<PAGE>   1
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                  FORM 10-Q


[X]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 
          For the quarterly period ended March 31, 1998

                                       OR

[ ]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 
          For the transition period from _____ to _____


Commission File Number 0-5550


                            TCI COMMUNICATIONS, INC.
              -----------------------------------------------------
             (Exact name of Registrant as specified in its charter)


       State of Delaware                                     84-0588868
-------------------------------                          -------------------
(State or other jurisdiction of                           (I.R.S. Employer 
 incorporation or organization)                          Identification No.)


     5619 DTC Parkway
   Englewood, Colorado                                             80111
-----------------------------------------                       ----------
 (Address of principal executive offices)                       (Zip Code)



       Registrant's telephone number, including area code: (303) 267-5500


         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]  No [ ]

         All of the Registrant's common stock is owned by Tele-Communications,
Inc. The number of shares outstanding of the Registrant's common stock as of
April 30, 1998, was: 

                   Class A common stock - 811,655 shares; and
                     Class B common stock - 94,447 shares.




<PAGE>   2





                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                           Consolidated Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                  March 31,    December 31,
                                                                                     1998         1997
                                                                                  ----------   ------------
Assets                                                                               amounts in millions
<S>                                                                                <C>         <C>
Cash and cash equivalents                                                          $    --          36

Trade and other receivables, net                                                       326         319

Investment in Cablevision Systems Corporation ("CSC"), accounted for under the                
equity method (note 3)                                                                 645          --

Investments in other affiliates, accounted for under the equity method, and
related receivables (note 4)                                                           259         231

Property and equipment, at cost:
  Land                                                                                  70          70
  Distribution systems                                                               9,562       9,547
  Support equipment and buildings                                                    1,311       1,351
                                                                                   -------      ------
                                                                                    10,943      10,968
Less accumulated depreciation                                                        4,456       4,444
                                                                                   -------      ------
                                                                                     6,487       6,524
                                                                                   -------      ------

Franchise costs                                                                     16,555      17,154
  Less accumulated amortization                                                      2,660       2,711
                                                                                   -------      ------
                                                                                    13,895      14,443
                                                                                   -------      ------

Other assets, net of amortization                                                      316         305
                                                                                   -------      ------

                                                                                   $21,928      21,858
                                                                                   =======      ======
</TABLE>



                                                                     (continued)

                                       I-1


<PAGE>   3
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                     Consolidated Balance Sheets, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                      March 31,     December 31,
                                                                         1998           1997
                                                                      ---------     ------------
<S>                                                                   <C>           <C>
Liabilities and Common Stockholder's Deficit                              amounts in millions

Accounts payable                                                       $    161           131

Accrued interest                                                            168           248

Accrued programming expense                                                 261           242

Other accrued expenses                                                      623           651

Debt (note 6)                                                            13,423        13,528

Deferred income taxes                                                     5,325         5,215

Other liabilities                                                           127           125
                                                                       --------      --------
      Total liabilities                                                  20,088        20,140
                                                                       --------      --------

Minority interests in equity of consolidated subsidiaries                   787           787

Redeemable preferred stock                                                  232           232

Company-obligated mandatorily redeemable
   preferred securities of subsidiary trusts ("Trust
   Preferred Securities") holding solely subordinated debt
   securities of the Company (note 7)                                     1,500         1,500

Common stockholder's deficit:
   Class A common stock, $1 par value. Authorized
      910,553 shares; issued and outstanding
      811,655 shares                                                          1             1
Class B common stock, $1 par value
   Authorized, issued and outstanding 94,447 shares                          --            --
   Additional paid-in capital                                             1,863         1,857
   Accumulated other comprehensive earnings, net of taxes (note 1)            5             4
   Accumulated deficit                                                     (919)         (957)
                                                                       --------      --------
                                                                            950           905
   Investment in Tele-Communications, Inc. ("TCI"), at cost              (1,143)       (1,143)
   Due from related parties (note 8)                                       (486)         (563)
                                                                       --------      --------
      Total common stockholder's deficit                                   (679)         (801)
                                                                       --------      --------
Commitments and contingencies (note 9)                                 $ 21,928        21,858
                                                                       ========      ========
</TABLE>


See accompanying notes to consolidated financial statements.


                                       I-2


<PAGE>   4





                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                      Consolidated Statements of Operations
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                 Three months ended
                                                                                      March 31,
                                                                                --------------------
                                                                                 1998         1997
                                                                                -------      -------
                                                                                amounts in millions
<S>                                                                             <C>            <C>  
Revenue (note 8)                                                                $ 1,511        1,505

Operating costs and expenses:
   Operating:
      Related party (note 8)                                                         60           23
      Other                                                                         504          521
   Selling, general and administrative (note 8)                                     303          282
   Stock compensation (note 9)                                                       59           --
   Depreciation and amortization                                                    359          331
                                                                                -------      -------
                                                                                  1,285        1,157
                                                                                -------      -------

      Operating income                                                              226          348

Other income (expense):
   Interest expense                                                                (265)        (272)
   Interest income                                                                    1            6
   Intercompany interest, net (note 8)                                                2            3
   Share of losses of CSC (note 3)                                                  (18)          --
   Share of earnings (losses) of other affiliates, net (note 4)                      32          (12)
   Loss on early extinguishment of debt (note 6)                                    (16)          --
   Minority interests in earnings of consolidated subsidiaries, net (note 7)        (43)         (26)
   Gain on disposition and exchange of assets, net (note 5)                         157           18 
   Other, net                                                                         1           (4)
                                                                                -------      -------
                                                                                   (149)        (287)
                                                                                -------      -------

      Earnings before income taxes                                                   77           61

Income tax expense                                                                  (39)         (22)
                                                                                -------      -------

      Net earnings                                                                   38           39

Preferred stock dividend requirements                                                (2)          (2)
                                                                                -------      -------
      Net earnings attributable to common stockholder                           $    36           37
                                                                                =======      =======

Comprehensive earnings (note 1)                                                 $    39           44
                                                                                =======      =======
</TABLE>



See accompanying notes to consolidated financial statements.


                                       I-3


<PAGE>   5





                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

             Consolidated Statement of Common Stockholder's Deficit
                        Three months ended March 31, 1998
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                     Accumulated
                                                                       other                                  Due        Total
                                       Common stock     Additional  comprehensive              Investment    from        common
                                     -----------------   paid-in     earnings,    Accumulated     in        related    stockholder's
                                     Class A   Class B    capital   net of taxes    deficit       TCI       parties       deficit
                                     -------   -------  ----------  ------------- -----------  ----------   -------    -------------
                                                                            amounts in millions
<S>                                  <C>       <C>      <C>          <C>           <C>         <C>          <C>        <C>  
Balance at January 1, 1998             $   1      --      1,857             4       (957)         (1,143)    (563)        (801)
                                                                                                                              
  Net earnings                           --       --       --            --           38            --        --            38 
  Accreted dividends on                                                                                                       
    redeemable preferred stock           --       --         (2)         --         --              --        --            (2)
  Change in unrealized holding
    gains for available-for-sale
    securities, net of taxes             --       --       --               1       --              --        --             1 
  Gain from contribution of cable                                                                                             
    television systems to joint                                                                                               
    ventures, net of taxes (note 5)      --       --         58          --         --              --        --            58 
  Transfer of net liabilities from                                                                                            
    related party (note 8)               --       --        (50)         --         --              --        --           (50)
  Change in due from
    related parties                      --       --       --            --         --              --         77           77 
                                       -----    ----      -----          ----       ----          ------     ----        ----- 
Balance at March 31, 1998              $   1      --      1,863             5       (919)         (1,143)    (486)        (679)
                                       =====    ====      =====          ====       ====          ======     ====        ===== 
</TABLE>



See accompanying notes to consolidated financial statements.



