
payments of $500 starting January 1, 1999 through January 1, 2004, and final
principal payments in two equal installments of $107,250 on July 1, 2004 and
January 1, 2005. Advances under the Bank Facility are available under interest
rate options related to the base rate of the administrative agent for the Bank
Facility ("ABR") or LIBOR. Effective October 20, 1997, pursuant to an amendment
to the revolving credit facility and term loan agreement, interest rates on
borrowings under the term loan vary from LIBOR plus 1.75% to LIBOR plus 2.00% or
ABR plus 0.50% to ABR plus 0.75% based on the Company's ratio of senior debt to
annualized quarterly operating cash flow ("Senior Debt Ratio"). Interest rates
vary also on borrowings under the revolving credit facility from LIBOR plus
0.625% to LIBOR plus 1.50% or ABR to ABR plus 0.25% based on the Company's
Senior Debt Ratio. Prior to the amendment, interest rates on borrowings under
the term loan were at LIBOR plus 2.375% or ABR plus 1.125%; and, interest rates
on borrowings under the revolving credit facility varied from LIBOR plus 0.75%
to LIBOR plus 1.75% or ABR to ABR plus 0.50% based on the Senior Debt Ratio. For
purposes of this computation, senior debt, as defined, excludes the 11 1/4%
senior notes. The Bank Facility requires quarterly interest payments, or more
frequent interest payments if a shorter period is selected under the LIBOR
option, and quarterly payment of fees on the unused portion of the revolving
credit facility at 0.375% per annum when the senior leverage ratio is greater
than 4.0:1.0 and at 0.25% when the senior leverage ratio is less than or equal
to 4.0:1.0. At December 31, 1997, the interest rates were 6.75% and 8.50% on
borrowings of $347,000 and $17,500, respectively, outstanding under the
revolving credit facility. At December 31, 1996, the interest rates on
borrowings under the revolving credit facility and the term loan were 7.25% and
8.88%, respectively.
The Company has entered into interest rate swap agreements in the
aggregate notional principal amount of $120,000 to establish long-term fixed
interest rates on its variable senior bank debt. Under the swap agreements, the
Company pays quarterly interest at fixed rates ranging from 6.28% to 6.3225% and
receives quarterly interest payments equal to LIBOR. The differential to be paid
or received in connection with an individual swap agreement is accrued as
interest rates change over the period to which the payments or receipts relate.
The agreements expire between May 1999 and February 2000.
The estimated fair value of the interest rate swaps is based on the
current value in the market for transactions with similar terms and adjusted for
the holding period. At December 31, 1996 and 1997, the fair market value of the
interest rate swaps was $(2,700) and $(2,198), respectively.
Borrowings under the Bank Facility are secured by the capital stock and
partnership interests of IP-IV's subsidiaries, a negative pledge on other assets
of IP-IV and subsidiaries and a pledge of any intercompany notes.
The 11 1/4% senior notes will be redeemable at the option of the
Company, in whole or in part, subsequent to August 1, 2001 at specified
redemption prices which will decline in equal annual increments and range from
105.625% beginning August 1, 2001 to 100.0% of the principal amount beginning
August 1, 2004 through the maturity date, plus accrued interest.
As of December 31, 1996 and 1997, ICP-IV has $90,949 and $61,925,
respectively, in pledged securities, including interest, which represent
sufficient funds to provide for payment in full of interest on the Notes through
August 1, 1999 and that are pledged as security for repayment of the Notes under
certain circumstances. Proceeds from the pledged securities will be used by
ICP-IV to make interest payments on the Notes through August 1, 1999.
ICP-IV is the issuer of the Notes and, as a holding company, has no
direct operations. The Notes are structurally subordinated to borrowings of
IP-IV under the Bank Facility. The Bank Facility restricts IP-IV and its
subsidiaries from paying dividends and making other distributions to ICP-IV.
The debt agreements contain certain covenants which restrict the
Company's ability to encumber assets, make investments or distributions, retire
partnership interests, pay management fees currently, incur or guarantee
additional indebtedness and purchase or sell assets. The debt agreements include
financial covenants which require minimum interest and debt coverage ratios and
specify maximum debt to cash flow ratios.
IV-29
<PAGE> 111
Annual maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 ................. $
1999 ................. 1,000
2000 ................. 1,000
2001 ................. 45,500
2002 ................. 83,500
Thereafter ........... 745,500
--------
$876,500
========
</TABLE>
Based on recent trading prices of the Notes, the fair value of these
securities at December 31, 1997 is $324,500. Borrowings under the Bank Facility
are at rates that would be otherwise currently available to the Company.
Accordingly, the carrying amounts of bank borrowings outstanding as of December
31, 1997 approximate their fair value.
10. MANDATORILY REDEEMABLE PREFERRED SHARES
The RMG Redeemable Preferred Stock has an annual dividend of 10.0% and
participates in any dividends paid on the common stock at 10.0% of the dividend
per share paid on the common stock. The RMG Redeemable Preferred Stock bears a
liquidation preference of $12,000 plus any accrued but unpaid dividends at the
time of liquidation and is mandatorily redeemable on September 30, 2006 at the
liquidation preference amount. RMG also has the right, but not the obligation,
to redeem in whole or in part the RMG Redeemable Preferred Stock at the
liquidation preference amount on or after September 30, 2001. The accrued
dividend on the RMG Redeemable Preferred Stock is included in minority interest
as a charge against income (loss).
11. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under
consideration from time to time by Congress and various federal agencies have in
the past, and may in the future, materially affect the Company and the cable
television industry.
The cable industry is currently regulated at the federal and local
levels under the Cable Act of 1984, the Cable Act of 1992 (the "1992 Act"), the
Telecommunications Act of 1996 (the "1996 Act") and regulations issued by the
Federal Communications Commission ("FCC") in response to the 1992 Act. FCC
regulations govern the determination of rates charged for basic, expanded basic
and certain ancillary services, and cover a number of other areas including
customer service and technical performance standards, the required transmission
of certain local broadcast stations and the requirement to negotiate
retransmission consent from major network and certain local television stations.
Among other provisions, the 1996 Act will eliminate rate regulation on the
expanded basic tier effective March 31, 1999.
Current regulations issued in connection with the 1992 Act empower the
FCC and/or local franchise authorities to order reductions of existing rates
which exceed the maximum permitted levels and require refunds measured from the
date a complaint is filed in some circumstances or retroactively for up to one
year in other circumstances. Management believes it has made a fair
interpretation of the 1992 Act and related FCC regulations in determining
regulated cable television rates and other fees based on the information
currently available. However, complaints have been filed with the FCC on rates
for certain franchises and certain local franchise authorities have challenged
existing and prior rates. Further complaints and challenges could be
forthcoming, some of which could apply to revenue recorded in 1996 and 1997.
Management believes, however, that the effect, if any, of these complaints and
challenges will not be material to the Company's financial position or results
of operations.
Many aspects of regulations at the federal and local levels are
currently the subject of judicial review and administrative proceedings. In
addition, the FCC continues to conduct rulemaking proceedings to implement
various provisions of the 1996 Act. It is not possible at this time to predict
the ultimate outcome of these reviews or proceedings or their effect on the
Company.
12. COMMITMENTS AND CONTINGENCIES
The Company is committed to provide cable television services under
franchise agreements with remaining terms of up to nineteen years. Franchise
fees of up to 5% of gross revenues are payable under these agreements.
IV-30
<PAGE> 112
Current FCC regulations require that cable television operators obtain
permission to retransmit major network and certain local television station
signals. The Company has entered into long-term retransmission agreements with
all applicable stations in exchange for in-kind and/or other consideration.
The Company is subject to litigation and other claims in the
ordinary course of business. In the opinion of management, the ultimate outcome
of any existing litigation or other claims will not have a material adverse
effect on the Company's financial position or results of operations.
The Company has entered into pole rental agreements and leases
certain of its facilities and equipment under noncancelable operating leases.
Minimum rental commitments at December 31, 1997 for the next five years and
thereafter under these leases are as follows:
<TABLE>
<S> <C>
1998 .................................................................... $ 694
1999 .................................................................... 373
2000 .................................................................... 313
2001 .................................................................... 293
2002 .................................................................... 263
Thereafter .............................................................. 1,417
-----
$ 3,353
=====
</TABLE>
Rent expense, including pole rental agreements, was $2,157 and $4,564
for the years ended December 31, 1996 and 1997, respectively.
