<PAGE>   1
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D. C. 20549

                                  F O R M 10-Q


[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     For the quarterly period ended September 30, 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 0-20421


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


          State of Delaware                             84-1260157
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
incorporation or organization)


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


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


         Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
                                             ---  ---
         The number of shares outstanding of Tele-Communications, Inc.'s common
stock (net of treasury shares and shares held by subsidiaries) as of October
31, 1998, was:

                  Tele-Communications, Inc. Series A TCI Group
                       common stock - 473,516,647 shares,
                  Tele-Communications, Inc. Series B TCI Group
                       common stock - 64,444,193 shares,
             Tele-Communications, Inc. Series A Liberty Media Group
                       common stock - 325,547,288 shares,
             Tele-Communications, Inc. Series B Liberty Media Group
                       common stock - 31,699,575 shares,
             Tele-Communications, Inc. Series A TCI Ventures Group
                       common stock - 377,109,356 shares,
                                      and
             Tele-Communications, Inc. Series B TCI Ventures Group
                       common stock - 45,333,022 shares.



<PAGE>   2


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets
                                  (unaudited)

<TABLE>
<CAPTION>

                                                                    September 30,   December 31,
                                                                      1998              1997
                                                                    -------------   -----------
Assets                                                                   amounts in millions
<S>                                                                 <C>             <C>
Cash and cash equivalents                                           $   320             244

Restricted cash (note 4)                                                375              40

Trade and other receivables, net                                        664             529

Prepaid program rights                                                  128             104

Committed program rights                                                108             115

Investments in affiliates, accounted for under the equity 
    method, and related receivables (note 5)                          4,547           3,063

Investment in Time Warner, Inc. ("Time Warner") (note 6)              5,021           3,555

Investment in AT&T Corp. ("AT&T") (note 7)                            2,744              --

Property and equipment, at cost:
    Land                                                                 67              96
    Distribution systems                                             10,014          10,784
    Support equipment and buildings                                   1,750           1,558
                                                                    -------         -------
                                                                     11,831          12,438
    Less accumulated depreciation                                     4,839           4,759
                                                                    -------         -------
                                                                      6,992           7,679
                                                                    -------         -------

Franchise costs                                                      15,327          17,910
    Less accumulated amortization                                     2,622           2,763
                                                                    -------         -------
                                                                     12,705          15,147
                                                                    -------         -------

Other assets, net of accumulated amortization                         2,761           1,837
                                                                    -------         -------

                                                                    $36,365          32,313
                                                                    =======         =======
</TABLE>


                                                                    (continued)
                                      I-1

<PAGE>   3


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Balance Sheets, continued
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                   September 30,   December 31,
                                                                                      1998            1997
                                                                                   ------------    -----------
Liabilities and Stockholders' Equity                                                amounts in millions

<S>                                                                                <C>             <C>
Accounts payable                                                                   $    149             169

Accrued interest                                                                        161             258

Accrued programming expense                                                             412             399

Other accrued expenses                                                                1,019             997

Deferred option premium (note 6)                                                         --             306

Debt (note 9)                                                                        14,895          15,250

Deferred income taxes                                                                 7,871           6,104

Other liabilities (note 15)                                                           1,369             664
                                                                                   --------        --------
    Total liabilities                                                                25,876          24,147
                                                                                   --------        --------
Minority interests in equity of consolidated subsidiaries                             1,428           1,565

Redeemable securities:
    Preferred stock (note 10)                                                           299             655
    Common stock                                                                         28               5

Company-obligated mandatorily redeemable preferred securities 
    of subsidiary trusts ("Trust Preferred Securities") holding 
    solely subordinated debt securities of TCI Communications, Inc. 
    ("TCIC")(note 11)                                                                 1,500           1,500

Stockholders' equity (note 12):
    Series Preferred Stock, $.01 par value                                               --              --
    Class B 6% Cumulative Redeemable Exchangeable Junior Preferred
       Stock, $.01 par value                                                             --              --
    Common stock, $1 par value:
       Series A TCI Group. Authorized 1,750,000,000 shares; issued
          610,507,868 shares in 1998 and 605,616,143 shares in 1997                     610             606
       Series B TCI Group. Authorized 150,000,000 shares; issued
          73,929,229 shares in 1998 and 78,203,044 shares in 1997                        74              78
       Series A Liberty Media Group.  Authorized 750,000,000 
          shares; issued 357,722,948 shares in 1998 and 344,962,521 
          shares in 1997                                                                358             345
       Series B Liberty Media Group.  Authorized 75,000,000 
          shares; issued 35,198,836 shares in 1998 and 35,180,385 
          shares in 1997                                                                 35              35
       Series A TCI Ventures Group. Authorized 750,000,000 shares;
          issued 377,126,966 shares in 1998 and 377,386,032 
          shares in 1997                                                                377             377
       Series B TCI Ventures Group. Authorized 75,000,000 shares;
          issued 45,766,218 shares in 1998 and 32,532,800 
          shares in 1997                                                                 46              33
    Additional paid-in capital                                                        5,275           5,063
    Accumulated other comprehensive earnings, net of taxes (note 1)                   1,715             772
    Retained earnings (accumulated deficit)                                             490            (877)
                                                                                   --------        --------
                                                                                      8,980           6,432
    Treasury stock and common stock held by subsidiaries, 
          at cost (note 12)                                                          (1,746)         (1,991)
                                                                                   --------        --------
          Total stockholders' equity                                                  7,234           4,441
                                                                                   --------        --------
Commitments and contingencies (notes 2, 5, 8, 15 and 16)
                                                                                   $ 36,365          32,313
                                                                                   ========        ========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      I-2
<PAGE>   4
 
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                                        
                     Consolidated Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                   Three months ended     Nine months ended
                                                                                      September 30,         September 30,
                                                                                   ------------------     -----------------
                                                                                     1998       1997       1998       1997
                                                                                   -------    -------    -------    -------
                                                                                          amounts in millions,
                                                                                         except per share amounts
<S>                                                                                <C>        <C>        <C>        <C>  
Revenue                                                                            $ 1,825      1,934      5,510      5,637

Operating costs and expenses:
   Operating                                                                           709        738      2,157      2,192
   Selling, general and administrative                                                 438        418      1,301      1,213
   Year 2000 costs (note 16)                                                             4         --          6         --
   AT&T merger costs (note 2)                                                            1         --         11         --
   Stock compensation                                                                   11        160        423        231
   Cost of distribution agreements (note 14)                                            --         --         83         --
   Depreciation and amortization                                                       407        396      1,250      1,177
                                                                                   -------    -------    -------    -------
                                                                                     1,570      1,712      5,231      4,813
                                                                                   -------    -------    -------    -------

         Operating income                                                              255        222        279        824

Other income (expense):
   Interest expense                                                                   (272)      (300)      (808)      (883)
   Interest and dividend income                                                         33         25         72         64
   Share of losses of affiliates, net (note 5)                                        (397)      (253)      (986)      (591)
   Loss on early extinguishment of debt (note 9)                                        (6)        --        (44)       (11)
   Minority interests in earnings of consolidated
      subsidiaries, net note 11)                                                       (39)       (35)       (68)      (129)
   Gain on issuance of equity interests by subsidiaries 
      (notes 8 and 14)                                                                  17         60         55         60
   Gain on issuance of stock by equity investees (note 5)                               58         --        259         21
   Gain on disposition of assets (notes 6, 7 and 8)                                  2,605        338      3,704        400
   Other, net                                                                           (6)        (1)       (25)        (7)
                                                                                   -------    -------    -------    -------
                                                                                     1,993       (166)     2,159     (1,076)
                                                                                   -------    -------    -------    -------

      Earnings (loss) before income taxes                                            2,248         56      2,438       (252)

Income tax benefit (expense)                                                          (903)       (78)    (1,068)        18
                                                                                   -------    -------    -------    -------

      Net earnings (loss)                                                            1,345        (22)     1,370       (234)

Dividend requirements on preferred stocks                                               (5)       (10)       (18)       (31)
                                                                                   -------    -------    -------    -------

      Net earnings (loss) attributable to common stockholders                      $ 1,340        (32)     1,352       (265)
                                                                                   =======    =======    =======    =======

Net earnings (loss) attributable to common stockholders:
   TCI Group Series A and Series B common stock                                    $    47       (224)       130       (479)
   Liberty Media Group Series A and Series B common stock                              (11)       162        227        184
   TCI Ventures Group Series A and Series B common stock                             1,304         30        995         30
                                                                                   -------    -------    -------    -------

                                                                                   $ 1,340        (32)     1,352       (265)
                                                                                   =======    =======    =======    =======
Basic earnings (loss) attributable to common stockholders 
   per common share (note 3):
      TCI Group Series A and Series B common stock                                 $   .09       (.34)       .25       (.71)
                                                                                   =======    =======    =======    =======
      Liberty Media Group Series A and Series B common stock                       $  (.03)       .44        .64        .50
                                                                                   =======    =======    =======    =======
      TCI Ventures Group Series A and Series B common stock                        $  3.08        .07       2.36        .07
                                                                                   =======    =======    =======    =======

Diluted earnings (loss) attributable to common stockholders
   per common and potential common share (note 3):
      TCI Group Series A and Series B common stock                                 $   .08       (.34)       .22       (.71)
                                                                                   =======    =======    =======    =======
      Liberty Media Group Series A and Series B common stock                       $  (.03)       .40        .58        .45
                                                                                   =======    =======    =======    =======
      TCI Ventures Group Series A and Series B common stock                        $  2.89        .07       2.20        .07
                                                                                   =======    =======    =======    =======

Comprehensive earnings (loss) (note 1)                                             $ 1,430        (38)     2,313       (248)
                                                                                   =======    =======    =======    =======
</TABLE>


See accompanying notes to consolidated financial statements.

                                      I-3
<PAGE>   5
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                 Consolidated Statement of Stockholders' Equity
                                        
                      Nine months ended September 30, 1998
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                          Common Stock  
                                                               -------------------------------------------------------------------
                                                     Class B         TCI Group           Liberty Media Group    TCI Ventures Group
                                                    Preferred  --------------------    ----------------------  --------------------
                                                      Stock    Series A    Series B    Series A     Series B   Series A   Series B
                                                   ----------  ----------  --------    ---------    ---------  ---------  ---------
                                                                                   amounts in millions

<S>                                                <C>         <C>         <C>         <C>          <C>        <C>        <C>
Balance at January 1, 1998                         $     --        606          78         345         35        377          33

    Net earnings                                         --         --          --          --         --         --          -- 
    Exchange of common stock in connection with
      the Magness Settlement (note 13)                   --         --          11          --         --         --          13
    Issuance of common stock in connection with
      settlement of litigation                           --          1           1          --         --         --          -- 
    Reclassification to redeemable securities
      of redemption amount of common stock
      subject to put obligation                          --         --          --          --         --         --          -- 
    Premium received in connection with put
      obligation                                         --         --          --          --         --         --          -- 
    Issuance of common stock for acquisitions
      (note 8)                                           --          1          --           7         --         13          -- 
    Repurchase of common stock to be held in
      treasury (note 12)                                 --         --          --          --         --         --          -- 
    Repurchase and retirement of common stock
      (note 12)                                          --         --          --          --         --         --          -- 
    Retirement of common stock held in treasury          --        (12)        (16)         --         --        (13)         -- 
    Gain from issuance of equity by subsidiary
      and equity investee, net of taxes (note 5)         --         --          --          --         --         --          -- 
    Issuance of common stock upon conversion of
      notes and preferred stock (notes 9 and 10)         --         14          --           6         --         --          -- 
    Payments for call agreements (note 13)               --         --          --          --         --         --          -- 
    Recognition of fees related to the Equity
      Swap Facility and the Exchange (notes 12
      and 13)                                            --         --          --          --         --         --          -- 
    Reimbursement of fees related to Exchange
      (note 13)                                          --         --          --          --         --         --          -- 
    Recognition of stock compensation related
      to restricted stock awards                         --         --          --          --         --         --          -- 
    Accreted dividends on all classes of
      preferred stock                                    --         --          --          --         --         --          -- 
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                            --         --          --          --         --         --          -- 
    Payment of preferred stock dividends                 --         --          --          --         --         --          -- 
    Foreign currency translation adjustment              --         --          --          --         --         --          -- 
    Change in unrealized holding gains for
      available-for-sale securities, net of
      taxes                                              --         --          --          --         --         --          -- 
                                                   --------   --------    --------    --------   --------   --------    --------

Balance at September 30, 1998                      $     --        610          74         358         35        377          46
                                                   ========   ========    ========    ========   ========   ========    ========
</TABLE>

See accompanying notes to consolidated financial statements.




                 Consolidated Statement of Stockholders' Equity

                      Nine months ended September 30, 1998
                                  (unaudited)

<TABLE>
<CAPTION>

                                                                                                   Treasury
                                                                                                  stock and
                                                                   Accumulated                      common
                                                                      other         Retained        stock
                                                    Additional    comprehensive     earnings        held by        Total
                                                     paid-in        earnings,      (accumulated   subsidiaries,  stockholders'
                                                     capital      net of taxes       deficit)        at cost       equity
                                                   -----------    ------------     -----------    -----------    -----------
                                                                           amounts in millions
<S>                                                <C>            <C>              <C>            <C>            <C>  
Balance at January 1, 1998                               5,063            772          (877)        (1,991)         4,441

    Net earnings                                            --             --         1,370             --          1,370
    Exchange of common stock in connection with
      the Magness Settlement (note 13)                     509             --            --           (533)            --
    Issuance of common stock in connection with
      settlement of litigation                              48             --            --             (3)            47
    Reclassification to redeemable securities
      of redemption amount of common stock
      subject to put obligation                            (24)            --            --             --            (24)
    Premium received in connection with put
      obligation                                             3             --            --             --              3
    Issuance of common stock for acquisitions
      (note 8)                                             353             --            --             --            374
    Repurchase of common stock to be held in
      treasury (note 12)                                    --             --            --            (20)           (20)
    Repurchase and retirement of common stock
      (note 12)                                            (11)            --            --             --            (11)
    Retirement of common stock held in treasury           (760)            --            --            801             --
    Gain from issuance of equity by subsidiary
      and equity investee, net of taxes (note 5)            67             --            --             --             67
    Issuance of common stock upon conversion of
      notes and preferred stock (notes 9 and 10)           329             --            --             --            349
    Payments for call agreements (note 13)                (274)            --            --             --           (274)
    Recognition of fees related to the Equity
      Swap Facility and the Exchange (notes 12
      and 13)                                              (25)            --            --             --            (25)
    Reimbursement of fees related to Exchange
      (note 13)                                             11             --            --             --             11
    Recognition of stock compensation related
      to restricted stock awards                            4              --            --             --              4
    Accreted dividends on all classes of
      preferred stock                                      (13)            --            (5)            --            (18)
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                                5             --             2             --              7
    Payment of preferred stock dividends                   (10)            --            --             --            (10)
    Foreign currency translation adjustment                 --              6            --             --              6
    Change in unrealized holding gains for
      available-for-sale securities, net of
      taxes                                                 --            937            --             --            937
                                                   -----------    -----------   -----------    -----------    -----------

Balance at September 30, 1998                            5,275          1,715           490         (1,746)         7,234
                                                   ===========    ===========   ===========    ===========    ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      I-4
<PAGE>   6


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows
                                  (unaudited)
<TABLE>
<CAPTION>

                                                                                 Nine months ended
                                                                                   September 30,
                                                                                1998           1997
                                                                            ------------    ------------
                                                                                 amounts in millions
                                                                                    (see note 4)
Cash flows from operating activities:
<S>                                                                         <C>             <C>  
   Net earnings (loss)                                                      $      1,370            (234)
   Adjustments to reconcile net earnings (loss) to net cash provided by
      operating activities:
        Depreciation and amortization                                              1,250           1,177
        Cost of distribution agreements                                               83              --
        Stock compensation                                                           423             231
        Payments of obligation relating to stock compensation                       (161)            (26)
        Share of losses of affiliates, net                                           986             591
        Loss on early extinguishment of debt                                          44              11
        Minority interests in earnings of consolidated subsidiaries, net              68             129
        Gain on issuance of equity interests by subsidiaries                         (55)            (60)
        Gain on issuance of stock by equity investees                               (259)            (21)
        Gain on disposition of assets                                             (3,704)           (400)
        Deferred income tax expense (benefit)                                      1,009            (125)
        Payments of restructuring charges                                             (5)            (21)
        Other noncash charges                                                          2              13
        Changes in operating assets and liabilities, net of the effect of
          acquisitions:
             Change in receivables                                                  (157)            (10)
             Change in prepaids                                                      (17)            (79)
             Change in other accruals and payables                                  (112)             38
                                                                            ------------    ------------
                Net cash provided by operating activities                            765           1,214
                                                                            ------------    ------------
Cash flows from investing activities:
   Cash paid for acquisitions                                                       (211)           (331)
   Capital expended for property and equipment                                    (1,123)           (419)
   Investments in and loans to affiliates                                         (1,346)           (392)
   Collections of loans to affiliates                                              1,658              87
   Proceeds from disposition of assets                                               712             352
   Change in restricted cash                                                        (335)             39
   Cash received in exchanges                                                         45              18
   Other investing activities                                                        (73)            (11)
                                                                            ------------    ------------
               Net cash used in investing activities                                (673)           (657)
                                                                            ------------    ------------
Cash flows from financing activities:
   Borrowings of debt                                                              4,645           3,311
   Repayments of debt                                                             (4,213)         (4,125)
   Prepayment penalties                                                              (39)             (7)
   Repurchase of common stock to be held in treasury                                 (20)            (18)
   Repurchase and retirement of common stock                                         (11)             --
   Repurchase of subsidiary common stock                                             (15)            (42)
   Payment of preferred stock dividends                                              (27)            (37)
   Payment of dividends on subsidiary preferred stock and Trust Preferred
      Securities                                                                    (141)           (130)
   Payments for call agreements                                                     (274)             --
   Proceeds from issuance of subsidiary common stock and preferred stock              91             148
   Proceeds from issuance of Trust Preferred Securities                               --             490
   Other financing activities                                                        (12)              3
                                                                            ------------    ------------
               Net cash used in financing activities                                 (16)           (407)
                                                                            ------------    ------------
               Net increase in cash and cash equivalents                              76             150

               Cash and cash equivalents at beginning of period                      244             405
                                                                            ------------    ------------
               Cash and cash equivalents at end of period                   $        320             555
                                                                            ============    ============
</TABLE>

See accompanying notes to consolidated financial statements.


                                      I-5
<PAGE>   7


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                               September 30, 1998
                                  (unaudited)


(1)      Basis of Presentation

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

         The accompanying interim consolidated financial statements are
         unaudited but, in the opinion of management, reflect all adjustments
         (consisting of normal recurring accruals) necessary for a fair
         presentation of the results for such periods. The results of
         operations for any interim period are not necessarily indicative of
         results for the full year. These consolidated financial statements
         should be read in conjunction with the consolidated financial
         statements and notes thereto contained in TCI'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.

         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 statements 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 cumulative foreign
         currency translation adjustments and unrealized holding gains and
         losses on available-for-sale securities in other comprehensive
         earnings that are recorded directly in stockholders' equity. Pursuant
         to SFAS 130, these items are reflected, net of related tax effects, as
         components of comprehensive earnings in the Company's consolidated
         statements of operations, and are included in accumulated other
         comprehensive earnings in the Company's consolidated balance sheets
         and statement of stockholders' equity.


                                                                    (continued)

                                      I-6
<PAGE>   8


                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

         The Financial Accounting Standards Board recently issued Statement of
         Financial Accounting Standards No. 133, "Accounting for Derivative
         Instruments and Hedging Activities," ("SFAS 133"), which is effective
         for all fiscal years beginning after June 15, 1999. SFAS 133
         establishes accounting and reporting standards for derivative
         instruments and hedging activities by requiring that all derivative
         instruments be reported as assets or liabilities and measured at their
         fair values. Under SFAS 133, changes in the fair values of derivative
         instruments are recognized immediately in earnings unless those
         instruments qualify as hedges of the (1) fair values of existing
         assets, liabilities, or firm commitments, (2) variability of cash
         flows of forecasted transactions, or (3) foreign currency exposures of
         net investments in foreign operations. Although management of the
         Company has not completed its assessment of the impact of SFAS 133 on
         its consolidated results of operations and financial position,
         management estimates that the impact of SFAS 133 will not be material.

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

         Targeted Stock

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue two new series of stock,
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series A Stock") and
         Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series B Stock," and
         together with the Liberty Group Series A Stock, the "Liberty Group
         Stock"). The Liberty Group Stock is intended to reflect the separate
         performance of TCI's assets which produce and distribute programming
         services ("Liberty Media Group"). Additionally, the stockholders, of
         TCI approved the redesignation of the previously authorized Class A
         and Class B common stock into Tele-Communications, Inc. Series A TCI
         Group Common Stock, par value $1.00 per share (the "TCI Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Group Common Stock,
         par value $1.00 per share (the "TCI Group Series B Stock", and
         together with the TCI Group Series A Stock, the "TCI Group Stock"),
         respectively. On August 10, 1995, TCI distributed, in the form of a
         dividend, 2.25 shares of Liberty Group Stock for each four shares of
         TCI Group Stock owned (the "Liberty Distribution").

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share (the "TCI Ventures Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
         Common Stock, par value $1.00 per share (the "TCI Ventures Group
         Series B Stock," and together with TCI Ventures Group Series A Stock,
         the "TCI Ventures Group Stock"). 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.


                                                                    (continued)

                                      I-7
<PAGE>   9


                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


         In August 1997, TCI commenced offers (the "Exchange Offers") to
         exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
         Group Series B Stock for up to 188,661,300 shares of TCI Group Series
         A Stock and up to 16,266,400 shares of TCI Group Series B Stock,
         respectively. The exchange ratio for the Exchange Offers was two
         shares of the applicable series of TCI Ventures Group Stock for each
         share of the corresponding series of TCI Group Stock properly tendered
         up to the indicated maximum numbers. Upon the September 10, 1997
         consummation of the Exchange Offers, 188,661,300 shares of TCI Group
         Series A Stock and 16,266,400 shares of TCI Group Series B Stock were
         exchanged for 377,322,600 shares of TCI Ventures Group Series A Stock
         and 32,532,800 shares of TCI Ventures Group Series B Stock (the "TCI
         Ventures Exchange").

         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. Collectively, the TCI Group, the Liberty
         Media Group and the TCI Ventures Group are referred to as the "Groups"
         and individually, may be referred to herein as a "Group." The TCI
         Group Series A Stock, TCI Ventures Group Series A Stock and the
         Liberty Group Series A Stock are sometimes collectively referred to
         herein as the "Series A Stock," and the TCI Group Series B Stock, TCI
         Ventures Group Series B Stock and Liberty Group Series B Stock are
         sometimes collectively referred to herein as the "Series B Stock."

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among TCI Group, Liberty Media Group and
         TCI Ventures Group for the purpose of preparing their respective
         combined financial statements, each such Group in the capital
         structure of TCI, which encompasses the TCI Group Stock, Liberty Group
         Stock and TCI Ventures Group Stock, does not affect the ownership or
         the respective legal title to such assets or responsibility for
         liabilities of TCI or any of its subsidiaries. TCI and its
         subsidiaries each continue to be responsible for their respective
         liabilities. Holders of TCI Group Stock, Liberty Group Stock and TCI
         Ventures Group Stock are common stockholders of TCI and are subject to
         risks associated with an investment in TCI and all of its businesses,
         assets and liabilities. The redesignation of TCI Group Stock and the
         issuance of Liberty Group Stock and TCI Ventures Group Stock does not
         affect the rights of creditors of TCI.

         Financial effects arising from any portion of TCI that affect the
         consolidated results of operations or financial condition of TCI could
         affect the combined results of operations or financial condition of
         the separate Groups and the market prices of shares of TCI Group
         Stock, Liberty Group Stock and TCI Ventures Group Stock. In addition,
         net losses of any portion of TCI, dividends or distributions on, or
         repurchases of, any series of common stock, and dividends on, or
         certain repurchases of preferred stock would reduce funds of TCI
         legally available for dividends on all series of common stock.
         Accordingly, financial information of any one Group should be read in
         conjunction with the financial information of TCI and the other
         Groups.


                                                                    (continued)

                                      I-8
<PAGE>   10


                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


         The common stockholders' equity value of TCI Ventures Group or Liberty
         Media Group that, at any relevant time, is attributed to TCI Group,
         and accordingly not represented by outstanding TCI Ventures Group
         Stock or Liberty Group Stock, respectively, is referred to as
         "Inter-Group Interest." Prior to consummation of the Liberty
         Distribution and TCI Ventures Exchange, TCI Group had a 100%
         Inter-Group Interest in Liberty Media Group and TCI Ventures Group,
         respectively. Following consummation of the Liberty Distribution and
         TCI Ventures Exchange, TCI Group no longer has Inter-Group Interests
         in Liberty Media Group and TCI Ventures Group, respectively. For
         periods in which an Inter-Group Interest exists, TCI Group accounts
         for its Inter-Group Interest in a manner similar to the equity method
         of accounting. Following consummation of the Liberty Distribution and
         the TCI Ventures Exchange, an Inter-Group Interest would be created
         with respect to Liberty Media Group or TCI Ventures Group only if a
         subsequent transfer of cash or other property from TCI Group to
         Liberty Media Group or TCI Ventures Group is specifically designated
         by the Board as being made to create an Inter-Group Interest or if
         outstanding shares of Liberty Group Stock or TCI Ventures Stock,
         respectively, are purchased with funds attributable to TCI Group.
         Management of TCI believes that generally accepted accounting
         principles require that Liberty Media Group or TCI Ventures Group be
         consolidated with TCI Group for all periods in which TCI Group held an
         Inter-Group Interest in Liberty Media Group or TCI Ventures Group,
         respectively.

         Dividends on TCI Group Stock, Liberty Group Stock or TCI Ventures
         Group Stock are payable at the sole discretion of the Board out of the
         lesser of assets of TCI legally available for dividends or the
         available dividend amount with respect to each Group, as defined.
         Determinations to pay dividends on TCI Group Stock, Liberty Group
         Stock or TCI Ventures Group Stock are based primarily upon the
         financial condition, results of operations and business requirements
         of the applicable Group and TCI as a whole.

         All debt incurred or preferred stock issued by TCI and its
         subsidiaries is (unless the Board otherwise provides) specifically
         attributed to and reflected in the combined financial statements of
         the Group that includes the entity which incurred the debt or issued
         the preferred stock or, in case the entity incurring the debt or
         issuing the preferred stock is Tele-Communications, Inc., the TCI
         Group. The Board could, however, determine from time to time that debt
         incurred or preferred stock issued by entities included in a Group
         should be specifically attributed to and reflected in the combined
         financial statements of one of the other Groups to the extent that the
         debt is incurred or the preferred stock is issued for the benefit of
         such other Group.

                                                                    (continued)

                                      I-9
<PAGE>   11


                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


         Although it is management's intention that each Group would normally
         arrange for the external financing required to satisfy its respective
         liquidity requirements, the cash needs of one Group may exceed the
         liquidity sources of such Group. In such circumstances, one of the
         other Groups may transfer funds to such Group. Such transfers of funds
         among the Groups will be reflected as borrowings or, if determined by
         the Board, in the case of a transfer from TCI Group to either Liberty
         Media Group or TCI Ventures Group, reflected as the creation of, or
         increase in, TCI Group's Inter-Group Interest in such Group or, in the
         case of a transfer from either Liberty Media Group or TCI Ventures
         Group to TCI Group, reflected as a reduction in TCI Group's
         Inter-Group Interest in such Group. There are no specific criteria for
         determining when a transfer will be reflected as a borrowing or as an
         increase or reduction in an Inter-Group Interest. The Board expects to
         make such determinations, either in specific instances or by setting
         generally applicable policies from time to time, after consideration
         of such factors as it deems relevant, including, without limitation,
         the needs of TCI, the financing needs and objectives of the Groups,
         the investment objectives of the Groups, the availability, cost and
         time associated with alternative financing sources, prevailing
         interest rates and general economic conditions.

         Loans from one Group to another Group generally will bear interest at
         such rates and have such repayment schedules and other terms as are
         established from time to time by, or pursuant to procedures
         established by, the Board. The Board expects to make such
         determinations, either in specific instances or by setting generally
         applicable policies from time to time, after consideration of such
         factors as it deems relevant, including, without limitation, the needs
         of TCI, the use of proceeds by and creditworthiness of the recipient
         Group, the capital expenditure plans of and investment opportunities
         available to each Group and the availability, cost and time associated
         with alternative financing sources.

         The combined balance sheets of a Group reflect its net loans or
         advances to or loans or advances from the other Groups. Similarly, the
         respective combined statements of operations of the Groups reflect
         interest income or expense, as the case may be, associated with such
         loans or advances and the respective combined statements of cash flows
         of the Groups reflect changes in the amounts of loans or advances
         deemed outstanding. In the historical combined financial statements,
         net loans or advances between Groups have been and will continue to be
         included as a component of each respective Group's combined equity.

