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HomeMy WebLinkAbout31- CATV Manager mITY OF SAN BERN RDINO - REQUEST VIR COUNCIL ACTION tom: FRANK KELLER Subject: Resolution transferring ownership CATV Manager of Southland Cablevision to ept: TC I--CA ate: March 29 , 1993 mopsis of Previous Council action: ecommended motion: Adopt resolution. Signature ontact person: Frank xQ1 I Pr Phone: 5147 ipporting data attached: Ward: UNDING REQUIREMENTS: Amount: Source: (Acct No.) (Acct Description) Finance: :)uncil Notes: Agenda Item No- -0262 •0262 American Cable of Redlands (Southland Cablevision) has entered in an Asset Purchase Agreement with Tele-Communications , Inc and will acquire all of the assets used in the ownership and operation of American Cable of Redlands . Tele-Communications , Inc . has agreed to assign all of its right , title and interest in the agreement to TCI Cablevision of California corporation ( "TCI- CA" ) . TCI-CA, as a wholly-owned subsidiary of TCI , upon review has all the financial and technical ability to operate the Redlands cable television system pursuant to the terms of the Franchise. The current franchise is due to be renegotiated on June 10 , 1996. In addition to the above , the current franchise is in full effect and good operating condition. TCI ' s latest financial statements are enclosed for your review. (TCI-CA is a consolidated entity within TCI ' s financial statements . ) TCI-CA does not anticipate changes in the Redlands , Ca system, nor disruption of service as a result of this change in ownership. Upon review, staff can find no reason why the transfer of franchise to TCI-CA should not take place. 1 RESOLUTION NO. 2 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE TRANSFER OF CABLE TELEVISION FRANCHISE FROM AMERICAN CABLE TV OF 3 REDLANDS JOINT VENTURE (SOUTHLAND CABLEVISION) TO TCI CABLEVISION OF CALIFORNIA. 4 5 WHEREAS, American Cable TV of Redlands Joint Venture d/b/a 6 Southland Cablevision, a Colorado general partnership [ "Seller"] ' 7 and affiliated entity of Tele-Communications, Inc. , a Delaware 8 Corporation [ "TCI"] , is a duly authorized holder of a franchise 9 authorizing the operation and maintenance of a cable television 10 system within the City of San Bernardino, pursuant to City of San 11 Bernardino Ordinance No. MC-59 and Resolution No. 84-93 ["the Franchise"] ; and, 12 WHEREAS, Seller and TCI are parties to that certain Asset 13 14 Purchase Agreement dated January 28, 1993 [ "the Agreement"] wherein Seller and TCI agree that TCI will acquire all of the 15 assets used in the ownership and operation of the cable television 16 system; and, 17 WHEREAS, TCI has agreed to an assignment of all of its 18 right, title and interest in the Agreement to TCI Cablevision of 19 California, Inc. , a California corporation and direct subsidiary 20 of TCI ["TCI-CA"] ; and, 21 WHEREAS, TCI-CA desires to acquire from Seller all the 22 rights and privileges of the Franchise and assume all of the 23 obligations of Seller under the Franchise accruing from the date 24 of closing under the Agreement; and, 25 WHEREAS, the Franchise authorizes the transfer and 26 assignment of the Franchise by Seller, subject to the adoption of 27 a Resolution authorizing such transfer; and, 28 1 1 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE TRANSFER OF CABLE TELEVISION FRANCHISE FROM AMERICAN CABLE TV OF REDLANDS 2 JOINT VENTURE TO TCI CABLEVISION OF CALIFORNIA. 3 4 WHEREAS, Seller has requested the approval and consent of 5 the City for the transfer and assignment of the Franchise by the 6 Seller to TCI-CA; and, 7 WHEREAS, the City has received evidence of financial 8 responsibility submitted by TCI, Inc. , and Subsidiaries and has 9 found that TCI, Inc. , including its subsidiary TCI-CA, has the 10 financial and managerial ability to operate the system in a proper 11 manner; 12 BE IT RESOLVED BY THE MAYOR AND COMMON COUNCIL OF THE CITY 13 OF SAN BERNARDINO AS FOLLOWS: 14 SECTION 1. The Mayor and Common Council of the City of San 15 Bernardino hereby consent to and approve the assignment of the 16 Franchise and related assets of the cable television system by 17 Seller to TCI-CA, conditioned upon and effective upon the filing 18 with the City Clerk by TCI-CA its written assurance that it agrees 19 to comply with all the provisions of San Bernardino Municipal Code 20 Chapter 14.08 and the Franchise. 21 SECTION 2. The Mayor and Common Council hereby affirm that: 22 (a) the Franchise was properly granted; (b) the Franchise is in 23 full force and effect; (c) the Franchise is scheduled to expire on 24 June 10, 1996; and (d) to the City's knowledge there exists no 25 fact or circumstance which constitutes or which, with the passage 26 of time or giving of notice or both, would constitute a default 27 under the Franchise or will entitle the City to cancel or 28 terminate the rights thereunder, except upon the expiration of the 2 1 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE TRANSFER OF CABLE TELEVISION FRANCHISE FROM AMERICAN CABLE TV OF REDLANDS 2 JOINT VENTURE TO TCI CABLEVISION OF CALIFORNIA. 3 4 full term thereof. 5 SECTION 3. The authorization of the transfer and assignment 6 of the franchise from Seller to TCI-CA is expressly conditioned 7 upon, and shall be deemed effective upon, the consummation of the 8 sale to TCI-CA of the Franchise and related assets and the closing 9 of the transactions under the Agreement. 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 low 1 RESOLUTION OF THE CITY OF SAN BERNARDINO APPROVING THE TRANSFER OF CABLE TELEVISION FRANCHISE FROM AMERICAN CABLE TV OF REDLANDS 2 JOINT VENTURE TO TCI CABLEVISION OF CALIFORNIA. 3 4 I HEREBY CERTIFY that the foregoing resolution was duly 5 adopted by the Mayor and Common Council of the City of 6 San Bernardino at a meeting thereof, held on the 7 day of 1993, by the following vote, to wit: 8 Council Members: AYES NAYS ABSTAIN ABSENT 9 ESTRADA 10 REILLY 11 HERNANDEZ 12 MAUDSLEY 13 MINOR 14 POPE-LUDLAM 15 MILLER 16 17 City Clerk 18 The foregoing resolution is hereby approved this day of 1993. 