13. RELATED PARTY TRANSACTIONS
ICM-IV provides certain management services to ICP-IV and its
subsidiaries for a per annum fee of 1% of the Company's total non-preferred
capital contributions, or $3,350, of which ICM-IV will defer 20% per annum,
payable in each following year, in order to support the Company's bank debt.
However, pursuant to ICP-IV's Limited Partnership Agreement, ICM-IV's first year
management fees of $3,350 were prepaid in July and August 1996, of which $1,558
was charged to expense during 1996.
InterMedia Management, Inc. ("IMI") is the managing member of ICM-IV
LLC, a newly formed limited liability company, which was appointed the managing
general partner of ICP-IV effective August 5, 1997. Prior to August 5, 1997, IMI
was wholly owned by the former managing general partner of ICM-IV, the former
general partner of ICP-IV. IMI has entered into agreements with all of ICP-IV's
subsidiaries to provide accounting and administrative services at cost. IMI also
provides such services to other cable systems which are affiliates of the
Company. Administrative fees charged by IMI were $3,036 and $6,310 for the years
ended December 31, 1996 and 1997, respectively. Receivable from affiliate
represents advances to IMI, net of administrative fees charged by IMI, and
operating expenses paid by IMI on behalf ICP-IV's subsidiaries.
On August 5, 1997, ICM-IV LLC purchased from ICM-IV a .001% general
partner interest in ICP-IV. ICM-IV's remaining 1.123% general partner interests
in ICP-IV were converted to limited partner interests, and ICM-IV LLC was
appointed the managing general partner of the Company.
As an affiliate of TCI, ICP-IV is able to purchase programming services
from a subsidiary of TCI. Management believes that the overall programming rates
made available through this relationship are lower than ICP-IV could obtain
separately. The TCI subsidiary is under no obligation to continue to offer such
volume rates to ICP-IV, and such rates may not continue to be available in the
future should TCI's ownership in ICP-IV significantly decrease or if TCI or the
programmers should otherwise decide not to offer such participation to the
Company. Programming fees charged by the TCI subsidiary for the years ended
December 31, 1996 and 1997 amounted to $17,538 and $41,128, respectively.
Payable to affiliates includes programming fees payable to the TCI subsidiary of
$3,353 and $3,556 at December 31, 1996 and 1997, respectively.
On April 1, 1996, InterMedia Partners of Tennessee, L.P. ("IPTN"), a
subsidiary of IP-IV, loaned $15.0 million to RMH. Interest income for the year
ended December 31, 1996 includes $445 which IPTN earned on the note prior to the
Company's purchase of RMH on July 30, 1996. As of December 31, 1996 and 1997 the
note balance outstanding including accrued interest has been eliminated in
consolidation.
IV-31
<PAGE> 113
14. INCOME TAXES
Income tax benefit is included in the consolidated financial
statements as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997
---------- ----------
<S> <C> <C>
Continuing operations ................................................... $ 2,596 $ 4,026
Extraordinary loss (see Note 15) ........................................ 1,790
---------- ----------
$ 4,386 $ 4,026
========== ==========
</TABLE>
Income tax (expense) benefit consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1997
---------- ----------
<S> <C> <C>
Current federal $ $ (285)
Deferred federal 4,257 3,813
Deferred state 129 498
---------- ----------
$ 4,386 $ 4,026
========== ==========
</TABLE>
Deferred income taxes relate to temporary differences as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
---------- ----------
<S> <C> <C>
Property and equipment $ (8,617) $ (6,786)
Intangible assets ..... (11,287) (8,336)
---------- ----------
(19,904) (15,122)
Loss carryforward ..... 29,814 29,058
Alternative minimum tax
credit carryforward ... 285
---------- ----------
$ 9,910 $ 14,221
========== ==========
</TABLE>
At December 31, 1996 and 1997, RMG had net operating loss carryforwards
for federal income tax purposes aggregating $87,689 and $85,464, respectively,
which expire through 2011. RMG is a loss corporation as defined in section 382
of the Internal Revenue Code. Therefore, if certain substantial changes in RMG's
ownership should occur, there could be a significant annual limitation on the
amount of loss carryforwards which can be utilized. Because of TCI's continuing
interest in RMG, management does not believe that the recapitalization of RMG
and the partial sale of the recapitalized equity to ICP-IV will impair RMG's
ability to utilize its net operating loss carryforwards.
The Company's management has not established a valuation allowance to
reduce the deferred tax assets related to RMG's unexpired net operating loss
carryforwards. Due to an excess of appreciated asset value over the tax basis of
RMG's net assets, management believes it is more likely than not that the
deferred tax assets related to unexpired net operating losses will be realized.
A reconciliation of the tax benefit computed at the statutory federal
rate and the tax benefit reported in the accompanying statements of operations
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
-------- --------
<S> <C> <C>
Tax benefit at federal statutory rate ..... $ 10,810 $ 25,417
Partnership losses exempt from income taxes (5,287) (20,963)
State taxes, net of federal benefit ....... 127 498
Goodwill amortization ..................... (1,209) (2,056)
Realization of acquired tax benefit ....... 346
Other ..................................... (55) 784
-------- --------
$ 4,386 $ 4,026
======== ========
</TABLE>
IV-32
<PAGE> 114
15. EXTRAORDINARY GAIN ON EARLY EXTINGUISHMENT OF DEBT
As described in Note 3 - Acquisitions and Sale of Cable Properties, in
connection with the Company's acquisition of a majority of the voting interest
in RMH, the Company assumed approximately $331,450 of long-term debt, which was
repaid with the proceeds from the Financing. The repayment of RMH's long-term
debt resulted in call premium and fees associated with the defeasance of the
debt. Costs associated with the prepayment of the debt resulted in an
extraordinary loss on early extinguishment of debt of $2,926, net of tax benefit
of $1,790.
Also, in connection with the Company's acquisition of the partner
interests of IPWT, GECC transferred to ICP-IV its note receivable from IPWT and
related interest receivable in exchange for a limited partner and a preferred
limited partner interest in ICP- IV and cash. The settlement of IPWT's long-term
note payable to GECC resulted in an extraordinary gain on early extinguishment
of debt of $21,409, which represented a debt restructuring credit balance as of
July 30, 1996. The debt restructuring credit was created in 1994 upon IPWT's
restructuring of its GECC debt.
16. SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
During the years ended December 31, 1996 and 1997, the Company paid
interest of $16,222 and $75,029, respectively.
As described in Note 3, during 1996 the Company acquired several cable
television systems located in Tennessee and Georgia. In conjunction with the
acquisitions, assets acquired and liabilities assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired ............... $ 418,987
Liabilities assumed, net of current assets .. (953)
Cash acquired in connection with RMH and IPWT
acquisitions .............................. (2,228)
---------
Net cash paid ............................... $ 415,806
=========
</TABLE>
In connection with the Company's sale of its cable television assets
located in Royston and Toccoa, Georgia in December 1997, as described in Note 3,
net cash proceeds received were as follows:
<TABLE>
<S> <C>
Proceeds from sale ................ $ 11,212
Receivable from buyer ............. (55)
--------
Net proceeds received from buyer $ 11,157
--------
</TABLE>
17. EMPLOYEE BENEFIT PLAN
The Company participates in the InterMedia Partners Tax Deferred Savings
Plan, which covers all full-time employees who have completed at least one year
of employment. Such Plan provides for a base employee contribution of 1% and a
maximum of 15% of compensation. The Company's matching contributions under such
Plan are at the rate of 50% of the employee's contributions, up to a maximum of
3% of compensation.