         Although any increase in TCI Group's Inter-Group Interest in Liberty
         Media Group or TCI Ventures Group resulting from an equity
         contribution by the TCI Group to Liberty Media Group or TCI Ventures
         Group or any decrease in such Inter-Group Interest resulting from a
         transfer of funds from Liberty Media Group or TCI Ventures Group to
         TCI Group would be determined by reference to the market value of the
         Liberty Group Series A Stock, or the TCI Ventures Group Series A
         Stock, respectively, as of the date of such transfer, such an increase
         could occur at a time when such shares could be considered undervalued
         and such a decrease could occur at a time when such shares could be
         considered overvalued.

                                                                    (continued)


                                     I-10
<PAGE>   12


                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


         All financial impacts of issuances and purchases of shares of TCI
         Group Stock, TCI Ventures Group Stock or Liberty Group Stock, which
         are attributed to TCI Group, TCI Ventures Group or Liberty Media
         Group, respectively, will be to such extent reflected in the combined
         financial statements of TCI Group, TCI Ventures Group or Liberty Media
         Group, respectively. All financial impacts of issuances of shares of
         TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
         are attributed to TCI Group in respect of a reduction in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group. Financial impacts of dividends or
         other distributions on TCI Group Stock, TCI Ventures Group Stock or
         Liberty Group Stock, will be attributed entirely to TCI Group, TCI
         Ventures Group or Liberty Media Group, respectively, except that
         dividends or other distributions on TCI Ventures Group Stock or
         Liberty Group Stock will (if at the time there is an Inter-Group
         Interest in TCI Ventures Group or Liberty Media Group, respectively)
         result in TCI Group being credited, and TCI Ventures Group or Liberty
         Media Group being charged (in addition to the charge for the dividend
         or other distribution paid), with an amount equal to the product of
         the aggregate amount of such dividend or other distribution paid or
         distributed in respect of outstanding shares of TCI Ventures Group
         Stock or Liberty Group Stock and a fraction of the numerator of which
         is TCI Ventures Group or Liberty Media Group "Inter-Group Interest
         Fraction" and the denominator of which is the TCI Ventures Group or
         the Liberty Media Group "Outstanding Interest Fraction" (both as
         defined). Financial impacts of repurchases of TCI Ventures Group Stock
         or Liberty Group Stock, the consideration for which is charged to TCI
         Group, will be to such extent reflected in the combined financial
         statements of TCI Group and will result in an increase in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively.


                                                                    (continued)

                                     I-11
<PAGE>   13

                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


(2)      Proposed Merger

         TCI and AT&T have agreed to a merger (the "Merger") pursuant to, and
         subject to the terms and conditions set forth in, the Agreement and
         Plan of Restructuring and Merger, dated as of June 23, 1998 (the
         "Merger Agreement"), among TCI, AT&T and an indirect wholly-owned
         subsidiary of AT&T. In the Merger, TCI will become a wholly-owned
         subsidiary of AT&T and (i) each share of TCI Group Series A Stock will
         be converted into .7757 of a share of common stock, par value $1.00
         per share, of AT&T ("AT&T Common Stock"), (ii) each share of TCI Group
         Series B Stock will be converted into .8533 of a share of AT&T Common
         Stock, (iii) each share of Liberty Group Series A Stock will be
         converted into one share of a newly authorized class of AT&T common
         stock to be designated as the Class A Liberty Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class A Tracking Stock") and
         (iv) each share of Liberty Group Series B Stock will be converted into
         one share of a newly authorized class of AT&T common stock to be
         designated as the Class B Liberty Group Common Stock, par value $1.00
         per share (the "AT&T Liberty Class B Tracking Stock" and together with
         the AT&T Liberty Class A Tracking Stock, the "AT&T Liberty Tracking
         Stock"). In addition, TCI has announced its intention, subject to
         stockholder approval, to combine the assets and businesses of Liberty
         Media Group and TCI Ventures Group and reclassify each share of TCI
         Ventures Group Series A Stock as .52 of a share of Liberty Group
         Series A Stock and each share of TCI Ventures Group Series B Stock as
         .52 of a share of Liberty Group Series B Stock. If such combination
         and reclassification does not occur prior to the Merger, then in the
         Merger each share of TCI Ventures Group Series A Stock and TCI
         Ventures Group Series B Stock will be converted into .52 of a share of
         the corresponding series of AT&T Liberty Tracking Stock. In general,
         the holders of shares of AT&T Liberty Class A Tracking Stock and the
         holders of shares of AT&T Liberty Class B Tracking Stock will vote
         together as a single class with the holders of shares of AT&T Common
         Stock on all matters presented to such stockholders, with the holders
         being entitled to one-tenth (1/10th) of a vote for each share of AT&T
         Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
         Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
         held.

         In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
         Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
         Preferred Stock, Series C-TCI Group will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current
         conversion rate of such preferred stock (132.86 shares per preferred
         share), (iii) TCI's Convertible Preferred Stock Series C-Liberty Media
         Group will be converted into a number of shares of AT&T Liberty Class
         A Tracking Stock equal to the current conversion rate of such
         preferred stock (56.25 shares per preferred share), (iv) TCI's
         Redeemable Convertible TCI Group Preferred Stock, Series G will be
         converted into a number of shares of AT&T Common Stock equal to .7757
         times the current conversion rate of such preferred stock (1.19 shares
         per preferred share) and (v) TCI's Redeemable Convertible Liberty
         Media Group Preferred Stock, Series H will be converted into a number
         of shares of AT&T Liberty Class A Tracking Stock equal to the current
         conversion rate of such preferred stock (0.590625 of a share per
         preferred share).


                                                                    (continued)

                                     I-12
<PAGE>   14


                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


         The shares of AT&T Liberty Tracking Stock to be issued in the Merger
         will be a newly authorized class of common stock of AT&T which will be
         intended to reflect the separate performance of the businesses and
         assets attributed to the "Liberty/Ventures Group", which following the
         Merger, will be made up of the businesses and assets which are
         attributed to Liberty Media Group and TCI Ventures Group at the time
         of the Merger. Pursuant to the Merger Agreement, immediately prior to
         the Merger, certain assets currently attributed to TCI Ventures Group
         (including, among others, the shares of AT&T Common Stock received in
         the merger of AT&T and Teleport Communications Group, Inc. ("TCG"),
         the stock of At Home Corporation ("@Home") attributed to TCI Ventures
         Group, the assets and business of the National Digital Television
         Center, Inc. ("NDTC") and TCI Ventures Group's equity interest in
         Western Tele-Communications, Inc.) will be transferred to TCI Group in
         exchange for approximately $5.5 billion in cash. Also, upon
         consummation of the Merger, through a new tax sharing agreement
         between Liberty/Ventures Group and AT&T, Liberty/Ventures Group will
         become entitled to the benefit of all of the net operating loss
         carryforwards available to the entities included in TCI's consolidated
         income tax return as of the date of the Merger. Additionally, certain
         warrants currently attributed to TCI Group will be transferred to
         Liberty/Ventures Group in exchange for up to $176 million in cash.
         Certain agreements to be entered into at the time of the Merger as
         contemplated by the Merger Agreement will, among other things, provide
         preferred vendor status to Liberty/Ventures Group for digital basic
         distribution on AT&T's systems of new programming services created by
         Liberty/Ventures Group, provide for a renewal of existing affiliation
         agreements and provide for the business of the Liberty/Ventures Group
         to continue to be managed following the Merger by certain members of
         TCI's management who currently manage the businesses of Liberty Media
         Group and TCI Ventures Group.

         If TCI terminates the Merger Agreement due to (i) the failure of
         AT&T's stockholders to approve the Merger prior to March 31, 1999,
         (ii) the withdrawal or modification by the AT&T Board of Directors of
         its approval of the transaction, or (iii) the failure to obtain
         necessary governmental and regulatory approvals by September 30, 1999,
         which failure occurs as a result of the announcement by AT&T of a
         significant transaction which delays receipt of such governmental
         approvals, AT&T will pay to TCI the sum of $1.75 billion in cash. If
         AT&T terminates the Merger Agreement, under certain circumstances,
         including the failure of TCI stockholders to approve the transaction
         prior to March 31, 1999 or the withdrawal or modification by the TCI
         Board of Directors of its approval of the Merger, TCI will pay to AT&T
         the sum of $1.75 billion in cash.

         Consummation of the Merger is subject to the satisfaction or waiver of
         customary conditions to closing, including but not limited to, the
         separate approvals of the stockholders of AT&T and TCI, receipt of all
         necessary governmental consents and approvals, and effectiveness of
         the registration statement registering the AT&T Common Stock and AT&T
         Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
         As a result, there can be no assurance that the Merger will be
         consummated or, if the Merger is consummated, as to the date of such
         consummation.

                                                                    (continued)


                                     I-13
<PAGE>   15


                  TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements


(3)      Earnings (Loss) Per Common and Potential Common Share

         Basic earnings per share ("EPS") is measured as the income or loss
         attributable to common stockholders divided by the weighted average
         outstanding common shares for the period. Diluted EPS is similar to
         basic EPS but presents the dilutive effect on a per share basis of
         potential common shares as if they had been converted at the beginning
         of the periods presented. Potential common shares that have an
         anti-dilutive effect are excluded from diluted EPS.

         (a)      TCI Group Stock

                  The basic earnings (loss) attributable to TCI Group common
                  stockholders per common share for the three and nine months
                  ended September 30, 1998 and 1997 was computed by dividing
                  net earnings (loss) attributable to TCI Group common
                  stockholders by the weighted average number of common shares
                  outstanding of TCI Group Stock during the period.

                  The diluted earnings attributable to TCI Group common
                  stockholders per common share for the three and nine months
                  ended September 30, 1998 was computed by dividing net earnings
                  attributable to TCI Group common stockholders, which is
                  adjusted by the addition of preferred stock dividends and
                  interest accrued during the three and nine months ended
                  September 30, 1998 to net earnings, assuming conversion of TCI
                  Group convertible securities as of the beginning of the period
                  to the extent that the assumed conversion of such securities
                  would have been dilutive, by the weighted average number of
                  common shares and dilutive potential common shares outstanding
                  of TCI Group Stock during the period. Shares issuable upon
                  conversion of the Convertible Preferred Stock, Series C-TCI
                  Group ("Series C-TCI Group Preferred Stock"), Convertible
                  Preferred Stock, Series D ("Series D Preferred Stock"), the
                  Redeemable Convertible TCI Group Preferred Stock, Series G
                  ("Series G Preferred Stock"), the Malone Right (as defined in
                  note 13), preferred stock of subsidiaries, convertible notes
                  payable and stock options and other performance awards have
                  been included in the diluted calculation of weighted average
                  shares to the extent that the assumed issuance of such shares
                  would have been dilutive, as illustrated below. All of the
                  outstanding shares of Series D Preferred Stock were redeemed
                  effective April 1, 1998 (see note 10).

                  The diluted loss attributable to TCI Group common
                  stockholders per common share for the three and nine months
                  ended September 30, 1997 was computed by dividing the net
                  loss attributable to TCI Group common stockholders by the
                  weighted average number of common shares outstanding of TCI
                  Group Stock during the period. Potential common shares were
                  not included in the computation of weighted average shares
                  outstanding because their inclusion would be anti-dilutive.
                  

                                                                    (continued)

                                     I-14
<PAGE>   16


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Except for the issuance of 8,718,770 shares of TCI Group Series B
         Stock on October 14, 1998 and 5,792,800 shares of TCI Group Series B
         Stock on October 16, 1998, pursuant to the exercise of certain rights
         as described in note 13, no material changes in the weighted average
         outstanding shares or potential common shares occurred after September
         30, 1998.

         Information concerning the reconciliation of basic EPS to diluted EPS
         with respect to TCI Group Stock is presented below:

<TABLE>
<CAPTION>

                                       Three months ended         Nine months ended
                                          September 30,             September 30,
                                     -----------------------    -----------------------
                                        1998          1997         1998         1997
                                     ----------   ----------    ----------   ----------
                                       amounts in millions, except per share amounts

<S>                                  <C>          <C>           <C>          <C>  
Basic EPS:
   Earnings (loss) attributable to
       common stockholders           $       47         (224)          130         (479)
                                     ==========   ==========    ==========   ==========
   Weighted average common shares           523          656           521          670
                                     ==========   ==========    ==========   ==========
   Basic earnings (loss) per share
       attributable to common
       stockholders                  $      .09         (.34)          .25         (.71)
                                     ==========   ==========    ==========   ==========

Diluted EPS:
   Earnings (loss) attributable to
       common stockholders           $       47         (224)          130         (479)
   Add preferred dividend
       requirements                          --           --            --           --
   Add interest expense                       1           --             2           --
                                     ----------   ----------    ----------   ----------
   Adjusted earnings (loss)
       attributable to common
       stockholders assuming
       conversion of preferred
       shares and notes payable      $       48         (224)          132         (479)
                                     ==========   ==========    ==========   ==========

   Weighted average common shares           523          656           521          670
                                     ----------   ----------    ----------   ----------
   Add dilutive potential common
       shares:
       Employee and director
         options and other
         performance awards                  12           --            10           --
       Malone Right                           1           --            --           --
       Convertible notes payable             24           --            24           --
       Series C-TCI Group
         Preferred Stock                     --           --            --           --
       Series D Preferred Stock              --           --            --           --
       Series G Preferred Stock              --           --            --           --
       Preferred stock of
         subsidiaries                        45           --            45           --
                                     ----------   ----------    ----------   ----------
       Dilutive potential common
         shares                              82           --            79           --
                                     ----------   ----------    ----------   ----------
   Diluted weighted average common
       shares                               605          656           600          670
                                     ==========   ==========    ==========   ==========
   Diluted earnings (loss) per
       share attributable to
       common stockholders           $      .08         (.34)          .22         (.71)
                                     ==========   ==========    ==========   ==========
</TABLE>

                                                                    (continued)

                                      I-15
<PAGE>   17


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                                        
                   Notes to Consolidated Financial Statements


(b)     Liberty Group Stock

        The basic earnings (loss) attributable to Liberty Media Group
        common stockholders per common share for the three and nine
        months ended September 30, 1998 and 1997 was computed by
        dividing net earnings attributable to Liberty Media Group
        common stockholders by the weighted average number of common
        shares outstanding of Liberty Group Stock during the period.

        The diluted earnings attributable to Liberty Media Group
        common stockholders per common and potential common share for
        the nine months ended September 30, 1998 and the three and
        nine months ended September 30, 1997 was computed by dividing
        earnings attributable to Liberty Media Group common
        stockholders by the weighted average number of common and
        dilutive potential common shares outstanding of Liberty Group
        Stock during the period. Shares issuable upon conversion of
        the Convertible Preferred Stock, Series C-Liberty Media Group
        ("Series C-Liberty Media Group Preferred Stock"), the Series
        D Preferred Stock, the Redeemable Convertible Liberty Media
        Group Preferred Stock, Series H (the "Series H Preferred
        Stock"), convertible notes payable and stock options and
        other performance awards have been included in the diluted
        calculation of weighted average shares to the extent that the
        assumed issuance of such shares would have been dilutive, as
        illustrated below. All of the outstanding shares of Series D
        Preferred Stock were redeemed effective April 1, 1998 (see
        note 10). Numerator adjustments for dividends and interest
        associated with the convertible preferred shares and
        convertible notes payable, respectively, were not made to the
        computation of diluted earnings per share as such dividends
        and interest are paid or payable by TCI Group.

        The diluted loss attributable to Liberty Media Group common
        stockholders per common share for the three months ended
        September 30, 1998 was computed by dividing the net loss
        attributable to Liberty Media Group common stockholders by
        the weighted average number of common shares outstanding of
        Liberty Group Stock during the period. Potential common
        shares were not included in the computation of weighted
        average shares outstanding because their inclusion would be
        anti-dilutive.

        No material changes in the weighted average outstanding
        shares or potential common shares occurred after September
        30, 1998.

                                                                    (continued)

                                     I-16
<PAGE>   18


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Information concerning the reconciliation of basic EPS to diluted EPS
         with respect to Liberty Group Stock is presented below:

<TABLE>
<CAPTION>

                                              Three months ended        Nine months ended
                                                 September 30,            September 30,
                                           ------------------------   -----------------------
                                              1998          1997         1998        1997
                                           ----------    ----------   ----------   ----------
                                              amounts in millions, except per share amounts

<S>                                        <C>          <C>           <C>          <C>
Basic EPS:
   Earnings (loss) attributable to
        common stockholders                $      (11)          162          227          184
                                           ==========    ==========   ==========   ==========
   Weighted average common shares                 357           368          357          371
                                           ==========    ==========   ==========   ==========
   Basic earnings (loss) per share
        attributable to common
        stockholders                       $     (.03)          .44          .64          .50
                                           ==========    ==========   ==========   ==========

Diluted EPS:
   Earnings (loss) attributable to
        common stockholders                $      (11)          162          227          184
                                           ==========    ==========   ==========   ==========
   Weighted average common shares                 357           368          357          371
                                           ----------    ----------   ----------   ----------
   Add dilutive potential common
        shares:
        Employee and director
           options and other
           performance awards                      --             5            8            5
        Convertible notes payable                  --            19           19           19
        Series C-Liberty Media
           Group Preferred Stock                   --             4            4            4
        Series D Preferred Stock                   --             6           --            6
        Series H Preferred Stock                   --             4            4            4
                                           ----------    ----------   ----------   ----------
        Dilutive potential common
           shares                                  --            38           35           38
                                           ----------    ----------   ----------   ----------
   Diluted weighted average common
        shares                                    357           406          392          409
                                           ==========    ==========   ==========   ==========
   Diluted earnings (loss) per
        share attributable to
        common stockholders                $     (.03)          .40          .58          .45
                                           ==========    ==========   ==========   ==========
</TABLE>

         (c)      TCI Ventures Group Stock

                  The basic earnings (loss) attributable to TCI Ventures Group
                  stockholders per common share for the three and nine months
                  ended September 30, 1998 and 1997 was computed by dividing
                  earnings (loss) attributable to TCI Ventures Group
                  stockholders by the weighted average number of common shares
                  outstanding of TCI Ventures Group Stock during the period.


                                                                    (continued)

                                     I-17
<PAGE>   19


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


                  The diluted earnings attributable to TCI Ventures Group
                  stockholders per common and potential common share for the
                  three and nine months ended September 30, 1998 and 1997 was
                  computed by dividing earnings attributable to TCI Ventures
                  Group stockholders by the weighted average number of common
                  and dilutive potential common shares outstanding of TCI
                  Ventures Group Stock during the period. Shares issuable upon
                  conversion of convertible notes payable and stock options and
                  other performance awards have been included in the diluted
                  calculation of weighted average shares to the extent that the
                  assumed issuance of such shares would have been dilutive, as
                  illustrated below. Numerator adjustments for interest
                  associated with convertible notes payable were not made to
                  the computation of diluted earnings per share as such
                  interest is paid or payable by TCI Group.

                  No material changes in the weighted average outstanding
                  shares or potential common shares occurred after September
                  30, 1998.

                  Information concerning the reconciliation of basic EPS to
                  dilutive EPS with respect to TCI Ventures Group Stock is
                  presented below:

<TABLE>
<CAPTION>

                                             Three months ended          Nine months ended
                                                September 30,              September 30,
                                           -----------------------    -----------------------
                                              1998         1997          1998        1997
                                           ----------   ----------    ----------   ----------
                                             amounts in millions, except per share amounts

<S>                                        <C>          <C>           <C>          <C>  
Basic EPS:
   Net earnings (loss)                     $    1,304         (126)          995         (315)
   Loss through the date of the
        TCI Ventures Exchange
        (note 1)                                   --          156            --          345
                                           ----------   ----------    ----------   ----------
   Earnings attributable to common
        stockholders                       $    1,304           30           995           30
                                           ==========   ==========    ==========   ==========

   Weighted average common shares                 423          410           422          410
                                           ==========   ==========    ==========   ==========
   Basic earnings per share
        attributable to common
        stockholders                       $     3.08          .07          2.36          .07
                                           ==========   ==========    ==========   ==========

Diluted EPS:
   Earnings attributable to common
        stockholders                       $    1,304           30           995           30
                                           ==========   ==========    ==========   ==========

   Weighted average common shares                 423          410           422          410
                                           ----------   ----------    ----------   ----------
   Add dilutive potential common
        shares:
        Employee and director
           options and other
           performance awards                       7            4             9            4
        Convertible notes payable                  21           21            21           21
                                           ----------   ----------    ----------   ----------
        Dilutive potential common
           shares                                  28           25            30           25
                                           ----------   ----------    ----------   ----------
   Diluted weighted average common
        shares                                    451          435           452          435
                                           ==========   ==========    ==========   ==========
   Diluted earnings per share
        attributable to common
        stockholders                       $     2.89          .07          2.20          .07
                                           ==========   ==========    ==========   ==========
</TABLE>

                                                                    (continued)

                                     I-18
<PAGE>   20


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(4)      Supplemental Disclosures to Consolidated Statements of Cash Flows


         Cash paid for interest was $905 million and $995 million for the nine
         months ended September 30, 1998 and 1997, respectively. Cash paid for
         income taxes was $39 million and $49 million for the nine months ended
         September 30, 1998 and 1997, respectively. In addition, the Company
         received income tax refunds of $76 million during the nine months
         ended September 30, 1998.

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

<TABLE>
<CAPTION>
                                                                       Nine months ended
                                                                         September 30,
                                                                    --------------------------
                                                                       1998           1997
                                                                    -----------    -----------
                                                                        amounts in millions
<S>                                                                 <C>            <C>    
Cash paid for acquisitions:
   Recorded value of assets acquired                                $      (906)        (1,878)
   Net liabilities assumed                                                   79            720
   Deferred tax liability recorded in acquisitions                          105            187
   Change in minority interests in equity of consolidated
      subsidiaries                                                         (215)            64
   Elimination of notes receivable from affiliates                          350             --
   TCI common stock and preferred stock held by acquired
      company                                                                --           (484)
   Common stock and preferred stock issued in acquisitions                  376          1,060
                                                                    -----------    -----------

        Cash paid for acquisitions                                  $      (211)          (331)
                                                                    ===========    ===========
Cash received in exchanges:
   Recorded value of assets acquired                                $       (72)          (392)
   Historical cost of assets exchanged                                       87            399
   Gain recorded on exchange of assets                                       30             11
                                                                    -----------    -----------
        Cash received in exchanges                                  $        45             18
                                                                    ===========    ===========
</TABLE>


         For a description of certain non-cash transactions, see note 8.

         The Company's restricted cash is primarily comprised of proceeds
         received in connection with certain asset dispositions. Such proceeds,
         which aggregated $353 million and $34 million at September 30, 1998
         and December 31, 1997, respectively, are designated to be reinvested
         in certain identified assets for income tax purposes. The Company's
         restricted cash also includes amounts held as collateral for interest
         payment obligations pursuant to certain bank credit facilities. Such
         amounts aggregated $17 million and $5 million at September 30, 1998
         and December 31, 1997, respectively.


                                                                    (continued)

                                     I-19
<PAGE>   21


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(5)      Investments in Affiliates

         The Company has various investments accounted for under the equity
         method. The following table includes the Company's carrying value of
         the Company's more significant investments:

<TABLE>
<CAPTION>

                                                      September 30,  December 31,
                                                          1998          1997
                                                       -----------    --------
                                                          amounts in millions
<S>                                                    <C>            <C>
USA Networks, Inc. ("USAI") formerly HSN, Inc. 
    ("HSNI") and related investments                   $    1,024          347
Cablevision Systems Corporation ("CSC")                     1,019           15
Telewest Communications plc ("Telewest")                      432          324
Sprint Spectrum Holding Company, L.P., 
     MinorCo, L.P. and PhillieCo, L.P.                        258          607
Flextech p.l.c. ("Flextech")                                  256          261
Various foreign equity investments (other than
    Telewest Communications plc, Flextech p.l.c. and
    Cablevision S.A.)                                         252          251
Cablevision S.A. ("Cablevision")                              225          239
InterMedia Capital Partners IV, L.P. and InterMedia
    Capital Management IV, L.P.                               224          262
Falcon Communications, L.P.                                   210           --
QVC, Inc.                                                     172          134
Parnassos, L.P.                                               121           --
</TABLE>


         Summarized unaudited combined results of operations for the Company's
         affiliates for the periods in which the Company used the equity method
         to account for such affiliates are as follows:

<TABLE>
<CAPTION>

                                     Nine months ended
Combined Operations                     September 30,  
                                --------------------------
                                    1998           1997
                                -----------   ------------
                                   amounts in millions
<S>                             <C>            <C>  
Revenue                         $    11,198          5,482
Operating expenses                  (10,179)        (5,293)
Depreciation and amortization        (2,177)        (1,023)
                                -----------    -----------
  Operating loss                     (1,158)          (834)


Interest expense                     (1,458)          (595)
Other, net                              (33)          (363)
                                -----------    -----------

  Net loss                      $    (2,649)        (1,792)
                                ===========    ===========
</TABLE>



                                                                    (continued)

                                     I-20
<PAGE>   22


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On March 4, 1998, the Company contributed to CSC certain of its cable
         television systems serving approximately 830,000 customers in exchange
         for approximately 48.9 million newly issued CSC Class A common shares
         (as adjusted for a two-for-one stock split) (the "CSC Transaction").
         CSC also assumed and repaid approximately $574 million of debt owed by
         the Company to external parties and $95 million of debt owed to the
         Company. As a result of the CSC Transaction, the Company recognized a
         $506 million gain in the accompanying consolidated statement of
         operations for the nine months ended September 30, 1998. Such gain
         represents the excess of the $1,161 million fair value of the CSC
         Class A common shares received over the historical cost of the net
         assets transferred by the Company to CSC. The Company has also entered
         into letters of intent with CSC which provide for the Company 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 the Company's debt. The ability of the Company to sell or
         increase its investment in CSC is subject to certain restrictions and
         limitations set forth in a stockholders agreement with CSC.

         At September 30, 1998, the Company owned 49,982,572 shares of CSC
         Class A common stock (as adjusted for a two-for-one stock split),
         which had a closing market price of $43.19 per share on such date.
         Such shares represented an approximate 33.2% equity interest in CSC's
         total outstanding shares and an approximate 9% voting interest in CSC
         in all matters except for (i) the election of directors, in which case
         the Company effectively has the right to designate two of CSC's
         directors, and (ii) any increase in authorized shares, in which case
         the Company has agreed to vote its interest in proportion with the
         public holders of CSC Class A common shares. During the nine months
         ended September 30, 1998, CSC accounted for $158 million of the
         Company's share of affiliate losses.

         The Company is a partner in a series of partnerships formed to engage
         in the business of providing wireless communications services, using
         the radio spectrum for broadband personal communications services
         ("PCS"), to residential and business customers nationwide, using the
         "Sprint"(R) brand (a registered trademark of Sprint Communications
         Company, L.P.) (the "PCS Ventures"). The PCS Ventures include Sprint
         Spectrum Holding Company, L. P. ("Sprint Spectrum") and MinorCo, L.P.
         (collectively, "Sprint PCS") and PhillieCo, L.P. ("PhillieCo"). The
         partners of Sprint PCS are subsidiaries of Sprint Corporation
         ("Sprint"), Comcast Corporation ("Comcast"), Cox Communications, Inc.
         ("Cox") and the Company. The partners of PhillieCo are subsidiaries of
         Sprint, Cox and the Company. The Company has a 30% partnership
         interest in Sprint PCS and a 35% partnership interest in PhillieCo.
         During the nine months ended September 30, 1998 and 1997, the PCS
         Ventures accounted for $510 million and $304 million, respectively, of
         the Company's share of affiliate losses.


                                                                    (continued)

                                     I-21
<PAGE>   23


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         From inception through September 1998, the four partners have
         contributed $4.6 billion to Sprint PCS (of which the Company
         contributed an aggregate of $1.4 billion). Sprint PCS's business plan
         will require additional capital financing prior to the end of 1998.
         Sources of funding for Sprint PCS's capital requirements may include
         vendor financing, public offerings or private placements of equity
         and/or debt securities, commercial bank loans and/or capital
         contributions from the Sprint PCS partners. However, there can be no
         assurance that any additional financing can be obtained on a timely
         basis, on terms acceptable to Sprint PCS or the Sprint PCS partners
         and within the limitations contained in the agreements governing
         Sprint PCS's existing debt.

         Additionally, the proposed budget for 1998 has not yet been approved
         by the Sprint PCS partnership board, although the board has authorized
         management to operate Sprint PCS in accordance with such budget. The
         Sprint PCS partners may mutually agree to make additional capital
         contributions. However, the Sprint PCS partners have no such
         obligation in the absence of an approved budget, and there can be no
         assurance the Sprint PCS partners will reach such an agreement or
         approve the 1998 proposed budget. In addition, the failure by the
         Sprint PCS partners to approve a business plan may impair the ability
         of Sprint PCS to obtain required financing. Failure to obtain any such
         additional financing or capital contributions from the Sprint PCS
         partners could result in the delay or abandonment of Sprint PCS's
         development and expansion plans and expenditures, the failure to meet
         regulatory requirements or other potential adverse consequences.