                                       I-4


<PAGE>   6


                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                      Consolidated Statements of Cash Flows
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                              Three months ended
                                                                                                   March 31,
                                                                                             -----------------------
                                                                                               1998           1997
                                                                                             ---------      --------
                                                                                                amounts in millions
                                                                                                    (see note 2)
<S>                                                                                         <C>                   <C>
Cash flows from operating activities:
   Net earnings                                                                             $  38                 39
   Adjustments to reconcile net earnings to net cash provided by operating activities:
        Depreciation and amortization                                                         359                331
        Stock compensation                                                                     59                 --
        Payments of obligation relating to stock compensation                                 (27)                (1)
        Share of losses of CSC                                                                 18                 --
        Share of losses (earnings) of other affiliates, net                                   (32)                12
        Loss on early extinguishment of debt                                                   16                 --
        Deferred income tax expense (benefit)                                                  36                (30)
        Minority interests in earnings of consolidated subsidiaries, net                       43                 26
        Gain on disposition and exchange of assets, net                                      (157)               (18)
        Intercompany tax allocation                                                            --                 51
        Payments of restructuring charges                                                      (3)               (16)
        Other noncash charges                                                                  11                  2
        Changes in operating assets and liabilities, net of the effect of acquisitions:
              Change in receivables                                                            (6)                 5
              Change in accrued interest                                                      (80)              (103)
              Change in other accruals and payables                                           (17)               (80)
                                                                                            -----               ----
                Net cash provided by operating activities                                     258                218
                                                                                            -----               ----

Cash flows from investing activities:
   Capital expended for property and equipment                                               (198)               (80)
   Cash paid for acquisitions                                                                 (58)               (68)
   Cash received in exchanges                                                                  --                 22
   Proceeds from disposition of assets                                                         12                140
   Additional investments in and loans to affiliates and others                              (136)                --
   Collections of loans to affiliates and others                                              427                  1
   Other investing activities                                                                   2                (21)
                                                                                            -----               ----
                Net cash provided (used) by investing activities                               49                 (6)
                                                                                            -----               ----
Cash flows from financing activities:
   Borrowings of debt                                                                         533                284
   Repayments of debt                                                                        (825)              (695)
   Prepayment penalties on debt                                                               (15)                --
   Payment of redeemable preferred stock dividends                                             (2)                (2)
   Payment of dividends on subsidiary preferred stock and Trust Preferred Securities          (45)               (32)
   Net change in due from related parties                                                      11               (221)
   Proceeds from issuance of Trust Preferred Securities                                        --                490
                                                                                            -----               ----
                Net cash used in financing activities                                        (343)              (176)
                                                                                            -----               ----
                Net change in cash and cash equivalents                                       (36)                36

                Cash and cash equivalents at beginning of period                               36                 --
                                                                                            -----               ----
                Cash and cash equivalents at end of period                                  $  --                 36
                                                                                            =====               ====
</TABLE>



See accompanying notes to consolidated financial statements.



                                       I-5


<PAGE>   7

                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

                                 March 31, 1998
                                   (unaudited)





(1)      Basis of Presentation

         The accompanying consolidated financial statements include the accounts
         of TCI Communications, Inc. ("TCIC" or the "Company") and those of all
         majority-owned subsidiaries. All significant intercompany accounts and
         transactions have been eliminated in consolidation. 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)

                                       I-6


<PAGE>   8


                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements





         Effective January 1, 1998, the Company adopted the provisions of
         Statement of Financial Accounting Standards No. 130, Reporting
         Comprehensive Income ("SFAS 130"). The Company has reclassified its
         prior period consolidated balance sheet and consolidated statement of
         operations to conform to the requirements of SFAS 130. SFAS 130
         requires that all items which are components of comprehensive earnings
         or losses be reported in a financial statement in the period in which
         they are recognized. The Company has included unrealized holding gains
         and losses for available-for-sale securities in other comprehensive
         earnings that are recorded directly in stockholder's deficit. Pursuant
         to SFAS 130, this item is reflected, net of related tax effects, as a
         component of comprehensive earnings in the Company's consolidated
         statements of operations, and is included in accumulated other
         comprehensive earnings in the Company's consolidated balance sheets and
         statement of common stockholder's deficit.

         The accompanying interim consolidated financial statements are
         unaudited but, in the opinion of management, reflect all adjustments
         (consisting of normal recurring accruals) necessary for a fair
         presentation of the results for such periods. The results of operations
         for any interim period are not necessarily indicative of results for
         the full year. These consolidated financial statements should be read
         in conjunction with the consolidated financial statements and notes
         thereto contained in TCIC's Annual Report on Form 10-K for the year
         ended December 31, 1997.

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenue and expenses during the reporting period. Actual
         results could differ from those estimates.

         Certain prior period amounts have been reclassified for comparability
         with the 1998 presentation.

(2)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $345 million and $375 million for the three
         months ended March 31, 1998 and 1997, respectively. Also during these
         periods, cash paid for income taxes was not material.



                                                                     (continued)

                                       I-7


<PAGE>   9
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         Summary of cash paid for acquisitions and cash received in exchanges is
         as follows:


<TABLE>
<CAPTION>
                                                                 Three months ended
                                                                     March 31,
                                                                 -------------------
                                                                   1998       1997
                                                                 --------    -------
                                                                 amounts in millions
<S>                                                              <C>         <C> 
Cash paid for acquisitions:
     Aggregate cost basis of assets acquired                      $(250)        (67)
     Liabilities assumed, net of current assets                       2           2
     Deferred tax liability recorded in acquisitions                 35          --
     Minority interests in equity of acquired entities                2          (3)
     Elimination of notes receivable from affiliates                129          --
     Change in due from related parties resulting from common
      stock of TCI issued in acquisition                             24          --
                                                                  -----       -----
        Cash paid for acquisitions                                $ (58)        (68)
                                                                  =====       =====

Cash received in exchanges:
     Aggregate cost basis of assets acquired                      $  --        (294)
     Historical cost of assets disposed of                           --         305
     Gain recorded on exchange of assets                             --          11
                                                                  -----       -----
        Cash received in exchanges                                $  --          22
                                                                  =====       =====
</TABLE>



         For a description of certain non-cash transactions, see notes 4, 5 and
         8.

(3)      Investment in Cablevision Systems Corporation

         As further described in note 5, TCIC acquired an approximate 18.7%
         interest in CSC on March 4, 1998. At March 31, 1998, TCIC owned
         13,975,524 shares of CSC Class A common stock, which had a closing
         market price of $65.75 per share on March 31, 1998.