IV-33
<PAGE> 115
SCHEDULE I. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INTERMEDIA CAPITAL PARTNERS IV, L.P.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
Escrowed investments held to maturity ................... $ 28,237 $ 29,359
Interest receivable on escrowed investments ............. 2,189 1,412
--------- ---------
Total current assets .................. 30,426 30,771
Escrowed investments held to maturity ................... 60,518 31,148
Intangible assets, net .................................. 11,833 11,101
Investment in IP-IV ..................................... 276,909 234,955
--------- ---------
Total assets .......................... $ 379,686 $ 307,975
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Accrued interest ........................................ $ 13,870 $ 13,688
--------- ---------
Total current liabilities ............. 13,870 13,688
Long-term debt .......................................... 292,000 292,000
--------- ---------
Total liabilities ..................... 305,870 305,688
--------- ---------
Commitments and contingencies
PARTNERS' CAPITAL
Preferred limited partnership interest .................. 24,888 24,888
General and limited partners' capital ................... 50,778 (20,751)
Note receivable from partner ............................ (1,850) (1,850)
--------- ---------
Total partners' capital ............... 73,816 2,287
--------- ---------
Total liabilities and partners' capital $ 379,686 $ 307,975
========= =========
</TABLE>
See accompanying notes to the condensed financial information
IV-34
<PAGE> 116
INTERMEDIA CAPITAL PARTNERS IV, L.P.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------------
1996 1997
---------- ----------
<S> <C> <C>
Revenues ............................. $ $
Loss from operations
Other income (expense):
Interest income ........... 2,189 3,968
Interest expense .......... (14,138) (33,543)
Equity in net loss of IP IV (15,780) (42,038)
---------- ----------
Net loss ............................. $ (27,729) $ (71,613)
========== ==========
</TABLE>
See accompanying notes to condensed financial information
IV-35
<PAGE> 117
INTERMEDIA CAPITAL PARTNERS IV, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
LIMITED GENERAL LIMITED NOTES
PARTNER PARTNER PARTNERS RECEIVABLE TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Syndication costs ............... $ (43) $ (7) $ (575) $ $ (625)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 .... (43) (7) (575) (625)
Cash contributions .............. 1,913 188,637 190,550
Notes receivable from General
Partner .................... 1,850 (1,850)
In-kind contributions,
historical cost basis ...... 237,805 237,805
Conversion of GECC debt to equity 25,000 11,667 36,667
Allocation of RMG's and IPWT's
historical equity balances . (2,719) (239,368) (242,087)
Distribution .................... (119,775) (119,775)
Syndication costs ............... (69) (10) (911) (990)
Net loss ........................ (311) (27,418) (27,729)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 .... 24,888 716 50,062 (1,850) 73,816
Cash contributions .............. 84 84
Transfer and conversion of
General Partner Interest to
Limited Partner Interest ... (799) 799
Net loss ........................ (1) (71,612) (71,613)
---------- ---------- ---------- ---------- ----------
Balance at December 31, 1997 .... $ 24,888 $ $ (20,751) $ (1,850) $ 2,287
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed financial information
IV-36
<PAGE> 118
INTERMEDIA CAPITAL PARTNERS IV, L.P.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1996 1997
-------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..................................... $ (27,729) $ (71,613)
Equity in net loss of IP-IV .................. 15,780 42,038
Amortization expense ......................... 268 732
Changes in assets and liabilities:
Interest receivable ...................... (2,189) 777
Accounts payable and accrued liabilities . (3)
Payable to affiliate ..................... (625)
Accrued interest ......................... 13,870 (182)
--------- ---------
Cash flows from operating activities .............. (628) (28,248)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in IP-IV ......................... (260,304) (84)
Purchases of escrowed investments ............ (88,755)
Proceeds from maturity of escrowed investments 28,248
--------- ---------
Cash flows from investing activities .............. (349,059) 28,164
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from long-term debt ............... 292,000
Contributed capital .......................... 190,550 84
Partner distribution ......................... (119,775)
Debt issue costs ............................. (12,098)
Syndication costs ............................ (990)
--------- ---------
Cash flows from financing activities .............. 349,687 84
--------- ---------
Net change in cash
Cash and cash equivalents, beginning of period
--------- ---------
Cash and cash equivalents, end of period .......... $ $
========= =========
</TABLE>
See accompanying notes to condensed financial information.
IV-37
<PAGE> 119
INTERMEDIA CAPITAL PARTNERS IV, L.P.
NOTES TO CONDENSED FINANCIAL INFORMATION
1. BASIS OF PRESENTATION
The condensed financial information presents the unconsolidated
financial statements of InterMedia Capital Partners IV, L.P. ("ICP-IV").
ICP-IV's majority-owned subsidiaries are recorded using the equity basis of
accounting.
Refer to the Notes to the consolidated financial statements for
descriptions of material contingencies, escrowed investments held to maturity
and significant provisions of long-term obligations and guarantees of ICP-IV.
IV-38
<PAGE> 120
SCHEDULE II
INTERMEDIA CAPITAL PARTNERS IV, L.P.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, BAD DEBT OTHER DECEMBER 31,
DESCRIPTION 1996 EXPENSE ACCOUNTS(1) WRITE-OFFS 1996
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ -- $ 1,937 $ 2,352 $ (2,159) $ 2,130
</TABLE>
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
JANUARY 1, BAD DEBT OTHER DECEMBER 31,
DESCRIPTION 1997 EXPENSE ACCOUNTS(2) WRITE-OFFS 1997
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts $ 2,130 $ 4,260 $ (8) $ (4,697) $ 1,685
</TABLE>
- ----------
(1) Represents allowance for doubtful accounts balance assumed in connection
with the Company's acquisitions of cable television systems during 1996.
(2) Represents allowance for doubtful accounts balance sold in connection
with the Company's sale of certain of its cable television assets in
December 1997.
IV-39
<PAGE> 121
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 26,1998 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 Director March 26, 1998
- ---------------------------------------
John C. Malone
/s/ Leo J. Hindery, Jr. Director, President and Chief March 26, 1998
- --------------------------------------- Executive Officer
Leo J. Hindery, Jr.
/s/ Marvin L. Jones Director, Executive Vice March 26, 1998
- --------------------------------------- President and Chief Operating
Marvin L. Jones Officer
/s/ Donne F. Fisher Director March 26, 1998
- ---------------------------------------
Donne F. Fisher
/s/ Paul A. Gould Director March 26, 1998
- ---------------------------------------
Paul A. Gould
/s/ Stephen M. Brett Executive Vice President, March 26, 1998
- --------------------------------------- General Counsel and Secretary
Stephen M. Brett
/s/ Bernard W. Schotters Executive Vice President March 26, 1998
- --------------------------------------- (Principal Financial Officer)
Bernard W. Schotters
/s/ Gary K. Bracken Executive Vice President and March 26, 1998
- --------------------------------------- Controller
Gary K. Bracken (Principal Accounting Officer)
</TABLE>
IV-40
<PAGE> 122
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
INDEX DESCRIPTION
- ------- -----------
3 - Articles of Incorporation and Bylaws:
<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 Amended and Restated Tele-Communications, Inc. 1994 Stock
Incentive Plan.*
Amended and Restated Tele-Communications, Inc. 1995 Employee
Stock Incentive Plan.*
Amended and Restated Tele-Communications, Inc. 1996 Incentive
Plan.
Incorporated herein by reference to the Tele-
Communications, Inc. Registration Statement on
Form S-8 (Commission File No. 333-40141).
10.2 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).
10.3 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).
</TABLE>
(continued)
<PAGE> 123
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.4 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).
10.5 Consulting Agreement, dated as of August 28, 1997, between
Tele-Communications, Inc. and Brendan R. Clouston.
10.6 Amended Consulting Agreement, dated as of February 9, 1998,
between Tele-Communications, Inc. and Brendan R. Clouston.
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 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 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).
</TABLE>
(continued)
<PAGE> 124
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.12 Form of Indemnification Agreement.*
Incorporated herein by reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1993, as amended by Form 10-K/A for the year ended
December 31, 1993 (Commission File No. 0-5550).
10.13 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).
10.14 TCI 401(k) Stock Plan, restated effective January 1, 1998.*
Incorporated herein by reference to the
Tele-Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File
No. 0-20421).
10.15 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).
10.16 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).
10.17 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 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).
10.18 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 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).
</TABLE>
(continued)
<PAGE> 125
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
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 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).
10.20 Form of Non-Qualified Stock Option and Stock Appreciation
Rights Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Group common stock
pursuant to the Tele-Communications, Inc. 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).
10.21 Form of Non-Qualified Stock Option and Stock Appreciation
Rights Agreement for 1995 Grant of Options with tandem stock
appreciation rights to purchase Series A Liberty Media Group
common stock pursuant to the Tele-Communications, Inc. 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 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).
10.23 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).