19 20 W. R. Holcomb, Mayor 21 City of San Bernardino 22 Approved as to form and legal content: 23 JAMES F. PENMAN, 24 City Attorney 25 By: 26 27 28 4 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q ( X J QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1992 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 0-5550 TELE-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 incorporation or organization) Identification No.) 5619 DTC Parkway 80111 Englewood Colorado (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (303) 267-5500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of the Registrant's common stock (net of shares held in treasury) , as of November 1, 1992, was: Class A common stock - 377,567,871 shares; and Class B common stock - 47,951,609 shares. PART I - FINANCIAL INFORMATION TELE-COMKUNICATIONS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (unaudited) September 30, December 31, Assets 1992 1991* amounts in millions Cash $ 54 32 Trade and other receivables, net 159 228 Prepaid expenses 23 14 Investment in Liberty Media Corporation 418 370 ("Liberty") (note 5) Investments in other affiliates, accounted for under the equity method, and related receivables (note 6) 1,213 1,152 Investment in Turner Broadcasting System, Inc. (note 7) 463 463 Other investments, at cost, 373 235 and related receivables (note 8) Property and equipment, at cost: 64 59 Land 5,224 4,923 Cable distribution systems Support equipment and buildings 5,949 5,580 Less accumulated depreciation 2.034 1.702 3.915 3.878 Franchise costs 6,300 6,162 Less accumulated amortization 701 581 5.599 5,581 Net assets of discontinued operations (note 14) -- 242 Other assets, at cost, net of amortization 163 165 1380 12,360 *Reclassified and restated - see notes 2 and 5. (continued) I-1 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Balance Sheets, continued (unaudited) September 30, December 31, Liabilities and Stockholders' Equity 1992 1991* amounts in millions Accounts payable $ 70 95 Accrued interest 123 92 Other accrued expenses 430 355 Debt (note 9) 9,188 9,455 Deferred income taxes 247 160 Other liabilities 129 164 Total liabilities 10.187 10.321 Minority interests in equity of consolidated subsidiaries 614 574 Redeemable preferred stocks (note 10) 115 115 Stockholders' equity (note 11) : Preferred stock, $1 par value. Authorized 10,000,000 shares; issued and outstanding 5,028,595 shares of redeemable preferred stocks in 1992 and 1991 -- -- Class A common stock, $1 par value. Authorized 1,000,000,000 shares; issued 456,876,069 shares in 1992 and 449,124,604 shares in 1991 457 449 Class B common stock, $1 par value. Authorized 100,000,000 shares; issued 47,977,461 shares in 1992 and 48,790,443 shares in 1991 48 49 Additional paid-in capital 1,828 1,738 Accumulated deficit (536) (553) 1,797 1,683 Treasury stock, at cost (79,335,038 shares of Class A common stock) (333) (333) Total stockholders' equity 1.464 1.350 Commitments and contingencies (note 13) 380 J2 360 *Reclassified and restated - see notes 2 and 5. See accompanying notes to consolidated financial statements. I-2 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited) Three months Nine months ended ended September 30 Se tember 30 1992 1991* 1992 1991T amounts in m ons except per share amounts Revenue $ 896 803 2,631 2,389 Operating costs and expenses: Operating 255 239 763 756 Selling 1 general and administrative (note 6) 220 208 650 563 Depreciation ill 141 131 128 Amortization � �, Operating income 265 190 730 579 Other income (expense) : Interest expense (172) (202) (545) (626) Interest and dividend income note 6 20 10 50 41 Share of earnings of Liberty ote 53 14 13 20 25 Share of losses of other affiliates, net (29) (12) (61) (31) Gain (loss) on disposition of assets, net (1 7 (1 3 Loss on early extinguishment of debt (note 9) (3) -- (15) -- Minority interests in earnings of consolidated subsidiaries, net (12) (10) ) ) Other, net -- -- )) )) �) �) Earnings (loss) from continuing operations before income taxes 82 (4) 133 (28) Income tax expense (52) (20) (101) (46) Earnings (loss) from continuing operations 30 (24) 32 (74) Loss from discontinued operations, net of income taxes (note 14) (2) (15) (3) Net earnings (loss) 30 (26) 17 (77) Dividend requirement on redeemable preferred stocks (3) -- _(11) -' Net earnings (loss) attributable to common shareholders S 27 (26) 6 (77) Primary and fully diluted earnings (loss) attributable to common shareholders per common and common equivalent share (note 3) : Continuing operations $ .06 ( .07) .05 (.21) Discontinued operations ( .04) ( .Ol) 06 (te) 01 22) *Reclassified and restated - see notes 2 and 5. See accompanying notes to consolidated financial statements. I-3 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statement of Stockholders' Equity Nine months ended September 30, 1992 (unaudited) Additional Total Common stock paid-in Accumulated Treasury stockholders' Class A Class B capital deficit stock equity amounts in millions Balance at January 1, 1992* S 449 49 1,738 (553) (333) 1,350 Net earnings 17 -• 17 Conversion of public debentures (note 9b) 7 105 -- •• 112 Issuance of common stock upon exercise of options 1 7 8 Issuance of Class A common stock upon acquisition 3 -• - 3 Dividends on redeemable preferred stocks Acquisition and retirement of common stock ) (14) - 15) Balance at September 30, 1992 S�457 �8 1�828 JL3 ) L) *Restated - see note 5. See accompanying notes to consolidated financial statements. I-4 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Nine months ended S_evtembe 9 1992 91* amounts in m1111—ons (see note 4) Cash flows from operating activities: $ 17 (77) Net earnings (loss) Adjustments to reconcile net earnings (loss) to net cash rovided by operating activities: p 15 3 Discontinued operations Depreciation and amortization (20) (25) Share of earnings of Liberty Share of losses of affiliates 61 (3) Loss (gain) on disposition of assets Loss on early extinguishment of debt 96 4 Deferred income tax expense ( 5) Payment for stock appreciation rights 44 17 Minority interests in earnings Amortization of debt discount (29) (223 Noncash interest and dividend income Other noncash credits Changes in operating assets and liabilities, net of the effect of acquisitions: 25 13) 13 Change in receivables Change in prepaid expenses (3 Change in accrued interest a ables 49 12 Change in other accruals and p y --� --47 Net cash provided by operating activities Cash flows from investing activities: 164 303 Cash paid for acquisitions 6� 892 Capital expended for property nd equipment 23 24 Proceeds from disposition of assets Cash proceeds from disposition of 135 -- discontinued operations 9 42 Discontinued operations Additional investments in and (180) (186) 8 loans to affiliates and others Return of capital from affiliates 37 38 Repayment of loans to affiliates and others 22) -- Repayment of short-term notes to Liberty 68) f80� Other investing activities )) - Net cash used in investing activities Cash flows from financing activities: 3,015 3,919 Borrowings of debt (3,1 9 (3'515) Repa ents of debt )) Pre erred stock dividends of subsidiaries __ 17 Sales of equity securities of subsidiaries (1 ) 5 Preferred stock dividends 3) Issuances of common stock (12) Repurchases of common stock ) Net cash provided (used) by financing activities Net increase in cash 22 13 Cash at beginning of period 30 Cash at end of period $ . 