         Furthermore, the fact that the proposed budget for Sprint PCS for
         fiscal 1998 has not yet been approved by the Sprint PCS partnership
         board has resulted in the occurrence of a "Deadlock Event" under the
         Sprint PCS partnership agreement as of January 1, 1998. Under the
         Sprint PCS partnership agreement, if one of the Sprint PCS partners
         refers the budget issue to the chief executive officers of the
         corporate parents of the Sprint PCS partners for resolution pursuant
         to specified procedures and the issue remains unresolved, buy/sell
         provisions would be triggered, which may result in the purchase by one
         or more of the Sprint PCS partners of the interests of the other
         Sprint PCS partners, or, in certain circumstances, liquidation of
         Sprint PCS.


                                                                    (continued)

                                     I-22
<PAGE>   24


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         In May 1998, the Sprint PCS partners entered into a series of
         agreements pursuant to which the Company, Comcast and Cox would
         exchange their respective interests in Sprint PCS and PhillieCo for
         shares of a new class of tracking stock of Sprint which would track
         the performance of Sprint's newly created PCS Group (which would
         initially consist of Sprint PCS, PhillieCo and certain PCS licenses
         which are separately owned by Sprint). The consummation of such
         transactions is subject to a number of conditions, including the
         approval of such transactions by the stockholders of Sprint. If such
         transactions are consummated, the Company will initially hold shares
         of Sprint PCS Group stock (as well as certain additional securities of
         Sprint exercisable for or convertible into such securities)
         representing approximately 24% of the equity value of Sprint
         attributable to the PCS Group, subject to further dilution as a result
         of additional expected issuances of shares of Sprint PCS stock
         (including in connection with a proposed initial public offering of
         shares of Sprint PCS stock that may be consummated in connection with
         such transactions). In connection with the execution of such
         agreements, the Sprint PCS partners agreed to make up to $400 million
         in additional capital contributions (of which the Company's share is
         $120 million) to Sprint PCS pending the closing of such transactions.
         As of September 30, 1998, all of such additional capital contributions
         had been made to Sprint PCS. If the above-described transactions are
         consummated, the Company would begin to account for its investment in
         the Sprint PCS stock as an available-for-sale security. No assurance
         can be given that the above-described transactions will be
         consummated.

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T,
         was consummated. See note 7. On April 22, 1998, TCG completed a merger
         transaction with ACC Corp. ("ACC") in which ACC shares were exchanged
         with shares of TCG in the ratio of .90909 of a share of TCG stock for
         each share of ACC stock. The transaction was valued at approximately
         $1.1 billion. As a result of ACC's merger with TCG, TCI's interest in
         TCG was reduced to approximately 26%. In connection with the dilution
         of TCI's interest in TCG, TCI recorded a non-cash gain of $201 million
         (before deducting deferred income tax expense of $71 million).

         During the nine months ended September 30, 1997, TCG issued 4,857,083
         shares of its Class A common stock for certain acquisitions. The total
         consideration paid by TCG through the issuance of common stock was
         approximately $93 million. As a result of such share issuances, the
         Company's ownership interest in TCG was reduced to approximately 30%.
         Accordingly, the Company recognized a gain of $21 million (before
         deducting deferred income tax expense of approximately $8 million) as
         a result of such dilution.

                                                                    (continued)

                                     I-23
<PAGE>   25


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         In February 1998, pursuant to an Investment Agreement among Universal
         Studios, Inc. ("Universal"), HSNI, Home Shopping Network, Inc. ("HSN")
         and Liberty Media Group, dated as of October 1997 and amended and
         restated as of December 1997, HSNI consummated a transaction (the
         "Universal Transaction") through which USA Networks Partners, Inc., a
         subsidiary of Universal, sold its 50% interest in USAI, a New York
         general partnership, to HSNI and Universal contributed the remaining
         50% interest in USAI and its domestic television production and
         distribution operations to HSNI. Subsequent to these transactions,
         HSNI was renamed USAI. In connection with the Universal Transaction,
         Universal, USAI, HSN and Liberty Media Group became parties to a
         number of other agreements relating to, among other things, (i) the
         management of USAI, (ii) the purchase and sale or other transfer of
         voting securities of USAI, including securities convertible or
         exchangeable for voting securities of USAI, and (iii) the voting of
         such securities.

         At the closing of the Universal Transaction, Universal was issued
         approximately 6 million shares of USAI's Class B Common Stock,
         approximately 7 million shares of USAI's Common Stock and
         approximately 109 million common equity shares ("LLC Shares") of USANi
         LLC, a limited liability company formed to hold all of the businesses
         of USAI and its subsidiaries, except for its broadcasting business and
         its equity interest in Ticketmaster Group, Inc. and received a cash
         payment of $1.3 billion. Pursuant to an exchange agreement relating to
         the LLC Shares (the "LLC Exchange Agreement"), approximately 74
         million of the LLC Shares issued to Universal are each exchangeable
         for one share of USAI's Class B Common Stock and the remainder of the
         LLC Shares issued to Universal are each exchangeable for one share of
         USAI's Common Stock.

         At the closing of the Universal Transaction, Liberty Media Group was
         issued approximately 1.2 million shares of USAI's Class B Common
         Stock, representing all of the remaining shares of USAI's Class B
         Common Stock issuable pursuant to Liberty Media Group's contractual
         right to receive shares of Class B common stock of USAI upon the
         occurrence of certain events. Of such shares, 800,000 shares of Class
         B Common Stock were contributed to BDTV IV INC. (collectively with
         BDTV INC., BDTV II INC. and BDTV III INC., "BDTV"), a newly-formed
         entity having substantially the same terms as BDTV INC., BDTV II INC.
         and BDTV III INC. (with the exception of certain transfer
         restrictions) in which Liberty Media Group owns over 99% of the equity
         and none of the voting power (except for protective rights with
         respect to certain fundamental corporate actions) and Barry Diller
         owns less than 1% of the equity and all of the voting power. Liberty
         Media Group accounts for its investment in BDTV under the equity
         method. In addition, Liberty Media Group purchased 10 LLC Shares at
         the closing of the Universal Transaction for an aggregate purchase
         price of $200. 

                                                                    (continued)

                                     I-24
<PAGE>   26


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On June 24, 1998, USAI consummated the previously announced agreement
         to acquire the remaining stock of Ticketmaster Group, Inc. which it
         did not previously own through a tax-free merger (the "Ticketmaster
         Transaction"). In connection with the dilution of Liberty Media
         Group's ownership interest that resulted from the issuance of common
         stock by USAI in the Universal Transaction and the Ticketmaster
         Transaction, the Company recorded a $64 million increase to additional
         paid-in capital (after deducting a deferred tax liability of $42
         million) and an increase to investment in affiliates of $106 million.
         No gain was recognized in the consolidated statements of operations
         due primarily to Liberty Media Group's commitment to purchase
         additional equity interests in USAI.

         In connection with the Universal Transaction, each of Universal and
         Liberty Media Group was granted a preemptive right with respect to
         future issuances of USAI's capital stock, subject to certain
         limitations, to maintain their respective percentage ownership
         interests in USAI that they had prior to such issuances. In connection
         with such right, on June 4, 1998, Liberty Media Group purchased
         approximately 4.7 million shares of USAI's capital stock at $20 per
         share as a result of the conversion by USAI of certain convertible
         debentures whereby USAI common stock was issued to retire such
         debentures. Additionally, on June 30 1998, Liberty Media Group
         contributed $300 million in cash to USANi LLC in exchange for an
         aggregate of 15 million LLC Shares. Liberty Media Group's cash
         purchase price was increased at an annual interest rate of 7.5%
         beginning from the date of the closing of the Universal Transaction
         through the date of Liberty Media Group's purchase of such securities.
         In addition, on July 27, 1998, Liberty Media Group purchased
         approximately 7.9 million LLC Shares at $20 per share as a result of
         the issuance of common stock by USAI in the Ticketmaster Transaction.
         Pursuant to the LLC Exchange Agreement, each LLC Share issued or to be
         issued to Liberty Media Group is exchangeable for one share of USAI's
         Common Stock.

         At September 30, 1998, Liberty Media Group held 24.4 million shares of
         USAI's common stock through BDTV and 5.2 million shares of USAI's
         common stock directly. Additionally, Liberty Media Group held 22.9
         million LLC Shares at September 30, 1998 as well as shares of HSN's
         common stock which are exchangeable for 16.6 million shares of USAI's
         common stock. Liberty Media Group's direct ownership of USAI is
         restricted by order of the Federal Communications Commission ("FCC").
         Assuming Liberty Media Group had exchanged its shares in HSN and its
         LLC Shares for USAI common stock, Liberty Media Group would have held
         at September 30, 1998, 69.1 million shares or 21% of USAI, including
         shares held through BDTV. USAI's common stock had a closing market
         value of $19.438 per share on September 30, 1998.

         At September 30, 1998 Tele-Communications International, Inc.
         ("TINTA"), a majority-owned subsidiary of the Company, indirectly
         owned through its 50% ownership interest in TW Holdings, L.L.C.,
         463,438,960 or 22% of the issued and outstanding Telewest ordinary
         shares. The reported closing price on the London Stock Exchange of
         Telewest ordinary shares was (pound)1.35 ($2.30) per share at
         September 30, 1998. Telewest currently operates and constructs cable
         television and telephone systems in the United Kingdom ("UK").
         Telewest accounted for $90 million and $111 million of the Company's
         share of its affiliates' losses during the nine months ended September
         30, 1998 and 1997, respectively.


                                                                    (continued)

                                     I-25
<PAGE>   27


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Effective September 1, 1998, Telewest and General Cable PLC ("General
         Cable") consummated a merger (the "General Cable Merger") in which
         holders of General Cable received 1.243 new Telewest shares and
         (pound)0.65 ($1.11) in cash for each share of General Cable. In
         addition, holders of American Depository shares of General Cable
         ("General Cable ADS") (each representing five General Cable shares)
         received 6.215 new Telewest shares and (pound)3.25 ($5.53) in cash 
         for each share of General Cable ADS. Based upon Telewest's closing 
         share price of (pound)0.89 ($1.51) on April 14, 1998, the General 
         Cable Merger was valued at approximately (pound)649 million ($1.1 
         billion).

         The cash portion of the General Cable Merger was financed through an
         offer to qualifying Telewest shareholders for the purchase of
         approximately 261 million new Telewest shares at a price of
         (pound)0.925 ($1.57) per share (the "Telewest Offer"). TINTA
         subscribed to 84,688,960 Telewest ordinary shares at an aggregate cost
         of (pound)78 million ($133 million) in connection with the Telewest
         Offer. Immediately following the Telewest Offer, TINTA owned 28% of
         the issued and outstanding Telewest ordinary shares.

         In connection with the General Cable Merger, TINTA also converted its
         entire holdings of Telewest convertible preference shares (132,638,250
         shares) into Telewest ordinary shares. As a result of the General
         Cable Merger, TINTA's ownership interest in Telewest decreased to 22%.
         In connection with such dilution, TINTA recognized a non-cash gain of
         $58 million (excluding related tax expense of $20 million) during the
         third quarter of 1998.

         As a result of Telewest's issuance of U.S. dollar denominated
         debentures (the "Telewest Debentures"), changes in the exchange rate
         used to translate the U.S. dollar into the UK pound sterling will
         cause Telewest to experience realized and unrealized foreign currency
         transaction gains and losses throughout the term of the Telewest
         Debentures, which mature in 2006 and 2007, if not redeemed earlier.
         During the nine months ended September 30, 1998 and 1997, Telewest
         experienced foreign currency transaction gains (losses) of (pound)11
         million ($19 million using the applicable exchange rate) and
         (pound)(33 million) ($55 million using the applicable exchange rate),
         respectively, resulting from the translation of the Telewest
         Debentures into UK pounds sterling and the adjustment of a related
         foreign currency option contract to market value.

         On October 9, 1997, TINTA sold a portion of its 51% interest in
         Cablevision, a company engaged in the multi-channel video distribution
         business in Buenos Aires, Argentina, to unaffiliated third parties
         (the "Buyers") for cash proceeds of $120 million. In addition, on
         October 9, 1997, Cablevision issued 3,541,829 shares of stock in the
         aggregate to the Buyers for $320 million. The above transactions,
         (collectively, the "Cablevision Sale") reduced TINTA's interest in
         Cablevision to 26%. TINTA recognized a gain of $49 million on the
         Cablevision Sale (excluding related tax expense of $17 million). TINTA
         continues to manage Cablevision pursuant to a renewable five-year
         management contract that was entered into in connection with the
         Cablevision Sale, and certain material corporate transactions of
         Cablevision will require TINTA's approval, so long as TINTA maintains
         at least a 16% interest in Cablevision. As a result of the Cablevision
         Sale, effective October 1, 1997, TINTA ceased to consolidate
         Cablevision and began to account for Cablevision using the equity
         method of accounting. Cablevision accounted for $14 million of the
         Company's share of its affiliates' losses during the nine months ended
         September 30, 1998.

         On November 9, 1998, Cablevision and the lenders under its $1.1 billion
         loan facility agreed to an extension of $950 million of outstanding
         borrowings under the facility until December 15, 1998. At that time,
         outstanding borrowings are to be refinanced through (i) $550 million of
         indebtedness, which is expected to be issued under Cablevision's medium
         term note program, and (ii) $400 million of support from Cablevision's
         shareholder's, including TINTA. TINTA's portion of such support
         aggregates approximately $85 million, and will be made through (i) a
         $42 million capital contribution to Cablevision and (ii) the guarantee
         of senior indebtedness of Cablevision and/or subordinated loans from
         TINTA to Cablevision in the aggregate amount of $42 million.

         During the fourth quarter of 1998, one of the Cablevision shareholders
         exercised a put right that, under certain circumstances, could require
         TINTA to purchase a portion of such shareholder's ownership interest
         for cash consideration of up to $36 million, one-third of which would
         be paid on December 15, 1998 and the remaining amount would be paid in
         four semi-annual installments. Additionally, the Cablevision
         shareholders' agreement contains a buy-sell provision that, under
         certain circumstances, could require TINTA to purchase other
         shareholders' ownership interests.

                                                                     (continued)
                                     I-26
<PAGE>   28


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         In addition to Telewest and Cablevision, the Company has an equity
         method investment in Flextech, an entity engaged in the distribution
         and production of programming for multichannel video distribution
         systems in the UK, and other less significant equity method
         investments in video distribution and programming businesses located
         in the UK, other parts of Europe, Asia, Latin America and certain
         other foreign countries. In the aggregate, such other foreign equity
         method investments accounted for $72 million and $73 million of the
         Company's share of its affiliates' losses during the nine months ended
         September 30, 1998 and 1997, respectively.

         Certain of the Company's affiliates are general partnerships and any
         subsidiary of the Company that is a general partner in a general
         partnership is, as such, liable as a matter of applicable 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.

(6)      Investment in Time Warner

         Liberty Media Group holds 57 million shares of a separate series of
         Time Warner common stock with limited voting rights (the "TW Exchange
         Stock"). Holders of the TW Exchange Stock are entitled to one
         one-hundredth (l/100th) of a vote for each share with respect to the
         election of directors. Holders of the TW Exchange Stock will not have
         any other voting rights, except as required by law or with respect to
         limited matters, including amendments of the terms of the TW Exchange
         Stock adverse to such holders. Subject to the federal communications
         laws, each share of the TW Exchange Stock will be convertible at any
         time at the option of the holder on a one-for-one basis for a share of
         Time Warner common stock. Holders of TW Exchange Stock are entitled to
         receive dividends ratably with the Time Warner common stock and to
         share ratably with the holders of Time Warner common stock in assets
         remaining for common stockholders upon dissolution, liquidation or
         winding up of Time Warner. See note 9.

         On June 24, 1997, Liberty Media Group granted Time Warner an option,
         expiring October 10, 2002, to acquire the business of Southern
         Satellite Systems, Inc. ("Southern") and certain of its subsidiaries
         (together with Southern, the "Southern Business") through a purchase
         of assets (the "Southern Option"). Liberty Media Group received 6.4
         million shares of TW Exchange Stock valued at $306 million in
         consideration for the grant. In September 1997, Time Warner exercised
         the Southern Option. Pursuant to the Southern Option, Time Warner
         acquired the Southern Business, effective January 1, 1998 for $213
         million in cash. The Company recognized a $515 million pre-tax gain in
         connection with such transactions in the first quarter of 1998.

(7)      Investment in AT&T

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T,
         was consummated. As a result of such merger, TCI received in exchange
         for its 26% interest in TCG, approximately 47 million shares of AT&T
         Common Stock. TCI recognized a gain of $2.3 billion (excluding related
         tax expense of $883 million) on such transaction based on the
         difference between the carrying value of TCI's interest in TCG and the
         fair value of the AT&T Common Stock received. See note 5. TCI accounts
         for its ownership interest in AT&T Common Stock as an
         available-for-sale security. See note 2. 

                                                                    (continued)


                                     I-27
<PAGE>   29


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


(8)      Acquisitions and Dispositions

         In addition to the CSC Transaction described in note 5, the Company
         completed, during the first nine months of 1998, six transactions
         whereby the Company contributed cable television systems serving in
         the aggregate approximately 1,224,000 customers to six separate joint
         ventures (collectively, the "1998 Joint Ventures") in exchange for
         non-controlling ownership interests in each of the 1998 Joint
         Ventures, and the assumption and repayment by the 1998 Joint Ventures
         of debt owed by the Company to external parties aggregating $323
         million and intercompany debt owed to the Company aggregating $1,533
         million. The Company has agreed to take certain steps to support
         compliance by certain of the 1998 Joint Ventures with their payment
         obligations under certain debt instruments, up to an aggregate
         contingent commitment of $980 million. In light of such contingent
         commitments, the Company has deferred any gains on the formation of
         such 1998 Joint Ventures. Accordingly, the Company has recorded
         deferred gains aggregating $163 million and recognized net gains
         aggregating $263 million in connection with the formation of the 1998
         Joint Ventures. The deferred gains will not be recognized until such
         time as the Company's contingent commitments are eliminated. The
         Company uses the equity method of accounting to account for its
         investments in the 1998 Joint Ventures. The CSC Transaction (see note
         5) and the formation of the 1998 Joint Ventures are collectively
         referred to herein as the "1998 Contribution Transactions."

         Including the 1998 Contribution Transactions, the Company, as of
         September 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 3.9 million basic customers to joint
         ventures in which the Company will retain non-controlling ownership
         interests (the "Contribution Transactions"). Following the completion
         of the Contribution Transactions, the Company 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 1998
         Contribution Transactions and currently contemplated amounts with
         respect to the pending Contribution Transactions) to the Company's
         debt of $4.8 billion and aggregate estimated reductions (based on 1997
         amounts) to the Company's annual revenue and annual operating income
         before depreciation, amortization and other non-cash items and stock
         compensation of $1.8 billion and $815 million, respectively. No
         assurance can be given that any of the pending Contribution
         Transactions will be consummated.

         Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
         contributed the assets, obligations and operations of its retail
         C-band satellite business to Superstar/Netlink Group LLC ("SNG") in
         exchange for an approximate 20% interest in SNG. As a result of this
         transaction, the Company's ownership interest in SNG decreased from
         100% to approximately 80% and the Company recognized a gain of $38
         million (before deducting deferred income tax expense of $15 million).
         Turner Vision's contribution to SNG was accounted for as a purchase,
         and the $61 million excess of the purchase price over the fair value
         of the net tangible assets acquired was recorded as an intangible asset
         and is being amortized over five years.


                                                                    (continued)

                                     I-28
<PAGE>   30


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On June 11, 1998, United Video Satellite Group, Inc. ("UVSG") and The
         News Corporation Limited ("News Corp.") announced the signing of a
         definitive agreement whereby News Corp.'s TV Guide properties will be
         combined with UVSG to create a platform for offering television guide
         services to consumers and advertising. As part of this combination, a
         unit of News Corp. will receive consideration consisting of $800
         million in cash and 60 million shares of UVSG's stock (as adjusted for
         a two-for-one stock split), including 22,503,412 shares of its Class A
         common stock and 37,496,588 shares of its Class B common stock (as
         adjusted for a two-for-one stock split). As a result of this
         transaction, and another pending transaction, News Corp., TCI and
         UVSG's public stockholders will own on an economic basis approximately
         40%, 44% (of which 34% will be attributable to TCI Ventures Group and
         10% will be attributable to Liberty Media Group) and 16%, respectively,
         of UVSG. Following the transaction, News Corp. and TCI will each have
         approximately 48% of the voting power of UVSG's outstanding stock. TCI
         will begin to account for its interest in UVSG under the equity method
         of accounting following consummation of this transaction. Consummation
         of this transaction is subject to UVSG shareholder approval and certain
         regulatory approvals. Accordingly, no assurance can be given that this
         transaction will be consummated.

         On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of
         Liberty Media Group, which held non-voting class C common stock of
         International Family Entertainment, Inc. ("IFE") ("Class C Stock") and
         $23 million of IFE 6% convertible secured notes due 2004, convertible
         into Class C Stock, ("Convertible Notes"), contributed its Class C
         Stock and Convertible Notes to Fox Kids Worldwide, Inc. ("FKW") in
         exchange for a new series of 30 year non-convertible 9% preferred
         stock of FKW with a stated value of $345 million (the "FKW Preferred
         Stock"). As a result of the exchange, Liberty Media Group recognized a
         pre-tax gain of approximately $304 million during the third quarter of
         1997.

(9)      Debt

<TABLE>
<CAPTION>

Debt is summarized as follows:
                                                     September 30, December 31,
                                                         1998         1997
                                                     -----------   ------------
                                                         amounts in millions

<S>                                                  <C>           <C>  
Notes payable (a)                                    $     9,474         9,017
Bank credit facilities (b)                                 4,063         5,233
Commercial paper                                             830           533
Convertible notes (c)                                         40            40
Capital lease obligations and other debt                     488           427
                                                     -----------   -----------

                                                     $    14,895        15,250
                                                     ===========   ===========
</TABLE>


         (a)      During the nine months ended September 30, 1998, the Company
                  purchased certain notes payable which had an aggregate
                  principal balance of $352 million and fixed interest rates
                  ranging from 8.67% to 10.25% (the "1998 Purchases"). In
                  connection with the 1998 Purchases, the Company recognized a
                  loss on early extinguishment of debt of $44 million. Such
                  loss related to prepayment penalties amounting to $39 million
                  and the retirement of deferred loan costs.

                                                                    (continued)

                                     I-29
<PAGE>   31


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  During the nine months ended September 30, 1997, the Company
                  purchased certain notes payable which had an aggregate
                  principal balance of $190 million and fixed interest rates
                  ranging from 8.75% to 10.13% (the "1997 Purchases"). In
                  connection with the 1997 Purchases, the Company recognized a
                  loss on early extinguishment of debt of $11 million. Such
                  loss related to prepayment penalties amounting to $7 million
                  and the retirement of deferred loan costs.

         (b)      At September 30, 1998, subsidiaries of the Company had
                  approximately $3.1 billion in unused lines of credit,
                  excluding amounts related to lines of credit which provide
                  availability to support commercial paper.

                  As security for borrowings under one of the Company's credit
                  facilities, the Company has pledged a portion of its TW
                  Exchange Stock with an estimated market value at September
                  30, 1998 of $1.9 billion based upon the market value of the
                  marketable common stock into which it is convertible.
                  Additionally, as security for borrowings under another of its
                  credit facilities, the Company pledged its holdings in
                  Discovery Communications, Inc., QVC, Inc. and the FKW
                  Preferred Stock. At September 30, 1998, the carrying value of
                  such holdings aggregated $590 million.

                  Certain of TCI's subsidiaries are required to maintain unused
                  availability under bank credit facilities to the extent of
                  outstanding commercial paper. Also, certain of TCI's
                  subsidiaries pay fees ranging to 1/2% per annum on the
                  average unborrowed portion of the total amount available for
                  borrowings under bank credit facilities.

         (c)      The convertible notes, which are stated net of unamortized
                  discount of $166 million at September 30, 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 September 30, 1998, the notes were
                  convertible, at the option of the holders, into an aggregate
                  of 24,163,259 shares of Series A TCI Group Stock, 19,416,910
                  shares of Series A Liberty Group Stock, 20,711,373 shares of
                  Series A TCI Ventures Group Stock and 3,451,897 shares of
                  Series A Common Stock, $1.00 par value per share, of TCI
                  Satellite Entertainment, Inc.

         The bank credit facilities and various other debt instruments of the
         Company's subsidiaries 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 the debt of the Company's subsidiaries is estimated
         based on the quoted market prices for the same or similar issues or on
         the current rates offered to the Company for debt of the same
         remaining maturities. At September 30, 1998, the fair value of the
         Company's debt was $17,906 million (including $2,039 million
         attributable to the value of the common stock underlying the
         convertible notes), as compared to a carrying value of $14,895 million
         on such date.

                                                                    (continued)

                                      I-30
<PAGE>   32


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         In order to achieve the desired balance between variable and fixed
         rate indebtedness, the Company may enter into variable and fixed
         interest rate exchange agreements ("Interest Rate Swaps") pursuant to
         which it (i) pays fixed interest rates (the "Fixed Rate Agreements")
         and receives variable interest rates and (ii) pays variable interest
         rates (the "Variable Rate Agreements") and receives fixed interest
         rates. During the nine months ended September 30, 1998 and 1997, the
         Company's net payments pursuant to the Fixed Rate Agreements were less
         than $1 million for each period; and the Company's net receipts
         pursuant to the Variable Rate Agreements were $8 million and $1
         million, respectively. At September 30, 1998, all of the Company's
         Fixed Rate Agreements had expired.

         Information concerning the Company's Variable Rate Agreements at
         September 30, 1998 is as follows (dollar amounts in millions):

<TABLE>
<CAPTION>

                                                       Amount to be
Expiration         Interest rate       Notional       received upon
   date           to be received        amount        termination (a)
----------        --------------       --------        --------------
<S>               <C>              <C>                <C>            
April 1999             7.4%            $     50        $      1
September 1999         6.4%                 350               4
February 2000     5.8%-6.6%                 300               5
March 2000        5.8%-6.0%                 675               8
September 2000         5.1%                  75              --
March 2027             9.7%                 300              44
December 2036          9.7%                 200              16
                                       --------        -------------

                                       $  1,950        $     78
                                       ========        =============
--------------------
</TABLE>

         (a)      The estimated amount that the Company would receive to
                  terminate the agreements at September 30, 1998, taking into
                  consideration current interest rates and the current
                  creditworthiness of the counterparties, represents the fair
                  value of the Interest Rate Swaps.

         In addition to the Variable Rate Agreements, the Company entered into
         Interest Rate Swaps pursuant to which it pays a variable rate based on
         the London Interbank Offered Rate ("LIBOR") (5.8% at September 30,
         1998) and receives a variable rate based on the Constant Maturity
         Treasury Index ("CMT") (4.7% at September 30, 1998) on a notional
         amount of $400 million through September 2000; and pays a variable
         rate based on the LIBOR (5.7% at September 30, 1998) and receives a
         variable rate based on CMT (4.8% at September 30, 1998) on notional
         amounts of $95 million through February 2000. During the nine months
         ended September 30, 1998, the Company's net payments pursuant to such
         agreements were $1 million. At September 30, 1998, the Company would
         be required to pay an estimated $4 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, the Company does not anticipate material
         near-term losses in future earnings, fair values or cash flows
         resulting from derivative financial instruments as of September 30,
         1998.

                                                                    (continued)

                                     I-31
<PAGE>   33


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(10)     Redeemable Preferred Stock

         On February 20, 1998, the Company issued a Notice of Redemption which
         called for the redemption of all of its outstanding Series D Preferred
         Stock for $304.0233 per share. Effective April 1, 1998, all of the
         outstanding shares of Series D Preferred Stock were redeemed to the
         extent not previously converted into shares of TCI Group Series A
         Stock and Liberty Group Series A Stock.

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

         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 TCI
         Communications, Inc." Dividends accrued on the Trust Preferred
         Securities aggregated $106 million and $96 million during the nine
         months ended September 30, 1998 and 1997, respectively, and are
         included in minority interests in earnings of consolidated
         subsidiaries in the accompanying consolidated financial statements.

(12)     Stockholders' Equity

         Stock Repurchases

         During the nine months ended September 30, 1998, pursuant to a stock
         repurchase program, 66,041 shares of TCI Group Series A Stock, 145,450
         shares of TCI Ventures Group Series A Stock, 94,000 shares of TCI
         Ventures Group Series B Stock and 766,783 shares of Liberty Group
         Series A Stock were repurchased at an aggregate cost of approximately
         $31 million.