         Summarized unaudited results of operations for CSC, accounted for under
         the equity method, are as follows for the period from the date of
         acquisition through March 31, 1998 (amounts in millions):


<TABLE>
<S>                                                           <C>  
Revenue                                                       $ 236
Operating, selling, general and administrative expenses        (202)
Depreciation and amortization                                   (56)
                                                              ----- 
   Operating loss                                               (22)

Interest expense                                                (35)
Other, net                                                      (18)
                                                              ----- 
     Net loss                                                 $ (75)
                                                              =====
</TABLE>



                                                                     (continued)

                                       I-8


<PAGE>   10
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

(4)      Investments in Other Affiliates

         TCIC's investments in affiliates other than CSC are comprised of
         limited partnerships and other entities that are primarily engaged in
         the domestic cable business. Summarized unaudited results of operations
         for other affiliates for the periods in which the Company used the
         equity method to account for such other affiliates are as follows:


<TABLE>
<CAPTION>
                                                                       Three months ended
                                                                            March 31,
                                                                    -----------------------  
Combined Operations                                                    1998          1997
-------------------                                                 ---------      --------  
                                                                      amounts in millions
<S>                                                                 <C>            <C>
      Revenue                                                       $    105             83
      Operating, selling, general and administrative expenses            (56)           (51)         
      Depreciation and amortization                                      (42)           (36)
                                                                    --------         ------
         Operating income (loss)                                           7             (4)
                                                                                   
      Interest expense                                                   (22)           (19)
      Other, net                                                           2              2
                                                                    --------         ------
         Net loss                                                   $    (13)           (21)
                                                                    ========         ======
</TABLE>


During 1997, TCIC adopted the equity method of accounting for its investment in
InterMedia Partners, a California limited partnership ("InterMedia Partners").
In January 1998, InterMedia Partners repurchased substantially all of the equity
interests held by partners other than TCIC. As a result of such repurchases,
TCIC began consolidating InterMedia Partners.

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)

                                       I-9


<PAGE>   11
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

(5)      Acquisitions and Dispositions

         On March 4, 1998, subsidiaries of TCI (including certain subsidiaries
         of TCIC) contributed to CSC certain of its cable television systems
         serving approximately 830,000 customers in exchange for approximately
         24.5 million newly issued CSC Class A common shares (as adjusted for a
         stock dividend). Such shares represent an approximate 32.7% 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 and repaid
         approximately $574 million of debt owed by TCIC to external parties and
         $95 million of debt owed to TCI. As a part of such transaction, TCIC
         subsidiaries contributed to CSC cable television systems serving
         approximately 410,000 customers in exchange for approximately 14.0
         million shares (as adjusted for a stock dividend) or 18.7% of CSC's
         newly issued Class A common shares, and CSC assumed approximately $78
         million of intercompany debt owed to TCIC. As a result of this
         transaction, TCIC recognized a $148 million gain in the accompanying
         consolidated statement of operations for the three months ended March
         31, 1998. Such gain represents the excess of the $663 million fair
         value of the CSC Class A common shares received over the historical
         cost of the net assets transferred by TCIC to CSC. 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 common shares and for CSC to (i) acquire cable systems serving
         approximately 250,000 customers in Connecticut and (ii) assume $110
         million of TCIC's debt. The ability of TCIC 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 32.7%, TCIC will
         account for its approximate 18.7% ownership interest in CSC under the
         equity method.

         During the first quarter of 1998, TCIC also completed two transactions
         whereby TCIC contributed cable television systems serving in the
         aggregate approximately 235,000 customers to two separate joint
         ventures (collectively, the "Q1 Joint Ventures") in exchange for
         non-controlling ownership interests in each of the Q1 Joint Ventures,
         and the assumption and repayment by the Q1 Joint Ventures of
         intercompany debt owed to TCIC aggregating $343 million. In connection
         with such transactions, TCIC has agreed to take certain steps to
         support compliance by the Q1 Joint Ventures with their payment
         obligations under certain debt instruments, up to an aggregate total
         contingent commitment of $294 million. In light of such agreement, the
         $97 million aggregate excess of the TCIC debt assumed by the Q1 Joint
         Ventures over the historical cost of the remaining net assets
         contributed to the Q1 Joint Ventures has been reflected as a direct
         decrease to consolidated deficit (net of related deferred income taxes
         of $39 million). The Company uses the equity method of accounting to
         account for its investments in the Q1 Joint Ventures. The March 4, 1998
         CSC transaction and the formation of the Q1 Joint Ventures are
         collectively referred to herein as the "Q1 1998 Contribution
         Transactions."


                                                                     (continued)


                                      I-10


<PAGE>   12

                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         On April 30, 1998, TCIC contributed certain cable television systems
         serving in the aggregate approximately 435,000 customers in Kentucky to
         a joint venture in exchange for a 49% limited partnership interest in
         such joint venture, and the assumption and repayment by such joint
         venture of intercompany debt owned to TCIC and debt owed by TCIC to
         external parties aggregating $812 million. In connection with such
         transaction, TCIC has agreed to take certain steps to support
         compliance by the joint venture with its payment obligations under
         certain debt instruments, up to an aggregate total contingent
         commitment of $490 million. TCIC will use the equity method of
         accounting to account for its investment in this joint venture.

         Including the Q1 1998 Contribution Transactions and the above-described
         April 30, 1998 transaction, TCIC, as of April 30, 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 3.5
         million 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 an aggregate estimated reduction
         (based on actual amounts with respect to the Q1 1998 Contribution
         Transactions and currently contemplated amounts with respect to the
         pending Contribution Transactions) to TCIC's debt of $4.2 billion and
         aggregate estimated reductions (based on 1997 amounts) to TCIC's annual
         revenue and annual operating income before depreciation, amortization
         and stock compensation of $1.5 billion and $735 million, respectively.
         No assurance can be given that any of the pending Contribution
         Transactions will be consummated.

(6)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                           March 31,    December 31,
                                                             1998           1997    
                                                           ---------    ------------
                                                              amounts in millions
<S>                                                        <C>              <C>     
    Parent company debt:
        Notes payable (a)                                  $ 8,216          7,949   
        Commercial paper                                       528            533   
                                                           -------        -------   
                                                             8,744          8,482   
    Debt of subsidiaries:                                                           
        Bank credit facilities (b)                           3,718          4,268   
        Notes payable (a)                                      723            723   
        Convertible notes (c)                                   40             40   
        Capital lease obligations and other debt               198             15                            
                                                           -------        -------   
                                                                                    
                                                           $13,423         13,528   
                                                           =======        =======   
</TABLE>

                                                                     (continued)


                                      I-11


<PAGE>   13
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         (a)      During the three months ended March 31, 1998, TCIC purchased 
                  in the open market certain notes payable which had an
                  aggregate principal balance of $95 million and fixed interest
                  rates ranging from 8.75% to 10.125% (the "1998 Purchases"). In
                  connection with the 1998 Purchases, TCIC recognized a loss on
                  early extinguishment of debt of $16 million. Such loss related
                  to prepayment penalties amounting to $15 million and the
                  retirement of deferred loan costs.

         (b)      At March 31, 1998, TCIC had approximately $1.8 billion of 
                  availability in unused lines of credit, excluding amounts
                  related to lines of credit which provide availability to
                  support commercial paper. 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.

         (c)      These convertible notes, which are stated net of unamortized 
                  discount of $166 million at March 31, 1998 and December 31,
                  1997, mature on December 18, 2021. The notes require, so long
                  as conversion of the notes has not occurred, an annual
                  interest payment through 2003 equal to 1.85% of the face
                  amount of the notes. At March 31, 1998, the notes were
                  convertible, at the option of the holders, into an aggregate
                  of 24,163,259 shares of TCI Group Series A Stock, 19,416,910
                  shares of Liberty Group Series A Stock, 20,711,373 shares of
                  TCI Ventures Group Series A Stock and 3,451,897 shares of
                  Series A Common Stock, $1.00 par value per share, of TCI
                  Satellite Entertainment, Inc.