</TABLE>
(continued)
<PAGE> 126
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.24 Form of Non-Qualified Stock Option and Stock Appreciation
Rights Agreement for 1997 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.*
Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 Grant of Options with tandem stock
appreciation rights to purchase Series A TCI Ventures Group
common stock pursuant to the Tele-Communications, Inc. 1996
Stock Incentive Plan.*
Form of Non-Qualified Stock Option and Stock Appreciation Rights
Agreement for 1997 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.*
Form of Restricted Stock Award Agreement for 1997 Award of
Series A TCI Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*
Form of Restricted Stock Award Agreement for 1997 Award of
Series A TCI Ventures Group Restricted Stock pursuant to the
Tele-Communications, Inc. 1996 Incentive Plan.*
Incorporated herein by reference to the
Tele-Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File
No. 0-20421).
10.25 Form of Stock Appreciation Rights Agreement made as of the 1st
day of December, 1996, by and among TCI Wireless Holdings,
Inc., Grantee, TCI Telephony Services, Inc. and
Tele-Communications, Inc.*
Form of Stock Appreciation Rights Agreement made as of the 1st day
of December, 1996, by and among TCI Teleport Holdings, Inc.,
Grantee, TCI Telephony Services, Inc. and Tele-Communications,
Inc.*
Form of Amended and Restated Option Agreement made as of the 1st
day of December, 1996, by and among TCI Wireline, Inc., Grantee
and Tele-Communications, Inc.*
Form of Option to Purchase Common Stock Agreement made as of the
1st day of December, 1996, by and among TCI.Net, Inc., Grantee
and Tele-Communications, Inc.*
Form of Stock Appreciation Right Agreement made as of the 1st
day of December, 1996, by and among TCI Internet Services,
Inc., Tele-Communications, Inc. and Grantee.*
Incorporated herein by reference to the
Tele-Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File
No. 0-20421).
10.26 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).
10.27 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).
</TABLE>
(continued)
<PAGE> 127
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.28 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).
10.29 Amended and Restated Agreement of Limited Partnership of
MajorCo, L.P., dated as of January 31, 1996, among Sprint
Spectrum, L.P., TCI Network Services, Comcast Telephony
Services and Cox Telephony Partnership.
Second Amended and Restated Joint Venture Formation Agreement,
dated as of January 31, 1996, by and between Sprint
Corporation, Tele-Communications, Inc., Comcast Corporation and
Cox Communications, Inc.
Parents Agreement, dated as of January 31, 1996, by
Tele-Communications, Inc. and Sprint Corporation.
Incorporated herein by reference to Tele-Communications,
Inc.'s Current Report on Form 8-K, dated February 9,
1996 (Commission File No. 0-20421).
10.30 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).
10.31 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).
10.32 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).
10.33 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).
10.34 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).
</TABLE>
(continued)
<PAGE> 128
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.35 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).
10.36 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).
10.37 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).
10.38 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).
10.39 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).
10.40 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).
10.41 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).
</TABLE>
(continued)
<PAGE> 129
<TABLE>
<CAPTION>
10 - Material contracts, continued:
<S> <C>
10.42 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).
10.43 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).
10.44 InterMedia Capital Management, L.P. Agreement of Limited
Partnership, dated as of June 10, 1997 and effective as of May
22, 1997, by and between InterMedia Management, Inc., Leo J.
Hindery, Jr. and TCI ICM I, Inc.
InteMedia Capital Management III, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of June 10, 1997,
by and among Leo J. Hindery, Jr., InterMedia Management, Inc.
and TCI ICM III, Inc.
InterMedia Capital Management IV, L.P. Amended and Restated
Agreement of Limited Partnership, dated as of August 5, 1997,
by and between InterMedia Management, Inc., TCI ICM IV, Inc.
and Leo J. Hindery, Jr.
Incorporated herein by reference to the
Tele-Communications, Inc. Annual Report on Form 10-K
for the year ended December 31, 1997 (Commission File
No. 0-20421).
10.45 Tax Sharing Agreement, effective for periods on and after
October 1, 1997, among TCI and certain entities attributed to
each of TCI Group, Liberty Media Group and TCI Ventures Group,
as amended by the First Amendment to the Tax Sharing
Agreements, dated as of October 1, 1997, among TCI and certain
entities attributed to each of TCI Group, Liberty Media Group
and TCI Ventures Group.
Incorporated herein by reference to Exhibit 9(c)2 to
TCI's Schedule 13E-4/A (Amendment No. 2), Issuer
Tender Offer Statement, dated September 5, 1997
(Commission File No. 0-20421).
21- Subsidiaries of TCI Communications, Inc.
23- Consent of Experts and Counsel
23.1- Consent of KPMG Peat Marwick LLP.
23.2- Consent of Price Waterhouse LLP.
27- Financial data schedule
</TABLE>
*Constitutes management contract or compensatory arrangement.
<PAGE> 1
EXHIBIT 10.5
CONSULTING AGREEMENT
Consulting Agreement, dated as of August 28, 1997, between TELE-COMMUNICATIONS,
INC., a Delaware corporation (the "Company") and BRENDAN R. CLOUSTON, now
residing at 29 Sunset Drive, Englewood, Colorado 80110 ("Consultant").
Effective as of the date hereof, the Company has accepted
Consultant's resignation as an officer and employee of the Company, its
subsidiaries and its other controlled affiliates. In order to continue to have
available the benefit of Consultant's knowledge of the Company and expertise,
the Company wishes to retain Consultant to provide consulting services on the
terms set forth herein, and Consultant has agreed to provide such services on
such terms.
In consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Term
(a) Term. The term of Consultant's retention under this
Agreement (the "Term") shall commence as of August 28, 1997 (the "Commencement
Date") and shall end after 30 days written notice of termination from either the
Company to Consultant or from Consultant to the Company (the "Expiration Date").
During the Term, Consultant agrees to serve the Company as a consultant as
provided herein upon and subject to the terms and conditions set forth in this
Agreement.
(b) Effects of Termination. Upon expiration of the Term, the
obligations of the Company and Consultant under this Agreement shall terminate,
except for the obligation of the Company to pay any accrued but unpaid
compensation under Section 4 hereof with respect to any period prior to the date
of such expiration, (ii) the obligations of the Company under Section 7 hereof,
and (iii) any undischarged obligations of the Company under Section 5 with
respect to any period prior to the date of
Page 1
<PAGE> 2
such expiration. The parties agree that the provisions of Sections 7 and 12
hereof shall survive the expiration or other termination for any reason of the
Term and the termination of this Agreement for any reason.
2. Services to Be Rendered by Consultant.
(a) During the Term, Consultant shall, upon the request of the
Company's Chairman of its Board of Directors ("Chairman"), consult with and
advise the Company with respect to issues and matters of the general types for
which Consultant had responsibility as an officer of the Company during calendar
year 1997. If Consultant, with his consent, is elected or appointed as a
director of the Company or any of the Company's subsidiaries or affiliates,
Consultant will serve in each such capacity without further compensation, except
as may be decided by the Company or such subsidiary or affiliate in its sole
discretion. Consultant will continue to serve on the @ Home, Teleport
Communications Group, and Tele-Communications International, Inc. Boards of
Directors until the Company requests he not do so.
(b) Consultant is agreeing to and shall provide his services
under this Agreement as an independent contractor, and neither this Agreement
nor the provision of Consultant's services hereunder is intended to create any
partnership, joint venture or employment relationship between Consultant and the
Company or any of its affiliates.
3. Time to Be Devoted by Consultant; Support by the Company; Location of
Services.
(a) Consultant agrees to make available his consulting
services to the Company on a full-time and exclusive basis. These restrictions
will be reviewed by the Chairman and Consultant and may be mutually amended from
time to time.
(b) During the Term, the Company shall, at the Company's
expense, provide Consultant on an as-needed basis with all office space,
facilities, equipment, supplies, services and secretarial and other staff
support which Consultant reasonably requires in order to provide the
Page 2
<PAGE> 3
consulting services requested of him by the Chairman pursuant to Section 2(a)
hereof.
(c) Consultant may perform his services hereunder in any
location which he deems to be appropriate and consistent with the needs of the
Company, including the home of Consultant; provided, however, that Consultant
acknowledges that Company and its affiliates have offices throughout the world,
and Consultant agrees that he shall travel to such offices and to other
locations within and outside the United States of America at such time or times
during the Term as may reasonably be requested by the Company or as may
otherwise be necessary or appropriate in order for Consultant to discharge his
responsibilities hereunder.