         Treasury Stock and Common Stock Held by Subsidiaries, at Cost

<TABLE>
<CAPTION>

                                                          September 30, 1998             December 31, 1997
                                                  -------------------------------   -----------------------------
                                                      Number of                         Number of
                                                       shares         Cost basis         shares      Cost basis
                                                  --------------   --------------   --------------   ------------
                                                                     (dollar amounts in millions)

     <S>                                          <C>              <C>              <C>              <C>           
         Treasury stock is summarized as follows:
               TCI Group Series A Stock               11,362,365   $          182       11,296,324   $          180
               TCI Group Series B Stock               14,842,472              250       30,876,766              518
               Liberty Group Series A Stock           25,561,455              505       25,082,172              489
               Liberty Group Series B Stock               82,074                2           82,074                2
               TCI Ventures Group Series A Stock          61,450                1               --               --
               TCI Ventures Group Series B Stock         432,196                5          338,196                4

         Common stock held by subsidiaries is 
            summarized as follows:
               TCI Group Series A Stock              125,728,816              466      125,645,656              464
               TCI Group Series B Stock                9,154,134              161        9,112,500              160
               Liberty Group Series A Stock            6,654,367              113        6,654,367              113
               Liberty Group Series B Stock            3,417,187               61        3,417,187               61
                                                                   --------------                    --------------
                                                                   $        1,746                    $        1,991
                                                                   ==============                    ==============
</TABLE>

                                                                    (continued)

                                     I-32
<PAGE>   34


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Stock Based Compensation

         Certain key employees of the Company and members of the Board hold
         options with tandem stock appreciation rights ("SARs") to acquire TCI
         Group Series A Stock, Liberty Group Series A Stock and TCI Ventures
         Group Series A Stock as well as restricted stock awards of TCI Group
         Series A Stock, Liberty Group Series A Stock and TCI Ventures Group
         Series A Stock. Estimated compensation relating to SARs has been
         recorded through September 30, 1998, and is subject to future
         adjustment based upon vesting and market values and, ultimately, on
         the final determination of market values when such rights are
         exercised.

         Other

         During the fourth quarter of 1997, the Company entered into a Total
         Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
         the Equity Swap Facility, the Company has the right to direct the
         counterparty (the "Counterparty") to use the Equity Swap Facility to
         purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
         TCI Ventures Group Series A Stock with an aggregate purchase price of
         up to $300 million. The Company has the right, but not the obligation,
         to purchase Equity Swap Shares through the September 30, 2000
         termination date of the Equity Swap Facility. During such period, the
         Company is to settle periodically any increase or decrease in the
         market value of the Equity Swap Shares. If the market value of the
         Equity Swap Shares exceeds the Counterparty's cost, Equity Swap Shares
         with a fair value equal to the difference between the market value and
         cost will be segregated from the other Equity Swap Shares. If the
         market value of Equity Swap Shares is less than the Counterparty's
         cost, the Company, at its option, will settle such difference with
         shares of TCI Group Series A Stock or TCI Ventures Group Series A
         Stock or, subject to certain conditions, with cash or letters of
         credit. In addition, the Company is required to periodically pay the
         Counterparty a fee equal to a LIBOR-based rate on the Counterparty's
         cost to acquire the Equity Swap Shares. Due to the Company's ability
         to issue shares to settle periodic price fluctuations and fees under
         the Equity Swap Facility, the Company records all amounts received or
         paid under this arrangement as increases or decreases, respectively,
         to equity. As of September 30, 1998, the Equity Swap Facility had
         acquired 4,935,780 shares of TCI Group Series A Stock and 1,171,800
         shares of TCI Ventures Group Series A Stock at an aggregate cost that
         was approximately $49 million less than the fair value of such Equity
         Swap Shares at September 30, 1998.

         At September 30, 1998, there were 100,180,254 shares of TCI Group
         Series A Stock, 14,511,570 shares of TCI Group Series B Stock,
         38,765,713 shares of Liberty Group Series A Stock, 33,332,576 shares
         of TCI Ventures Group Series A Stock and 2,800,000 shares of TCI
         Ventures Group Series B Stock reserved for issuance under exercise
         privileges related to options, convertible debt securities and
         convertible preferred stock. Also, one share of Series A Stock is
         reserved for each share of Series B Stock. Additionally, subsidiaries
         of TCI own an aggregate of 278,307 shares of TCI Convertible
         Redeemable Participating Preferred Stock, Series F ("Series F
         Preferred Stock"). Each share of Series F Preferred Stock is
         convertible into 1496.65 shares of TCI Group Series A Stock.


                                                                    (continued)

                                     I-33
<PAGE>   35


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(13)     Transactions with Officers and Directors

         On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
         shares of TCI Group Series A Stock for the same number of shares of
         TCI Group Series B Stock owned by the Estate of Bob Magness (the
         "Magness Estate"), the late founder and former Chairman of the Board
         of TCI. Subsequent to the Exchange, the Magness Estate sold (the
         "Sale") the shares of TCI Group Series A Stock received in the
         Exchange, together with approximately 1.5 million shares of TCI Group
         Series A Stock that the Magness Estate previously owned (collectively,
         the "Option Shares"), to two investment banking firms (the "Investment
         Bankers") for approximately $530 million (the "Sale Price").
         Subsequent to the Sale, TCI entered into an agreement with the
         Investment Bankers whereby TCI has the option, but not the obligation,
         to purchase the Option Shares at any time within two years (the
         "Option Period") from the date of the Sale. During the Option Period,
         the Company and the Investment Bankers are to settle quarterly any
         increase or decrease in the market value of the Option Shares. If the
         market value of the Option Shares exceeds the Investment Bankers'
         cost, Option Shares with a fair value equal to the difference between
         the market value and cost will be segregated from the other Option
         Shares in an account at the Investment Bankers. If the market value of
         the Option Shares is less than the Investment Bankers' cost, the
         Company, at its option, will settle such difference with shares of TCI
         Group Series A Stock or TCI Ventures Group Series A Stock or, subject
         to certain conditions, with cash or letters of credit. In addition,
         the Company is required to pay the Investment Bankers a quarterly fee
         equal to the LIBOR plus 1% on the Sale Price, as adjusted for payments
         made by the Company pursuant to any quarterly settlement with the
         Investment Bankers. Due to the Company's ability to settle quarterly
         price fluctuations and fees with shares of TCI Group Series A Stock or
         TCI Ventures Group Series A Stock, the Company records all amounts
         received or paid under this arrangement as increases or decreases,
         respectively, to equity. During the fourth quarter of 1997, the
         Company repurchased 4,000,000 shares of TCI Group Series A Stock from
         one of the Investment Bankers for an aggregate cash purchase price of
         $66 million. Additionally, as a result of the Exchange Offers and
         certain open market transactions, the Investment Bankers disposed of
         4,210,308 shares of TCI Group Series A Stock and acquired 23,407,118
         shares of TCI Ventures Group Series A Stock during the last half of
         1997. As a result of the foregoing transactions and certain
         transactions related to the January 5, 1998 settlement of litigation
         involving the Magness Estate, as described below, the Option Shares
         were comprised of 6,201,042 shares of TCI Group Series A Stock and
         11,740,610 shares of TCI Ventures Group Series A Stock at September
         30, 1998. At September 30, 1998, the market value of the Option Shares
         exceeded the Investment Bankers' cost by $254 million.

         In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
         Chairman and Chief Executive Officer, agreed to forgo the exercise of
         certain option rights and in consideration, TCI granted to Dr. Malone
         the right (the "Malone Right") to acquire 30,545,864 shares of TCI
         Group Series B Stock.

         On January 5, 1998, the Company announced that a settlement (the
         "Magness Settlement") had been reached in the litigation brought
         against it and other parties in connection with the administration of
         the Magness Estate.


                                                                    (continued)

                                     I-34
<PAGE>   36


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         In connection with the Magness Settlement, portions of the Exchange
         and Sale were unwound such that 10,201,041 shares of TCI Group Series
         A Stock and 11,666,506 shares of TCI Ventures Group Series A Stock
         were returned to TCI as authorized but unissued shares, and the
         Magness Estate paid $11 million to TCI representing a reimbursement of
         the Exchange fees incurred by TCI from June 16, 1997 through February
         9, 1998 with respect to such returned shares. TCI then issued to the
         Magness Estate 10,017,145 shares of TCI Group Series B Stock and
         12,034,298 shares of TCI Ventures Group Series B Stock.

         On February 9, 1998, in connection with the Magness Settlement, TCI
         entered into a call agreement (the "Malone Call Agreement") with Dr.
         Malone and Dr. Malone's wife (together with Dr. Malone, the
         "Malones"), under which the Malones granted to TCI the right to
         acquire the Malones' high-voting shares (the "High-Voting Shares"),
         currently consisting of an aggregate of approximately 60 million
         shares of Series B Stock, upon Dr. Malone's death or upon a
         contemplated sale of the High-Voting Shares (other than a minimal
         amount) to third persons. In either such event, TCI has the right to
         acquire the shares at a maximum price equal to the then relevant
         market price of shares of "low-voting" Series A Stock plus a ten
         percent premium. The Malones also agreed that if TCI were ever to be
         sold to another entity, then the maximum premium that the Malones
         would receive on their High-Voting Shares would be no greater than a
         ten percent premium over the price paid for the relevant shares of
         Series A Stock. TCI paid $150 million to the Malones for agreeing to
         the terms of the Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually, and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI for entering into the Magness Call Agreement.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement is reflected as a $274 million reduction of
         additional paid-in capital in the accompanying consolidated financial
         statements.


                                                                    (continued)

                                     I-35
<PAGE>   37


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Additionally, on February 9, 1998, the Magness Family entered into a
         stockholders' agreement (the "Stockholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agreed to consult with each other in connection with matters to be
         brought to the vote of TCI's stockholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone
         has an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for
         the Board and Dr. Malone has agreed to vote his High-Voting Shares for
         such nominee and (iii) certain "tag along rights" have been created in
         favor of the Magness Family and certain "drag along rights" have been
         created in favor of the Malones. In addition, the Malone Right granted
         by TCI to Dr. Malone to acquire 30,545,864 shares of TCI Group Series
         B Stock was reduced to an option to acquire 14,511,570 shares of TCI
         Group Series B Stock. Pursuant to the terms of the Stockholders'
         Agreement, the Magness Family has the right to participate in the
         reduced Malone Right on a proportionate basis with respect to
         12,406,238 shares of the 14,511,570 shares subject to the Malone
         Right. On June 24, 1998, Dr. Malone delivered notice to the Company
         exercising his right to purchase (subject to the Magness Family
         proportionate right) up to 14,511,570 shares of TCI Group Series B
         Stock at a per share price of $35.5875 pursuant to the Malone Right.
         In addition, a representative of the Magness Family advised Dr. Malone
         that the Magness Family would participate in such purchase up to the
         Magness Family's proportionate right. On October 14, 1998, 8,718,770
         shares of TCI Group Series B Stock were issued to Dr. Malone upon
         payment of cash consideration totaling $310 million. On October 16,
         1998, 5,792,800 shares of TCI Group Series B Stock were issued to the
         Magness Family upon payment of cash consideration totaling $206
         million. In connection with the acquisition of the TCI Group Series B
         Stock by Dr. Malone, TCI executed certain waivers to the Stockholders'
         Agreement and TCI and the Magness Family executed a waiver to the
         Malone Call Agreement to, among other things, permit the pledge of TCI
         Group Series B Stock owned by Dr. Malone as collateral to the lenders
         who provided the proceeds for the purchase of the shares of TCI Group
         Series B Stock.

         On April 30, 1998, the Company acquired a limited partnership interest
         from an individual who is an executive officer and a director of TCI
         in exchange for 153,183 shares of Liberty Group Series B Stock valued
         at $5 million and a limited partnership interest in another limited
         partnership with a capital account of $1 million.

         On August 5, 1998, a director of the Company paid $1.8 million to
         purchase, at fair value, the Company's interest in General
         Communication, Inc.

(14)     At Home Corporation

         During the third quarter of 1998, @Home, a subsidiary of the Company,
         completed a public offering (the "@Home Offering"), in which 2.9
         million shares of @Home common stock were sold for net cash proceeds
         of approximately $125 million. In connection with the @Home Offering,
         (i) the Company paid $37 million to purchase 800,000 shares of @Home
         common stock and (ii) the Company's economic interest in @Home
         decreased to 38.8%. In connection with the associated dilution of the
         Company's ownership interest in @Home, the Company recognized a gain
         of $17 million during the third quarter of 1998.

                                                                    (continued)

                                     I-36
<PAGE>   38


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         In April 1997, @Home issued 240,000 shares of convertible preferred
         stock, resulting in cash proceeds of $48 million, less issuance costs.
         On July 11, 1997, @Home completed its initial public offering (the
         "@Home IPO"), in which 10,350,000 shares of @Home common stock were
         sold for net cash proceeds of approximately $100 million. As a result
         of the @Home IPO, the Company's economic interest in @Home decreased
         from 43% to 39%, which economic interest represents an approximate 72%
         voting interest. In connection with the associated dilution of the
         Company's ownership interest in @Home, the Company recognized a gain
         of $60 million during the third quarter of 1997.

         @Home has entered into exclusive distribution agreements with certain
         cable operators. In connection with the distribution agreements, @Home
         has issued warrants to such cable operators to purchase 17,946,956
         shares of @Home's Series A common stock. Of these warrants, warrants
         to purchase 10,581,298 shares were exercisable as of September 30,
         1998. During the nine months ended September 30, 1998, @Home recorded
         non-cash charges of $83 million to operations based on the fair value
         of 2,705,514 shares which were underlying warrants which became
         exercisable during the period. Such charges are included in cost of
         distribution agreements in the accompanying consolidated statements of
         operations. @Home may issue additional stock, or warrants in
         connection with its efforts to expand its distribution of the @Home
         service to other cable operators. The exercise of warrants or stock
         issued by @Home will reduce the Company's equity interest and voting
         power in @Home.

         Pursuant to a shareholders' agreement among certain shareholders of
         @Home, under certain circumstances, TCI could be required to sell a
         portion of its @Home common stock to such shareholders.

(15)     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 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, the Company'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.

                                                                    (continued)

                                     I-37
<PAGE>   39


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company believes that it has complied in all material respects
         with the provisions of the 1992 Cable Act, including its rate setting
         provisions. However, the Company's rates for Regulated Services are
         subject to review by the FCC, if a complaint has been 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.

         The Company is obligated to pay fees for the rights to exhibit certain
         films that are released by various producers through 2017 (the "Film
         Licensing Obligations"). Based on customer levels at September 30,
         1998, these agreements require minimum payments aggregating
         approximately $703 million. The aggregate amount of the Film Licensing
         Obligations under these license agreements is not currently estimable
         because such amount is dependent upon the number of qualifying films
         released theatrically by certain motion picture studios as well as the
         domestic theatrical exhibition receipts upon the release of such
         qualifying films. Nevertheless, it is anticipated that the required
         aggregate payments under the Film Licensing Obligations will be
         significant.

         The Company is a party to affiliation agreements with programming
         suppliers. Pursuant to certain of such agreements, the Company is
         committed to carry such suppliers' programming on its cable systems.
         Additionally, certain of such agreements provide for penalties and
         charges in the event the programming is not carried or not delivered
         to a contractually specified number of customers.

         The Company is committed to purchase billing services from an
         unaffiliated third party pursuant to three successive five year
         agreements. Pursuant to this arrangement the Company is obligated to
         make minimum payments aggregating approximately $1.6 billion through
         2012. Such minimum payments are subject to inflation and other
         adjustments pursuant to the terms of the underlying agreements.

         The Company has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $666 million at September 30, 1998. With respect to the
         Company's guarantees of $166 million of such obligations, TCI has been
         indemnified for any loss, claim or liability that TCI may incur, by
         reason of such guarantees. As described in note 8, the Company also
         has provided certain credit enhancements with respect to obligations
         of the 1998 Joint Ventures. 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 the Company 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 the Company.

                                                                    (continued)

                                     I-38
<PAGE>   40


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         TINTA has guaranteed the obligation of an affiliate ("The Premium
         Movie Partnership") to pay fees for the license to exhibit certain
         films through 2000. Although the aggregate amount of The Premium Movie
         Partnership's license fee obligations is not currently estimable,
         TINTA believes that the aggregate payments pursuant to such
         obligations could be significant. If TINTA were to fail to fulfill its
         obligations under the guarantee, the beneficiaries have the right to
         demand an aggregate payment from TINTA of approximately $32 million.
         Although TINTA has not had to perform under such guarantee to date,
         TINTA cannot be certain that it will not be required to perform under
         such guarantee in the future.

         On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
         (the "DMX Merger"). Assuming the conversion of TCI Music convertible
         preferred stock, TCI, at September 30, 1998, owned TCI Music
         securities representing 86.4% of TCI Music's common stock and 98.2% of
         the voting power attributable to such TCI Music common stock. In
         connection with the DMX Merger, the Company assumed a contingent
         obligation pursuant to a Rights Agreement (the "Rights Agreement") to
         purchase up to 14,896,648 shares (6,812,393 of which were owned by
         subsidiaries of the Company) of TCI Music common stock at a price of
         $8.00 per share. The Company had recorded its contingent obligation to
         purchase such shares as a component of minority interest in equity of
         consolidated subsidiaries in the accompanying consolidated financial
         statements. Prior to the July 1998 expiration of the rights under the
         Rights Agreement, TCI was notified of the tender by unaffiliated
         holders of 4,892,077 shares and associated rights. On August 27, 1998,
         TCI paid $39 million to satisfy its obligation to purchase such
         tendered shares.

         Effective as of December 16, 1997, NDTC, a subsidiary of TCI which is
         attributed to the 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
         ("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 set-top device. Through
         September 30, 1998, approximately 1 million set-top devices had been
         purchased pursuant to this commitment. 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). Such warrants vest as annual purchase
         commitments are met. The value associated with such equity interest
         will be attributed to TCI Group upon purchase and deployment of the
         digital set-top devices. See note 2. NDTC has the right to terminate
         the Digital Terminal Purchase Agreement if, among other reasons, GI
         fails to meet a material milestone designated in the Digital Terminal
         Purchase Agreement with respect to the development, testing and
         delivery of advanced digital set-top devices.

                                                                    (continued)

                                     I-39
<PAGE>   41


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         On July 17, 1998, the Company acquired 21.4 million shares of common
         stock of GI in exchange for (i) certain of the assets of NDTC's
         set-top authorization business, (ii) the license of certain related
         software to GI, (iii) a $50 million promissory note from TCI Ventures
         Group to GI, and (iv) a nine-year revenue guarantee from TCI Ventures
         Group in favor of GI. In connection therewith, NDTC also entered into
         a services agreement pursuant to which it will provide certain
         postcontract services to GI's set-top authorization business. The 21.4
         million shares of GI common stock are, in addition to other transfer
         restrictions, restricted as to their sale by NDTC for a three year
         period, and represent approximately 13% of the outstanding common
         stock of GI at September 30, 1998. The Company recorded its investment
         in such shares at fair value which included a discount attributable to
         the above-described liquidity restriction. The Company will account
         for its investment in such shares using the cost method of accounting.
         The $346 million excess of the recorded value of GI common stock
         received over (i) the book value of certain assets transferred from
         NDTC to GI, and (ii) the $42 million present value of the promissory
         note due from TCI Ventures Group to GI, has been deferred by the
         Company in the accompanying September 30, 1998 consolidated balance
         sheet. A portion of such excess equal to the $160 million present
         value of the annual amounts specified by the revenue guarantee will be
         amortized to revenue over nine years in proportion to such annual
         guaranteed amounts. The remaining $186 million excess will be
         amortized to revenue on a straight-line basis over the nine-year
         period that NDTC is required to perform postcontract services.

         On June 30, 1998, the Company entered into an Operating Lease
         Agreement (the "Lease") with an unaffiliated third party (the
         "Lessor"). Under the Lease, the Company agreed to sell to, and lease
         back from, the Lessor advanced digital set-top devices with an initial
         aggregate net cost of up to $200 million. The initial term of the
         Lease is two years, and it provides for renewal, at the Company's
         option, for up to five additional consecutive one-year terms. Rent
         under the Lease is payable quarterly. At the end of the originally
         scheduled or renewed lease term, the Company is required to either (i)
         purchase the equipment at the Termination Value (as defined in the
         Lease), or (ii) arrange for the sale of the leased equipment to a
         third party and pay the Lessor the difference between the sale price
         and a predetermined guaranteed value, which in all cases is less than
         the Termination Value. As of September 30, 1998, the Company has sold
         and leased back advanced digital set-top devices under the Lease with
         an aggregate cost of $109 million. Current annual lease payments with
         respect to such leased equipment are $16 million. The Company has
         treated the Lease as an operating lease in the accompanying
         consolidated financial statements.

         The Company has contingent liabilities related to legal proceedings
         and other matters arising in the ordinary course of business. Although
         it is reasonably possible the Company 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-40
<PAGE>   42


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Estimates of compensation relating to phantom stock appreciation
         rights granted to employees of a subsidiary of TCI have been recorded
         in the accompanying consolidated financial statements, but are subject
         to future adjustment based upon a valuation model derived from such
         subsidiary's cash flow, working capital and debt.

(16)     Year 2000

         During the three months ended September 30, 1998, the Company
         continued its enterprise-wide, comprehensive efforts to assess and
         remediate its computer systems and related software and equipment to
         ensure such systems, software and equipment recognize, process and
         store information in the year 2000 and thereafter. The Company's year
         2000 remediation efforts include an assessment of its most critical
         systems, such as customer service and billing systems, headends and
         other cable plant, systems that support the Company's programming
         services, business support operations, and other equipment and
         facilities. The Company also continued its efforts to verify the year
         2000 readiness of its significant suppliers and vendors and continued
         to communicate with significant business partners and affiliates to
         assess such partners and affiliates' year 2000 status.

         The Company formed a year 2000 Program Management Office (the "PMO")
         to organize and manage its year 2000 remediation efforts. The PMO is
         responsible for overseeing, coordinating and reporting on the
         Company's year 2000 remediation efforts. It is comprised of a 90
         member full-time staff and is accountable to executive management of
         the Company.

         The PMO has defined a four-phase approach to determining the year 2000
         readiness of the Company's systems, software and equipment. Such
         approach is intended to provide a detailed method for tracking the
         evaluation, repair and testing of the Company's systems, software and
         equipment. Phase 1, Assessment, involves the inventory of all systems,
         software and equipment and the identification of any year 2000 issues.
         Phase 1 also includes the preparation of the workplans needed for
         remediation. Phase 2, Remediation, involves repairing, upgrading
         and/or replacing any non-compliant equipment and systems. Phase 3,
         Testing, involves testing the Company's systems, software, and
         equipment for year 2000 readiness, or in certain cases, relying on
         test results provided to the Company. Phase 4, Implementation,
         involves placing compliant systems, software and equipment into
         production or service.


                                                                    (continued)

                                     I-41
<PAGE>   43


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         At September 30, 1998, the Company's overall progress by phase was as
         follows:

<TABLE>
<CAPTION>

                             Percentage of all 
                             Equipment/Systems
      Phase                     In Phase *
-----------------            -----------------
<S>                          <C>
Phase 1-Assessment                  92%
Phase 2-Remediation                 54%
Phase 3-Testing                     10%
Phase 4-Implementation               5%
</TABLE>

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

         *The percentages set forth above do not total 100% because many
         projects have elements in more than one phase. For purposes of this
         table, such projects have been attributed to each applicable phase. In
         addition, the percentages set forth above are based on the number of
         projects in each phase compared to the total number of year 2000
         projects.

         The Company is completing an inventory of its important systems with
         embedded technologies and is currently determining the correct
         remediation approach. During the three months ended September 30,
         1998, the Company continued its survey of significant third-party
         vendors and suppliers whose systems, services or products are
         important to the Company's operations (e.g., suppliers of addressable
         controllers and set-top boxes, and the provider of the Company's
         billing services). The year 2000 readiness of such providers is
         critical to continued provision of the Company's cable service. The
         Company has received information that the most critical systems,
         services or products supplied to the Company by third parties are
         either year 2000 ready or are expected to be year 2000 ready by
         mid-1999. The Company is currently developing contingency plans for
         systems provided by vendors who have not responded to the Company's
         surveys.

         In addition to the survey process described above, management of the
         Company has identified its most critical supplier/vendor relationships
         and has instituted a verification process to determine the vendor's
         year 2000 readiness. Such verification includes, as deemed necessary,
         reviewing vendors' test and other data and engaging in regular
         conferences with vendors' year 2000 teams. The Company is also
         requiring testing to validate the year 2000 compliance of certain
         critical products and services and is contracting with independent
         consultants to conduct such testing.

         Significant market value is associated with the Company's investments
         in certain public and private corporations, partnerships and other
         businesses. Accordingly, the Company is monitoring the public
         disclosure of such publicly-held business entities to determine their
         year 2000 readiness. In addition, the Company has surveyed and
         monitored the year 2000 status of certain privately-held business
         entities in which the Company has significant investments.


                                                                    (continued)

                                     I-42
<PAGE>   44


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Year 2000 expenses and capital expenditures incurred in the three
         months ended September 30, 1998 were $4 million and less than $1
         million, respectively. Expenses and capital expenditures incurred in
         the nine months ended September 30, 1998 were $6 million and less than
         $1 million, respectively. Management of the Company currently
         estimates the remaining costs to be not less than $71 million,
         bringing the total estimated cost associated with the Company's year
         2000 remediation efforts to be not less than $77 million (including $32
         million for replacement of noncompliant information technology ("IT")
         systems). Also included in this estimate is $9 million in future
         payments to be made pursuant to unfulfilled executory contracts or
         commitments with vendors for year 2000 remediation services.

         The Company is a widely distributed enterprise in which allocation of
         certain resources, including IT support, is decentralized.
         Accordingly, the Company does not consolidate an IT budget. Therefore,
         total estimated year 2000 costs as a percentage of an IT budget are
         not available. There are currently no planned IT projects being
         deferred due to year 2000 costs.

         The failure to correct a material year 2000 problem could result in an
         interruption or failure of certain important business operations.
         There can be no assurance that the Company's systems or the systems of
         other companies on which the Company relies will be converted in time
         or that any such failure to convert by the Company or other companies
         will not have a material adverse effect on its financial position,
         results of operations or cash flows.

(17)     Information about the Company's Segments

         The Company has two reportable segments: domestic cable and
         communications services and domestic programming services. Domestic
         cable and communications services receive video, audio and data
         signals from various sources, and amplify and distribute the signals
         by coaxial cable and optical fiber to the premises of customers who
         pay a fee for the service. Domestic programming services produces,
         acquires, and distributes, through all available formats and media,
         branded entertainment and informational programming and software,
         including multimedia products, delivered in both analog and digital
         form. The Company's domestic cable and communications services
         business and assets are included in TCI Group, and the Company's
         domestic programming business and assets are included in Liberty Media
         Group. The Company's principal international businesses and assets and
         the Company's remaining non-cable and non-programming domestic
         businesses and assets are included in TCI Ventures Group.

         The accounting policies of the segments are the same as those
         described in the summary of significant accounting policies. The
         Company evaluates performance based on a measure of operating cash
         flow (defined as operating income before depreciation, amortization,
         other non-cash items, year 2000 costs, AT&T merger costs, and stock
         compensation). The Company generally accounts for intersegment sales
         and transfers as if the sales or transfers were to third parties, that
         is, at current market prices.