54 *Reclassified and restated - see notes 2 and 5. See accompanying notes to consolidated financial statements. I-5 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1992 (unaudited) (1) General The accompanying consolidated financial statements include the accounts of Tele-Communications, Inc. and those of all majority-owned subsidiaries ("TCI" or the "Company") . All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying interim consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1991. Certain amounts have been reclassified for comparability with the 1992 presentation. (2) Reclassified Financial Statements for Discontinued Operations On May 12, 1992, the Company sold its motion picture theatre business and certain theatre-related real estate assets. Through this sale, the Company discontinued its ownership of motion picture theatre exhibition business. The accompanying 1991 consolidated financial statements and related notes have been reclassified to report separately the discontinued operations (see note 14) . (3) Earnings (Loss) Per Common and Common Equivalent Share Primary earnings per common and common equivalent share attributable to common shareholders for the three months and the nine months ended September 30, 1992 was computed by dividing net earnings attributable to common shareholders by the weighted average number of common- and common equivalent shares outstanding (467.7 million and 422.9 million for the three months and the nine months ended September 30, 1992, respectively) . Shares issuable upon conversion of the Convertible Notes (see note 9c) have not been included in the computation of weighted average shares outstanding for the nine months ended September 30, 1992 as their inclusion would be anti-dilutive. Fully diluted earnings per common and common equivalent share attributable to common shareholders for the three months and the nine months ended September 30, 1992 was computed by dividing earnings attributable to common shareholders by the weighted average number of common and common equivalent shares outstanding (467.7 million and 422.9 million for the three months and the nine months ended September 30, 1992, respectively) . Shares issuable upon conversion of the Convertible Notes (see note 9c) have not been included in the computation of weighted average shares outstanding for the nine months ended September 30, 1992 as their inclusion would be anti-dilutive. Shares issuable upon conversion of the Liquid Yield OptionTM Notes (see note 9a) and the 6-3/48 Convertible Preferred Stock (see note 10) have not been included in the computation of weighted average shares outstanding for either the three months or the nine months ended September 30, 1992 because their inclusion would be anti-dilutive. (continued) I-6 TELE-COMKUNICATIONS, INC.' AND SUBSIDIARIES °- Notes to Consolidated Financial Statements Loss per common share attributable to common shareholders for the three months and nine months ended September 30, 1991 was computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding during such periods (353.5 million and 354.7 million for the three months and the nine months ended September 30, 1991, respectively) . Common stock equivalents were not included in the computation of weighted average shares outstanding because their inclusion would be anti-dilutive. (4) Supplemental Disclosures to Consolidated Statements of Cash Flows Cash paid for interest was $494 million and $593 million for the nine months ended September 30, 1992 and 1991, respectively. Also, during these periods, cash paid for income taxes was not material. Significant noncash investing and financing activities for the nine months ended September 30, 1992 and 1991 are as follows: 1992 1991 amounts in millions Contribution of certain interests to affiliate in exchange for preferred stock (see note 5) Preferred stock received as portion of consideration upon disposition of $93 -- discontinued operations —� Exchange of preferred stock investment for marketable equity securities Common stock issued upon conversion of debentures $112 4 Common stock received upon redemption of preferred stock of an affiliate $ Common stock surrendered in lieu of cash upon exercise of stock options Note payable issued for repurchase S— 5 of common stock Acquisitions: $146 331 Fair value of assets acquired 21 -� Assets, net of liabilities, assumed Value of TCI common stock given as portion (3) (11) of purchase price (14) Liabilities assumed Minority interests in equity of acquired entities _(3) Cash paid for acquisitions 164 33 (continued) I-7 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (5) Investment in Liberty Media Corporation On March 28, 1991, Liberty Media Corporation ("Liberty") , an indirect, wholly- owned subsidiary of the Company until said date, issued shares of its common stock to TCI shareholders who, in the aggregate, tendered 8,713,696 shares of TCI Class A common stock and 2,737,712 shares of TCI Class B common stock to Liberty pursuant to an exchange offer. Also, on March 28, 1991, the Company contributed its interests in certain of its cable television programming businesses and cable television systems to Liberty in exchange for several different classes and series of preferred stock of Liberty with an aggregate issue price of $624 million. No gain or loss was recorded in connection with this transaction and, accordingly, the initial carrying amount of such preferred stock of Liberty equals the aggregate carrying amount of the net assets contributed ($423 million) . Of the classes of preferred stock of Liberty held by the Company, one class entitles TCI to elect a number of members of Liberty's board of directors equal to not less than 208 of the total number of directors, another class is exchangeable for TCI common stock and another class is convertible into common stock (less than 58) of Liberty. Due to the significant economic interest held by TCI through its ownership of Liberty preferred stock and other related party considerations, TCI accounts for its investment in Liberty under the equity method although TCI owns none of the outstanding common stock of Liberty. Accordingly, the Company does not recognize any income relating to dividends, including preferred stock dividends, and the Company has continued to record the earnings or losses generated by the interests contributed to Liberty (by recognizing 1008 of Liberty's earnings or losses before preferred stock dividends) . The Company purchases sports and other programming from certain subsidiaries of Liberty. Charges to TCI (which are based upon customary rates charged to others) for such programming were $33 million and $17 million for the nine months ended September 30, 1992 and 1991, respectively. Certain subsidiaries of Liberty purchase, at TCI's cost, certain pay television and other programming. Charges for such programming were $2 million and $1 million for the nine months ended September 30, 1992 and 1991, respectively. TCI and Liberty have entered into a services agreement pursuant to which TCI provides, among other things, certain financial reporting, tax and other administrative services. In addition, the employees of certain of Liberty's subsidiaries have remained on the TCI payroll. Liberty reimburses TCI for their salaries and related employment expenses. A subsidiary of Liberty also leases office space and satellite transponder facilities from TCI. Charges for such arrangements amounted to $2 million for each of the nine month periods ended September 30, 1992 and 1991. (continued) I-8 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Summarized unaudited consolidated results of operations of Liberty for the nine months ended September 30, 1992 and from March 29, 1991 through September 30, 1991, respectively, are as follows: 1992 1991 amounts in millions Revenue $111 53 Operating expenses (95) (45) Depreciation and amortization (11) (8) Operating income 5 -- Interest expense (6) (3) Other, net 21 28 Net earnings 20 On December 30, 1991, the Company entered into a Commercial Paper Purchase Agreement with Liberty whereby the Company may sell short-term notes to Liberty of up to an aggregate amount of $100 million. The Company borrowed $22 million from Liberty on December 31, 1991, pursuant to the Commercial Paper Purchase Agreement. The full amount, including interest, was repaid on January 15, 1992. Interest rates on the short-term notes are determined by the parties by reference to prevailing money-market rates. In January of 1992, subsidiaries of Liberty and TCI created a partnership (owned 50.001% by Liberty and 49.9998 by TCI) for the purpose of acquiring and operating cable television systems. The partners each agreed to contribute certain non-cash assets to the partnership and up to $25 million of cash as needed to fund mutually acceptable acquisitions. The non-cash assets were contributed to the partnership on April 24, 1992. TCI contributed all of its shares of one of the four classes of Liberty preferred stock. Also, during the nine months ended September 30, 1992, Liberty increased its economic and voting interest in Lenfest Communications, Inc. ("LCI") to 508 and, accordingly, adopted the equity method of accounting. Liberty's investment in LCI, which was previously accounted for under the cost method, was received from TCI in the March 28, 1991 transaction described above. As a result of the foregoing, TCI restated its investment, results of operations and stockholders' equity with respect to its ownership interest in LCI up to March 28, 1991. As of that date, the Company reduced the carrying amount of its investment in Liberty preferred stock and, correspondingly, increased accumulated deficit by $72 million. The restatement did not affect the Company's results of operations for the nine months ended September 30, 1991 because, on a restated basis, the Company's investment in LCI was reduced to zero prior to 1991. (continued) I-9 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Also, during the nine months ended September 30, 1992, Liberty increased its economic and voting interest in Columbia Associates, L.P. ("Columbia") to 39.6098 and, accordingly, adopted the equity method of accounting. Liberty's investment in Columbia, which was previously accounted for under the cost method, was received from TCI in the March 28, 1991 transaction described above. As a result of the foregoing, TCI restated its investment, results of operations and stockholders' equity with respect to its ownership interest in Columbia up to March 28, 19.91. As of December 31, 1991, the Company reduced the carrying amount of its investment in Liberty preferred stock and, correspondingly, increased accumulated deficit by $17 million. (6) Investments in Other Affiliates Investments in affiliates, other than Liberty (see note 5) , accounted for under the equity method, amounted to $1,154 million and $1,107 million at September 30, 1992 and December 31, 1991, respectively. Included in these amounts are the Company's investments in the common stock of SCI Holdings, Inc. ("SCI") and the preferred stock of SCI's wholly-owned subsidiary, Storer Communications, Inc. ("Storer") , which investments aggregated $759 and $767 million at September 30, 1992 and December 31, 1991, respectively. In connection with the Company's 1988 acquisition of an equity interest in SCI, a subsidiary of the Company issued certain debt and equity securities to Storer for $650 million. Interest charges and preferred stock dividend requirements on these debt and equity securities aggregated $66 million and $67 million for the nine months ended September 30, 1992 and 1991, respectively. The Company's share of losses of SCI for the nine months ended September 30, 1992 and 1991 amounted to $34 million and $38 million, respectively, as adjusted for the effect of interest and dividends accounted for by Storer as capital transactions due to their related party nature. In order to meet a certain 1992 debt obligation, SCI is currently pursuing various plans, including the possibility of -a transaction that would result in the ownership of its cable systems being split, on a tax-free basis, between the Company and the other shareholder. This transaction is expected to occur during 1992, although there can be no assurance that it will occur during 1992 or at all since consummation of the transaction is subject to various conditions including the receipt of certain regulatory and other consents and approvals, and the execution by the parties of binding agreements. As of October 31, 1992, certain of the more significant of such conditions had been satisfied. In any event, it is expected that the Company's investment in SCI will remain recoverable whether or not the aforementioned transaction is consummated. The Company has a management consulting agreement with Storer which provides for the operational management of certain of Storer's cable television systems by TCI. This agreement provides for a management fee based on 