4. Compensation Payable to Consultant.
(a) During the Term, the Company shall pay Consultant
compensation at the rate of $650,000 per annum. Consultant shall be entitled to
such compensation whether or not any services are requested of him and
regardless of the number of hours of such service that may be rendered during
any particular period.
(b) Consultant's annual payments shall be paid in accordance
with the Company's regular payroll policy for executives, but not less
frequently than once a month.
(c) The Company shall withhold taxes from any payments due to
Consultant unless notified in writing by Consultant not to do so and such
non-withholding is allowed under applicable law.
5. Expenses.
The Company shall reimburse Consultant for the reasonable
amount of dining, hotel, traveling, entertainment and other expenses necessarily
incurred by Consultant in the discharge of his consulting obligations hereunder
pursuant to policies and practices applicable to the Executive Vice Presidents
of the Company.
Page 3
<PAGE> 4
6. Executive Benefit Plans.
During the Term, Consultant, subject to the last sentence of
this Section and provided that Consultant satisfies applicable eligibility
requirements other than any requirement that he be an employee of the Company,
shall continue to be entitled to participate in, and to be accorded all rights
and benefits under, all group insurance policies (including, but not limited to,
all disability, life, health and medical insurance policies) maintained by the
Company for the benefit of its employees, and for this purpose Consultant shall
be deemed to be a full-time employee of the Company during such period.
Notwithstanding the foregoing, Consultant shall not be entitled to participate
in any benefit plan of the Company which, under mandatory provisions of any
applicable law, is available only to employees of the Company.
7. Indemnification.
The Company will indemnify and hold harmless Consultant, to
the fullest extent permitted by applicable law, in respect of any liability,
damage, cost or expense (including reasonable counsel fees) incurred in
connection with the defense of any claim, action, suit or proceeding to which he
is a party, or threat thereof, by reason of his being or having been an officer
or director of, or a consultant to, the Company or any subsidiary of the
Company, or his serving or having served at the request of the Company as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, business organization, enterprise or other entity,
including service with respect to employee benefit plans. Without limiting the
generality of the foregoing, the Company will pay the expenses (including
reasonable counsel fees) of defending any such claim, action, suit or proceeding
in advance of its final disposition, upon receipt of an undertaking by
Consultant to repay all amounts advanced if it should ultimately be determined
that Consultant is not entitled to be indemnified under this Section.
Page 4
<PAGE> 5
8. Noncompetition.
Consultant agrees that during the Term he will not, directly
or indirectly, as principal or agent, or in any other capacity, own, manage,
operate, participate in or be employed by or otherwise be interested in, or
connected in any manner with, any person, firm, corporation or other enterprise
which directly competes in a material respect with the business of the Company
or any of its majority-owned subsidiaries as it is then conducted. Nothing
herein contained shall be construed as denying Consultant (i) the right to own
securities of any such corporation of any class which is listed on a national
securities exchange or quoted in any automated quotation system of NASDAQ to the
extent of an aggregate of 5% of the amount of such securities outstanding or
(ii) provide consulting services to others which otherwise might violate the
provisions of the first sentence of this Section if the Company's Chairman
approves in writing of such provision of consultancy services.
9. Confidentiality.
Consultant agrees during the Term (otherwise than in the
performance of his duties hereunder) and thereafter, not to, directly or
indirectly, make use of, or divulge to any person, firm, corporation, entity or
business organization, and he shall use his best efforts to prevent the
publication or disclosure of, any confidential or proprietary information
concerning the business, accounts or finances of, or any of the methods of doing
business used by the Company or of the dealings, transactions or affairs of the
Company or any of its customers which have or which may have come to his
knowledge; however, this Section 9 shall not prevent Consultant from responding
to any subpoena, court order or threat of other legal duress, provided
Consultant notifies the Company thereof with reasonable promptness so that the
Company may seek a protective order or other appropriate relief.
10. Delivery of Materials.
Consultant agrees that, upon the expiration or other
termination of the Term, he will deliver to the Company all documents, papers,
materials and other property of the Company relating to its affairs which
Page 5
<PAGE> 6
may then be in his possession or under his control, other than any of the
foregoing which are available to the public generally from a source other than
Consultant.
11. Noninterference.
Consultant agrees that he will not, during the Term, solicit
the employment of any employee of the Company on behalf of any other person,
firm, corporation, entity or business organization or otherwise interfere with
the employment relationship between any employee or officer of the Company and
the Company.
12. Certain Matters.
The Company previously granted to Consultant options to
acquire common stock in the Company (and related public companies), restricted
stock awards, and options to acquire 1% of the then existing equity in three
entities. A schedule of such grants (the "Grants") is attached as Exhibit A to
this Agreement. This Agreement is not intended to grant to Consultant any
obligations or benefits that he did not have prior to becoming a consultant
hereunder except those expressly stated herein, and it shall not adversely
affect any rights Consultant had, including, without limitation, any rights
under the Grants, and he will be considered a full-time employee for purposes of
his rights under the Grants. The Company and Consultant agree that,
notwithstanding any provision of such Grants to the contrary, (i) none of the
Grants currently held by Consultant shall terminate or otherwise be affected by
the resignation of Consultant as an officer of the Company and (ii) all such
Grants shall be in effect as if the Consultant were still an officer of the
Company. Upon the expiration of the Term, all provisions of the TCI Satellite
Entertainment, Inc. Option to Purchase Series A Common Stock (a copy of which is
attached to this Agreement as Exhibit B) relating to vesting and early
termination shall apply to the 1% Telephony and Investment Options previously
granted to Consultant until those options agreements have been signed. The
Company confirms that the provisions of this Section 12 have been approved by
the Compensation Committee of the Company's Board of Directors.
Page 6
<PAGE> 7
13. Remedies of the Company.
Consultant agrees that, in the event of a material breach by
Consultant of this Agreement, in addition to any other rights that the Company
may have pursuant to this Agreement, the Company shall be entitled, if it so
elects, to institute and prosecute proceedings, at law or in equity, to obtain
damages with respect to such breach or to enforce the specific performance of
this Agreement by Consultant or to enjoin Consultant from engaging in any
activity in violation hereof. Consultant agrees that, because Consultant's
services to the Company are of such a unique and extraordinary character, a suit
at law may be an inadequate remedy with respect to a breach by Consultant of
Sections 8, 9, 10 or 11 hereof, and that upon any such breach or threatened
breach by him of such Sections, the Company shall be entitled, in addition to
any other lawful remedies that may be available to it, to injunctive relief.
14. Notices.
All notices to be given hereunder shall be deemed duly given
when delivered personally in writing or mailed, certified mail, return receipt
requested, postage prepaid and addressed as follows:
(a) If to be given to the Company:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Dr. John C. Malone
with a copy similar addressed and marked to the attention of the Legal
Department.
(b) If to be given to Consultant:
Mr. Brendan R. Clouston
29 Sunset Drive
Englewood, Colorado 80110
Page 7
<PAGE> 8
or to such other address as a party may request by notice given in accordance
with this Section.
15. Entire Agreement; Amendments and Waivers.
This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and replaces and supersedes as
of the date hereof any and all prior agreements and understandings with respect
to Consultant's employment by the Company, whether oral or written, between the
parties hereto, except to the extent provided in Section 12 hereof. This
Agreement may not be changed nor may any provision hereof be waived except by an
instrument in writing duly signed by the party to be charged. This Agreement
shall be interpreted, governed and controlled by the law of the State of
Colorado without reference to principles of conflict of laws.
16. Headings.
The headings provided herein are inserted for convenience only
and shall not be deemed to constitute a part hereof.
17. Counterparts.
This Agreement may be executed in separate counterparts, any
one of which need not contain signatures of more than one party, but all of
which taken together shall constitute the same agreement.
Page 8
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
TELE-COMMUNICATIONS, INC.
By:
------------------------
Attest:
- -------------------------
-----------------------------
Brendan R. Clouston
Page 9
<PAGE> 1
EXHIBIT 10.6
AMENDED CONSULTING AGREEMENT
Amended Consulting Agreement, dated as of February 9, 1998, between
TELE-COMMUNICATIONS, INC., a Delaware corporation (the "Company") and BRENDAN R.
CLOUSTON, now residing at 29 Sunset Drive, Englewood, Colorado 80110
("Consultant").