                                                                    (continued)

                                     I-43
<PAGE>   45


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company utilizes the following interim financial information for
         purposes of making decisions about allocating resources to a segment
         and assessing a segment's performance:

<TABLE>
<CAPTION>

                                         Domestic cable       Domestic
                                        & communications     programming       All
                                             services         services        other        Total
                                        ----------------     -----------      -----        -----
                                                          amounts in millions
<S>                                        <C>               <C>              <C>          <C>  
Nine months ended September 30, 1998:
Revenue from external customers
    including intersegment
    revenue                                $     4,560            498           685         5,743
Intersegment revenue                       $       (13)           210            36           233
Segment operating cash flow                $     1,889             75            88         2,052

Nine months ended September 30, 1997:
Revenue from external customers
    including intersegment
    revenue                                $     4,779            244           758         5,781
Intersegment revenue                       $         2            105            37           144
Segment operating cash flow                $     2,035             62           135         2,232
</TABLE>

A reconciliation of reportable segment operating cash flow to the Company's
consolidated earnings (loss) before income tax is as follows:


<TABLE>
<CAPTION>
                                                                     Nine months ended
                                                                       September 30,
                                                                ------------------------
                                                                   1998          1997
                                                                ----------    ----------
                                                                   amounts in millions
<S>                                                             <C>           <C>  
Total operating cash flow for reportable segments               $    1,964         2,097
Other operating cash flow                                               88           135
Other items excluded from operating cash flow:
         Depreciation and amortization                              (1,250)       (1,177)
         Year 2000 costs                                                (6)           --
         AT&T merger costs                                             (11)           --
         Stock compensation                                           (423)         (231)
         Cost of distribution agreements                               (83)           --
         Interest expense                                             (808)         (883)
         Interest and dividend income                                   72            64
         Share of losses of affiliates, net                           (986)         (591)
         Loss on early extinguishment of debt                          (44)          (11)
         Minority interest in earnings of consolidated
            subsidiaries, net                                          (68)         (129)
         Gain on issuance of equity interests by subsidiaries           55            60
         Gain on issuance of stock by equity investees                 259            21
         Gain on disposition of assets                               3,704           400
         Other, net                                                    (25)           (7)
                                                                ----------    ----------
            Earnings (loss) before income taxes                 $    2,438          (252)
                                                                ==========    ==========
</TABLE>

                                     I-44
<PAGE>   46
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)


                             Combined Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                 September 30,        December 31,
                                                      1998                1997
                                                 -------------        ------------
<S>                                              <C>                  <C>
Assets                                                  amounts in millions

Cash and cash equivalents                           $    --                21

Restricted cash (note 4)                                358                35

Trade and other receivables, net                        488               394

Investment in Cablevision Systems Corporation
 ("CSC"), accounted for under the equity method
 (note 5)                                             1,006                --

Investments in other affiliates, accounted for
 under the equity method, and related
 receivables (note 6)                                   711               414

Property and equipment, at cost:
 Land                                                    59                77
 Distribution systems                                 9,487             9,933
 Support equipment and buildings                      1,384             1,411
                                                    -------           -------
                                                     10,930            11,421
 Less accumulated depreciation                        4,510             4,479
                                                    -------           -------
                                                      6,420             6,942
                                                    -------           -------

Franchise costs                                      15,218            17,802
 Less accumulated amortization                        2,582             2,725
                                                    -------           -------
                                                     12,636            15,077
                                                    -------           -------

Other assets, net of accumulated amortization           667               695
                                                    -------           -------

                                                    $22,286            23,578
                                                    =======           =======
</TABLE>


                                                                     (continued)

                                      I-45

<PAGE>   47

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                       Combined Balance Sheets, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                             September 30,   December 31,
                                                                 1998            1997
                                                             -------------   ------------
Liabilities and Combined Deficit                                  amounts in millions

<S>                                                             <C>                <C>
Accounts payable                                                $    184           137

Accrued interest                                                     155           250

Accrued programming expenses                                         258           243

Other accrued expenses                                               724           726

Debt (note 8)                                                     12,250        14,106

Deferred income taxes                                              5,480         5,147

Other liabilities                                                    895           563
                                                                --------      --------

      Total liabilities                                           19,946        21,172
                                                                --------      --------

Minority interests in equity of attributed subsidiaries              914         1,048

Redeemable securities:
 Preferred stock (note 9)                                            299           655
 Common stock                                                          9             5

Company-obligated mandatorily redeemable
 preferred securities of subsidiary trusts ("Trust
 Preferred Securities") holding solely
 subordinated debt securities of TCI
 Communications, Inc. ("TCIC") (note 10)                           1,500         1,500

Combined deficit (note 11):
 Combined equity (deficit), including preferred
 stocks of Tele-Communications, Inc. ("TCI")                          57          (276)
 Accumulated other comprehensive earnings, net  
 of taxes (note 1)                                                    53             4
                                                                --------      --------
                                                                     110          (272)

 Due from related parties (note 12)                                 (492)         (530)
                                                                --------      --------

      Total combined deficit                                        (382)         (802)
                                                                --------      --------

Commitments and contingencies
 (notes 2, 7, 15 and 16)

                                                                $ 22,286        23,578
                                                                ========      ========
</TABLE>

See accompanying notes to combined financial statements.


                                      I-46

<PAGE>   48



                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                   Three months ended        Nine months ended
                                                                      September 30,            September 30,
                                                                  --------------------      --------------------
                                                                    1998        1997         1998         1997
                                                                  -------      -------      -------      -------
                                                                               amounts in millions,
                                                                             except per share amounts

<S>                                                               <C>          <C>          <C>          <C>  
Revenue (note 12)                                                 $ 1,479        1,618        4,560        4,779

Operating costs and expenses:
    Operating:
      Related party (note 12)                                          60           52          178          104
      Other                                                           486          528        1,507        1,688
    Selling, general and administrative (note 12)                     329          330          986          952
    Year 2000 costs (note 16)                                           3           --            5           --
    AT&T Corp. ("AT&T") merger costs (note 2)                           1           --           11           --
    Stock compensation (note 11)                                       13           61          160           99
    Depreciation and amortization                                     362          338        1,111        1,032
                                                                  -------      -------      -------      -------
                                                                    1,254        1,309        3,958        3,875
                                                                  -------      -------      -------      -------

        Operating income                                              225          309          602          904

Other income (expense):
    Interest expense                                                 (236)        (292)        (736)        (843)
    Interest income                                                     1           13            8           28
    Intercompany interest, net                                          2            7            8            3
    Share of losses of CSC (note 5)                                   (76)          --         (156)          --
    Share of earnings (losses) of other affiliates, net
      (note 6)                                                        (17)         (16)          30          (50)
    Loss on early extinguishment of debt (note 8)                      (6)          --          (44)         (11)
    Minority interests in earnings of attributed
      subsidiaries, net (note 10)                                     (48)         (42)        (143)        (125)
    Gain (loss) on disposition of assets (notes 5 and 7)              301          (44)         842           (9)
    Other, net                                                         (6)           3          (24)         (11)
                                                                  -------      -------      -------      -------
                                                                      (85)        (371)        (215)      (1,018)
                                                                  -------      -------      -------      -------

        Earnings (loss) before income taxes                           140          (62)         387         (114)

Income tax benefit (expense)                                          (88)           4         (239)          11
                                                                  -------      -------      -------      -------

        Earnings (loss) before loss of TCI Ventures Group
           (note 1)                                                    52          (58)         148         (103)

Loss of TCI Ventures Group through the date of the TCI
    Ventures Exchange (note 1)                                         --         (156)          --         (345)
                                                                  -------      -------      -------      -------

        Net earnings (loss)                                            52         (214)         148         (448)

Dividend requirements on preferred stocks                              (5)         (10)         (18)         (31)
                                                                  -------      -------      -------      -------

        Net earnings (loss) attributable to common
           stockholders                                           $    47         (224)         130         (479)
                                                                  =======      =======      =======      =======

Basic earnings (loss) attributable to common stockholders per
    common share (note 3)                                         $   .09         (.34)         .25         (.71)
                                                                  =======      =======      =======      =======

Diluted earnings (loss) attributable to common stockholders
    per common share (note 3)                                     $   .08         (.34)         .22         (.71)
                                                                  =======      =======      =======      =======

Comprehensive earnings (loss) (note 1)                            $    94         (213)         197         (440)
                                                                  =======      =======      =======      =======
</TABLE>

See accompanying notes to combined financial statements.


                                      I-47

<PAGE>   49


                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)


                          Combined Statement of Deficit

                      Nine months ended September 30, 1998
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                     Combined
                                                                      equity
                                                                    (deficit),    Accumulated
                                                                     including       other          Due
                                                                     preferred   comprehensive     from        Total
                                                                     stocks of     earnings,      related    combined
                                                                        TCI      net of taxes     parties     deficit
                                                                    ----------   -------------    -------    --------
                                                                                     amounts in millions
<S>                                                                 <C>          <C>              <C>        <C>  
Balance at January 1, 1998                                            $(276)           4           (530)       (802)
   Net earnings                                                         148           --             --         148
   Change in due from related parties                                    --           --             38          38
   Reclassification to redeemable securities of redemption
      amount of TCI Group Stock subject to put obligations               (4)          --             --          (4)
   Premium received in connection with put obligation                     2           --             --           2
   Transfer of net liabilities from related party (note 12)             (50)          --             --         (50)
   Assignment of option contract to related party (note 12)             (16)          --             --         (16)
   Recognition of stock compensation related to restricted
      stock awards                                                        4           --             --           4
   Change in unrealized gains on available-for-sale
      securities, net of taxes                                           --           49             --          49
   Accreted dividends on all classes of TCI preferred stock             (18)          --             --         (18)
   Accreted dividends on all classes of TCI preferred stock
      not subject to mandatory redemption requirements                    7           --             --           7
   Payment of TCI preferred stock dividends                             (10)          --             --         (10)
   Payments for call agreements (note 13)                              (134)          --             --        (134)
   Recognition of fees related to the Equity Swap Facility and
      the Exchange (notes 11 and 13)                                    (25)          --             --         (25)
   Reimbursement of fees related to Exchange (note 13)                   11           --             --          11
   Repurchase of TCI Group Stock                                         (2)          --             --          (2)
   Issuance of TCI Group Stock in connection with settlement
      of litigation                                                      47           --             --          47
   Issuance of TCI Group Stock for acquisitions (note 4)                 24           --             --          24
   Issuance of TCI Group Stock and Liberty Group Stock upon
      conversion of notes and preferred stock                           349           --             --         349
                                                                      -----        -----          -----       -----

Balance at September 30, 1998                                         $  57           53           (492)       (382)
                                                                      =====        =====          =====       =====
</TABLE>


See accompanying notes to combined financial statements.


                                      I-48

<PAGE>   50

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)


                        Combined Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                        Nine months ended
                                                                                           September 30,
                                                                                         1998         1997
                                                                                      ---------    ---------
                                                                                        amounts in millions
<S>                                                                                   <C>          <C>  
Cash flows from operating activities:                                                       (see note 4)
   Earnings (loss) before loss of TCI Ventures Group*                                 $     148         (103)
   Adjustments to reconcile earnings (loss) before loss of TCI
   Ventures Group to net cash provided by operating activities:
          Depreciation and amortization                                                   1,111        1,032
          Stock compensation                                                                160           99
          Payments of obligation relating to stock
           compensation                                                                     (85)         (21)
          Share of losses of CSC                                                            156           --
          Share of losses (earnings) of other affiliates, net                               (30)          50
          Loss on early extinguishment of debt                                               44           11
          Minority interests in earnings of attributed
            subsidiaries, net                                                               143          125
          Loss (gain) on disposition of assets                                             (842)           9
          Intergroup tax allocation                                                          (1)         135
          Deferred income tax expense (benefit)                                             205         (239)
          Payments of restructuring charges                                                  (5)         (21)
          Other noncash charges (credits)                                                     3           (1)
          Changes in operating assets and liabilities,
            net of the effect of acquisitions:
                Change in receivables                                                      (126)         (44)
                Change in accruals and payables                                             (88)          15
                                                                                      ---------    ---------

                    Net cash provided by operating activities                               793        1,047
                                                                                      ---------    ---------

Cash flows from investing activities:
   Cash paid for acquisitions                                                              (128)        (274)
   Capital expended for property and equipment                                           (1,017)        (273)
   Investments in and loans to affiliates                                                  (175)         (56)
   Collections of loans to affiliates                                                     1,644           16
   Proceeds from disposition of assets                                                      397          171
   Change in restricted cash                                                               (323)          39
   Cash received in exchanges                                                                45           18
   Other investing activities                                                                39          (67)
                                                                                      ---------    ---------

                    Net cash provided by (used in) investing
                       activities                                                           482         (426)
                                                                                      ---------    ---------

Cash flows from financing activities:
   Borrowings of debt                                                                     2,583        3,059
   Repayments of debt                                                                    (3,725)      (3,860)
   Payment of preferred stock dividends                                                     (27)         (37)
   Payment of dividends on subsidiary preferred stock and Trust Preferred
      Securities                                                                           (141)        (126)
   Payments for call agreements                                                            (134)          --
   Change in amounts due from related parties                                               221         (137)
   Prepayment penalties                                                                     (39)          (7)
   Proceeds from issuance of TCI Group Stock                                                 --            3
   Proceeds from issuance of Trust Preferred Securities                                      --          490
   Cost associated with TCI Ventures Exchange                                                --           (5)
   Other financing activities                                                               (34)          --
                                                                                      ---------    ---------

                    Net cash used in financing activities                                (1,296)        (620)
                                                                                      ---------    ---------

                    Net increase (decrease) in cash and cash equivalents                    (21)           1

                    Cash and cash equivalents at beginning of period                         21           --
                                                                                      ---------    ---------

                    Cash and cash equivalents at end of period                        $      --            1
                                                                                      =========    =========
</TABLE>

*    Loss of TCI Ventures Group does not use funds.

See accompanying notes to combined financial statements.


                                      I-49

<PAGE>   51


                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

                               September 30, 1998
                                   (unaudited)

(1)      Basis of Presentation

         The accompanying combined financial statements include the accounts of
         the subsidiaries and assets of TCI that are attributed to TCI Group, as
         defined below. The combined financial statements of TCI Group are
         presented for purposes of additional analysis of the consolidated
         financial statements of TCI and subsidiaries, and should be read in
         conjunction with such consolidated financial statements.

         All significant intercompany accounts and transactions have been
         eliminated. Preferred stock of TCI, which is owned by subsidiaries of
         TCI, eliminates in combination. Common stock of TCI held by
         subsidiaries is included in combined deficit.

         The accompanying interim combined 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 combined financial statements should be read in conjunction with
         the audited combined financial statements and notes thereto of TCI
         Group 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.

         Effective January 1, 1998, TCI Group adopted the provisions of
         Statement of Financial Accounting Standards No. 130, Reporting
         Comprehensive Income ("SFAS 130"). TCI Group has reclassified its prior
         period combined balance sheet and combined statements 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. TCI Group has included unrealized holding gains and losses
         on available-for-sale securities in other comprehensive earnings that
         are recorded directly in combined deficit. Pursuant to SFAS 130, this
         item is reflected, net of related tax effects, as a component of
         comprehensive earnings in TCI Group's combined statements of
         operations, and is included in accumulated other comprehensive earnings
         in TCI Group's combined balance sheets and statement of combined
         deficit.


                                                                     (continued)

                                      I-50

<PAGE>   52

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         The Financial Accounting Standards Board recently issued Statement of
         Financial Accounting Standards No. 133, Accounting for Derivative
         Instruments and Hedging Activities ("SFAS 133"), which is effective for
         all fiscal years beginning after June 15, 1999. SFAS 133 establishes
         accounting and reporting standards for derivative instruments and
         hedging activities by requiring that all derivative instruments be
         reported as assets or liabilities and measured at their fair values.
         Under SFAS 133, changes in the fair values of derivative instruments
         are recognized immediately in earnings unless those instruments qualify
         as hedges of the (1) fair values of existing assets, liabilities, or
         firm commitments, (2) variability of cash flows of forecasted
         transactions, or (3) foreign currency exposures of net investments in
         foreign operations. Although management of TCI Group has not completed
         its assessment of the impact of SFAS 133 on its combined results of
         operations and financial position, management estimates that the impact
         of SFAS 133 will not be material.

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

         Targeted Stock

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue two new series of stock,
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series A Stock") and
         Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series B Stock," and together
         with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
         Liberty Group Stock is intended to reflect the separate performance of
         TCI's assets which produce and distribute programming services
         ("Liberty Media Group"). Additionally, the stockholders, of TCI
         approved the redesignation of the previously authorized Class A and
         Class B common stock into Tele-Communications, Inc. Series A TCI Group
         Common Stock, par value $1.00 per share ("TCI Group Series A Stock")
         and Tele-Communications, Inc. Series B TCI Group Common Stock, par
         value $1.00 per share ("TCI Group Series B Stock", and together with
         the TCI Group Series A Stock, the "TCI Group Stock"), respectively. On
         August 10, 1995, TCI distributed, in the form of a dividend, 2.25
         shares of Liberty Group Stock for each four shares of TCI Group Stock
         owned (the "Liberty Distribution").

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share ("TCI Ventures Group Series A Stock")
         and Tele-Communications, Inc. Series B TCI Ventures Group Common Stock,
         par value $1.00 per share ("TCI Ventures Group Series B Stock," and
         together with the TCI Ventures Group Series A Stock, the "TCI Ventures
         Group Stock"). 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.


                                                                     (continued)

                                      I-51


<PAGE>   53

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         In August 1997, TCI commenced offers (the "Exchange Offers") to
         exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
         Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
         Stock and up to 16,266,400 shares of TCI Group Series B Stock,
         respectively. The exchange ratio for the Exchange Offers was two shares
         of the applicable series of TCI Ventures Group Stock for each share of
         the corresponding series of TCI Group Stock properly tendered, up to
         the indicated maximum numbers. Upon the September 10, 1997 consummation
         of the Exchange Offers, 188,661,300 shares of TCI Group Series A Stock
         and 16,266,400 shares of TCI Group Series B Stock were exchanged for
         377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
         shares of TCI Ventures Group Series B Stock, respectively (the "TCI
         Ventures Exchange").

         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. Collectively, TCI Group, Liberty Media
         Group and TCI Ventures Group are referred to as the "Groups" and
         individually, may be referred to herein as a "Group." The TCI Group
         Series A Stock, TCI Ventures Group Series A Stock and Liberty Group
         Series A Stock are sometimes collectively referred to herein as "Series
         A Stock," and the TCI Group Series B Stock, TCI Ventures Group Series B
         Stock and Liberty Group Series B Stock are sometimes collectively
         referred to herein as the "Series B Stock."

         As a result of the TCI Ventures Exchange, the combined financial
         statements of TCI Group were restated to exclude those assets and
         related liabilities which, prior to being attributed to TCI Ventures
         Group in connection with the issuance of the TCI Ventures Group Stock,
         had been attributed to TCI Group.

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among TCI Group, Liberty Media Group and
         TCI Ventures Group for the purpose of preparing their respective
         combined financial statements, the change in the capital structure of
         TCI resulting from the redesignation of TCI Group Stock and issuance of
         Liberty Group Stock and TCI Ventures Group Stock did not affect the
         ownership or the respective legal title to assets or responsibility for
         liabilities of TCI or any of its subsidiaries. TCI and its subsidiaries
         each continue to be responsible for their respective liabilities.
         Holders of TCI Group Stock, Liberty Group Stock and TCI Ventures Group
         Stock are common stockholders of TCI and are subject to risks
         associated with an investment in TCI and all of its businesses, assets
         and liabilities. The redesignation of TCI Group Stock and issuance of
         Liberty Group Stock and TCI Ventures Group Stock did not affect the
         rights of creditors of TCI.


                                                                     (continued)

                                      I-52


<PAGE>   54

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Financial effects arising from any portion of TCI that affect the
         consolidated results of operations or financial condition of TCI could
         affect the combined results of operations or financial condition of the
         separate Groups and the market prices of shares of TCI Group Stock,
         Liberty Group Stock and TCI Ventures Group Stock. In addition, net
         losses of any portion of TCI, dividends or distributions on, or
         repurchases of, any series of common stock, and dividends on or certain
         repurchases of preferred stock, would reduce funds of TCI legally
         available for dividends on all series of common stock. Accordingly,
         financial information of any one Group should be read in conjunction
         with the financial information of TCI and the other Groups.

         The common stockholders' equity value of TCI Ventures Group or Liberty
         Media Group that, at any relevant time, is attributed to TCI Group, and
         accordingly not represented by outstanding TCI Ventures Group Stock or
         Liberty Group Stock, respectively, is referred to as "Inter-Group
         Interest." Prior to consummation of the Liberty Distribution and TCI
         Ventures Exchange, TCI Group had a 100% Inter-Group Interest in Liberty
         Media Group and TCI Ventures Group, respectively. Following
         consummation of the Liberty Distribution and TCI Ventures Exchange, TCI
         Group no longer has Inter-Group Interests in Liberty Media Group and
         TCI Ventures Group, respectively. For periods in which an Inter-Group
         Interest exists, TCI Group accounts for its Inter-Group Interest in a
         manner similar to the equity method of accounting. Following
         consummation of the Liberty Distribution and the TCI Ventures Exchange,
         an Inter-Group Interest would be created with respect to Liberty Media
         Group or TCI Ventures Group only if a subsequent transfer of cash or
         other property from TCI Group to Liberty Media Group or TCI Ventures
         Group is specifically designated by the Board as being made to create
         an Inter-Group Interest or if outstanding shares of Liberty Group Stock
         or TCI Ventures Stock, respectively, are purchased with funds
         attributable to TCI Group. Management of TCI believes that generally
         accepted accounting principles require that Liberty Media Group or TCI
         Ventures Group be combined with TCI Group for all periods in which TCI
         Group held an Inter-Group Interest in Liberty Media Group or TCI
         Ventures Group, respectively.

         Dividends on TCI Group Stock are payable at the sole discretion of the
         Board out of the lesser of assets of TCI legally available for
         dividends or the available dividend amount with respect to TCI Group,
         as defined. Determinations to pay dividends on TCI Group Stock are
         based primarily upon the financial condition, results of operations and
         business requirements of TCI Group and TCI as a whole.

         All debt incurred or preferred stock issued by TCI and its subsidiaries
         is (unless the Board otherwise provides) specifically attributed to and
         reflected in the combined financial statements of the Group that
         includes the entity which incurred the debt or issued the preferred
         stock or, in case the entity incurring the debt or issuing the
         preferred stock is Tele-Communications, Inc., the TCI Group. The Board
         could, however, determine from time to time that debt incurred or
         preferred stock issued by entities included in a Group should be
         specifically attributed to and reflected in the combined financial
         statements of one of the other Groups to the extent that the debt is
         incurred or the preferred stock is issued for the benefit of such other
         Group.

                                                                     (continued)

                                      I-53


<PAGE>   55

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Although it is management's intention that each Group would normally
         arrange for the external financing required to satisfy its respective
         liquidity requirements, the cash needs of one Group may exceed the
         liquidity sources of such Group. In such circumstances, one of the
         other Groups may transfer funds to such Group. Such transfers of funds
         among the Groups will be reflected as borrowings or, if determined by
         the Board, in the case of a transfer from TCI Group to either Liberty
         Media Group or TCI Ventures Group, reflected as the creation of, or
         increase in, TCI Group's Inter-Group Interest in such Group or, in the
         case of a transfer from either Liberty Media Group or TCI Ventures
         Group to TCI Group, reflected as a reduction in TCI Group's Inter-Group
         Interest in such Group. There are no specific criteria for determining
         when a transfer will be reflected as a borrowing or as an increase or
         reduction in an Inter-Group Interest. The Board expects to make such
         determinations, either in specific instances or by setting generally
         applicable policies from time to time, after consideration of such
         factors as it deems relevant, including, without limitation, the needs
         of TCI, the financing needs and objectives of the Groups, the
         investment objectives of the Groups, the availability, cost and time
         associated with alternative financing sources, prevailing interest
         rates and general economic conditions.

         Loans from one Group to another Group generally will bear interest at
         such rates and have such repayment schedules and other terms as are
         established from time to time by, or pursuant to procedures established
         by, the Board. The Board expects to make such determinations, either in
         specific instances or by setting generally applicable policies from
         time to time, after consideration of such factors as it deems relevant,
         including, without limitation, the needs of TCI, the use of proceeds by
         and creditworthiness of the recipient Group, the capital expenditure
         plans of and investment opportunities available to each Group and the
         availability, cost and time associated with alternative financing
         sources.

         The combined balance sheets of a Group reflect its net loans or
         advances to or borrowings from the other Groups. Similarly, the
         respective combined statements of operations of the Groups reflect
         interest income or expense, as the case may be, associated with such
         loans or advances and the respective combined statements of cash flows
         of the Groups reflect changes in the amounts of loans or advances
         deemed outstanding. In the historical combined financial statements,
         net loans or advances between Groups have been, and will continue to
         be, included as a component of each respective Group's combined equity.

         Although any increase in TCI Group's Inter-Group Interest in Liberty
         Media Group or TCI Ventures Group resulting from an equity contribution
         by TCI Group to Liberty Media Group or TCI Ventures Group or any
         decrease in such Inter-Group Interest resulting from a transfer of
         funds from Liberty Media Group or TCI Ventures Group to TCI Group would
         be determined by reference to the market value of the Liberty Group
         Series A Stock or the TCI Ventures Group Series A Stock, respectively,
         as of the date of such transfer, such an increase could occur at a time
         when such shares could be considered undervalued and such a decrease
         could occur at a time when such shares could be considered overvalued.

                                                                     (continued)

                                      I-54

<PAGE>   56

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         All financial impacts of issuances and purchases of shares of TCI Group
         Stock, TCI Ventures Group Stock or Liberty Group Stock, which are
         attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group, TCI Ventures Group or Liberty Media
         Group, respectively. All financial impacts of issuances of shares of
         TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
         are attributed to TCI Group in respect of a reduction in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group. Financial impacts of dividends or
         other distributions on TCI Group Stock, TCI Ventures Group Stock or
         Liberty Group Stock, will be attributed entirely to TCI Group, TCI
         Ventures Group or Liberty Media Group, respectively, except that
         dividends or other distributions on TCI Ventures Group Stock or Liberty
         Group Stock will (if at the time there is an Inter-Group Interest in
         TCI Ventures Group or Liberty Media Group, respectively) result in TCI
         Group being credited, and TCI Ventures Group or Liberty Media Group
         being charged (in addition to the charge for the dividend or other
         distribution paid), with an amount equal to the product of the
         aggregate amount of such dividend or other distribution paid or
         distributed in respect of outstanding shares of TCI Ventures Group
         Stock or Liberty Group Stock and a fraction of the numerator of which
         is TCI Ventures Group or Liberty Media Group Inter-Group Interest
         Fraction and the denominator of which is the TCI Ventures Group or the
         Liberty Media Group "Outstanding Interest Fraction" (both as defined).
         Financial impacts of repurchases of TCI Ventures Group Stock or Liberty
         Group Stock, the consideration for which is charged to TCI Group, will
         be to such extent reflected in the combined financial statements of the
         TCI Group and will result in an increase in TCI Group's Inter-Group
         Interest in TCI Ventures Group or Liberty Media Group, respectively.

                                                                     (continued)


                                      I-55

<PAGE>   57

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(2)      Proposed Merger

         TCI and AT&T have agreed to a merger (the "Merger") pursuant to, and
         subject to the terms and conditions set forth in, the Agreement and
         Plan of Restructuring and Merger, dated as of June 23, 1998 (the
         "Merger Agreement"), among TCI, AT&T and an indirect wholly-owned
         subsidiary of AT&T. In the Merger, TCI will become a wholly-owned
         subsidiary of AT&T and (i) each share of TCI Group Series A Stock will
         be converted into .7757 of a share of common stock, par value $1.00 per
         share, of AT&T ("AT&T Common Stock"), (ii) each share of TCI Group
         Series B Stock will be converted into .8533 of a share of AT&T Common
         Stock, (iii) each share of Liberty Group Series A Stock will be
         converted into one share of a newly authorized class of AT&T common
         stock to be designated as the Class A Liberty Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class A Tracking Stock") and
         (iv) each share of Liberty Group Series B Stock will be converted into
         one share of a newly authorized class of AT&T common stock to be
         designated as the Class B Liberty Group Common Stock, par value $1.00
         per share (the "AT&T Liberty Class B Tracking Stock" and together with
         the AT&T Liberty Class A Tracking Stock, the "AT&T Liberty Tracking
         Stock"). In addition, TCI has announced its intention, subject to
         stockholder approval, to combine the assets and businesses of Liberty
         Media Group and TCI Ventures Group and reclassify each share of TCI
         Ventures Group Series A Stock as .52 of a share of Liberty Group Series
         A Stock and each share of TCI Ventures Group Series B Stock as .52 of a
         share of Liberty Group Series B Stock. If such combination and
         reclassification does not occur prior to the Merger, then in the Merger
         each share of TCI Ventures Group Series A Stock and TCI Ventures Group
         Series B Stock will be converted into .52 of a share of the
         corresponding series of AT&T Liberty Tracking Stock. In general, the
         holders of shares of AT&T Liberty Class A Tracking Stock and the
         holders of shares of AT&T Liberty Class B Tracking Stock will vote
         together as a single class with the holders of shares of AT&T Common
         Stock on all matters presented to such stockholders, with the holders
         being entitled to one-tenth (1/10th) of a vote for each share of AT&T
         Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
         Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
         held.

         In the Merger, (i) TCI's Class B 6% Cumulative Redeemable Exchangeable
         Junior Preferred Stock will remain outstanding, (ii) TCI's Convertible
         Preferred Stock, Series C-TCI Group will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (132.86 shares per preferred share), (iii)
         TCI's Convertible Preferred Stock Series C-Liberty Media Group will be
         converted into a number of shares of AT&T Liberty Class A Tracking
         Stock equal to the current conversion rate of such preferred stock
         (56.25 shares per preferred share), (iv) TCI's Redeemable Convertible
         TCI Group Preferred Stock, Series G will be converted into a number of
         shares of AT&T Common Stock equal to .7757 times the current conversion
         rate of such preferred stock (1.19 shares per preferred share) and (v)
         TCI's Redeemable Convertible Liberty Media Group Preferred Stock,
         Series H will be converted into a number of shares of AT&T Liberty
         Class A Tracking Stock equal to the current conversion rate of such
         preferred stock (0.590625 of a share per preferred share).