3.58 of the revenue of those cable television systems managed by the Company. The Company also has a programming service agreement with Storer whereby the Company, for a fee, manages Storer's purchases of programming. The total management fees under the consulting and programming service agreements amounted to $6 million and $5 million for the nine months ended September 30, 1992 and 1991, respectively (which amounts are recorded as a reduction of selling, general and administrative expenses in the accompanying consolidated statements of operations) . (continued) I-10 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Summarized unaudited results of operations for affiliates (including those contributed to Liberty through March 28, 1991) are as follows: Nine months ended Combined Operations September 30, 1992 1991 amounts in millions Revenue $ 881 1,195 Operating expenses (540) (818) Depreciation and amortization (228) (258) Operating income 113 119 Interest expense (226) (293) Other, net (39) (24) Net loss 152) (198) Certain of the Company's affiliates are general partnerships and any subsidiary of the Company that is a general partner in a general partnership is, as such, liable as a matter of partnership law for all debts of that partnership in the event liabilities of that partnership were to exceed its assets. (7) Investment in Turner Broadcasting System. Inc. The Company has an investment in the common stock and the convertible preferred stock of Turner Broadcasting System, Inc. ("TBS") . Shares of the preferred stock have voting rights and are convertible into shares of TBS common stock. The holders of those preferred shares, as a group, are entitled to elect seven of fifteen members of the board of directors of TBS, and the Company appoints three such representatives. However, voting control over TBS is held by its chairman of the board and chief executive officer (an unrelated third party) . The Company's total holdings of TBS common and preferred stocks represent an approximate 128 voting interest. The Company's investment in TBS common stock had an aggregate market value of $554 million (which exceeded cost by $243 million) at September 30, 1992. In addition, the Company's investment in TBS preferred stock had an aggregate market value of $667 million (which exceeded cost by $515 million) at September 30, 1992. (continued) I-11 TELE-COMMUNICATIONS, -INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (8) Other Investments Other investments, accounted for under the cost method, and related receivables are summarized as follows: September 30, December 31, 1992 1991 amounts in millions Limited partnership interest in, and related receivables from, Intermedia Partners $ 73 70 Convertible preferred stock investment 60 61 Preferred stock investment 88 -- Other investments and related receivables 152 104 373 235 The Company's interest in Intermedia Partners ("Intermedia") is accounted for under the cost method although TCI's ownership approximates 328. The cost method of accounting is considered appropriate because the limited partners (including TCI) of Intermedia have no voting control over Intermedia's operating and financial policies. Such control rests entirely with the general partner (an unrelated third party) . (9) Debt Debt is summarized as follows: September 30, December 31, 1992 1991 amounts in millions Parent company debt: Senior notes $ 1,962 981 Liquid Yield OptionTM Notes (a) 379 360 78 Subordinated debentures (b) -- 245 Bank credit facilities 238 365 Commercial paper 101 38 Other debt 2 1 2,682 1,990 Debt of subsidiaries: Bank credit facilities 4,474 5,428 Commercial paper 9 9 Notes payable 1,412 1,413 Notes payable to Storer 475 475 Convertible notes (c) 48 48 Other debt 88 9,188 9.455 (continued) I-12 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (a) These subordinated notes , which are stated net of unamortized discount of $771 million and $790 million at September 30, 1992 and December 31, 1991, respectively, were issued through a public offering. These notes are not redeemable prior to April 25, 1993, unless the closing sales price of TCI Class A common stock equals or exceeds $27.09 per share for a specified period. Subject to the foregoing, the notes are redeemable, in whole or in part, at the option of the Company at the issue price plus accrued original issue discount. Additionally, the Company will purchase any note, at the option of the holder, as of April 25, 1996, April 25, 2001 or April 25, 2006 at the issue price plus accrued original issue discount through such dates. The Company, at its option, may elect to pay the purchase price in cash and/or shares of TCI Class A common stock. The notes mature on April 25, 2008. At September 30, 1992, these notes were convertible, at the option of the holders, at any time prior to maturity, into an aggregate of 18,975,000 shares of Class A common stock. (b) During the nine months ended September 30, 1992, TCI called for redemption all of its 78 convertible subordinated debentures. Debentures aggregating $114 million were converted into 6,636,881 shares of Class A common stock and the remaining debentures were redeemed at 104.28 of the principal amount together with accrued interest to the redemption date. (c) These convertible notes, which are stated net of unamortized discount of $201 million at September 30, 1992 and December 31, 1991, 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 1.858 of the face amount of the notes. At September 30, 1992, the notes were convertible, at the option of the holders, into an aggregate of 41,879,990 shares of Class A common stock. During the nine months ended September 30, 1992, certain of these notes were converted into 62,000 shares of Class A common stock. The Company's bank credit facilities and various other debt instruments generally contain restrictive covenants which require, among other things, the maintenance of certain earnings, specified cash flow and financial ratios (primarily the ratios of cash flow to total debt and cash flow to debt service, as defined) , and include certain limitations on indebtedness, investments, guarantees, dispositions, stock repurchases and/or dividend payments. As security for borrowings under one of its credit facilities, the Company pledged a portion of the common stock (with a quoted market value of approximately $449 million at September 30, 1992) it holds of TBS. In order to provide interest rate protection on a portion of its variable rate indebtedness, the Company has entered into various interest rate exchange agreements. The Company is exposed to credit losses for the periodic