On August 28, 1997, the Company and Consultant entered into a
Consulting Agreement. This Amended Consulting Agreement amends the terms of the
Consulting Agreement in its entirety.
In consideration of the mutual covenants and agreements herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, do hereby agree as follows:
1. Term
(a) Term. The term of Consultant's retention under this
Agreement (the "Term") shall commence as of February 9, 1998 (the "Commencement
Date"), and shall end after 30 days written notice of termination from either
the Company to Consultant or from Consultant to the Company (the "Expiration
Date"). During the Term, Consultant agrees to serve the Company as a consultant
as provided herein upon and subject to the terms and conditions set forth in
this Agreement.
(b) Effects of Termination. Upon expiration of the Term, the
obligations of the Company and Consultant under this Agreement shall terminate,
except for the obligation of the Company to pay any accrued but unpaid
compensation under Section 4 hereof with respect to any period prior to the date
of such expiration, (ii) the obligations of the Company under Section 7 hereof,
and (iii) any undischarged obligations of the Company under Section 5 with
respect to any period prior to the date of such expiration. The parties agree
that the provisions of Sections 7 and 12 hereof shall survive the expiration or
other termination for any reason of the Term and the termination of this
Agreement for any reason.
Page 1
<PAGE> 2
2. Services to Be Rendered by Consultant.
(a) During the Term, Consultant shall, upon the request of the
Company's Chairman of its Board of Directors ("Chairman"), consult with and
advise the Company with respect to issues and matters of the general types for
which Consultant had responsibility as an officer of the Company during calendar
year 1997. If Consultant, with his consent, is elected or appointed as a
director of the Company or any of the Company's subsidiaries or affiliates,
Consultant will serve in each such capacity without further compensation, except
as may be decided by the Company or such subsidiary or affiliate in its sole
discretion. Consultant will continue to serve on the Teleport Communications
Group, and Tele-Communications International, Inc. Boards of Directors until the
Company requests he not do so.
(b) Consultant is agreeing to and shall provide his services
under this Agreement as an independent contractor, and neither this Agreement
nor the provision of Consultant's services hereunder is intended to create any
partnership, joint venture or employment relationship between Consultant and the
Company or any of its affiliates.
3. Time to Be Devoted by Consultant; Support by the Company; Location of
Services.
(a) Consultant agrees to make available his consulting
services to the Company on an as-needed basis.
(b) During the Term, the Company shall, at the Company's
expense, provide Consultant on an as-needed basis with all office space,
facilities, equipment, supplies, services and secretarial and other staff
support which Consultant reasonably requires in order to provide the consulting
services requested of him by the Chairman pursuant to Section 2(a) hereof.
(c) Consultant may perform his services hereunder in any
location which he deems to be appropriate and consistent with the needs of the
Company, including the home of Consultant; provided, however, that Consultant
acknowledges that Company and its affiliates have offices
Page 2
<PAGE> 3
throughout the world, and Consultant agrees that he shall travel to such offices
and to other locations within and outside the United States of America at such
time or times during the Term as may reasonably be requested by the Company or
as may otherwise be necessary or appropriate in order for Consultant to
discharge his responsibilities hereunder.
4. Compensation Payable to Consultant.
(a) During the Term, the Company shall pay Consultant
compensation at the rate of $325,000 per annum, commencing as of the pay period
commencing February 20, 1998. Consultant shall be entitled to such compensation
whether or not any services are requested of him and regardless of the number of
hours of such service that may be rendered during any particular period.
(b) Consultant's annual payments shall be paid in accordance
with the Company's regular payroll policy for executives, but not less
frequently than once a month.
(c) The Company shall withhold taxes from any payments due to
Consultant unless notified in writing by Consultant not to do so and such
non-withholding is allowed under applicable law.
5. Expenses.
The Company shall reimburse Consultant for the reasonable
amount of dining, hotel, traveling, entertainment and other expenses necessarily
incurred by Consultant in the discharge of his consulting obligations hereunder
pursuant to policies and practices applicable to the Executive Vice Presidents
of the Company.
Page 3
<PAGE> 4
6. Executive Benefit Plans.
During the Term, Consultant, subject to the last sentence of
this Section and provided that Consultant satisfies applicable eligibility
requirements other than any requirement that he be an employee of the Company,
shall continue to be entitled to participate in, and to be accorded all rights
and benefits under, all group insurance policies (including, but not limited to,
all disability, life, health and medical insurance policies) maintained by the
Company for the benefit of its employees, and for this purpose Consultant shall
be deemed to be a full-time employee of the Company during such period.
Notwithstanding the foregoing, Consultant shall not be entitled to participate
in any benefit plan of the Company which, under mandatory provisions of any
applicable law, is available only to employees of the Company.
7. Indemnification.
The Company will indemnify and hold harmless Consultant, to
the fullest extent permitted by applicable law, in respect of any liability,
damage, cost or expense (including reasonable counsel fees) incurred in
connection with the defense of any claim, action, suit or proceeding to which he
is a party, or threat thereof, by reason of his being or having been an officer
or director of, or a consultant to, the Company or any subsidiary of the
Company, or his serving or having served at the request of the Company as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust, business organization, enterprise or other entity,
including service with respect to employee benefit plans. Without limiting the
generality of the foregoing, the Company will pay the expenses (including
reasonable counsel fees) of defending any such claim, action, suit or proceeding
in advance of its final disposition, upon receipt of an undertaking by
Consultant to repay all amounts advanced if it should ultimately be determined
that Consultant is not entitled to be indemnified under this Section.
Page 4
<PAGE> 5
8. Noncompetition.
Consultant agrees that during the Term he will not, directly
or indirectly, as principal or agent, or in any other capacity, own, manage,
operate, participate in or be employed by or otherwise be interested in, or
connected in any manner with, any person, firm, corporation or other enterprise
which directly competes in a material respect with the business of the Company
or any of its majority-owned subsidiaries as it is then conducted. Nothing
herein contained shall be construed as denying Consultant (i) the right to own
securities of any such corporation of any class which is listed on a national
securities exchange or quoted in any automated quotation system of NASDAQ to the
extent of an aggregate of 5% of the amount of such securities outstanding or
(ii) provide consulting services to others or act in any other way which
otherwise might violate the provisions of the first sentence of this Section if
the Company's Chairman approves of it in writing.
9. Confidentiality.
Consultant agrees during the Term (otherwise than in the
performance of his duties hereunder) and thereafter, not to, directly or
indirectly, make use of, or divulge to any person, firm, corporation, entity or
business organization, and he shall use his best efforts to prevent the
publication or disclosure of, any confidential or proprietary information
concerning the business, accounts or finances of, or any of the methods of doing
business used by the Company or of the dealings, transactions or affairs of the
Company or any of its customers which have or which may have come to his
knowledge; however, this Section 9 shall not prevent Consultant from responding
to any subpoena, court order or threat of other legal duress, provided
Consultant notifies the Company thereof with reasonable promptness so that the
Company may seek a protective order or other appropriate relief.
10. Delivery of Materials.
Consultant agrees that, upon the expiration or other
termination of the Term, he will deliver to the Company all documents, papers,
materials and other property of the Company relating to its affairs which
Page 5
<PAGE> 6
may then be in his possession or under his control, other than any of the
foregoing which are available to the public generally from a source other than
Consultant.
11. Noninterference.
Consultant agrees that he will not, during the Term, solicit
the employment of any employee of the Company on behalf of any other person,
firm, corporation, entity or business organization or otherwise interfere with
the employment relationship between any employee or officer of the Company and
the Company.