         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 March 31, 1998,
         the fair value of TCIC's debt was $14,208 million, as compared to a
         carrying value of $13,423 million on such date.

         In order to achieve the desired balance between variable and fixed rate
         indebtedness, the Company has entered into variable and fixed interest
         rate exchange agreements ("Interest Rate Swaps") pursuant to which it
         (i) pays fixed interest rates (the "Fixed Rate Agreements") of 6.2% and
         receives variable interest rates on a notional amount of $10 million at
         March 31, 1998 and (ii) pays variable interest rates (the "Variable
         Rate Agreements") and receives fixed interest rates ranging from 4.8%
         to 9.7% on notional amounts of $2,400 million at March 31, 1998. During
         the three months ended March 31, 1998 and 1997, the Company's net
         receipts (payments) pursuant to the Fixed Rate Agreements were (less
         than $1 million) and $3 million, respectively; and the Company's net
         receipts pursuant to the Variable Rate Agreements were $3 million and
         $1 million, respectively.



                                                                     (continued)

                                      I-12


<PAGE>   14
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         Information concerning TCIC's Variable Rate Agreements at March 31,
         1998 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        $    1
          April 1999               7.4%                50            (1)
          September 1999           6.4%               350            (2)
          February 2000            5.8%-6.6%          300            (2)
          March 2000               5.8%-6.0%          675            --
          September 2000           5.1%                75             2
          March 2027               9.7%               300           (18)
          December 2036            9.7%               200            (7)
                                                   ------        -------
                                                   $2,400        $  (27)
                                                   ======        =======
</TABLE>

-----------------

         (a)      The estimated amount that TCIC would pay or receive to 
                  terminate the agreements at March 31, 1998, taking into
                  consideration current interest rates and the current
                  creditworthiness of the counterparties, represents the fair
                  value of the Interest Rate Swaps.

         The Fixed Rate Agreement expires in August 1998. At March 31, 1998, the
         Company would be required to pay less than $1 million to terminate the
         Fixed Rate Agreement.

         In addition to the Fixed and Variable Rate Agreements, TCIC entered
         into Interest Rate Swaps pursuant to which it pays a variable rate
         based on the London Interbank Offered Rate ("LIBOR") (6.1% at March 31,
         1998) and receives a variable rate based on the Constant Maturity
         Treasury Index ("CMT") (6.0% at March 31, 1998) on a notional amount of
         $400 million through September 2000; and pays a variable rate based on
         LIBOR (6.0% at March 31, 1998) and receives a variable rate based on
         CMT (6.1% at March 31, 1998) on notional amounts of $95 million through
         February 2000. During the three months ended March 31, 1998, TCIC's net
         payments pursuant to such agreements were less than $1 million. At
         March 31, 1998, TCIC would be required to pay an estimated $3 million
         to terminate such Interest Rate Swaps.

         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 March 31, 1998.



                                                                     (continued)


                                      I-13


<PAGE>   15
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements


(7)      Company-Obligated Mandatorily Redeemable Preferred Securities of 
             Subsidiary Trusts Holding Solely Subordinated Debt Securities of
             the Company

         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 $35 million and $25 million for the three months ended March
         31, 1998 and 1997, respectively, and are included in minority interests
         in earnings of consolidated subsidiaries in the accompanying
         consolidated financial statements.

(8)      Related Party Transactions

         At March 31, 1998, amounts due from related parties include (i) $176
         million representing the net amount due from TCI and certain
         subsidiaries of TCI pursuant to promissory notes, including accrued
         interest, and (ii) $310 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
         $2 million and $3 million during the three months ended March 31, 1998
         and 1997, 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.
         Another subsidiary of TCI, Liberty Media Corporation ("Liberty") held
         the remaining 49.9% partnership interest, and TCIC was a party to an
         affiliation agreement (the "Old Affiliation Agreement") with QE+
         related to the distribution of the STARZ! service.

         Subsequent to June 30, 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 "EMG
         Affiliation Agreement"). Pursuant to the EMG Affiliation Agreement, the
         Company pays 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 2022.

         Charges to TCIC for programming pursuant to the Old Affiliation
         Agreement, the EMG Affiliation Agreement and other related party
         programming agreements with TCI Music, Inc., a subsidiary of TCI ("TCI
         Music"), and certain other subsidiaries attributed to Liberty Media
         Group aggregated $56 million and $37 million for the three months ended
         March 31, 1998 and 1997, respectively. Such charges are based upon
         customary rates charged to others.



                                                                     (continued)

                                      I-14


<PAGE>   16
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         Certain TCI corporate general and administrative costs are charged to
         Liberty Media Group and TCI Ventures Group at rates set at the
         beginning of the year based on projected utilization for that year. The
         utilization-based charges are set at levels that management believes to
         be reasonable and that approximate the costs Liberty Media Group and
         TCI Ventures Group would incur for comparable services on a stand-alone
         basis. During the three months ended March 31, 1998 and 1997, Liberty
         Media Group was allocated $1 million and less than $1 million,
         respectively, and TCI Ventures Group was allocated $2 million and $2
         million, respectively, in corporate general and administrative costs by
         TCIC. Such amounts are included in selling, general and administrative
         expenses in the accompanying consolidated financial statements.

         During 1996, TCIC transferred, subject to regulatory approval, certain
         distribution equipment to a subsidiary of TINTA in exchange for a
         (pound)15 million ($23 million using the applicable exchange rate)
         principal amount promissory note (the "TVG LLC Promissory Note"). The
         TVG LLC Promissory Note was contributed by TCIC to TVG LLC on September
         10, 1997. The distribution equipment was subsequently leased back to
         TCIC over a five year term with semi-annual payments of $2 million,
         plus expenses. Effective October 1, 1997, such distribution equipment
         was transferred back to TCIC and the related lease and the TVG LLC
         Promissory Note were canceled. During the three months ended March 31,
         1997, (i) the U.S. dollar equivalent of interest income earned with
         respect to the TVG LLC Promissory Note was less than $1 million and
         (ii) the U.S. dollar equivalent of the lease expense under the
         above-described lease agreement aggregated $1 million.

         Pursuant to an agreement between 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. During the three months ended March 31,
         1998, the aggregate amount paid by TCIC to TCI Music pursuant to such
         arrangement was $5 million. Such amount is included as a reduction of
         revenue in the accompanying consolidated statements of operations.

         Through September 30, 1997, Liberty Media Group leased satellite
         transponder facilities from a subsidiary of TCIC. Charges by TCIC for
         such lease arrangements aggregated $2 million for the three months
         ended March 31, 1997.

         Since October 1, 1997, TCIC leases satellite transponder facilities and
         receives video transport services from entities attributed to TCI
         Ventures Group. Charges by TCI Ventures Group for such arrangements and
         other related operating expenses for the three months ended March 31,
         1998 aggregated $2 million. Such amounts are included in operating
         costs and expenses in the accompanying consolidated statements of
         operations.


                                                                     (continued)


                                      I-15


<PAGE>   17
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         A subsidiary of TCI that is attributed to TCI Ventures Group leased
         certain equipment under a capital lease. During 1997, such equipment
         was subleased to TCIC under an operating lease. In January 1998, the
         Company paid $7 million to TCI Ventures Group in exchange for TCI
         Ventures Group's assignment of its ownership interest in such
         subsidiary to TCIC. Due to the related party nature of the transaction,
         the $50 million total of the cash payment and the historical cost of
         the net liabilities assumed by TCIC (including capital lease
         obligations aggregating $176 million) has been reflected as an increase
         of TCIC's consolidated deficit.