settlements of amounts due under these interest rate exchange agreements in the event of nonperformance by the other parties to the agreements. However, the Company does not anticipate nonperformance by the counterparties and, in any event, such amounts were not material at September 30, 1992. TCI and certain of its subsidiaries are required to maintain unused availability under bank credit facilities to the extent of outstanding commercial paper. (continued) I-13 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (10) Redeemable Preferred Stocks September 30, December 31, 1992 1991 amounts in millions 12-7/88 Cumulative Compounding Preferred Stock, Series A; issued and outstanding 5,022,394 shares (a) $ 97 97 6-3/48 Convertible Preferred Stock, Series B; issued and outstanding 18 18 6,201 shares (b) 115 115 (a) The 12-7/88 Cumulative Compounding Preferred Stock is stated at its redemption value of $19.25 per share. Dividends are cumulative and accrue at 12-7/88 of the redemption value. Accrued dividends are payable quarterly and unpaid dividends are added to the redemption price and accrue dividends until paid. This preferred stock is redeemable at the option of the Company at any time after January 1, 1992 in whole or in part, at the redemption value plus accrued dividends. On January 1, 1999, the Company is required to redeem one-half of the shares then outstanding. The remaining shares outstanding must be redeemed on January 1, 2000. (b) The 6-3/48 Convertible Preferred Stock is stated at its redemption value of $3,000 per share, and each share is convertible into 204 shares of TCI Class A common stock. Unpaid dividends will be added to the redemption value and will accrue interest, until paid, at 6-3/48 per annum thereafter. Interest charged on unpaid dividends outstanding for two consecutive quarters will increase to 158 per annum. This preferred stock is subject to optional redemption by the Company, in whole or in part, with mandatory redemption by May 25, 1999, in each case at the redemption value plus accrued dividends. The stock is also subject to redemption by the Company at the option of the holder, in whole or in part, at the redemption price plus accrued dividends. Each of the preferred stock issues are senior to the Company's common stock and equal with each other with respect to the declaration and payment of dividends and liquidating distributions and have no voting rights except the right to vote as a separate class on any amendment to the Company's Restated Certificate of Incorporation (as amended) that would adversely affect the preferences and rights of such holders. (11) Stockholders' Equity Common Stock The Class A common stock has one vote per share and the Class B common stock has ten 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. (continued) I-14 TELE-COMMUNICATIONS , INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Stock Options Two officers (one of whom is also a director) hold options to purchase TCI Class A common stock. The officer who is also a director holds an option to acquire 200,000 shares at an adjusted purchase price of $10.00 per share and the other officer holds an option to acquire 50,000 shares at the same price. These options expire in June of 1993. The Company had an Incentive Stock Option Plan ("ISOP") which has expired. Options granted under the ISOP (prior to its expiration) have an option price equal to the fair market value on the date of grant, are all currently exercisable and expire five years from the date of grant. Options to purchase 524,101 shares of TCI Class A common stock are outstanding at September 30, 1992, with prices ranging from $10.00 to $17.25 per share. During the nine months ended September 30, 1992, options to acquire 136,555 shares were exercised and options for 11,000 shares were cancelled. In connection with the 1991 merger whereby TCI acquired the remaining minority interest in United Artists Entertainment Company ("UAE") , TCI assumed certain stock options previously granted by UAE to certain of its employees. These options, which are currently exercisable, represent the right, as of September 30, 1992, to acquire 270,348 shares of TCI Class A common stock at adjusted purchase prices ranging from $8.83 to $18.63 per share. During the nine months ended September 30, 1992, options to acquire 709,168 shares were exercised and options for 369,241 shares were cancelled. No additional options may be granted by UAE. At the Annual Meeting of Stockholders, held on June 11, 1992, the Company's stockholders approved the adoption of the 1992 Stock Incentive Plan (the "Plan") . The Plan provides for awards to be made with respect to a maximum of 10 million shares of Class A common stock. Awards may be made as grants of stock options, stock appreciation rights, restricted shares, stock units or any combination thereof. As of September 30, 1992, no awards had been made under the Plan. Other The consideration ercised over the par value of ctheesto k debentures ed is converted creditedto additional paid-in capital. At September 30, 1992, there were 63,164,443 shares of TCI Class A common stock reserved for issuance under exercise privileges related to options and convertible debt securities described in this note 11 and in notes 9 and 10. In addition, one share of Class A common stock is reserved for each share of Class B common stock. (continued) I-15 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (12) Income Taxes TCI files a consolidated Federal income tax return with all of its 808 or more owned subsidiaries. Consolidated subsidiaries in which the Company owns less than 808 each file a separate consolidated Federal income tax return. TCI and such subsidiaries calculate their respective tax liabilities on a separate return basis and combine them in the accompanying consolidated financial statements. Deferred tax expense or benefit results from timing differences in the recognition of revenue and expense for income tax and financial statement purposes and from adjustment of deferred tax credits. The primary source of these differences is excess depreciation and amortization for income tax purposes. The Company has net operating loss carryforwards for income tax purposes which, if not utilized to reduce taxable income in future periods, expire at various dates through 2006. Substantially all such net operating losses have been recognized for financial statement purposes as a reduction of deferred income taxes. To the extent the net operating loss carryforwards are utilized for income tax purposes, deferred tax credits will be restored at the then current