12. Certain Matters.
The Company previously granted to Consultant options to
acquire common stock in the Company (and related public companies), restricted
stock awards, and options to acquire 1% of the then existing equity in three
entities. A schedule of such grants (the "Grants") is attached as Exhibit A to
this Agreement. This Agreement is not intended to grant to Consultant any
obligations or benefits that he did not have prior to becoming a consultant
hereunder except those expressly stated herein, and it shall not adversely
affect any rights Consultant had, including, without limitation, any rights
under the Grants, and he will be considered a full-time employee for purposes of
his rights under the Grants. The Company and Consultant agree that,
notwithstanding any provision of such Grants to the contrary, (i) none of the
Grants currently held by Consultant shall terminate or otherwise be affected by
the resignation of Consultant as an officer of the Company, (ii) all such Grants
shall be in effect as if the Consultant were still an officer of the Company,
and (iii) upon the expiration of the Term as provided in Section 1(a) of this
Agreement, all of Consultant's Grants shall immediately vest and shall terminate
on the earlier to occur of (x) one year from the expiration of the Term or (y)
upon the date each such Grant expires if the Consultant remained an employee of
the Company. Upon the expiration of the Term, all provisions of the TCI
Satellite Entertainment, Inc. Option to Purchase Series A Common Stock (a copy
of which is attached to this Agreement as Exhibit B) relating to vesting and
early termination shall apply to the 1% Telephony and Investment Options
previously granted to Consultant until those options agreements have been
Page 6
<PAGE> 7
signed. The Company confirms that the provisions of this Section 12 have been
approved by the Compensation Committee of the Company's Board of Directors.
13. Remedies of the Company.
Consultant agrees that, in the event of a material breach by
Consultant of this Agreement, in addition to any other rights that the Company
may have pursuant to this Agreement, the Company shall be entitled, if it so
elects, to institute and prosecute proceedings, at law or in equity, to obtain
damages with respect to such breach or to enforce the specific performance of
this Agreement by Consultant or to enjoin Consultant from engaging in any
activity in violation hereof. Consultant agrees that, because Consultant's
services to the Company are of such a unique and extraordinary character, a suit
at law may be an inadequate remedy with respect to a breach by Consultant of
Sections 8, 9, 10 or 11 hereof, and that upon any such breach or threatened
breach by him of such Sections, the Company shall be entitled, in addition to
any other lawful remedies that may be available to it, to injunctive relief.
14. Notices.
All notices to be given hereunder shall be deemed duly given
when delivered personally in writing or mailed, certified mail, return receipt
requested, postage prepaid and addressed as follows:
(a) If to be given to the Company:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Dr. John C. Malone
with a copy similar addressed and marked to the attention of the Legal
Department.
Page 7
<PAGE> 8
(b) If to be given to Consultant:
Mr. Brendan R. Clouston
29 Sunset Drive
Englewood, Colorado 80110
or to such other address as a party may request by notice given in accordance
with this Section.
15. Entire Agreement; Amendments and Waivers.
This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and replaces and supersedes as
of the date hereof any and all prior agreements and understandings with respect
to Consultant's employment by the Company, whether oral or written, between the
parties hereto, except to the extent provided in Section 12 hereof. This
Agreement may not be changed nor may any provision hereof be waived except by an
instrument in writing duly signed by the party to be charged. This Agreement
shall be interpreted, governed and controlled by the law of the State of
Colorado without reference to principles of conflict of laws.
16. Headings.
The headings provided herein are inserted for convenience only
and shall not be deemed to constitute a part hereof.
17. Counterparts.
This Agreement may be executed in separate counterparts, any
one of which need not contain signatures of more than one party, but all of
which taken together shall constitute the same agreement.
Page 8
<PAGE> 9
IN WITNESS WHEREOF, this Agreement has been executed as of the
day and year first above written.
TELE-COMMUNICATIONS, INC.
By:
------------------------
Attest:
- -------------------------
-----------------------------
Brendan R. Clouston
Page 9
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
A table of the subsidiaries of TCI Communications, Inc. as of December 31, 1997, 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.
<S> <C> <C>
TCI COMMUNICATIONS, INC. DE TCI Cablevision of Durango, Inc.
- ------------------------
Alabama T.V. Cable, Inc. AL
American Cable TV Investors 5, Ltd. [lp] CO American Cable TV of Lower Delaware
American Cable TV of St. Mary's County
American Microwave & Communications, Inc. MI
American Movie Classics Investment, Inc. CO
American TeleVenture of Minersville, Inc. CO
Ames Cablevision, Inc. IA TCI of Central Iowa
Antares Satellite Corporation CO
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
TCI of Kansas
Billings Tele-Communications, Inc. OR
Bob Magness, Inc. WY
Bresnan Communications Company Limited Partnership [lp] MI
Brigand Pictures, Inc. NY
Brookhaven Cable TV, Inc. NY TCI Cable of Brookhaven
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 Adlink
</TABLE>
Page 1
<PAGE> 2
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Cable Network Television, Inc. NV
Cable Shopping Investment, Inc. CO
Cable Television Advertising Group, Inc. WY
Cable Television of Gary, Inc. IN
Cabletime, Inc. CO
Cablevision Associates of Gary Joint Venture [jv] IN
Cablevision IV, Ltd. (Corp) IA
Cablevision of Arcadia/Sierra Madre, Inc. DE
Cablevision of Arizona Partner, Inc. CO
Cablevision of Baton Rouge, Ltd. [lp] CO
Cablevision of Oklahoma Partner, Inc. CO
Cablevision of Texas Partner, Inc. CO
Cablevision of Utah Partner, Inc.
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 64 Acquisition, Inc. DE
Cincinnati Cable Advertising Interconnect, L.P. DE
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
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
TCI Cablevision of North Texas
TCI Cablevision of Northeast Texas
</TABLE>
Page 2
<PAGE> 3
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Communications Services, Inc. (continued) KS 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 Television Systems, Inc. DE TCI Cablevision of South Central
Connecticut
Connecticut Cable Advertising, L.P. DE
Consumer Entertainment Services, Inc. WY
Corsair Pictures, Inc. DE Brigand Pictures, Inc.
CSI Partner, Inc. CO
CSI Partner II, Inc.
Daniels Communication Partners Limited Partnership [lp] DE
Daniels Hauser-Holdings [gp] CO
Davis County Cablevision, Inc. UT
DCP-85, Ltd. [lp] CO
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 Lake Area
TCI Media Services
TCI of Arkansas
Eastex Microwave, Inc. TX
ECP Holdings, Inc. OK
Elbert County Cable Partners, L. P. [lp] CO TCI of Colorado
FAB Communications, Inc. OK
Falcon Communications, L.P. CA
Four Flags Cable TV [jv] MI
Four Flags Cablevision [jv] MI
General Communication, Inc.
General Communications and Entertainment Company, Inc. DE
</TABLE>
Page 3
<PAGE> 4
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Gill Bay Interconnect, Inc. CA
Greater Birmingham Interconnect [gp] AL GBI
Guide Investments, Inc. CO
Halcyon Communications Limited Partnership[lp] OK TCI Cablevision of East Oklahoma
TCI of Arkansas
Westark Cable
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 Cablevision 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
</TABLE>
Page 4
<PAGE> 5
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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
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 V, L. P. [lp] CO
Knox Cable T.V., Inc. TN
KTMA-TV, Inc. TX
LaSalle Telecommunications, Inc. IL Chicago Cable TV-IV
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, Inc. NV
LVO Cable Properties, Inc. OK
LVOC Management, Inc. OK
Margate Video Systems, Inc. FL TCI Media Services
TCI of North Broward
Miami Tele-Communications, Inc. FL
Micro-Relay, Inc. MD
Mid-Kansas, Inc. KS
Mile Hi Cable Partners, L.P. [lp] CO TCI of Colorado
Mississippi Cablevision, Inc. MS TCI of North Mississippi
TCI of Kansas
Mountain Cable Network, Inc. NV Mountain Cable Advertising
TCI Media Services
Mountain States General Partner Co. CO
</TABLE>
Page 5
<PAGE> 6
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
Mountain States Limited Partner Co. CO
Mountain States Video [gp] CO TCI Media Services
TCI of Colorado
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 TCI Cablevision of Greater Michigan, Inc.
Narragansett Cablevision Corporation RI
Northern Video, Inc. MN TCI of Central Minnesota
Northwest Illinois Cable Corporation DE
Northwest Illinois TV Cable Co. DE TCI Cablevision of Galesburg/Monmouth
Northwest Illinois TV Cable Company [lp] IL
Ohio Cablevision Network, Inc. IA TCI Cablevision of Northwestern Ohio
Orlando Cable Advertising Interconnect, L.P. DE
Ottumwa Cablevision, Inc. IA TCI of Southen Iowa
Pacific Microwave Joint Venture [jv] CA
Pacific Northwest Interconnect [gp] NY Northwest Cable Advertising
TCI Media Services
TV Mart
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
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 Cablevision Co. [lp] NM
Satellite Services of Puerto Rico, Inc. DE
</TABLE>
Page 6
<PAGE> 7
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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
SSI 2, Inc. NV
St. Louis Tele-Communications, Inc. MO TCI Cablevision of St. Louis
Tampa Bay Cable Advertising Interconnect, L.P. FL
TC Systems Partner, Inc. CO
TCC Spectrum, Inc. DE
TCI-UC, INC. DE
TCI Adelphia Holding, LLC DE
TCI AIT, Inc. CO
TCI American Cable Holdings II, L.P. [lp] CO TCI of Northeast Illinois, L.P.