                                                                     (continued)


                                      I-56

<PAGE>   58

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         The shares of AT&T Liberty Tracking Stock to be issued in the Merger
         will be a newly authorized class of common stock of AT&T which will be
         intended to reflect the separate performance of the businesses and
         assets attributed to the "Liberty/Ventures Group", which following the
         Merger, will be made up of the businesses and assets which are
         attributed to Liberty Media Group and TCI Ventures Group at the time of
         the Merger. Pursuant to the Merger Agreement, immediately prior to the
         Merger, certain assets currently attributed to TCI Ventures Group
         (including, among others, the shares of AT&T Common Stock received in
         the merger of AT&T and Teleport Communications Group, Inc. ("TCG"), the
         stock of At Home Corporation attributed to TCI Ventures Group, the
         assets and business of the National Digital Television Center, Inc.
         ("NDTC") and TCI Ventures Group's equity interest in Western
         Tele-communications, Inc.) will be transferred to TCI Group in exchange
         for approximately $5.5 billion in cash. Also, upon consummation of the
         Merger, through a new tax sharing agreement between Liberty/Ventures
         Group and AT&T, Liberty/Ventures Group will become entitled to the
         benefit of all of the net operating loss carryforwards available to the
         entities included in TCI's consolidated income tax return as of the
         date of the Merger. Additionally, certain warrants currently attributed
         to TCI Group will be transferred to Liberty/Ventures Group in exchange
         for up to $176 million in cash. Certain agreements to be entered into
         at the time of the Merger as contemplated by the Merger Agreement will,
         among other things, provide preferred vendor status to Liberty/Ventures
         Group for digital basic distribution on AT&T's systems of new
         programming services created by Liberty/Ventures Group, provide for a
         renewal of existing affiliation agreements and provide for the business
         of the Liberty/Ventures Group to continue to be managed following the
         Merger by certain members of TCI's management who currently manage the
         businesses of Liberty Media Group and TCI Ventures Group.

         If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
         stockholders to approve the Merger prior to March 31, 1999, (ii) the
         withdrawal or modification by the AT&T Board of Directors of its
         approval of the transaction, or (iii) the failure to obtain necessary
         governmental and regulatory approvals by September 30, 1999, which
         failure occurs as a result of the announcement by AT&T of a significant
         transaction which delays receipt of such governmental approvals, AT&T
         will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
         the Merger Agreement, under certain circumstances, including the
         failure of TCI stockholders to approve the transaction prior to March
         31, 1999 or the withdrawal or modification by the TCI Board of
         Directors of its approval of the Merger, TCI will pay to AT&T the sum
         of $1.75 billion in cash.

         Consummation of the Merger is subject to the satisfaction or waiver of
         customary conditions to closing, including but not limited to, the
         separate approvals of the stockholders of AT&T and TCI, receipt of all
         necessary governmental consents and approvals, and effectiveness of the
         registration statement registering the AT&T Common Stock and AT&T
         Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
         As a result, there can be no assurance that the Merger will be
         consummated or, if the Merger is consummated, as to the date of such
         consummation.


                                                                     (continued)


                                      I-57

<PAGE>   59

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(3)      Earnings (Loss) Per Common and Potential Common Share

         Basic earnings per share ("EPS") is measured as the income or loss
         attributable to common stockholders divided by the weighted average
         outstanding common shares for the period. Diluted EPS is similar to
         basic EPS, but presents the dilutive effect on a per share basis of
         potential common shares as if they had been converted at the beginning
         of the periods presented. Potential common shares that have an
         anti-dilutive effect are excluded from diluted EPS.

         The basic earnings (loss) attributable to TCI Group common stockholders
         per common share for the three and nine months ended September 30, 1998
         and 1997 was computed by dividing net earnings (loss) attributable to
         TCI Group common stockholders by the weighted average number of common
         shares outstanding of TCI Group Stock during the period.

         The diluted earnings attributable to TCI Group common stockholders per
         common share for the three and nine months ended September 30, 1998 was
         computed by dividing net earnings attributable to TCI Group common
         stockholders, which is adjusted by the addition of preferred stock
         dividends and interest accrued during the three and nine months ended
         September 30, 1998 to net earnings, assuming conversion of TCI Group
         convertible securities as of the beginning of the period to the extent
         that the assumed conversion of such securities would have been
         dilutive, by the weighted average number of common shares and dilutive
         potential common shares outstanding of TCI Group Stock during the
         period. Shares issuable upon conversion of the Convertible Preferred
         Stock, Series C-TCI Group ("Series C-TCI Group Preferred Stock"),
         Convertible Preferred Stock, Series D ("Series D Preferred Stock"), the
         Redeemable Convertible TCI Group Preferred Stock, Series G ("Series G
         Preferred Stock"), the Malone Right (as defined in note 13), preferred
         stock of subsidiaries, convertible notes payable and stock options and
         other performance awards have been included in the diluted calculation
         of weighted average shares to the extent that the assumed issuance of
         such shares would have been dilutive, as illustrated below. All of the
         outstanding shares of Series D Preferred Stock were redeemed effective
         April 1, 1998 (see note 10).

         The diluted loss attributable to TCI Group common stockholders per
         common share for the three and nine months ended September 30, 1997 was
         computed by dividing the net loss attributable to TCI Group common
         stockholders by the weighted average number of common shares
         outstanding of TCI Group Stock during the period. Potential common
         shares were not included in the computation of weighted average shares
         outstanding because their inclusion would be anti-dilutive.

         Except for the issuance of 8,718,770 shares of TCI Group Series B Stock
         on October 14, 1998 and 5,792,800 shares of TCI Group Series B Stock on
         October 16, 1998 pursuant to the exercise of certain rights as
         described in note 13, no material changes in the weighted average
         outstanding shares or potential common shares occurred after September
         30, 1998.

                                                                     (continued)


                                      I-58

<PAGE>   60

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

Information concerning the reconciliation of basic EPS to diluted EPS
with respect to TCI Group Stock is presented below:

<TABLE>
<CAPTION>
                                                 Three months ended                Nine months ended
                                                    September 30,                    September 30,
                                          ------------------------------   -----------------------------
                                               1998            1997             1998           1997
                                          -------------   -------------    -------------   ------------- 
                                                    amounts in millions, except per share amounts
<S>                                         <C>                  <C>               <C>             <C>  
Basic EPS:
   Earnings (loss) attributable to
        common stockholders                 $      47            (224)             130             (479)
                                            =========       =========        =========     ============
   Weighted average common shares                 523             656              521              670
                                            =========       =========        =========     ============
   Basic earnings (loss) per share
        attributable to common
        stockholders                        $     .09            (.34)             .25             (.71)
                                            =========       =========        =========     ============

Diluted EPS:
   Earnings (loss) attributable to
        common stockholders                 $      47            (224)             130             (479)
   Add preferred dividend requirements             --              --               --               --
   Add interest expense                             1              --                2               --
                                            ---------       ---------        ---------     ------------
   Adjusted earnings (loss)
        attributable to common
        stockholders assuming
        conversion of preferred shares
        and notes payable                   $      48            (224)             132             (479)
                                            =========       =========        =========     ============

   Weighted average common shares                 523             656              521              670
                                            ---------       ---------        ---------     ------------
   Add dilutive potential common shares:
        Employee and director options
           and other performance awards            12              --               10               --
        Malone Right                                1              --               --               --
        Convertible notes payable                  24              --               24               --
        Series C-TCI Group Preferred
           Stock                                   --              --               --               --
        Series D Preferred Stock                   --              --               --               --
        Series G Preferred Stock                   --              --               --               --
        Preferred stock of subsidiaries            45              --               45               --
                                            ---------       ---------        ---------     ------------
        Dilutive potential common shares           82              --               79               --
                                            ---------       ---------        ---------     ------------
   Diluted weighted average common
        shares                                    605             656              600              670
                                            =========       =========        =========     ============
   Diluted earnings (loss) per share
        attributable to common
        stockholders                        $     .08            (.34)             .22             (.71)
                                            =========       =========        =========     ============
</TABLE>


                                                                     (continued)


                                      I-59

<PAGE>   61

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(4)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $831 million and $951 million for the nine
         months ended September 30, 1998 and 1997, respectively. Cash paid for
         income taxes was $20 million and $48 million for the nine months ended
         September 30, 1998 and 1997, respectively. In addition, TCI Group
         received income tax refunds of $76 million during the nine months ended
         September 30, 1998.

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

<TABLE>
<CAPTION>
                                                            Nine months ended
                                                               September 30
                                                           --------------------
                                                             1998        1997
                                                           -------      -------
                                                            amounts in millions
<S>                                                        <C>          <C>    
      Cash paid for acquisitions:
       Recorded value of assets acquired                   $  (476)      (1,707)
       Net liabilities assumed                                  --          673
       Deferred tax liability recorded in acquisitions         105          183
       Change in minority interests in equity of
         acquired entities                                    (131)           1
       Elimination of notes receivable from affiliates         350           --
       Common stock and preferred stock issued in
         acquisitions                                           24        1,060
       TCI common stock and preferred stock held
         by acquired company                                    --         (484)
                                                           -------      -------

           Cash paid for acquisitions                      $  (128)        (274)
                                                           =======      =======

       Cash received in exchanges:
         Recorded value of assets acquired                 $   (72)        (392)
         Historical cost of assets disposed of                  87          399
         Gain recorded on exchange of assets                    30           11
                                                           -------      -------

           Cash received in exchanges                      $    45           18
                                                           =======      =======
</TABLE>

         For a description of certain non-cash transactions, see notes 6, 7 and
         12.

         TCI Group's restricted cash is primarily comprised of proceeds received
         in connection with certain asset dispositions. Such proceeds, which
         aggregated $353 million and $34 million at September 30, 1998 and
         December 31, 1997, respectively, are designated to be reinvested in
         certain identified assets for income tax purposes.


                                                                     (continued)

                                      I-60

<PAGE>   62

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(5)      Investment in Cablevision Systems Corporation

         On March 4, 1998, TCI Group contributed to CSC certain of its cable
         television systems serving approximately 830,000 customers in exchange
         for approximately 48.9 million newly issued CSC Class A common shares
         (as adjusted for a two-for-one stock split) (the "CSC Transaction").
         CSC also assumed and repaid approximately $574 million of debt owed by
         TCI Group to external parties and $95 million of debt owed to TCI
         Group. As a result of the CSC Transaction, TCI Group recognized a $506
         million gain in the accompanying combined statement of operations for
         the nine months ended September 30, 1998. Such gain represents the
         excess of the $1,161 million fair value of the CSC Class A common
         shares received over the historical cost of the net assets transferred
         by TCI Group to CSC. TCI Group has also entered into letters of intent
         with CSC which provide for TCI Group 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 TCI Group's
         debt. The ability of TCI Group to sell or increase its investment in
         CSC is subject to certain restrictions and limitations set forth in a
         stockholders agreement with CSC.

         At September 30, 1998, TCI Group owned 48,942,172 shares of CSC Class A
         common stock (as adjusted for a two-for-one stock split), which had a
         closing market price of $43.19 per share on such date. Such shares
         represented an approximate 32.5% equity interest in CSC's total
         outstanding shares and an approximate 9% voting interest in CSC in all
         matters except for (i) the election of directors, in which case TCI
         Group effectively has the right to designate two of CSC's directors,
         and (ii) any increase in authorized shares, in which case TCI Group has
         agreed to vote its interest in proportion with the public holders of
         CSC Class A common shares.

         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 September 30, 1998 (amounts in millions):

<TABLE>
         <S>                                                              <C>     
           Revenue                                                        $  1,848
           Operating, selling, general and
             administrative expense                                         (1,428)
           Depreciation and amortization                                      (407)
                                                                          --------
                    Operating income                                            13

           Interest expense                                                   (255)
           Other, net                                                          (70)
                                                                          --------
                    Net loss                                              $   (312)
                                                                          ========
</TABLE>


                                                                     (continued)


                                      I-61

<PAGE>   63

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(6)      Investments in Other Affiliates

         TCI Group'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 the periods in which TCI Group used the equity method to account
         for such other affiliates are as follows:

<TABLE>
<CAPTION>
                                                                                      Nine months ended
                    Combined Operations                                                 September 30,
                    -------------------                                              -------------------
                                                                                      1998         1997
                                                                                     ------       ------
                                                                                     amounts in millions
                    <S>                                                              <C>          <C>
                      Revenue                                                        $  839          785
                      Operating, selling, general and
                        administrative expenses                                        (459)        (390)
                      Depreciation and amortization                                    (272)        (250)
                                                                                     ------       ------

                          Operating income                                              108          145

                      Interest expense                                                 (181)        (172)
                      Other, net                                                         41          (46)
                                                                                     ------       ------

                          Net loss                                                   $  (32)         (73)
                                                                                     ======       ======
</TABLE>

         In January 1998, InterMedia Partners ("InterMedia Partners"), a
         California limited partnership and an equity affiliate of TCI through
         December 31, 1997, repurchased substantially all of the equity
         interests held by partners other than TCI Group. InterMedia Partners
         has been included in the combined financial statements of TCI Group
         since the date of such repurchases.

         Certain of TCI Group's affiliates are general partnerships and any
         subsidiary of TCI Group that is a general partner in a general
         partnership is, as such, liable as a matter of applicable 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-62

<PAGE>   64

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(7)      Acquisitions and Dispositions

         In addition to the CSC Transaction described in note 5, TCI completed,
         during the first nine months of 1998, six transactions whereby TCI
         Group contributed cable television systems serving in the aggregate
         approximately 1,224,000 customers to six separate joint ventures
         (collectively, the "1998 Joint Ventures") in exchange for
         non-controlling ownership interests in each of the 1998 Joint Ventures,
         and the assumption and repayment by the 1998 Joint Ventures of debt
         owed by TCI Group to external parties aggregating $323 million and
         intercompany debt owed to TCI Group aggregating $1,533 million. TCI
         Group has agreed to take certain steps to support compliance by certain
         of the 1998 Joint Ventures with their payment obligations under certain
         debt instruments, up to an aggregate contingent commitment of $980
         million. In light of such contingent commitments, TCI Group has
         deferred any gains on the formation of such 1998 Joint Ventures.
         Accordingly, TCI Group has recorded deferred gains aggregating $163
         million and recognized net gains aggregating $263 million in connection
         with the formation of the 1998 Joint Ventures. The deferred gains will
         not be recognized until such time as TCI Group's contingent commitments
         are eliminated. TCI Group uses the equity method of accounting to
         account for its investments in the 1998 Joint Ventures. The CSC
         Transaction (see note 5) and the formation of the 1998 Joint Ventures
         are collectively referred to herein as the "1998 Contribution
         Transactions."

         Including the 1998 Contribution Transactions, TCI Group, as of
         September 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 3.9 million basic customers to joint
         ventures in which TCI Group will retain non-controlling ownership
         interests (the "Contribution Transactions"). Following the completion
         of the Contribution Transactions, the Contributed Cable Systems will no
         longer be included in TCI Group's combined financial statements.
         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 1998
         Contribution Transactions and currently contemplated amounts with
         respect to the pending Contribution Transactions) to TCI Group's debt
         of $4.8 billion and aggregate estimated reductions (based on 1997
         amounts) to TCI Group's annual revenue and annual operating income
         before depreciation, amortization, other non-cash items and stock
         compensation of $1.8 billion and $815 million, respectively. No
         assurance can be given that any of the pending Contribution
         Transactions will be consummated.


                                                                    (continued)

                                     I-63
<PAGE>   65

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(8)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>

                                                        September 30,     December 31,
                                                            1998              1997
                                                        ------------      ------------
                                                              amounts in millions

<S>                                                     <C>                     <C>  
         Notes payable (a)                              $     9,130             8,672
         Bank credit facilities (b)                           2,063             4,842
         Commercial paper                                       830               533
         Convertible notes (c)                                   40                40
         Capital lease obligations and other debt               187                19
                                                        ------------      ------------
                                                        $    12,250            14,106
                                                        ============      =============
</TABLE>


         (a)      During the nine months ended September 30, 1998, TCI Group
                  purchased certain notes payable which had an aggregate
                  principal balance of $352 million and fixed interest rates
                  ranging from 8.67% to 10.25% (the "1998 Purchases"). In
                  connection with the 1998 Purchases, TCI Group recognized a
                  loss on early extinguishment of debt of $44 million. Such loss
                  related to prepayment penalties amounting to $39 million and
                  the retirement of deferred loan costs.

                  During the nine months ended September 30, 1997, TCI Group
                  purchased certain notes payable which had an aggregate
                  principal balance of $190 million and fixed interest rates
                  ranging from 8.75% to 10.13% (the "1997 Purchases"). In
                  connection with the 1997 Purchases, TCI Group recognized a
                  loss on early extinguishment of debt of $11 million. Such loss
                  related to prepayment penalties amounting to $7 million and
                  the retirement of deferred loan costs.

         (b)      At September 30, 1998, subsidiaries attributed to TCI Group
                  had approximately $2.1 billion in unused lines of credit,
                  excluding amounts related to lines of credit which provide
                  availability to support commercial paper.

                  Certain subsidiaries attributed to TCI Group are required to
                  maintain unused availability under bank credit facilities to
                  the extent of outstanding commercial paper. Also, certain
                  subsidiaries attributed to TCI Group pay fees ranging to 1/2%
                  per annum on the average unborrowed portion of the total
                  amount available for borrowings under bank credit facilities.


                                                                    (continued)

                                     I-64
<PAGE>   66
                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (c)      The convertible notes, which are stated net of unamortized
                  discount of $166 million at September 30, 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 September 30, 1998, the notes were
                  convertible, at the option of the holders, into an aggregate
                  of 24,163,259 shares of Series A TCI Group Stock, 19,416,910
                  shares of Series A Liberty Group Stock, 20,711,373 shares of
                  Series A TCI Ventures Group Stock and 3,451,897 shares of
                  Series A Common Stock, $1.00 par value per share, of TCI
                  Satellite Entertainment, Inc.

         The bank credit facilities and various other debt instruments
         attributable to TCI Group 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 the debt attributable to TCI Group is estimated based
         on the quoted market prices for the same or similar issues or on the
         current rates offered to TCI Group for debt of the same remaining
         maturities. At September 30, 1998, the fair value of TCI Group's debt
         was $15,269 million (including $2,039 million attributable to the value
         of the common stock underlying the convertible notes), as compared to a
         carrying value of $12,250 million on such date.

         In order to achieve the desired balance between variable and fixed rate
         indebtedness, TCI Group may enter into variable and fixed interest rate
         exchange agreements ("Interest Rate Swaps") pursuant to which it (i)
         pays fixed interest rates (the "Fixed Rate Agreements") and receives
         variable interest rates and (ii) pays variable interest rates (the
         "Variable Rate Agreements") and receives fixed interest rates. During
         the nine months ended September 30, 1998 and 1997, TCI Group's net
         payments pursuant to the Fixed Rate Agreements were less than $1
         million for each period; and TCI Group's net receipts pursuant to the
         Variable Rate Agreements were $8 million and $1 million, respectively.
         At September 30, 1998, all of TCI Group's Fixed Rate Agreements had
         expired.


                                                                    (continued)

                                     I-65
<PAGE>   67

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Information concerning TCI Group's Variable Rate Agreements at
         September 30, 1998 is as follows (dollar amounts in millions):

<TABLE>
<CAPTION>

                                                                   Amount to be
           Expiration        Interest rate        Notional        received upon
             date           to be received         amount         termination (a)
           ----------       --------------        --------        --------------
      <S>                   <C>             <C>             <C>     
         April 1999               7.4%            $    50         $      1
         September 1999           6.4%                350                4
         February 2000       5.8%-6.6%                300                5
         March 2000          5.8%-6.0%                675                8
         September 2000           5.1%                 75               --
         March 2027               9.7%                300               44
         December 2036            9.7%                200               16
                                                  -------         --------
                                                  $ 1,950         $     78
                                                  =======         ========
</TABLE>

         ------------------
         (a)      The estimated amount that TCI Group would receive to terminate
                  the agreements at September 30, 1998, taking into
                  consideration current interest rates and the current
                  creditworthiness of the counterparties, represents the fair
                  value of the Interest Rate Swaps.

         In addition to the Variable Rate Agreements, TCI Group entered into
         Interest Rate Swaps pursuant to which it pays a variable rate based on
         the London Interbank Offered Rate ("LIBOR") (5.8% at September 30,
         1998) and receives a variable rate based on the Constant Maturity
         Treasury Index ("CMT") (4.7% at September 30, 1998) on a notional
         amount of $400 million through September 2000; and pays a variable rate
         based on LIBOR (5.7% at September 30, 1998) and receives a variable
         rate based on CMT (4.8% at September 30, 1998) on notional amounts of
         $95 million through February 2000. During the nine months ended
         September 30, 1998, TCI Group's net payments pursuant to such
         agreements were $1 million. At September 30, 1998, TCI Group would be
         required to pay an estimated $4 million to terminate such Interest Rate
         Swaps.

         TCI Group 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, TCI
         Group does not anticipate that it will incur any material credit losses
         because it does not anticipate nonperformance by the counterparties.
         Further, TCI Group does not anticipate material near-term losses in
         future earnings, fair values or cash flows resulting from derivative
         financial instruments as of September 30, 1998.


                                                                    (continued)

                                     I-66
<PAGE>   68

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(9)      Redeemable Preferred Stock

         On February 20, 1998, TCI issued a Notice of Redemption which called
         for the redemption of all of its outstanding Series D Preferred Stock
         for $304.0233 per share. Effective April 1, 1998, all of the
         outstanding shares of Series D Preferred Stock were redeemed to the
         extent not previously converted into shares of TCI Group Series A Stock
         and Liberty Group Series A Stock.

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

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying combined balance sheet captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities of TCI
         Communications, Inc." Dividends accrued on the Trust Preferred
         Securities aggregated $106 million and $96 million for the nine months
         ended September 30, 1998 and 1997, respectively, and are included in
         minority interests in earnings of attributed subsidiaries in the
         accompanying combined financial statements.

(11)     Combined Deficit

         General

         During the fourth quarter of 1997, TCI Group entered into a Total
         Return Equity Swap Facility (the "Equity Swap Facility"). Pursuant to
         the Equity Swap Facility, TCI Group has the right to direct the
         counterparty (the "Counterparty") to use the Equity Swap Facility to
         purchase shares ("Equity Swap Shares") of TCI Group Series A Stock and
         TCI Ventures Group Series A Stock with an aggregate purchase price of
         up to $300 million. TCI Group has the right, but not the obligation, to
         purchase Equity Swap Shares through the September 30, 2000 termination
         date of the Equity Swap Facility. During such period, TCI Group is to
         settle periodically any increase or decrease in the market value of the
         Equity Swap Shares. If the market value of the Equity Swap Shares
         exceeds the Counterparty's cost, Equity Swap Shares with a fair value
         equal to the difference between the market value and cost will be
         segregated from the other Equity Swap Shares. If the market value of
         Equity Swap Shares is less than the Counterparty's cost, TCI Group, at
         its option, will settle such difference with shares of TCI Group Series
         A Stock or TCI Ventures Group Series A Stock or, subject to certain
         conditions, with cash or letters of credit. In addition, TCI Group is
         required to periodically pay the Counterparty a fee equal to a
         LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap
         Shares. Due to TCI Group's ability to issue shares to settle periodic
         price fluctuations and fees under the Equity Swap Facility, TCI Group
         records all amounts received or paid under this arrangement as
         increases or decreases, respectively, to equity. As of September 30,
         1998, the Equity Swap Facility had acquired 4,935,780 shares of TCI
         Group Series A Stock and 1,171,800 shares of TCI Ventures Group Series
         A Stock at an aggregate cost that was approximately $49 million less
         than the fair value of such Equity Swap Shares at September 30, 1998.
         The costs and benefits associated with the TCI Group Series A Stock
         held by the Equity Swap Facility are attributed to TCI Group.


                                                                    (continued)

                                     I-67
<PAGE>   69

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Stock Repurchases

         During the nine months ended September 30, 1998, pursuant to a stock
         repurchase program approved by the Board, TCI Group repurchased 66,041
         shares of TCI Group Series A Stock at an aggregate cost of $2 million.
         Such stock repurchases are reflected as an increase of combined deficit
         in the accompanying combined financial statements.

         Stock Options and Stock Appreciation Rights

         TCI Group records stock compensation expense relating to restricted
         stock awards, options and/or stock appreciation rights granted by TCI
         to certain TCI employees and/or directors who are involved with the TCI
         Group. Estimated compensation relating to stock appreciation rights
         ("SARs") has been recorded through September 30, 1998, and is subject
         to future adjustment based upon vesting and market values, and
         ultimately, on the final determination of market values when such
         rights are exercised. The payable arising from the compensation related
         to the SARs is included in the amount due from related parties.

(12)     Transactions with Liberty Media Group, TCI Ventures Group and Other
           Related Parties

         The components of due to (from) related parties are as follows:

<TABLE>
<CAPTION>

                                                                    September 30,        December 31,
                                                                        1998                 1997
                                                                    ------------         ------------
                                                                           amounts in millions
<S>                                                                  <C>                     <C>  
         Notes receivable from Liberty Media Group, including
              accrued interest (a)                                   $   (85)                (378)
         TINTA Note Payable (b)                                           --                   89
         Ventures Intergroup Credit Facility (c)                         (37)                  --
         Intercompany account (d)                                       (370)                (241)
                                                                     --------             --------

                                                                     $  (492)                (530)
                                                                     ========             ========
</TABLE>

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

         (a)    Amounts outstanding under the notes receivable from the Liberty
                Media Group bear interest at 6.5%. Collections of principal and
                interest on notes receivable from Liberty Media Group during the
                nine months ended September 30, 1998 aggregated approximately
                $296 million.

         (b)    Amounts outstanding under TCI's note payable to
                Tele-Communications International, Inc. (the "TINTA Note
                Payable") were repaid in their entirety during the third quarter
                of 1998. During the nine months ended September 30, 1998 and
                1997, interest expense related to the TINTA Note Payable
                aggregated $2 million and $4 million, respectively.

                                                                    (continued)

                                     I-68
<PAGE>   70

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (c)    TCI Group has provided a revolving loan facility (the "Ventures
                Intergroup Credit Facility") to TCI Ventures Group for a
                five-year period commencing on September 10, 1997. Such facility
                permits aggregate outstanding borrowings at any one time of up
                to $500 million (subject to reduction as provided below), which
                borrowings bear interest at a rate per annum equal to The Bank
                of New York's prime rate (as in effect from time to time) plus
                1% per annum, payable quarterly. A commitment fee equal to 3/8%
                per annum of the average unborrowed availability under the
                Ventures Intergroup Credit Facility is payable by TCI Ventures
                Group to TCI Group on a quarterly basis. Such commitment fee was
                $1 million for the nine months ended September 30, 1998.

         (d)    The non-interest bearing intercompany account includes certain
                income tax and stock compensation allocations that are to be
                settled at some future date. All other amounts included in the
                intercompany account are to be settled within thirty days
                following notification. Through September 10, 1997, the date of
                the TCI Ventures Exchange, the effects of all transactions with
                TCI Ventures Group, except for those related to the TINTA Note
                Payable, were reflected as adjustments to TCI Group's combined
                deficit.

         On July 11, 1997, TCI Music, Inc. ("TCI Music") merged with DMX, Inc.
         (the "DMX Merger"). Simultaneously with the DMX Merger, substantially
         all of TCI's controlling ownership interest in TCI Music was
         transferred from TCI Group to Liberty Media Group in exchange for an
         $80 million promissory note (the "Music Note") and an agreement to
         reimburse TCI for any amounts required to be paid by TCI pursuant to
         its contingent obligation under a Rights Agreement (the "Rights
         Agreement") to purchase up to 14,896,648 shares (6,812,393 of which
         were owned by subsidiaries of TCI) of TCI Music common stock at a price
         of $8.00 per share. Prior to the July 1998 expiration of the rights
         under the Rights Agreement, TCI was notified of the tender of 7,602,483
         shares and associated rights. On August 27, 1998, Liberty Media Group
         paid $61 million to satisfy TCI's obligation to purchase such tendered
         shares, including $22 million paid to acquire shares that were tendered
         by a majority-owned subsidiary of TCI that is attributed to TCI
         Ventures Group. The Music Note may be reduced by the payment of cash or
         the issuance by TCI of shares of Liberty Group Stock for the benefit of
         entities attributed to TCI Group. Additionally, Liberty Media Group may
         elect to pay $50 million of the Music Note by delivery of a Stock
         Appreciation Rights Agreement that will give TCI Group the right to
         receive 20% of the appreciation in value of Liberty Media Group's
         investment in TCI Music, to be determined at July 11, 2002.


                                                                    (continued)

                                     I-69
<PAGE>   71

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined 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.
         During the nine months ended September 30, 1998 and 1997, Liberty Media
         Group was allocated $4 million and $1 million, respectively, and TCI
         Ventures Group was allocated $8 million and $7 million, respectively,
         in corporate general and administrative costs by TCI Group. Such
         amounts are included in selling, general and administrative expenses in
         the accompanying combined financial statements.