         In addition, a subsidiary attributed to TCI Ventures Group distributed
         certain program services to TCIC. Charges to TCIC for such services
         aggregated $2 million for each of the three months ended March 31, 1998
         and 1997, and are included in operating costs and expenses in the
         accompanying consolidated financial statements.

         A tax sharing agreement (as amended, the "Old Tax Sharing Agreement")
         among TCI, the Company and certain other subsidiaries of TCI was
         implemented effective July 1, 1995. The Old Tax Sharing Agreement
         formalized certain of the elements of a pre-existing tax sharing
         arrangement and contains additional provisions regarding the allocation
         of certain consolidated income tax attributes and the settlement
         procedures with respect to the intercompany allocation of current tax
         attributes. Under the Old Tax Sharing Agreement, the Company was
         responsible to TCI for its share of consolidated income tax liabilities
         (computed as if TCI were not liable for the alternative minimum tax)
         determined in accordance with the Old Tax Sharing Agreement, and TCI
         was responsible to the Company to the extent that the income tax
         attributes generated by the Company and its subsidiaries were utilized
         by TCI to reduce its consolidated income tax liabilities (computed as
         if TCI were not liable for the alternative minimum tax). The tax
         liabilities and benefits of such entities so determined are charged or
         credited to an intercompany account between TCI and the Company. Such
         intercompany account is required to be settled only upon the date that
         an entity ceases to be a member of TCI's consolidated group for federal
         income tax purposes. Under the Old Tax Sharing Agreement, TCI retains
         the burden of any alternative minimum tax and has the right to receive
         the tax benefits from an alternative minimum tax credit attributable to
         any tax period beginning on or after July 1, 1995 and ending on or
         before October 1, 1997.



                                                                     (continued)


                                      I-16
<PAGE>   18
                    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 TCI Group for purposes of
         the New Tax Sharing Agreement. Effective for periods on and after the
         Effective Date, federal income taxes will be computed based upon the
         type of tax paid by TCI (on a regular tax or alternative minimum tax
         basis) on a separate basis for each Group. Based upon these separate
         calculations, an allocation of tax liabilities and benefits will be
         made such that each Group will be required to make cash payments to TCI
         based on its allocable share of TCI's consolidated federal income tax
         liabilities (on a regular tax or alternative minimum tax basis, as
         applicable) attributable to such Group and actually used by TCI in
         reducing its consolidated federal income tax liability. Tax attributes
         and tax basis in assets would be inventoried and tracked for ultimate
         credit to or charge against each Group. Similarly, in each taxable
         period that TCI pays alternative minimum tax, the federal income tax
         benefits of each Group, computed as if such Group were subject to
         regular tax, would be inventoried and tracked for payment to or payment
         by each Group in years that TCI utilizes the alternative minimum tax
         credit associated with such taxable period. The Group generating the
         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.



                                                                     (continued)

                                      I-17


<PAGE>   19
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

(9)      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 March 31, 1998. 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.
         The Company also has guaranteed the performance of certain affiliates
         and other parties with respect to such parties' contractual and other
         obligations. Although there can be no assurance, management of TCIC
         believes that it will not be required to meet its obligations under
         such guarantees, or if it is required to fulfill any of such
         obligations, that they will not be material to TCIC.

         TCIC is a direct obligor or guarantor of the payment of certain amounts
         that may be due pursuant to motion picture output, distribution and
         license agreements. As of March 31, 1998, the amount of such
         obligations or guarantees was approximately $295 million. The future
         obligations of TCIC with respect to these agreements is not currently
         determinable because such amount is dependent upon the number of
         qualifying films released theatrically by certain motion picture
         studios as well as the domestic theatrical exhibition receipts upon the
         release of such qualifying films.

         As described in note 8, TCIC has agreed to make fixed monthly payments
         through 2022 to Liberty Media Group pursuant to the EMG Affiliation
         Agreement.


                                                                     (continued)

                                      I-18


<PAGE>   20
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         As described in note 5, the Company has significant contingent
         obligations with respect to certain of its affiliates.

         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.

         TCIC is committed to purchase billing services pursuant to three
         successive five year agreements. Pursuant to such arrangement, TCIC is
         obligated at March 31, 1998 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 at March 31, 1998 to make minimum revenue payments through
         2017 and minimum license fee payments through 2007 aggregating
         approximately $425 million to TCI Music. Such minimum payments are
         subject to inflation and other adjustments pursuant to the terms of the
         underlying agreements.

         Certain officers and other key employees of the Company hold options
         with tandem stock appreciation rights 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 (i) compensation relating to stock appreciation rights
         granted to such employees of the Company and (ii) the Company's
         allocable portion of compensation with respect to stock appreciation
         rights held by certain officers and directors of TCI have been recorded
         in the Company's consolidated financial statements. Such estimates are
         subject to future adjustment based upon vesting of the related stock
         options and stock appreciation rights and the market value of TCI Group
         Series A Stock, Liberty Group Series A Stock and TCI Ventures Group
         Series A Stock and, ultimately, on the final determination of market
         value when the rights are exercised.

         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)

                                      I-19


<PAGE>   21
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         Effective as of December 16, 1997, 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 Open Cable (R) 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 during calendar years 1998, 1999 and 2000
         at an average price of 418 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 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 the three months ended March 31, 1998, TCIC continued its
         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. TCIC is
         utilizing both internal and external resources to identify, correct or
         reprogram, and test systems for year 2000 readiness.

         As of March 31, 1998, TCIC had inventoried substantially all of its
         cable systems and began its assessment of the systems that will require
         remediation or replacement. Inventoried systems include TCIC's
         financial systems and related software, its business systems, data and
         voice networks, engineering systems and facilities and related software
         supporting the distribution of TCIC's products and other equipment and
         systems potentially impacted by the year 2000. Additionally, TCIC began
         efforts to assess potential year 2000 issues of its affiliated
         companies that are not managed by TCIC and continued to have formal
         communications with its principal vendors to determine their year 2000
         readiness.

                                                                     (continued)


                                      I-20
<PAGE>   22
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

                   Notes to Consolidated Financial Statements

         TCIC completed a preliminary assessment of its systems and related
         software that support TCIC's financial applications. For those
         financial systems and software which will continue to be utilized by
         TCIC beyond the year 1999, TCIC has tentatively concluded that such
         systems are capable of recognizing the year 2000 and therefore will not
         require material remediation or replacement. One of TCIC's financial
         applications is externally managed by a third party vendor and such
         financial application will be replaced with software provided by such
         vendor. No assurances can be given that as TCIC completes its year 2000
         assessment, additional internally managed systems will not be
         identified as requiring remediation or replacement. TCIC has completed
         an initial assessment of its business systems, including networks,
         engineering systems and facilities and related software supporting the
         distribution of TCIC's products and has tentatively concluded that
         certain portions of those systems will require remediation or
         replacement. Although no assurance can be given, management of TCIC
         anticipates that such systems will be remediated or replaced prior to
         the year 2000.

         Significant third party vendors whose systems are critical to TCIC's
         cable operations have been identified and/or surveyed and confirmations
         from such parties have been received indicating that they are either
         year 2000 ready or have plans in place to ensure readiness. Management
         of TCIC intends to have further communication with primary vendors
         identified as having systems that are not year 2000 compliant to assess
         those vendors' plans for remediating their own year 2000 issues and to
         assess the impact on TCIC if such vendors fail to remediate their year
         2000 issues.