TCI American Cable Holdings, L.P. [lp] CO TCI of Washington
TCI American Cable Holdings III, L.P. [lp] CO
TCI American Cable Holdings IV, L.P. [lp] CO
TCI Baton Rouge Ventures, Inc. CO
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 of Missouri
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
</TABLE>
Page 7
<PAGE> 8
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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 Media Services
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
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 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'
</TABLE>
Page 8
<PAGE> 9
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI Cablevision of Utah, Inc. UT TCI Media Services
TCI Cablevision of Vermont, Inc. DE TCI of Washington
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 Call Center Holdings, Inc. CO
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 CSC II, Inc. CO
TCI CSC III, Inc. CO
TCI CSC IV, Inc. CO
TCI CSC V, Inc. CO
TCI CSC VI, Inc. CO
TCI CSC VII, Inc. CO
TCI CSC VIII, Inc. CO
TCI CSC IX, Inc. CO
TCI CSC X, Inc. CO
TCI CSC XI, Inc. CO
TCI Development Corporation CO
TCI Digital TV, Inc. CO
TCI East, Inc. DE
TCI Falcon Holdings LLC 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
</TABLE>
Page 9
<PAGE> 10
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI Holdings, Inc. CO
TCI Investments, Inc. CO
TCI IP, Inc. DE
TCI IP-1, Inc. CO
TCI IP-VI, LLC DE
TCI IT Holdings, Inc. CO
TCI K-1, Inc. CO
TCI Liberty, Inc. DE
TCI Materials Management, Inc. CO
TCI Microwave, 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 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
</TABLE>
Page 10
<PAGE> 11
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI of Kansas Partner, Inc. CO
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 of Buffalo
TCI Northeast Region
TCI of North Broward, Inc. FL
TCI of North Central Kentucky, Inc. KY
TCI of North Dakota, Inc. ND
TCI of Northern New Jersey, Inc. WA TCI Cablevision of Central Colorado
TCI Cablevision of Northeastern Oregon
TCI 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
</TABLE>
Page 11
<PAGE> 12
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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
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 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
</TABLE>
*** Subsidiaries listed separately.
Page 12
<PAGE> 13
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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 UA I, Inc. CO
TCI UA, Inc. DE
TCI Ventures Five, Inc. CO
TCI Ventures Four, Inc. CO
TCI Ventures, Inc. CO
TCI Washington Associates, L.P. DE
TCI West, Inc. DE
TCI Woodlands Ventures, Inc. CO 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 Networks, Inc. DE
TCID of Carson, Inc. CA
TCID of Chicago, Inc. IL
</TABLE>
Page 13
<PAGE> 14
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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 X*PRESS, Inc. CO
TCIP, Inc. CO
TCS Partner, Inc. CO
Tele-Communications of Colorado, Inc. CO TCI Colorado Community Cable Television,
Inc.
Tele-Communications of South Suburbia, Inc. IL
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
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
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.
</TABLE>
Page 14
<PAGE> 15
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TEMPO Development Corporation OK
TEMPO Partner, Inc. CO
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
Philadelphia Cable Advertising
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
Tulsa Partner, Inc. CO
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
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
</TABLE>
Page 15
<PAGE> 16
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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 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 Cablevision 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
TCI Cablevision of Alameda
</TABLE>
Page 16
<PAGE> 17
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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 Cablevision of Santa Cruz County
United Cable Television of Sarpy County, Inc. NE
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 Corporate Communications Company CO
United Entertainment Corporation CO
United Hockey, Inc. CO
United Microwave Corporation DE
</TABLE>
Page 17
<PAGE> 18
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
United of Oakland, Inc. DE TCI Cablevision of Oakland County, Inc.
Tribune/United Cable of Oakland County
United Paging Corporation CO
United Tribune Paging Corporation CO
United's Home Video Centers, Inc. CO
Universal Telecom, Inc. MD
Upper Valley Telecable Company, Inc. ID TCI Cablevision of Idaho (UVTC), Inc.
TCI Media Services
UTI Purchase Company CO
Vacationland Cablevision, Inc. WI TCI of South Central Wisconsin
Valley Cable TV, Inc. TX
Volusia County Cable Advertising Interconnect, L.P. DE
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
Wentronics Partner, Inc. CO
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
</TABLE>
Page 18
<PAGE> 19
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
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 of Idaho
TCI Twin State Cable TV
TCI/Twin Valley Cable
TCI Cable of Vermont
WestMarc Development, Inc. CO TCI Media Services
TCI Cablevision of Greater Michigan, Inc.
WestMarc Realty, Inc. CO
</TABLE>
Page 19
<PAGE> 20
EXHIBIT 21
<TABLE>
<CAPTION>
STATE OR JURISDICTION
OF INCORPORATION
SUBSIDIARY OR ORGANIZATION TRADE NAMES
- ---------- --------------- -----------
<S> <C> <C>
TCI PACIFIC COMMUNICATIONS, INC DE TCI MEDIA SERVICES
- -------------------------------
TCI Pacific, Inc. DE
Tele-Vue Systems, Inc. WA TCI of Washington
TCI of Houston
Broadview Television Company WA
Cable TV of Marin, Inc. CA
Cable TV Puget Sound, Inc. WA
Channel 3 Everett, Inc. WA
Clear View Cable Systems, Inc. CA
Community Telecable of Bellevue, Inc. WA TCI of Washington
Community Telecable of Seattle, Inc. WA
Com-Cable TV, Inc. DE
H-C-G Cablevision, Inc. CA
TCI VCI, Inc. CA
Contra Costa Cable Co. WA
Crockett Cable System, Inc. WA
Everett Cablevision, Inc. WA TCI of Washington
Far-West Communications, Inc. OR TCI of Oregon
Portland Cable Advertising, L.P. [lp] DE
Marin Cable Television, Inc. CA
Prime Cable II Systems, Inc. TX
NTT, Inc. TX
Southwestern Satellite, Inc. TX
TCI of Dayton, Inc. DE
TCI Telecom, Inc. DE
Television Signal Corporation CA
United Community Antenna System, Inc. WA TCI of Washington
Vista Television, Inc. WA TCI of Washington
TCI Bay Interconnect, Inc. CA
Pacific Area Interconnect [gp] CA
Northwest Cable Advertising [gp] NY
TCI of Northern California, Inc. CA
TCI TVC, Inc. CA
</TABLE>
Page 20
<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, 333-16985 and
333-44745) on Form S-3 of TCI Communications, Inc. of our reports dated March
20, 1998, relating to the consolidating balance sheets of TCI Communications,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholder's deficit, and cash flows
for each of the years in the three-year period ended December 31, 1997, and all
related schedules, which reports appear in the December 31, 1997 annual report
on Form 10-K of TCI Communications, Inc.
KPMG Peat Marwick LLP
Denver, Colorado
March 26, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (Nos. 33-60982,
33-63139, 33-64127, 33-64329, 33-64525, 333-16985 and 333-44745) of TCI
Communications, Inc. of our report dated February 27, 1998 relating to the
consolidated financial statements of InterMedia Capital Partners IV, L.P. which
appears in this Form 10-K.
PRICE WATERHOUSE LLP
San Francisco, California
March 23, 1998
<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, 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 319
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,968
<DEPRECIATION> 4,444
<TOTAL-ASSETS> 21,858
<CURRENT-LIABILITIES> 0
<BONDS> 13,528
232
0
<COMMON> 1
<OTHER-SE> (802)
<TOTAL-LIABILITY-AND-EQUITY> 21,858
<SALES> 0
<TOTAL-REVENUES> 6,167
<CGS> 0
<TOTAL-COSTS> 2,196
<OTHER-EXPENSES> 1,393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,064
<INCOME-PRETAX> (99)
<INCOME-TAX> (39)
<INCOME-CONTINUING> (60)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (60)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