         During 1996, TCI Group transferred, subject to regulatory approval,
         certain distribution equipment to a subsidiary of a majority-owned
         subsidiary of TCI that is attributed to TCI Ventures Group 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 TCI Group to TCI
         Ventures Group in connection with the September 10, 1997 consummation
         of the Exchange Offers. The distribution equipment was subsequently
         leased back to TCI Group 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 TCI Group and the
         related lease and the TVG LLC Promissory Note were canceled. During the
         nine months ended September 30, 1997, (i) the U.S. dollar equivalent of
         interest income earned with respect to the TVG LLC Promissory Note was
         $1 million and (ii) the U.S. dollar equivalent of the lease expense
         under the above-described lease agreement aggregated $3 million.

         In 1996, a subsidiary attributed to TCI Ventures Group (i) issued
         preferred stock in connection with a previous acquisition, which is
         convertible at the option of the holders into 1,084,056 of TCI Group
         Series A Common Stock beginning in April 1999 or sooner in the event
         of a change in control of TCI and (ii) acquired an option contract
         from TCI Group in exchange for a $14 million increase in the
         intercompany amount due to TCI Group. Such option contract provided
         TCI Ventures Group with the right to acquire 1,084,056 shares of TCI
         Group Series A Stock at a price equivalent to the fair value at the
         time of exercise less $14.625 per share. During September 1998, TCI
         Group assigned its obligation under the option contract to TCI
         Ventures Group. As a result of such assignment, TCI Group recorded a
         $16 million reduction in due from related parties and a corresponding
         adjustment of combined equity (deficit).

         Through June 30, 1997, TCI Group had a 50.1% partnership interest in
         QE+ Ltd. ("QE+"), a limited partnership interest which distributes
         "STARZ!," a first-run movie premium programming service. Entities
         attributed to Liberty Media Group held the remaining 49.9% partnership
         interest. Also prior to July 1, 1997, Encore Media Corporation ("EMC")
         (at the time a 90%-owned subsidiary of TCI and a member of Liberty
         Media Group) earned management fees from QE+ equal to 20% of managed
         costs, as defined. In addition, Liberty Media Group earned a fee for
         certain services provided to QE+ equal to 4% of the gross revenue of
         QE+ ("STARZ Content Fees"). Such management fees and STARZ Content Fees
         aggregated $4 million for the six months ended June 30, 1997 and are
         included in operating costs and expenses in the accompanying combined
         financial statements. In addition, during the six months ended June 30,
         1997, QE+ provided $7 million of programming services to an entity
         attributed to TCI Ventures Group. Such amount is included in revenue in
         the accompanying combined financial statements.

         Subsequent to June 30, 1997, TCI Group and Liberty Media Group entered
         into a series of transactions pursuant to which the businesses of
         "Encore," a movie premium programming service, and "STARZ!" were
         contributed to Encore Media Group LLC ("Encore Media Group"), a
         subsidiary of TCI that is attributed to the Liberty Media Group. Upon
         the July 1997 formation of Encore Media Group, the operations of QE+
         were no longer included in the combined financial results of TCI Group.
         In connection with the foregoing transactions, Liberty Media Group
         issued a note payable to TCI Group (which note was paid in full during
         the first quarter of 1998) and TCI Group entered into a 25 year
         affiliation agreement with Encore Media Group (the "EMG Affiliation
         Agreement") pursuant to which TCI Group pays monthly fixed amounts in
         exchange for unlimited access to all of the existing Encore and STARZ!
         services.

                                                                    (continued)

                                     I-70
<PAGE>   72

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         TCI Group'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 thereafter through 2022.

         Encore Media Group and certain other TCI subsidiaries attributed to
         Liberty Media Group produce and/or distribute programming to cable
         television operators (including TCI Group) and others. Charges to TCI
         Group, which are based upon customary rates charged to others,
         aggregated $163 million and $75 million for the nine months ended
         September 30, 1998 and 1997, respectively. Such amounts are included in
         operating costs and expenses in the accompanying combined statements of
         operations.

         Pursuant to an agreement between TCI Music and TCI Group, certain
         entities within TCI Group are required to deliver to TCI Music monthly
         revenue payments aggregating $18 million annually (adjusted annually
         for inflation) through 2017. During the nine months ended September 30,
         1998 and 1997, the aggregate amount paid by TCI Group to TCI Music
         pursuant to such arrangement was $14 million and $5 million,
         respectively. Such amounts are included as reductions of revenue in the
         accompanying combined statements of operations.

         A subsidiary of TCI that was attributed to TCI Ventures Group leases
         certain equipment under a capital lease. During 1997, such equipment
         was subleased to TCI Group under an operating lease. In January 1998,
         TCI Group paid $7 million to TCI Ventures Group in exchange for TCI
         Ventures Group's assignment of its ownership interest in such
         subsidiary to TCI Group. 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 TCI Group (including
         capital lease obligations aggregating $176 million) has been reflected
         as an increase to TCI Group's combined deficit.

         Entities included in TCI Group lease satellite transponder facilities
         and receive video transport services from entities included in TCI
         Ventures Group. Charges by TCI Ventures Group for such arrangements and
         other related operating expenses for the nine months ended September
         30, 1998 and 1997, aggregated $10 million and $19 million,
         respectively. Such amounts are included in operating costs and expenses
         in the accompanying combined statements of operations.

         In addition, a subsidiary attributed to TCI Ventures Group distributed
         certain program services to TCI Group. Charges to TCI Group for such
         services aggregated $7 million for each of the nine months ended
         September 30, 1998 and 1997, and are included in operating costs and
         expenses in the accompanying combined financial statements.


                                                                    (continued)

                                     I-71
<PAGE>   73

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         TCI Group distributed certain program services to a subsidiary
         attributed to TCI Ventures Group. The charges, which approximate TCI
         Group's cost, aggregated $4 million and $5 million for the nine months
         ended September 30, 1998 and 1997, respectively. Amounts received by
         TCI Group pursuant to this agreement are included in operating costs
         and expenses in the accompanying combined financial statements.

(13)     Transactions with Officers and Directors

         On June 16, 1997, TCI Group exchanged (the "Exchange") 30,545,864
         shares of TCI Group Series A Stock for the same number of shares of TCI
         Group Series B Stock owned by the Estate of Bob Magness (the "Magness
         Estate"), the late founder and former Chairman of the Board of TCI.
         Subsequent to the Exchange, the Magness Estate sold (the "Sale") the
         shares of TCI Group Series A Stock received in the Exchange, together
         with approximately 1.5 million shares of TCI Group Series A Stock that
         the Magness Estate previously owned (collectively, the "Option
         Shares"), to two investment banking firms (the "Investment Bankers")
         for approximately $530 million (the "Sale Price"). Subsequent to the
         Sale, TCI entered into an agreement with the Investment Bankers whereby
         TCI has the option, but not the obligation, to purchase the Option
         Shares at any time within two years (the "Option Period") from the date
         of the Sale. During the Option Period, TCI Group and the Investment
         Bankers are to settle quarterly any increase or decrease in the market
         value of the Option Shares. If the market value of the Option Shares
         exceeds the Investment Bankers' cost, Option Shares with a fair value
         equal to the difference between the market value and cost will be
         segregated from the other Option Shares in an account at the Investment
         Bankers. If the market value of the Option Shares is less than the
         Investment Bankers' cost, TCI Group, at its option, will settle such
         difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, TCI Group is required to pay the
         Investment Bankers a quarterly fee equal to LIBOR plus 1% on the Sale
         Price, as adjusted for payments made by TCI Group pursuant to any
         quarterly settlement with the Investment Bankers. Due to TCI Group's
         ability to settle quarterly price fluctuations and fees with shares of
         TCI Group Series A Stock or TCI Ventures Group Series A Stock, TCI
         Group records all amounts received or paid under this arrangement as
         increases or decreases, respectively, to equity. During the fourth
         quarter of 1997, TCI Group repurchased 4,000,000 shares of TCI Group
         Series A Stock from one of the Investment Bankers for an aggregate cash
         purchase price of $66 million. Additionally, as a result of the
         Exchange Offers and certain open market transactions, the Investment
         Bankers disposed of 4,210,308 shares of TCI Group Series A Stock and
         acquired 23,407,118 shares of TCI Ventures Group Series A Stock during
         the last half of 1997. As a result of the foregoing transactions and
         certain transactions related to the January 5, 1998 settlement of
         litigation involving the Magness Estate, as described below, the Option
         Shares were comprised of 6,201,042 shares of TCI Group Series A Stock
         and 11,740,610 shares of TCI Ventures Group Series A Stock at September
         30, 1998. At September 30, 1998, the market value of the Option Shares
         exceeded the Investment Bankers' cost by $254 million. The costs and
         benefits associated with the Option Shares are attributed to TCI Group.

                                                                    (continued)

                                     I-72
<PAGE>   74

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
         Chairman and Chief Executive Officer, agreed to forgo the exercise of
         certain option rights and in consideration, TCI granted to Dr. Malone
         the right (the "Malone Right") to acquire 30,545,864 shares of TCI
         Group Series B Stock.

         On January 5, 1998, TCI Group announced that a settlement (the "Magness
         Settlement") had been reached in the litigation brought against it and
         other parties in connection with the administration of the Magness
         Estate.

         In connection with the Magness Settlement, portions of the Exchange and
         Sale were unwound such that 10,201,041 shares of TCI Group Series A
         Stock and 11,666,506 shares of TCI Ventures Group Series A Stock were
         returned to TCI as authorized but unissued shares, and the Magness
         Estate paid $11 million to TCI representing a reimbursement of the
         Exchange fees incurred by TCI from June 16, 1997 through February 9,
         1998 with respect to such returned shares. TCI then issued to the
         Magness Estate 10,017,145 shares of TCI Group Series B Stock and
         12,034,298 shares of TCI Ventures Series B Stock.

         On February 9, 1998, in connection with the Magness Settlement, TCI
         Group entered into a call agreement (the "Malone Call Agreement") with
         Dr. Malone and Dr. Malone's wife (together with Dr. Malone, the
         "Malones"), under which the Malones granted to TCI Group the right to
         acquire the Malones' high-voting shares (the "High-Voting Shares"),
         currently consisting of an aggregate of approximately 60 million shares
         of Series B Stock, upon Dr. Malone's death or upon a contemplated sale
         of the High-Voting Shares (other than a minimal amount) to third
         persons. In either such event, TCI Group has the right to acquire the
         shares at a maximum price equal to the then relevant market price of
         shares of "low-voting" Series A Stock plus a ten percent premium. The
         Malones also agreed that if TCI were ever to be sold to another entity,
         then the maximum premium that the Malones would receive on their
         High-Voting Shares would be no greater than a ten percent premium over
         the price paid for the relevant shares of Series A Stock. TCI paid $150
         million to the Malones for agreeing to the terms of the Malone Call
         Agreement.

         Also, on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares (as adjusted for stock
         dividends). The Magness Family was paid $124 million by TCI Group for
         entering into the Magness Call Agreement.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement (collectively, the "Call Payments") was
         allocated to each of the Groups based upon the number of shares of each
         Group (before giving effect to stock dividends) that are subject to the
         Malone Call Agreement and the Magness Call Agreement. TCI Group's share
         of the Call Payments of $134 million was paid during the first quarter
         of 1998 and is reflected as an increase of combined deficit in the
         accompanying combined financial statements.

                                                                    (continued)

                                     I-73
<PAGE>   75

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Additionally, on February 9, 1998, the Magness Family entered into a
         stockholders' agreement (the "Stockholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agreed to consult with each other in connection with matters to be
         brought to the vote of TCI's stockholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone has
         an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for
         TCI's Board of Directors and Dr. Malone has agreed to vote his High
         Voting Shares for such nominee and (iii) certain "tag along rights"
         have been created in favor of the Magness Family and certain "drag
         along rights" have been created in favor of the Malones. In addition,
         the Malone Right granted by TCI Group to Dr. Malone to acquire
         30,545,864 shares of TCI Group Series B Stock was reduced to an option
         to acquire 14,511,570 shares of TCI Group Series B Stock. Pursuant to
         the terms of the Stockholders' Agreement, the Magness Family has the
         right to participate in the reduced Malone Right on a proportionate
         basis with respect to 12,406,238 shares of the 14,511,570 shares
         subject to the Malone Right. On June 24, 1998, Dr. Malone delivered
         notice to TCI exercising his right to purchase (subject to the Magness
         Family proportionate right) up to 14,511,570 shares of TCI Group Series
         B Stock at a per share price of $35.5875 pursuant to the Malone Right.
         In addition, a representative of the Magness Family advised Dr. Malone
         that the Magness Family would participate in such purchase up to the
         Magness Family's proportionate right. On October 14, 1998, 8,718,770
         shares of TCI Group Series B Stock were issued to Dr. Malone upon
         payment of cash consideration totaling $310 million. On October 16,
         1998, 5,792,800 shares of TCI Group Series B Stock were issued to the
         Magness Family upon payment of cash consideration totaling $206
         million. In connection with the acquisition of the TCI Group Series B
         Stock by Dr. Malone, TCI executed certain waivers to the Stockholders'
         Agreement and TCI and the Magness Family executed a waiver to the
         Malone Call Agreement to, among other things, permit the pledge of TCI
         Group Series B Stock owned by Dr. Malone as collateral to the lenders
         who provided the proceeds for the purchase of the shares of TCI Group
         Series B Stock.

         On April 30, 1998, TCI acquired a limited partnership interest from an
         individual who is an executive officer and a director of TCI in
         exchange for 153,183 shares of Liberty Group Series B Stock and a
         limited partnership interest in another limited partnership with a
         capital account of $1 million. TCI's issuance of such shares of Liberty
         Group Series B Stock resulted in a $5 million reduction of TCI's notes
         receivable from Liberty Media Group. See note 12.

         On August 5, 1998, a director of TCI paid $1.8 million to purchase, at
         fair value, TCI Group's interest in General Communication, Inc.

                                                                    (continued)

                                     I-74
<PAGE>   76

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(14)     Income Taxes

         At December 31, 1997, TCI Group had net operating loss carryforwards
         for income tax purposes aggregating approximately $1,425 million of
         which, if not utilized to reduce taxable income in future periods, $134
         million expires in 2003, $117 million in 2004, $344 million in 2005,
         $245 million in 2006, $19 million in 2009, $147 million in 2010, $231
         million in 2011 and $188 million in 2012. Certain subsidiaries of TCI
         Group had additional net operating loss carryforwards for income tax
         purposes aggregating approximately $232 million and these net operating
         losses are subject to certain rules limiting their usage. Pursuant to
         certain tax sharing agreements, TCI Group has been credited with
         approximately $75 million of net operating loss carryforwards that are
         in addition to the amounts disclosed above. TCI is responsible to TCI
         Group to the extent TCI Group's net operating loss carryforwards are
         utilized by TCI in future periods.

(15)     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
         (the "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, TCI Group'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.

         TCI Group believes that it has complied in all material respects with
         the provisions of the 1992 Cable Act, including its rate setting
         provisions. However, TCI Group'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.

                                                                    (continued)

                                     I-75
<PAGE>   77

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         TCI Group has guaranteed notes payable and other obligations of
         affiliated and other companies with outstanding balances of
         approximately $191 million at September 30, 1998. With respect to TCI
         Group's guarantees of $166 million of such obligations, TCI Group has
         been indemnified for any loss, claim or liability that TCI Group may
         incur, by reason of such guarantees. As described in note 7, TCI Group
         also has provided certain credit enhancements with respect to the 1998
         Joint Ventures. TCI Group 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 TCI Group 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 TCI Group.

         TCI Group 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 September 30, 1998, the amount of such
         obligations or guarantees was approximately $273 million. The future
         obligations of TCI Group with respect to these agreements is not
         currently determinable because such amount is dependent upon the number
         of qualifying films released theatrically by certain motion picture
         studios as well as the domestic theatrical exhibition receipts upon the
         release of such qualifying films.

         As described in note 12, TCI Group has agreed to make fixed monthly
         payments through 2022 to Liberty Media Group pursuant to the EMG
         Affiliation Agreement.

         TCI Group is a party to affiliation agreements with programming
         suppliers. Pursuant to certain of such agreements, TCI Group is
         committed to carry such suppliers' programming on its cable systems.
         Additionally, certain of such agreements provide for penalties and
         charges in the event the programming is not carried or not delivered to
         a contractually specified numbers of customers.

         TCI Group is committed to purchase billing services pursuant to three
         successive five year agreements. Pursuant to such arrangement, TCI
         Group is obligated at September 30, 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, TCI Group is
         obligated at September 30, 1998 to make minimum revenue payments
         through 2017 and minimum license fee payments through 2007 aggregating
         approximately $412 million to TCI Music. Such minimum payments are
         subject to inflation and other adjustments pursuant to the terms of the
         underlying agreements.

                                                                    (continued)

                                     I-76
<PAGE>   78

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         TCI Group has contingent liabilities related to legal proceedings and
         other matters arising in the ordinary course of business. Although it
         is reasonably possible TCI Group 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 combined financial statements.

         Effective as of December 16, 1997, NDTC, on behalf of TCI Group 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
         ("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 set-top device. Through
         September 30, 1998, approximately 1 million set-top devices had been
         purchased pursuant to this commitment. 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). Such warrants vest as annual purchase commitments are met. The
         value associated with such equity interest will be attributed to TCI
         Group upon purchase and deployment of the digital set-top devices. See
         note 2. NDTC has the right to terminate the Digital Terminal Purchase
         Agreement if, among other reasons, GI fails to meet a material
         milestone designated in the Digital Terminal Purchase Agreement with
         respect to the development, testing and delivery of advanced digital
         set-top devices.

         On June 30, 1998, TCI Group entered into an Operating Lease Agreement
         (the "Lease") with an unaffiliated third party (the "Lessor"). Under
         the Lease, TCI Group agreed to sell to, and lease back from, the Lessor
         advanced digital set-top devices with an initial aggregate net cost of
         up to $200 million. The initial term of the Lease is two years, and it
         provides for renewal, at TCI Group's option, for up to five additional
         consecutive one-year terms. Rent under the lease is payable quarterly.
         At the end of the originally scheduled or renewed lease term, TCI Group
         is required to either (i) purchase the equipment at the Termination
         Value (as defined in the Lease), or (ii) arrange for the sale of the
         leased equipment to a third party and pay the Lessor the difference
         between the sale price and a predetermined guaranteed value, which in
         all cases is less than the Termination Value. As of September 30, 1998,
         TCI Group has sold and leased back advanced digital set-top devices
         under the Lease with an aggregate cost of $109 million. Current annual
         lease payments with respect to such leased equipment are $16 million.
         TCI Group has treated the Lease as an operating lease in the
         accompanying combined financial statements.

                                                                    (continued)


                                     I-77
<PAGE>   79

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(16)     Year 2000

         During the three months ended September 30, 1998, TCI continued its
         enterprise-wide, comprehensive efforts to assess and remediate its
         computer systems and related software and equipment to ensure such
         systems, software and equipment recognize, process and store
         information in the year 2000 and thereafter. TCI's year 2000
         remediation efforts include an assessment of TCI Group's most critical
         systems, such as customer service and billing systems, headends and
         other cable plant, business support operations, and other equipment and
         facilities. TCI also continued its efforts to verify the year 2000
         readiness of TCI Group's significant suppliers and vendors and
         continued to communicate with significant business partners and
         affiliates to assess such partners and affiliates' year 2000 status.

         TCI formed a year 2000 Program Management Office (the "PMO") to
         organize and manage its year 2000 remediation efforts. The PMO is
         responsible for overseeing, coordinating and reporting on TCI Group's
         year 2000 remediation efforts. It is comprised of a 90-member full-time
         staff and is accountable to executive management of TCI Group.

         The PMO has defined a four-phase approach to determining the year 2000
         readiness of TCI Group's systems, software and equipment. Such approach
         is intended to provide a detailed method for tracking the evaluation,
         repair and testing of TCI Group's systems, software and equipment.
         Phase 1, Assessment, involves the inventory of all systems, software
         and equipment and the identification of any year 2000 issues. Phase 1
         also includes the preparation of the work plans needed for remediation.
         Phase 2, Remediation, involves repairing, upgrading and/or replacing
         any non-compliant equipment and systems. Phase 3, Testing, involves
         testing TCI Group's systems, software, and equipment for year 2000
         readiness, or in certain cases, relying on test results provided to TCI
         Group. Phase 4, Implementation, involves placing compliant systems,
         software and equipment into production or service.

         At September 30, 1998, TCI Group's overall progress by phase was as
         follows:

<TABLE>
<CAPTION>

                                                       Percentage of all
                                                       Equipment/Systems
                   Phase                                  In Phase*
                   -----                               -----------------
               <S>                                     <C>
               Phase 1-Assessment                           89%
               Phase 2-Remediation                          37%
               Phase 3-Testing                               9%
               Phase 4-Implementation                       14%
</TABLE>

         ---------------------
         *The percentages set forth above do not total 100% because many
         projects have elements in more than one phase. For purposes of this
         table, such projects have been attributed to each applicable phase. In
         addition, the percentages set forth above are based on the number of
         projects in each phase compared to the total number of Year 2000
         projects.


                                                                    (continued)

                                     I-78
<PAGE>   80

                                   "TCI GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         TCI Group is completing an inventory of its important systems with
         embedded technologies and is currently determining the correct
         remediation approach. During the three months ended September 30, 1998,
         TCI Group continued its survey of significant third-party vendors and
         suppliers whose systems, services or products are important to TCI
         Group's operations (e.g., suppliers of addressable controllers and
         set-top boxes, and the provider of billing services). The year 2000
         readiness of such providers is critical to continued provision of TCI
         Group's cable service. TCI Group has received information that the most
         critical systems, services or products supplied to TCI Group by third
         parties are either year 2000 ready or are expected to be year 2000
         ready by mid-1999. TCI Group is currently developing contingency plans
         for systems provided by vendors who have not responded to TCI Group's
         surveys.

         In addition to the survey process described above, management of TCI
         Group has identified its most critical supplier/vendor relationships
         and has instituted a verification process to determine the vendor's
         year 2000 readiness. Such verification includes, as deemed necessary,
         reviewing vendors' test and other data and engaging in regular
         conferences with vendors' year 2000 teams. TCI Group is also requiring
         testing to validate the year 2000 compliance of certain critical
         products and services and is contracting with independent consultants
         to conduct such testing.

         Significant market value is associated with TCI Group's investments in
         certain public and private corporations, partnerships and other
         businesses. Accordingly, TCI Group is monitoring the public disclosure
         of such publicly-held business entities to determine their year 2000
         readiness. In addition, TCI Group has surveyed and monitored the year
         2000 status of certain privately-held business entities in which TCI
         Group has significant investments.

         Year 2000 expenses and capital expenditures incurred in the three
         months ended September 30, 1998 were $3 million and less than $1
         million, respectively. Expenses and capital expenditures incurred in
         the nine months ended September 30, 1998 were $5 million and less than
         $1 million, respectively. Management of TCI Group currently estimates
         the remaining costs to be not less than $59 million, bringing the total
         estimated cost associated with TCI Group's year 2000 remediation
         efforts to be not less than $64 million, including TCI Group's pro rata
         share of the $32 million cost for replacement of noncompliant
         information technology ("IT") systems. Also included in this estimate
         is TCI Group's pro rata share of the $9 million in future payments to
         be made by the PMO pursuant to unfulfilled executory contracts or
         commitments with vendors for year 2000 remediation services.

         TCI Group is a widely distributed enterprise in which allocation of
         certain resources, including IT support, is decentralized. Accordingly,
         neither TCI nor TCI Group consolidates an IT budget. Therefore, total
         estimated year 2000 costs as a percentage of an IT budget are not
         available. There are currently no planned IT projects being deferred
         due to year 2000 costs.

         The failure to correct a material year 2000 problem could result in an
         interruption or failure of certain important business operations. There
         can be no assurance that TCI Group's systems or the systems of other
         companies on which TCI Group relies will be converted in time or that
         any such failure to convert by TCI Group or other companies will not
         have a material adverse effect on its financial position, results of
         operations or cash flows.


                                     I-79
<PAGE>   81
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                             Combined Balance Sheets
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                          September 30,         December 31,
                                                                              1998                  1997
                                                                       ------------------   -------------------
<S>                                                                    <C>                  <C>   
Assets                                                                          amounts in thousands
------
Cash and cash equivalents                                              $           51,845                40,871

Restricted cash (note 8)                                                           16,790                 4,527

Trade and other receivables, net                                                   50,933                39,963

Prepaid program rights                                                            128,167               104,219

Committed film inventory                                                          108,237               114,658

Investments in affiliates, accounted for under the equity method,
    and related receivables (note 5)                                            1,494,764               538,149

Investment in Time Warner, Inc. ("Time Warner") (note 6)                        4,996,486             3,537,841

Other investments and related receivables (note 7)                                495,206               401,810

Property and equipment, at cost:
    Land                                                                               --                    39
    Support equipment and buildings                                                48,341                41,478
                                                                       ------------------   -------------------
                                                                                   48,341                41,517
    Less accumulated depreciation                                                  17,001                13,954
                                                                       ------------------   -------------------
                                                                                   31,340                27,563
                                                                       ------------------   -------------------

Excess cost over acquired net assets                                              219,179               203,300
    Less accumulated amortization                                                  23,958                 9,057
                                                                       ------------------   -------------------
                                                                                  195,221               194,243
                                                                       ------------------   -------------------

Other assets, at cost, net of accumulated amortization                             27,134                24,371
                                                                       ------------------   -------------------

                                                                       $        7,596,123             5,028,215
                                                                       ==================   ===================
</TABLE>



                                                                   (continued)



                                      I-80

<PAGE>   82
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                       Combined Balance Sheets, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                          September 30,         December 31,
                                                                              1998                  1997
                                                                       ------------------   -------------------
                                                                                 amounts in thousands

<S>                                                                       <C>                             <C>  
Liabilities and Combined Equity                                                  

Accounts payable                                                          $         3,398                 7,884

Accrued liabilities                                                                84,355                61,483

Accrued stock compensation (note 10)                                               87,364                68,846

Program rights payable                                                            152,179               156,351

Deferred option premium (note 6)                                                       --               305,742

Debt (note 8)                                                                   1,441,166               348,590

Deferred income taxes                                                           1,620,019             1,042,762

Other liabilities                                                                   3,158                 2,060
                                                                        -----------------     -----------------

    Total liabilities                                                           3,391,639             1,993,718
                                                                        -----------------     -----------------

Minority interests in equity of attributed subsidiaries                            63,934               101,000

Obligation to redeem Liberty Group Stock (note 9)                                  16,222                    --

Combined equity (note 9):
    Combined equity                                                             2,034,734             1,690,256
    Accumulated other comprehensive earnings, net of taxes (note 1)             1,617,775               734,649
                                                                        -----------------     -----------------
                                                                                3,652,509             2,424,905

    Due to related parties                                                        471,819               508,592
                                                                        -----------------     -----------------

        Total combined equity                                                   4,124,328             2,933,497
                                                                        -----------------     -----------------

Commitments and contingencies (notes 2, 10 and 11)

                                                                        $       7,596,123             5,028,215
                                                                        =================     =================
</TABLE>


See accompanying notes to combined financial statements.



                                      I-81

<PAGE>   83
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       Three months ended             Nine months ended
                                                                           September 30,                September 30,
                                                                ----------------------------    ----------------------------
                                                                     1998            1997           1998            1997
                                                                ------------    ------------    ------------   -------------
                                                                                   amounts in thousands,
                                                                                  except per share amounts
<S>                                                             <C>             <C>             <C>            <C>          
Revenue:
   Unaffiliated parties                                          $   107,987          66,063         288,274         138,456
   Related parties (note 9)                                           68,278          58,442         209,686         105,080
                                                                ------------    ------------    ------------   -------------
                                                                     176,265         124,505         497,960         243,536
                                                                ------------    ------------    ------------   -------------

Operating costs and expenses:
   Operating                                                          88,133          67,221         257,833         106,650
   Selling, general and administrative                                49,263          28,836         143,267          66,068
   Charges from related parties (note 9)                               8,225           4,703          22,111           9,136
   Year 2000 costs (note 11)                                              --              --             139              --
   Stock compensation (notes 9 and 10)                                 2,468          42,898         140,904          62,938
   Depreciation and amortization                                       8,967           5,018          24,874           6,573
                                                                ------------    ------------    ------------   -------------
                                                                     157,056         148,676         589,128         251,365
                                                                ------------    ------------    ------------   -------------

        Operating income (loss)                                       19,209         (24,171)        (91,168)         (7,829)

Other income (expense):
   Interest expense to related party (note 9)                         (1,302)         (7,192)         (8,176)         (7,192)
   Other interest expense                                            (20,769)           (643)        (34,098)         (1,254)
   Dividend and interest income                                       13,775          14,262          40,530          33,509
   Share of earnings (losses) of affiliates, net (note 5)            (32,038)         (7,832)       (103,058)          5,143
   Minority interests in (earnings) losses of attributed
      subsidiaries                                                       430           5,734            (332)         (6,175)
   Gain on disposition of assets (notes 6 and 7)                       1,365         303,659         516,672         304,240
   Gain on issuance of equity interests by
      affiliate (note 5)                                                  --              --          23,460              --
   Other, net                                                            (27)           (225)           (142)           (430)
                                                                ------------    ------------    ------------   -------------
                                                                     (38,566)        307,763         434,856         327,841
                                                                ------------    ------------    ------------   -------------

        Earnings (loss) before income taxes                          (19,357)        283,592         343,688         320,012

Income tax benefit (expense)                                           7,772        (121,283)       (116,749)       (135,550)
                                                                ------------    ------------    ------------   -------------

        Net earnings (loss)                                     $    (11,585)        162,309         226,939         184,462
                                                                ============    ============    ============   =============

Basic earnings (loss) attributable to common stockholders per
   common share (note 3)                                        $       (.03)            .44            .64             .50
                                                                ============    ============    ===========    ============

Diluted earnings (loss) attributable to common stockholders
   per common share (note 3)                                    $       (.03)            .40            .58             .45
                                                                ============    ============    ===========    ============

Comprehensive earnings (note 1)                                 $    532,856         160,955       1,110,065         185,868
                                                                ============    ============    ============   =============
</TABLE>


See accompanying notes to combined financial statements.