         TCIC's assessment of the impact of the year 2000 date change should be
         complete by the end of 1998. TCIC continues to evaluate the level of
         validation it will require of third parties to ensure their year 2000
         readiness. 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 but has identified
         certain cost elements that, in the aggregate, are not expected to be
         less than $20 million. 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 TCIC's systems or the systems of other companies on
         which TCIC relies will be converted in time or that any such failure to
         convert by TCIC or other companies will not have an adverse effect on
         its financial position.


                                      I-21


<PAGE>   23


                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
   FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following discussion and analysis 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. Additionally, the
following discussion and analysis should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and consolidated financial statements included in Part II of the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. The
following discussion focuses on material trends, risks and uncertainties
affecting the results of operations and financial condition of the Company.

         Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under this caption 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.

         Year 2000

         During the three months ended March 31, 1998, TCIC continued its
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. TCIC is utilizing both internal and external
resources to identify, correct or reprogram, and test systems for year 2000
readiness.



                                                                     (continued)

                                      I-22



<PAGE>   24
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


         As of March 31, 1998, TCIC had inventoried substantially all of its
cable systems and began its assessment of the systems that will require
remediation or replacement. Inventoried systems include TCIC's financial systems
and related software, its business systems, data and voice networks, engineering
systems and facilities and related software supporting the distribution of
TCIC's products and other equipment and systems potentially impacted by the year
2000. Additionally, TCIC began efforts to assess potential year 2000 issues of
its affiliated companies that are not managed by TCIC and continued to have
formal communications with its principal vendors to determine their year 2000
readiness.

         TCIC completed a preliminary assessment of its systems and related
software that support TCIC's financial applications. For those financial systems
and software which will continue to be utilized by TCIC beyond the year 1999,
TCIC has tentatively concluded that such systems are capable of recognizing the
year 2000 and therefore will not require material remediation or replacement.
One of TCIC's financial applications is externally managed by a third party
vendor and such financial application will be replaced with software provided by
such vendor. No assurances can be given that as TCIC completes its year 2000
assessment, additional internally managed systems will not be identified as
requiring remediation or replacement. TCIC has completed an initial assessment
of its business systems, including networks, engineering systems and facilities
and related software supporting the distribution of TCIC's products and has
tentatively concluded that certain portions of those systems will require
remediation or replacement. Although no assurance can be given, management of
TCIC anticipates that such systems will be remediated or replaced prior to the
year 2000.

         Significant third party vendors whose systems are critical to TCIC's
cable operations have been identified and/or surveyed and confirmations from
such parties have been received indicating that they are either year 2000 ready
or have plans in place to ensure readiness. Management of TCIC intends to have
further communication with primary vendors identified as having systems that are
not year 2000 compliant to assess those vendors' plans for remediating their own
year 2000 issues and to asses the impact on TCIC if such vendors fail to
remediate their year 2000 issues.

         TCIC's assessment of the impact of the year 2000 date change should be
complete by the end of 1998. TCIC continues to evaluate the level of validation
it will require of third parties to ensure their year 2000 readiness. 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 but has
identified certain cost elements that, in the aggregate, are not expected to be
less than $20 million. 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 TCIC's systems or the
systems of other companies on which TCIC relies will be converted in time or
that any such failure to convert by TCIC or other companies will not have an
adverse effect on its financial position.


                                                                     (continued)

                                      I-23



<PAGE>   25
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


         Material Changes in Results of Operations

         Revenue

         The operation of the Company's cable television systems is regulated at
the federal, state and local levels. The Cable Television Consumer Protection
and Competition Act of 1992 and the Telecommunications Act of 1996
(collectively, the "Cable Acts") established rules under which the Regulated
Services are regulated if a complaint is filed by a customer or if the
appropriate franchise authority is certified by the FCC to regulate rates. At
March 31, 1998, approximately 68% of the Company's basic customers were served
by cable television systems that were subject to such rate regulation.

         During the three months ended March 31, 1998, 75% 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.

         During the first quarter of 1998, TCIC consummated the Q1 1998
Contribution Transactions. Since January 1, 1997, TCIC has also consummated
certain other acquisitions and dispositions. Such transactions affect the
comparability of TCIC's results of operations for the three months ended March
31, 1998 and 1997. For additional information, see note 5 to the accompanying
consolidated financial statements of the Company.

         TCIC's revenue increased $6 million or less than 1% for the three
months ended March 31, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the Q1 1998 Contribution Transactions
and other dispositions, revenue increased 2%. Revenue from TCIC's customers
accounted for 1% of such increase in revenue, primarily as a result of a 5%
increase in basic revenue that was partially offset by a 13% decrease in premium
revenue. TCIC experienced a 5% increase in its average basic rate, a decrease in
the number of average basic customers of less than 1%, a 2% decrease in its
average premium rate and an 11% decrease in the number of average premium
subscriptions. Additionally, the December 31, 1997 termination of an agreement
pursuant to which TCIC provided fulfillment services to a third party resulted
in a 1 % decrease in revenue. Advertising sales and other revenue components
accounted for the remaining 2% increase in revenue.

         Operating Costs and Expenses

         Operating expenses increased $20 million or 4% for the three months
ended March 31, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the Q1 1998 Contribution Transactions
and other dispositions, such expenses increased 8%. Programming expenses
accounted for the majority of such increase. 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 the EMG Affiliation
Agreement with Encore 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 8 to the accompanying consolidated financial
statements.


                                                                     (continued)


                                      I-24



<PAGE>   26

                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


         Material Changes in Results of Operations (continued)

         Selling, general and administrative expenses increased $21 million or
7% for the three months ended March 31, 1998, as compared to the corresponding
prior year period. Exclusive of the effects of acquisitions, the Q1 1998
Contribution Transactions and other dispositions, such expenses increased 12%.
Such increase is due primarily to lower launch and other incentives from
programming suppliers, increased marketing costs relating to the launch of
digital products and other initiatives, and other individually insignificant
increases in general and administrative expenses.

         Certain officers and other key employees of the Company hold options
with tandem stock appreciation rights 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 (i) compensation
relating to stock appreciation rights granted to such employees of the Company
and (ii) the Company's allocable portion of compensation with respect to stock
appreciation rights held by certain officers and directors of TCI have been
recorded in the Company's consolidated financial statements. Such estimates are
subject to future adjustment based upon vesting of the related stock options and
stock appreciation rights and the market value of TCI Group Series A Stock,
Liberty Group Series A Stock and TCI Ventures Group Series A Stock and,
ultimately, on the final determination of market value when the rights are
exercised.

         Depreciation and amortization expense increased $28 million or 8% for
the three months ended March 31, 1998, as compared to the corresponding prior
year period. Such increase represents the net effect of decreases due to the Q1
1998 Contribution Transactions and other dispositions that were more than offset
by increases attributable to acquisitions and capital expenditures.

         Other Income and Expenses

         TCIC's interest expense decreased $7 million or 3% for the three months
ended March 31, 1998, as compared to the corresponding prior year period, as
TCIC's weighted average interest rate on borrowings and weighted average debt
balances were comparable between the periods.