rates. Additionally, certain subsidiaries of the Company have net operating loss carryforwards for income tax purposes and these net operating losses are subject to certain rules limiting their usage. Also, one of the Company's subsidiaries (which had filed a separate consolidated Federal income tax return) has a net operating loss carryforward for financial statement purposes. The Company has available investment tax credits which, if not utilized to offset future Federal income taxes payable, expire at various dates through 2005. Substantially all such investment tax credits have been recognized for financial statement purposes as a reduction of deferred income taxes. To the extent the investment tax credit carryforward is utilized for income tax purposes, deferred tax credits will be restored at the then current rates. The benefits from investment tax credits are recorded when such credits are used to reduce current or deferred income taxes payable. Additionally, certain subsidiaries of the Company have investment tax credit carryforwards and these investment tax credit carryforwards are subject to certain rules limiting their usage. Also, one of the Company's subsidiaries (which had filed a separate consolidated Federal income tax return) has an investment tax credit carryforward for financial statement purposes. 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 1978 through 1991. In the opinion of management, any additional tax liability, not previously provided for, resulting from these examinations, ultimately determined to be payable, should not have a material adverse effect on the consolidated financial position of the Company. The Company pursued a course of action on certain issues (primarily the deductibility of franchise cost amortization) the IRS had raised and such issues were argued before the United States Tax Court. During 1990, the Company received a favorable decision regarding these issues. The IRS has appealed this decision. (continued) I-16 TELE-COMMUNICATIONS,' INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" , which will supersede Statement No. 96, "Accounting for Income Taxes". The Company currently accounts for income taxes under Accounting Principles Board Opinion No. 11, having elected not to adopt Statement No. 96 prior to its required effective date. Statement No. 109 will change the Company's method of accounting for income taxes from the deferred method required under APB No. 11 to the asset and liability method. The Company presently does not know and cannot reasonably estimate the impact of Statement No. 109 on its financial statements. Statement No. 109 is effective for fiscal years beginning after December 15, 1992. The Company is currently determining whether it will restate any prior years or adopt Statement No. 109 in 1993 on a prospective basis. (13) Commitments and Contingencies In connection with the acquisition from TCI of a 19.9% minority interest in Heritage Communications, Inc. ("Heritage") by Comcast Corporation ("Comcast") , Comcast was granted the right, beginning in July of 1993, to require TCI to purchase or cause to be purchased from Comcast all shares of Heritage directly or indirectly owned by Comcast for either cash or, at TCI's election, shares of TCI Class A common stock. The Company has contingent liabilities related to legal proceedings and other matters arising in the ordinary course of business. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying consolidated financial statements. (14) Discontinued Operations The Company sold its motion picture theatre business and certain theatre- related real estate assets on May 12, 1992. The selling price (including liabilities assumed) was approximately $680 million, of which $92.5 million was paid in the form of preferred stock of the buyer. No gain or loss was recognized in connection with this transaction as the net assets of discontinued operations were reflected at their net realizable value. Operating results for the theatre operations for the nine months ended September 30, 1992 and 1991 are reported separately in the consolidated statement of operations under the caption "Loss from discontinued operations" and include: 1992 1991 amounts in millions Revenue $ 211 471 Loss before income taxes $ (16) (2) Income tax benefit (expense) $ 1 (1) Net loss $ (15) (3) The net assets of discontinued operations on the consolidated balance sheet at December 31, 1991 consists primarily of the theatre operations property and equipment, net of debt and miscellaneous liabilities. I-17 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (1) Material changes in financial condition: The Company had approximately $1 billion in unused lines of credit at September 30, 1992, excluding amounts related to lines of credit which provide availability to support commercial paper. Although the Company was in compliance with the restrictive covenants contained in its credit facilities at said date, additional borrowings under the credit facilities are subject to the Company's continuing compliance with the restrictive covenants (which relate primarily to the maintenance of certain ratios of cash flow to total debt and cash flow to debt service, as defined) after giving effect to such additional borrowings. See note 9 to the accompanying consolidated financial statements for additional information regarding the material terms of the Company's lines of credit. As security for borrowings under one of its credit facilities, the Company pledged a portion of the common stock it holds of TBS. Borrowings under this credit facility (which amounted to $205 million at September 30, 1992) are due in August of 1994. On or before such date, assuming there has been no significant decline in the value of the underlying collateral (approximately $449 million at September 30, 1992) , the Company expects to refinance these borrowings and extend the maturity date. However, there can be no assurance that such a refinancing will be accomplished on terms acceptable to the Company. One measure of liquidity is commonly referred to as "interest coverage". Interest coverage, which is measured by the ratio of operating income before depreciation and amortization ($1,218 million and $1,070 million for the nine months ended September 30, 1992 and 1991, respectively) to interest expense ($545 million and $626 million for the nine months ended September 30, 1992 and 1991, respectively) , is determined by reference to the consolidated statements of operations. The Company's interest coverage ratio was 2238 and 1718 for the nine months ended September 30, 1992 and 1991, respectively. Management of the