         TCIC's share of CSC's losses, including amortization of the difference
between the recorded value of TCIC's investment in CSC and TCIC's proportionate
share of CSC's net deficiency, aggregated $18 million for the period from March
4, 1998 through March 31, 1998. As described in note 5 to the accompanying
consolidated financial states of TCIC, TCIC acquired an approximate 18.7% of
ownership interest in CSC on March 4, 1998.



                                                                     (continued)


                                      I-25



<PAGE>   27
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


         Material Changes in Results of Operations (continued)

         TCIC's investments in affiliates other than CSC are comprised of
limited partnerships and other entities that are primarily engaged in the
domestic cable television business. TCIC's share of net earnings (losses) of
affiliates was $32 million and $(12 million) during the three months ended March
31, 1998 and 1997, respectively. A significant portion of the change from the
1997 period to the 1998 period is attributable to the Company's share of a 1998
gain recognized by InterMedia Partners on the sale of certain cable television
systems. Such gain was recognized by InterMedia Partners prior to the time that
the Company began to consolidate InterMedia Partners. See note 4 to the
accompanying consolidated financial statements.

         During the three months ended March 31, 1998, TCIC purchased in the
open market certain notes payable which had an aggregate principle balance of
$95 million. In connection with such purchases, TCIC recognized a loss on early
extinguishment of debt of $16 million. Such loss related to prepayment penalties
and the retirement of deferred loan costs.

         Minority interests in earnings of consolidated subsidiaries aggregated
$43 million and $26 million for the three months ended March 31, 1998 and 1997,
respectively. The majority of such amounts represent the accrual of dividends on
the Trust Preferred Securities issued in 1997 and 1996 and the accrual of
dividends on certain preferred securities issued in August 1996 by a subsidiary
of the Company. See note 7 to the accompanying consolidated financial
statements.

         Gain on disposition of assets of $157 million for the three months
ended March 31, 1998 relates primarily to the March 4, 1998 contribution of
cable television systems by TCIC to CSC. Such gain represents the excess of the
$663 million fair value of CSC Class A common shares received by TCIC over the
historical cost of the net assets transferred by TCIC to CSC. See note 5 to the
accompanying consolidated financial statements.

         Net Earnings

         As a result of the above described fluctuations in the Company's
results of operations, TCIC's net earnings (before preferred stock dividend
requirements) of $38 million for the three months ended March 31, 1998 changed
by $1 million, as compared to TCIC's net earnings (before preferred stock
dividend requirements) of $39 million for the corresponding prior year period.



                                                                     (continued)


                                      I-26

<PAGE>   28
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

         Material Changes in Financial Condition

         On March 4, 1998, subsidiaries of TCI (including certain subsidiaries
of TCIC) contributed to CSC certain of its cable television systems serving
approximately 830,000 customers in exchange for approximately 24.5 million newly
issued CSC Class A common shares (as adjusted for a stock dividend). Such shares
represent an approximate 32.7% 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 and repaid
approximately $574 million of debt owed by TCIC to external parties and $95
million of debt owed to TCI. As a part of such transaction, TCIC subsidiaries
contributed to CSC cable television systems serving approximately 410,000
customers in exchange for approximately 14.0 million shares (as adjusted for a
stock dividend) or 18.7% of CSC's newly issued Class A common shares, and CSC
assumed approximately $78 million of intercompany debt owed to TCIC. As a result
of this transaction, TCIC recognized a $148 million gain in the accompanying
consolidated statement of operations for the three months ended March 31, 1998.
Such gain represents the excess of the $663 million fair value of the CSC Class
A common shares received over the historical cost of the net assets transferred
by TCIC to CSC. 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 common shares and for CSC to (i) acquire cable systems serving
approximately 250,000 customers in Connecticut and (ii) assume $110 million of
TCIC's debt. The ability of TCIC to sell or increase its investment in CSC is
subject to certain restrictions and limitations set forth in a stockholders
agreement with CSC.

         During the first quarter of 1998, TCIC also completed the Q1 Joint
Ventures whereby TCIC contributed cable television systems serving in the
aggregate approximately 235,000 customers to two separate joint ventures in
exchange for non-controlling ownership interests in each of the Q1 Joint
Ventures, and the assumption and repayment by the Q1 Joint Ventures of
intercompany debt owed to TCIC aggregating $343 million. In connection with the
Q1 Joint Ventures, TCIC has agreed to take certain steps to support compliance
by the Q1 Joint Ventures with their payment obligations under certain debt
instruments, up to an aggregate total contingent commitment of $294 million. In
light of such agreement, the $97 million aggregate excess of the TCIC debt
assumed by the Q1 Joint Ventures over the historical cost of the remaining net
assets contributed to the Q1 Joint Ventures has been reflected as a direct
decrease to consolidated deficit (net of related deferred income taxes of $39
million). The Company uses the equity method of accounting to account for its
investments in the Q1 Joint Ventures.

         On April 30, 1998, TCIC contributed certain cable television systems
serving in the aggregate approximately 435,000 customers in Kentucky to a joint
venture in exchange for a 49% limited partnership interest in such joint
venture, and the assumption and repayment by such joint venture of intercompany
debt owed to TCIC and debt owed by TCIC to external parties aggregating $812
million. In connection with such transaction, TCIC has agreed to take certain
steps to support compliance by the joint venture with its payment obligations
under certain debt instruments, up to an aggregate total contingent commitment
of $490 million. TCIC will use the equity method of accounting to account for
its investment in this joint venture.


                                                                     (continued)

                                      I-27
<PAGE>   29
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

         Material Changes in Financial Condition (continued)

         Including the Q1 1998 Contribution Transactions and the above-described
April 30, 1998 transaction, TCIC, as of April 30, 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 3.5 million 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 an aggregate estimated
reduction (based on actual amounts with respect to the Q1 1998 Contribution
Transactions and currently contemplated amounts with respect to the pending
Contribution Transactions) to TCIC's debt of $4.2 billion and aggregate
estimated reductions (based on 1997 amounts) to TCIC's annual revenue and annual
operating income before depreciation, amortization and stock compensation of
$1.5 billion and $735 million, respectively. No assurance can be given that any
of the pending Contribution Transactions will be consummated.

         A subsidiary of TCI that is attributed to TCI Ventures Group leased
certain equipment under a capital lease. During 1997, such equipment was
subleased to TCIC under an operating lease. In January 1998, the Company paid $7
million to TCI Ventures Group in exchange for TCI Ventures Group's assignment of
its ownership interest in such subsidiary to TCIC. Due to the related party
nature of the transaction, the $50 million total of the cash payment and the
historical cost of the net liabilities assumed by TCIC (including capital lease
obligations aggregating $176 million) has been reflected as an increase of
TCIC's consolidated deficit.

         At March 31, 1998, subsidiaries of the Company had approximately $1.8
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 6 to the accompanying
consolidated financial statements for additional information regarding the
Company's debt.



                                                                     (continued)

                                      I-28
<PAGE>   30
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


         Material Changes in Financial Condition (continued)

         One measure of liquidity is commonly referred to as "interest
coverage." Interest coverage, which is measured by the ratio of "Operating Cash
Flow" (operating income before depreciation, amortization and stock
compensation) ($644 million and $679 million during the three months ended March
31, 1998 and 1997, respectively) to interest expense ($265 million and $272
million during the three months ended March 31, 1998 and 1997, respectively), is
determined by reference to the consolidated statements of operations. The
Company's interest coverage ratio was 243% and 250% during the three months
ended March 31, 1998 and 1997, 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 continue 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. In the
event the Company is unable to achieve such objective, 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.