Company believes that the foregoing interest coverage ratio has improved due to improved operating results of the Company as well as a general decline in interest rates and such interest coverage ratio is adequate in light of the consistency and nonseasonal nature of its cable television operations and the relative predictability of the Company's interest expense, more than half of which results from fixed rate indebtedness. The Company owns an equity interest in SCI (see note 6 to the accompanying consolidated financial statements) . SCI is obligated to repay $398 million in principal amount of its zero coupon senior notes on December 5, 1992. However, SCI does not expect cash flows generated from operations and available borrowing capacity under its existing credit agreements to be sufficient to satisfy the aforementioned 1992 debt obligation. As a result, SCI is pursuing various plans to meet this obligation, including the possibility of a transaction that would result in the ownership of its cable systems being split, on a tax-free basis, between the Company and the other shareholder. This transaction is expected to occur during 1992, although there can be no assurance that it will occur during 1992 or at all since consummation of the transaction is subject to various conditions including receipt of certain regulatory and other consents and approvals, and the execution by the parties of binding agreements. As of October 31, 1992, certain of the more significant of such conditions had been satisfied. In the event this transaction cannot be accomplished, SCI will need to seek alternative financing. (continued) I-18 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES (1) Material changes in financial condition (continued) : Other than SCI, the Company's various partnerships and other affiliates accounted for under the equity method generally fund their acquisitions, required principal repayments and capital expenditures through borrowings under their own credit facilities (which are generally not guaranteed by the Company) and through net cash provided by their own operating activities. Certain subsidiaries' loan agreements contain restrictions regarding transfers of funds to the parent company in the form of loans, advances or cash dividends. The amount of net assets of such subsidiaries exceeds the Company's consolidated net assets. However, net cash provided by operating activities of other 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. Management believes that available lines of credit, net cash provided by operating activities, proceeds from disposition of assets and the Company's ability to obtain additional financing will provide adequate sources of short- term and long-term liquidity in the future. (2) Material changes in results of operations: Revenue increased by approximately 10.18 and 11.68 for the nine months and three months ended September 30, 1992, as compared to the corresponding periods of the prior year. Approximately 38 of these increases resulted from growth in subscriber levels within the Company's cable television systems and an additional 48 was attributable to the increase in prices charged for cable television service. On October 5, 1992, Congress enacted the Cable Television Protection and Competition Act of 1992 ("1992 Cable Act") . This law greatly expands federal and local regulation of the cable television industry. Among other matters, it mandates regulation of basic service, provides for the choice by the broadcast television stations of either "must carry" rights or "retransmission consent" rights, regulates the sale of cable programming and implements other operational restrictions. Because rules and regulations implementing the 1992 Cable Act will not be adopted by the Federal Communications Commission until the spring of 1993 through the fall of 1993, it is not possible to fully predict the effect of this legislation upon the Company. Operating costs and expenses have historically remained relatively constant as a percentage of revenue. However, in 1992 the Company experienced an improvement in its operating costs and expenses due primarily to certain efficiencies and cost savings arising from the integration of the operations and management of TCI and United Artists Entertainment Company upon TCI's acquisition in late 1991 of the remaining minority interests in the equity of United Artists Entertainment Company. The Company cannot determine whether and to what extent increases in the cost of programming will affect the prices charged by it for its cable television services or the manner in which these services are offered. (continued) I-19 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES (2) Material changes in financial position (continued): The Company's earnings from continuing operations (before preferred stock dividends) for the nine months and the three months ended September 30, 1992 represented an improvement as compared to the Company's net loss for the corresponding periods of 1991 due primarily to improved operating results by the Company in its cable television business. Also, the general decline in interest rates had a positive impact on the Company's net results. These same factors led to an improvement in the Company's interest coverage ratio. On May 12, 1992, the Company sold its motion picture theatre business and certain theatre-related real estate assets (see note 14 to the accompanying consolidated financial statements) . Accordingly, the operations of the Company's motion picture theatre exhibition industry segment have been reclassified and reflected as "discontinued operations" in the accompanying consolidated financial statements. I-20 TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings. There were no material legal proceedings instituted during the quarter ended September 30, 1992 to which the Company or any of its consolidated subsidiaries is a party or of which any of their property is the subject. There were no material developments during the quarter ended September 30, 1992 in any of the existing legal proceedings which were previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 1991. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - None. (b) Reports on Form 8-K filed during the quarter ended September 30, 1992: None II-1 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TELE-COMMUNICATIONS, INC. Date: November 9, 1992 By: /s/ Donne F. Fisher Donne F. Fisher Executive Vice President Date: November 9, 1992 By: /s/ Gary K. Bracken Gary K. Bracken, Controller and Senior Vice President (Principal Financial Officer and Chief Accounting Officer) 11-2