         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 ($258 million and $218 million
during the three months ended March 31, 1998 and 1997, 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.

         The amount of capital expended by TCIC for property and equipment was
$198 million, $80 million and $571 million during the three months ended March
31, 1998 and 1997, and the year ended December 31, 1997, 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 who subscribe 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, TCI is obligated
to purchase a significant number of digital set-top devices over the next three
years.



                                                                     (continued)

                                      I-29



<PAGE>   31
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


         Material Changes in Financial Condition (continued)

         TCIC has guaranteed notes payable and other obligations of affiliated
and other companies with outstanding balances of approximately $186 million at
March 31, 1998. 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. The Company also has guaranteed
the performance of certain affiliates and other parties with respect to such
parties' contractual and other obligations. 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 significant contingent obligations with respect to certain of
its affiliates. See note 5 to the accompanying consolidated financial
statements.

         TCIC's fixed annual commitments pursuant to the EMG Affiliation
Agreement 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.

         TCIC is committed to purchase billing services pursuant to three
successive five year agreements. Pursuant to such arrangement, TCIC is obligated
at March 31, 1998 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.

         Pursuant to certain agreements between TCI and TCI Music, TCIC is
obligated at March 31, 1998 to make minimum revenue payments through 2017 and
minimum license fee payments through 2007 aggregating approximately $425 million
to TCI Music. 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 March 31, 1998, the amount of such obligations or guarantees
was approximately $295 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.


                                                                     (continued)


                                      I-30



<PAGE>   32
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


         Material Changes in Financial Condition (continued)

         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
Approved Purchasers that may be designated from time to time by NDTC, entered
into the Digital Terminal Purchase Agreement with 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 during calendar years 1998, 1999 and
2000 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 Interest Rate Swaps pursuant to which
it (i) pays fixed interest rates of 6.2% and receives variable interest rates on
a notional amount of $10 million at March 31, 1998 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 March 31, 1998. During the three months
ended March 31, 1998 and 1997, the Company's net receipts (payments) pursuant to
the Fixed Rate Agreements were (less than $1 million) and $3 million,
respectively; and the Company's net receipts pursuant to the Variable Rate
Agreements were $3 million and $1 million, respectively.

         The Fixed Rate Agreement expires in August 1998. At March 31, 1998, the
Company would be required to pay less than $1 million to terminate the Fixed
Rate Agreement.



                                                                     (continued)

                                      I-31



<PAGE>   33
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)

         Material Changes in Financial Condition (continued)

         In addition to the Fixed and Variable Rate Agreements, TCIC entered
into Interest Rate Swaps pursuant to which it pays a variable rate based on
LIBOR (6.1% at March 31, 1998) and receives a variable rate based on CMT (6.0%
at March 31, 1998) on a notional amount of $400 million through September 2000;
and pays a variable rate based on LIBOR (6.0% at March 31, 1998) and receives a
variable rate based on CMT (6.1% at March 31, 1998) on notional amounts of $95
million through February 2000. During the three months ended March 31, 1998,
TCIC's net payments pursuant to such agreements were less than $1 million. At
March 31, 1998, TCIC would be required to pay an estimated $3 million to
terminate such Interest Rate Swaps.

         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 March 31, 1998. See note 6 to the
accompanying consolidated financial statements for additional information
regarding Interest Rate Swaps.

         At March 31, 1998, after considering the net effect of the
aforementioned Interest Rate Swaps, TCIC has $6,452 million (or 48%) of fixed
rate debt and $6,971 million (or 52%) of variable-rate debt. Accordingly, in an
environment of rising interest rates, TCIC expects that it would experience an
increase in interest expense.




                                      I-32
<PAGE>   34
                    TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                   (A Subsidiary of Tele-Communications, Inc.)


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

         There were no new material legal proceedings or material developments
         in previously reported legal proceedings during the quarter ended March
         31, 1998 to which the Company or any of its consolidated subsidiaries
         is a party or to which any of its property is subject, except as
         follows:

         As previously reported, on February 9, 1994, Les Dunnaville and Jay
         Sharrieff, former employees of United Cable Television of Baltimore
         Limited Partnership, filed an amended complaint in the Circuit Court
         for Baltimore City against United Cable Television of Baltimore Limited
         Partnership, TCI Cablevision of Maryland, Tele-Communications, Inc. and
         three company employees, Roy Harbert, Tony Peduto, and Richard Bushey.
         This case was settled in April of 1998. 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.

         As previously reported, on December 9, 1996, C. Lamont Smith and The
         Black Movie Channel, LLC filed suit in the District Court for the City
         and County of Denver against subsidiaries of Tele-Communications, Inc.
         (TCI Communications, Inc.; Mile Hi Cable Partners, LP; Liberty Media
         Corporation and Encore Media Corporation); Black Entertainment
         Television; Steve Santamaria; Media Management Group, Inc. and Virginia
         Butler. On August 5, 1997, the trial court entered an Order dismissing
         all of plaintiffs' claims against defendants Liberty and Encore as well
         as plaintiffs' first, second, fifth, and a portion of the twelfth claim
         for relief against the remaining Company defendants. The partnership's
         motion for judgment on the pleadings was denied with respect to
         plaintiffs' remaining claims. The trial court certified its rulings for
         an immediate appeal, which was filed by plaintiffs and will take from
         12 to 18 months for a decision from the appellate court. Based upon the
         facts available, management believes that, although no assurance can be
         given as to the outcome of this action, the ultimate disposition should
         not have a material adverse effect upon the financial condition of the
         Company.


                                      II-1
<PAGE>   35
                   TCI COMMUNICATIONS, INC. AND SUBSIDIARIES
                  (A Subsidiary of Tele-Communications, Inc.)


Item 6.  Exhibit and Reports on Form 8-K.

         (a) Exhibit -

             (27)     TCI Communications, Inc. Financial Data Schedule

         (b) Reports on Form 8-K filed during the quarter ended March 31, 1998:


<TABLE>
<CAPTION>
                       Date of          Item
                       Report         Reported       Financial Statements Filed
                       ------         --------       --------------------------
<S>              <C>                  <C>            <C>               
                 February 24, 1998    Item 5              None.
</TABLE>





                                   II-2
<PAGE>   36



                                   SIGNATURES


         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                        TCI COMMUNICATIONS, INC.


Date:  May 13, 1998                     By:   /s/ Leo J. Hindery, Jr.
                                            ------------------------------------
                                            Leo J. Hindery, Jr.
                                              President and Chief
                                                Executive Officer


Date:  May 13, 1998                     By:   /s/ Stephen M. Brett
                                            ------------------------------------
                                            Stephen M. Brett
                                              Executive Vice President, General
                                                Counsel and Secretary


Date:  May 13, 1998                    By:   /s/ Bernard W. Schotters
                                            ------------------------------------
                                            Bernard W. Schotters
                                              Executive Vice President
                                                (Principal Financial Officer)


Date:  May 13, 1998                    By:   /s/ Gary K. Bracken
                                            ------------------------------------
                                            Gary K. Bracken
                                              Executive Vice President and
                                                Controller
                                                (Principal Accounting Officer)






                                      II-3

<PAGE>   37




                                  EXHIBIT INDEX


The following exhibits are filed herewith or are incorporated by reference
herein (according to the number assigned to them in Item 601 of Regulation S-K)
as noted:

         (27)        TCI Communications, Inc. Financial Data Schedule