                                      I-82
<PAGE>   84
                             "LIBERTY MEDIA GROUP"
            (a combination of certain assets, as defined in note 1)


                          Combined Statement of Equity

                      Nine months ended September 30, 1998
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                         Accumulated other
                                                                            comprehensive              Due to             Total
                                                         Combined             earnings,                related          combined
                                                          equity             net of taxes              parties           equity
                                                     ----------------   ---------------------       ---------------   -------------
                                                                                      amounts in thousands

<S>                                                  <C>                <C>                         <C>               <C>      
Balance at January 1, 1998                           $      1,690,256                 734,649               508,592       2,933,497

   Net earnings                                               226,939                      --                    --         226,939
   Payments for call agreements                               (63,521)                     --                    --         (63,521)
   Purchase of Liberty Group Stock                            (25,780)                     --                    --         (25,780)
   Issuance of Liberty Group Stock                            173,164                      --                (5,074)        168,090
   Gain, net of taxes, in connection 
    with the issuance of stock of 
    affiliate (note 5)                                         64,522                      --                    --          64,522
   Gain in connection with the issuance of stock
     by attributed subsidiary                                   2,508                      --                    --           2,508
   Premium received in connection with put
     obligation                                                 1,283                      --                    --           1,283
   Reclassification of redemption amount of
     Liberty Group Stock subject to put obligation            (16,222)                     --                    --         (16,222)
   Excess of consideration paid over carryover
     basis of net assets acquired from related
     party                                                    (18,415)                     --                    --         (18,415)
   Other transfers to related parties, net                         --                      --               (31,699)        (31,699)
   Change in unrealized holding gains on
     available-for-sale securities                                 --                 883,126                    --         883,126
                                                     ----------------   ---------------------       ---------------   -------------

Balance at September 30, 1998                        $      2,034,734               1,617,775               471,819       4,124,328
                                                     ================   =====================       ===============   =============
</TABLE>


See accompanying notes to combined financial statements.




                                      I-83

<PAGE>   85




                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                        Combined Statements of Cash Flows
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                        Nine months ended
                                                                                          September 30,
                                                                                -------------------------------
                                                                                      1998             1997
                                                                                ---------------   -------------
                                                                                       amounts in thousands
                                                                                           (see note 4)
<S>                                                                             <C>               <C>   
Cash flows from operating activities:
   Net earnings                                                                 $       226,939         184,462
   Adjustments to reconcile net earnings to net cash provided by operating
      activities:
        Depreciation and amortization                                                    24,874           6,573
        Stock compensation                                                              140,904          62,938
        Payments of stock compensation                                                   (4,324)         (9,690)
        Share of losses (earnings) of affiliates, net                                   103,058          (5,143)
        Deferred income tax (benefit) expense                                           (42,204)        105,111
        Intergroup tax allocation                                                       158,609          29,168
        Minority interests in earnings of attributed subsidiaries                           332           6,175
        Gain on disposition of assets                                                  (516,672)       (304,240)
        Gain on issuance of equity interests by affiliate                               (23,460)             --
        Other noncash charges                                                                --             320
        Noncash interest expense                                                          3,594           7,192
        Changes in operating assets and liabilities, net of acquisitions:
             Change in receivables                                                      (11,664)          4,032
             Change in inventories                                                          576              --
             Change in prepaid expenses                                                 (16,182)         (4,331)
             Change in payables and accruals                                              3,633           2,383
                                                                                ---------------   -------------

                  Net cash provided by operating activities                              48,013          84,950
                                                                                ---------------   -------------

Cash flows from investing activities:
   Cash proceeds from dispositions                                                      218,438             583
   Cash (paid) received in acquisitions                                                 (73,499)            832
   Capital expended for property and equipment                                          (13,369)         (1,541)
   Investments in and loans to affiliates and others                                   (860,337)        (32,956)
   Return of capital from affiliates                                                      6,777          18,700
   Other investing activities                                                            (4,993)         (8,469)
                                                                                ---------------   -------------

                  Net cash used by investing activities                                (726,983)        (22,851)
                                                                                ---------------   -------------

Cash flows from financing activities:
   Borrowings of debt                                                                 1,516,700          27,770
   Repayments of debt                                                                  (426,446)        (29,564)
   Change in restricted cash                                                            (12,263)             --
   Contribution for issuance of Liberty Group Stock                                          --           2,054
   Purchase of Liberty Group Stock                                                      (25,780)       (186,097)
   Premium received on put contracts                                                      1,283              --
   Cash transfers to related parties                                                   (299,996)         (2,195)
   Payments for call agreements                                                         (63,521)             --
   Other financing activities, net                                                          (33)            (27)
                                                                                ----------------  -------------

                  Net cash provided (used) by financing activities                      689,944        (188,059)
                                                                                ----------------  -------------

                  Net increase  (decrease) in cash and cash equivalents                  10,974        (125,960)

                  Cash and cash equivalents at beginning of period                       40,871         317,359
                                                                                ----------------  -------------

                  Cash and cash equivalents at end of period                    $        51,845         191,399
                                                                                ===============   =============
</TABLE>

See accompanying notes to combined financial statements.




                                      I-84
<PAGE>   86





                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

                               September 30, 1998
                                   (unaudited)


(1)      Basis of Presentation

         The accompanying combined financial statements include the accounts of
         the subsidiaries and assets of Tele-Communications, Inc. ("TCI") that
         are attributed to Liberty Media Group, as defined below. All
         significant intercompany accounts and transactions have been
         eliminated. The combined financial statements of Liberty Media Group
         are presented for purposes of additional analysis of the consolidated
         financial statements of TCI and subsidiaries, and should be read in
         conjunction with such consolidated financial statements.

         The accompanying interim combined 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 combined financial statements should be read in conjunction with
         the audited combined financial statements and notes thereto of Liberty
         Media Group 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.

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

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

                                                                   (continued)



                                      I-85
<PAGE>   87
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Targeted Stock

         On August 3, 1995, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue two new series of stock,
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series A Stock") and
         Tele-Communications, Inc. Series B Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series B Stock," and together
         with the Liberty Group Series A Stock, the "Liberty Group Stock"). The
         Liberty Group Stock is intended to reflect the separate performance of
         TCI's assets which produce and distribute programming services
         ("Liberty Media Group"). Additionally, the stockholders, of TCI
         approved the redesignation of the previously authorized Class A and
         Class B common stock into Tele-Communications, Inc. Series A TCI Group
         Common Stock, par value $1.00 per share (the " TCI Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Group Common Stock,
         par value $1.00 per share (the "TCI Group Series B Stock", and together
         with the TCI Group Series A Stock, the "TCI Group Stock"),
         respectively. On August 10, 1995, TCI distributed, in the form of a
         dividend, 2.25 shares of Liberty Group Stock for each four shares of
         TCI Group Stock owned (the "Liberty Distribution").

         Liberty Media Group's assets include businesses which provide
         programming services, including production, acquisition and
         distribution through all available formats and media of branded
         entertainment, educational and informational programming and software,
         including multimedia products. Liberty Media Group's assets also
         include businesses engaged in electronic retailing, direct marketing,
         advertising sales relating to programming services, infomercials and
         transaction processing.

         On August 28, 1997, the stockholders of TCI authorized the Board to
         issue the Tele-Communications, Inc. Series A TCI Ventures Group Common
         Stock, par value $1.00 per share (the "TCI Ventures Group Series A
         Stock") and Tele-Communications, Inc. Series B TCI Ventures Group
         Common Stock, par value $1.00 per share (the "TCI Ventures Group Series
         B Stock," and together with TCI Ventures Group Series A Stock, the "TCI
         Ventures Group Stock"). 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, which are
         comprised primarily of TCI's domestic cable and communications
         businesses, are collectively referred to as "TCI Group". Collectively,
         Liberty Media Group, TCI Ventures Group and TCI Group are referred to
         as the "Groups" and individually are referred to as a "Group". The TCI
         Group Series A Stock, TCI Ventures Group Series A Stock and the Liberty
         Group Series A Stock are sometimes collectively referred to herein as
         the "Series A Stock," and the TCI Group Series B Stock, TCI Ventures
         Group Series B Stock and Liberty Group Series B Stock are sometimes
         collectively referred to herein as the "Series B Stock."


                                                                   (continued)


                                      I-86
<PAGE>   88
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among TCI Group, Liberty Media Group and
         TCI Ventures Group for the purpose of preparing their respective
         combined financial statements, the change in the capital structure of
         TCI resulting from the redesignation of TCI Group Stock and issuance of
         Liberty Group Stock and TCI Ventures Group Stock did not affect the
         ownership or the respective legal title to assets or responsibility for
         liabilities of TCI or any of its subsidiaries. TCI and its subsidiaries
         each continue to be responsible for their respective liabilities.
         Holders of Liberty Group Stock are common stockholders of TCI and are
         subject to risks associated with an investment in TCI and all of its
         businesses, assets and liabilities. The redesignation of TCI Group
         Stock and issuance of Liberty Group Stock did not affect the rights of
         creditors of TCI.

         Financial effects arising from any portion of TCI that affect the
         consolidated results of operations or financial condition of TCI could
         affect the combined results of operations or financial condition of
         Liberty Media Group and the market price of shares of Liberty Group
         Stock. In addition, net losses of any portion of TCI, dividends and
         distributions on, or repurchases of, any series of common stock, and
         dividends on, or certain repurchases of preferred stock would reduce
         funds of TCI legally available for dividends on all series of common
         stock. Accordingly, Liberty Media Group financial information should be
         read in conjunction with the TCI consolidated financial information.

         After the Liberty Distribution, existing preferred stock and debt
         securities of TCI that were convertible into or exchangeable for shares
         of TCI Class A common stock were, as a result of the operation of
         antidilution provisions, adjusted so that there will be delivered upon
         their conversion or exchange (in addition to the same number of shares
         of redesignated TCI Group Series A Stock as were theretofore issuable
         thereunder) the number of shares of Liberty Group Series A Stock that
         would have been issuable in the Liberty Distribution with respect to
         the TCI Class A common stock issuable upon conversion or exchange had
         such conversion or exchange occurred prior to the record date for the
         Liberty Distribution. Options to purchase TCI Class A common stock
         outstanding at the time of the Liberty Distribution were adjusted by
         issuing to the holders of such options separate options to purchase
         that number of shares of Liberty Group Series A Stock which the holder
         would have been entitled to receive had the holder exercised such
         option to purchase TCI Class A common stock prior to the record date
         for the Liberty Distribution and reallocating a portion of the
         aggregate exercise price of the previously outstanding options to the
         newly issued options to purchase Liberty Group Series A Stock.

         The issuance of shares of Liberty Group Series A Stock upon such
         conversion, exchange or exercise of such convertible securities will
         not result in any transfer of funds or other assets from TCI Group to
         Liberty Media Group in consideration of such issuance. In the case of
         the exercise of such options to purchase Liberty Group Series A Stock,
         the proceeds received upon the exercise of such options will be
         attributed to Liberty Media Group.


                                                                   (continued)



                                      I-87
<PAGE>   89
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         The common stockholders' equity value of Liberty Media Group that, at
         any relevant time, is attributed to TCI Group, and accordingly not
         represented by outstanding Liberty Group Stock is referred to as
         "Inter-Group Interest." Prior to consummation of the Liberty
         Distribution, TCI Group had a 100% Inter-Group Interest in Liberty
         Media Group. Following consummation of the Liberty Distribution, TCI
         Group no longer has an Inter-Group Interest in Liberty Media Group.
         Following consummation of the Liberty Distribution an Inter-Group
         Interest would be created with respect to Liberty Media Group only if a
         subsequent transfer of cash or other property from TCI Group to Liberty
         Media Group is specifically designated by the Board as being made to
         create an Inter-Group Interest or if outstanding shares of Liberty
         Group Stock are purchased with funds attributable to TCI Group.

         Dividends on Liberty Group Stock are payable at the sole discretion of
         the Board out of the lesser of assets of TCI legally available for
         dividends or the available dividend amount with respect to Liberty
         Media Group, as defined. Determinations to pay dividends on Liberty
         Group Stock are based primarily upon the financial condition, results
         of operations and business requirements of Liberty Media Group and TCI
         as a whole.

         All debt incurred or preferred stock issued by TCI and its subsidiaries
         is (unless the Board otherwise provides) specifically attributed to and
         reflected in the combined financial statements of the Group that
         includes the entity which incurred the debt or issued the preferred
         stock or, in case the entity incurring the debt or issuing the
         preferred stock is Tele-Communications, Inc., the TCI Group. The Board
         could, however, determine from time to time that debt incurred or
         preferred stock issued by entities included in a Group should be
         specifically attributed to and reflected in the combined financial
         statements of one of the other Groups to the extent that the debt is
         incurred or the preferred stock is issued for the benefit of such other
         Group.

         Although it is management's intention that each Group would normally
         arrange for the external financing required to satisfy its respective
         liquidity requirements, the cash needs of one Group may exceed the
         liquidity sources of such Group. In such circumstance, one of the other
         Groups may transfer funds to such Group. Such transfers of funds among
         the Groups will be reflected as borrowings or, if determined by the
         Board, in the case of a transfer from TCI Group to Liberty Media Group,
         reflected as the creation of, or increase in, TCI Group's Inter-Group
         Interest in Liberty Media Group or, in the case of a transfer from
         Liberty Media Group to TCI Group, reflected as a reduction in TCI
         Group's Inter-Group Interest in Liberty Media Group. There are no
         specific criteria for determining when a transfer will be reflected as
         a borrowing or as an increase or reduction in an Inter-Group Interest.
         The Board expects to make such determinations, either in specific
         instances or by setting generally applicable policies from time to
         time, after consideration of such factors as it deems relevant,
         including, without limitation, the needs of TCI, the financing needs
         and objectives of the Groups, the investment objectives of the Groups,
         the availability, cost and time associated with alternative financing
         sources, prevailing interest rates and general economic conditions.


                                                                    (continued)


                                      I-88

<PAGE>   90
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Loans from one Group to another Group generally will bear interest at
         such rates and have such repayment schedules and other terms as are
         established from time to time by, or pursuant to procedures established
         by, the Board. The Board expects to make such determinations, either in
         specific instances or by setting generally applicable policies from
         time to time, after consideration of such factors as it deems relevant,
         including, without limitation, the needs of TCI, the use of proceeds by
         and creditworthiness of the recipient Group, the capital expenditure
         plans of and investment opportunities available to each Group and the
         availability, cost and time associated with alternative financing
         sources.

         The combined balance sheets of a Group reflect its net loans or
         advances to or borrowings from the other Groups. Similarly, the
         respective combined statements of operations of the Groups reflect
         interest income or expense, as the case may be, associated with such
         loans or advances and the respective combined statements of cash flows
         of the Groups reflect changes in the amounts of loans or advances
         deemed outstanding. In the historical financial statements, net loans
         or advances between Groups have been and will continue to be included
         as a component of each respective Group's equity.

         Although any increase in TCI Group's Inter-Group Interest in Liberty
         Media Group resulting from an equity contribution by TCI Group to
         Liberty Media Group or any decrease in such Inter-Group Interest
         resulting from a transfer of funds from Liberty Media Group to TCI
         Group would be determined by reference to the market value of the
         Liberty Group Series A Stock, as of the date of such transfer, such an
         increase could occur at a time when such shares could be considered
         undervalued and such a decrease could occur at a time when such shares
         could be considered overvalued.

         All financial impacts of issuances and purchases of shares of TCI Group
         Stock, TCI Ventures Group Stock or Liberty Group Stock, which are
         attributed to TCI Group, TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group, TCI Ventures Group or Liberty Media
         Group, respectively. All financial impacts of issuances of shares of
         TCI Ventures Group Stock or Liberty Group Stock, the proceeds of which
         are attributed to TCI Group in respect of a reduction in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively, will be to such extent reflected in the combined
         financial statements of TCI Group. Financial impacts of dividends or
         other distributions on TCI Group Stock, TCI Ventures Group Stock or
         Liberty Group Stock, will be attributed entirely to TCI Group, TCI
         Ventures Group or Liberty Media Group, respectively, except that
         dividends or other distributions on TCI Ventures Group Stock or Liberty
         Group Stock will (if at the time there is an Inter-Group Interest in
         TCI Ventures Group or Liberty Media Group, respectively) result in TCI
         Group being credited, and TCI Ventures Group or Liberty Media Group
         being charged (in addition to the charge for the dividend or other
         distribution paid), with an amount equal to the product of the
         aggregate amount of such dividend or other distribution paid or
         distributed in respect of outstanding shares of TCI Ventures Group
         Stock or Liberty Group Stock and a fraction of the numerator of which
         is the TCI Ventures Group or the Liberty Media Group "Inter-Group
         Interest Fraction" and the denominator of which is the TCI Ventures
         Group or the Liberty Media Group "Outstanding Interest Fraction" (both
         as defined). Financial impacts of repurchases of TCI Ventures Group
         Stock or Liberty Group Stock, the consideration for which is charged to
         TCI Group, will be to such extent reflected in the combined financial
         statements of TCI Group and will result in an increase in TCI Group's
         Inter-Group Interest in TCI Ventures Group or Liberty Media Group,
         respectively.
                                                                   (continued)


                                      I-89

<PAGE>   91
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(2)      Proposed Merger

         TCI and AT&T Corp. ("AT&T") have agreed to a merger (the "Merger")
         pursuant to, and subject to the terms and conditions set forth in, the
         Agreement and Plan of Restructuring and Merger, dated as of June 23,
         1998 (the "Merger Agreement"), among TCI, AT&T and Italy Merger Corp.,
         an indirect wholly-owned subsidiary of AT&T. In the Merger, TCI will
         become a wholly-owned subsidiary of AT&T and (i) each share of TCI
         Group Series A Stock will be converted into .7757 of a share of common
         stock, par value $1.00 per share, of AT&T ("AT&T Common Stock"), (ii)
         each share of TCI Group Series B Stock will be converted into .8533 of
         a share of AT&T Common Stock, (iii) each share of Liberty Group Series
         A Stock will be converted into one share of a newly authorized class of
         AT&T common stock to be designated as the Class A Liberty Group Common
         Stock, par value $1.00 per share (the "AT&T Liberty Class A Tracking
         Stock") and (iv) each share of Liberty Group Series B Stock will be
         converted into one share of a newly authorized class of AT&T common
         stock to be designated as the Class B Liberty Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class B Tracking Stock" and
         together with the AT&T Liberty Class A Tracking Stock, the "AT&T
         Liberty Tracking Stock"). In addition, TCI has announced its intention,
         subject to stockholder approval, to combine the assets and businesses
         of Liberty Media Group and TCI Ventures Group and reclassify each share
         of TCI Ventures Group Series A Stock as .52 of a share of Liberty Group
         Series A Stock and each share of TCI Ventures Group Series B Stock as
         .52 of a share of Liberty Group Series B Stock. If such combination and
         reclassification does not occur prior to the Merger, then in the Merger
         each share of TCI Ventures Group Series A Stock and TCI Ventures Group
         Series B Stock will be converted into .52 of a share of the
         corresponding series of AT&T Liberty Tracking Stock. In general, the
         holders of shares of AT&T Liberty Class A Tracking Stock and the
         holders of shares of AT&T Liberty Class B Tracking Stock will vote
         together as a single class with the holders of shares of AT&T Common
         Stock on all matters presented to such stockholders, with the holders
         being entitled to one-tenth (1/10th) of a vote for each share of AT&T
         Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
         Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
         held.

         In the Merger, TCI's Convertible Preferred Stock Series C-Liberty Media
         Group (the "Series C-Liberty Media Group Preferred Stock") will be
         converted into a number of shares of AT&T Liberty Class A Tracking
         Stock equal to the current conversion rate of such preferred stock
         (56.25 shares per preferred share) and TCI's Redeemable Convertible
         Liberty Media Group Preferred Stock, Series H (the "Series H Preferred
         Stock") will be converted into a number of shares of AT&T Liberty Class
         A Tracking Stock equal to the current conversion rate of such preferred
         stock (0.590625 of a share per preferred share).

                                                                    (continued)


                                      I-90

<PAGE>   92
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         The shares of AT&T Liberty Tracking Stock to be issued in the Merger
         will be a newly authorized class of common stock of AT&T which will be
         intended to reflect the separate performance of the businesses and
         assets attributed to "Liberty/Ventures Group", which, following the
         Merger, will be made up of the businesses and assets which are
         attributed to Liberty Media Group and TCI Ventures Group at the time of
         the Merger. Pursuant to the Merger Agreement, immediately prior to the
         Merger, certain assets currently attributed to TCI Ventures Group
         (including, among others, the shares of AT&T Common Stock received in
         the merger of AT&T and Teleport Communications Group, Inc., the stock
         of At Home Corporation attributed to TCI Ventures Group and the assets
         and business of the National Digital Television Center, Inc., and TCI
         Ventures Group's equity interest in Western Tele-Communications, Inc.)
         will be transferred to TCI Group in exchange for approximately $5.5
         billion in cash. Also, upon consummation of the Merger, through a new
         tax sharing agreement between Liberty/Ventures Group and AT&T,
         Liberty/Ventures Group will become entitled to the benefit of all of
         the net operating loss carryforwards available to the entities included
         in TCI's consolidated income tax return as of the date of the Merger.
         Additionally, certain warrants currently attributed to TCI Group will
         be transferred to Liberty/Ventures Group in exchange for up to $176
         million in cash. Certain agreements to be entered into at the time of
         the Merger as contemplated by the Merger Agreement will, among other
         things, provide preferred vendor status to Liberty/Ventures Group for
         digital basic distribution on AT&T's systems of new programming
         services created by Liberty/Ventures Group and its affiliates, provide
         for a renewal of existing affiliation agreements and provide for the
         business of the Liberty/Ventures Group to continue to be managed
         following the Merger by certain members of TCI's management who
         currently manage the businesses of Liberty Media Group and TCI Ventures
         Group.

         If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
         stockholders to approve the Merger prior to March 31, 1999, (ii) the
         withdrawal or modification by the AT&T Board of Directors of its
         approval of the transaction, or (iii) the failure to obtain necessary
         governmental and regulatory approvals by September 30, 1999, which
         failure occurs as a result of the announcement by AT&T of a significant
         transaction which delays receipt of such governmental approvals AT&T
         will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
         the Merger Agreement, under certain circumstances, including the
         failure of TCI stockholders to approve the transaction prior to March
         31, 1999 or the withdrawal or modification by the Board of its approval
         of the Merger, TCI will pay to AT&T the sum of $1.75 billion in cash.

         Consummation of the Merger is subject to the satisfaction or waiver of
         customary conditions to closing, including but not limited to, the
         separate approvals of the stockholders of AT&T and TCI, receipt of all
         necessary governmental consents and approvals, and effectiveness of the
         registration statement registering the AT&T Common Stock and AT&T
         Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
         As a result, there can be no assurance that the Merger will be
         consummated or, if the Merger is consummated, as to the date of such
         consummation.

                                                                    (continued)


                                      I-91

<PAGE>   93
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(3)      Earnings Per Common and Potential Common Share

         Basic earnings per share ("EPS") is measured as the income or loss
         attributable to common stockholders divided by the weighted average
         outstanding common shares for the period. Diluted EPS is similar to
         basic EPS but presents the dilutive effect on a per share basis of
         potential common shares as if they had been converted at the beginning
         of the periods presented. Potential common shares that have an
         anti-dilutive effect are excluded from diluted EPS.

         The basic earnings (loss) attributable to Liberty Media Group common
         stockholders per common share for the three and nine months ended
         September 30, 1998 and 1997 was computed by dividing earnings (loss)
         attributable to Liberty Media Group common stockholders by the weighted
         average number of common shares outstanding of Liberty Group Stock
         during the period.

         The diluted earnings attributable to Liberty Media Group common
         stockholders per common and potential common share for the nine months
         ended September 30, 1998 and the three and nine months ended September
         30, 1997 was computed by dividing earnings attributable to Liberty
         Media Group common stockholders by the weighted average number of
         common and dilutive potential common shares outstanding of Liberty
         Group Stock during the period. Shares issuable upon conversion of the
         Series C-Liberty Media Group Preferred Stock, the Convertible Preferred
         Stock, Series D (the "Series D Preferred Stock"), the Series H
         Preferred Stock, convertible notes payable, stock options and other
         performance awards have been included in the diluted calculation of
         weighted average shares to the extent the assumed issuance of such
         shares would have been dilutive, as illustrated below. All of the
         outstanding shares of Series D Preferred Stock were redeemed effective
         April 1, 1998. Numerator adjustments for dividends and interest
         associated with the convertible preferred shares and convertible notes
         payable, respectively, were not made to the computation of diluted
         earnings per share as such dividends and interest are paid or payable
         by TCI Group.

         The diluted loss attributable to Liberty Media Group common
         stockholders per common share for the three months ended September 30,
         1998 was computed by dividing the net loss attributable to Liberty
         Media Group common stockholders by the weighted average number of
         common shares outstanding of Liberty Group Stock during the period.
         Potential common shares were not included in the computation of
         weighted average shares outstanding because their inclusion would be
         anti-dilutive.

         No material changes in the weighted average outstanding shares or
         potential common shares occurred after September 30, 1998.


                                                                    (continued)



                                      I-92

<PAGE>   94
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Information concerning the reconciliation of basic EPS to dilutive EPS
         with respect to Liberty Group Stock is presented below:

<TABLE>
<CAPTION>
                                                               Three months ended                  Nine months ended
                                                                  September 30,                      September 30,
                                                        ---------------------------------  ---------------------------------
                                                             1998                1997           1998               1997
                                                        --------------    ---------------  --------------    ---------------
                                                                    amounts in thousands, except per share amounts
<S>                                                    <C>                <C>              <C>               <C>              
           Basic EPS:
                Earnings (loss) attributable to
                   common stockholders                  $     (11,585)            162,309        226,939             184,462
                                                        =============     ===============  =============     ===============

                Weighted average common shares                357,481             368,390        356,629             372,048
                                                        =============     ===============  =============     ===============
                Basic earnings (loss) per share
                   attributable to common stockholders  $        (.03)                .44            .64                 .50
                                                        =============     ===============  =============     ===============

           Diluted EPS:
                Earnings (loss) attributable to
                   common stockholders                  $     (11,585)            162,309        226,939             184,462
                                                        =============     ===============  =============     ===============

                Weighted average common shares                357,481             368,390        356,629             372,048
                                                        -------------     ---------------  -------------     ---------------
                Add dilutive potential common shares:
                   Employee and director options and
                      other performance awards                     --               4,825          7,463               3,837
                   Convertible notes payable                       --              19,428         19,417              19,428
                   Series C-Liberty Media Group
                      Preferred Stock                              --               3,970          3,970               3,970
                   Series D Preferred Stock                        --               5,596            372               5,596
                   Series H Preferred Stock                        --               3,953          3,877               3,953
                                                        -------------     ---------------  -------------     ---------------
                   Dilutive potential common shares                --              37,772         35,099              36,784
                                                        -------------     ---------------  -------------     ---------------
                Diluted weighted average common shares        357,481             406,162        391,728             408,832
                                                        =============     ===============  =============     ===============
                Diluted earnings (loss) per share
                   attributable to common stockholders  $        (.03)                .40            .58                 .45
                                                        =============     ===============  =============     ===============
</TABLE>


                                                                    (continued)

                                      I-93

<PAGE>   95
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(4)      Supplemental Disclosures to Combined Statements of Cash Flows

         Cash paid for interest was $37,831,000 and $1,204,000 for the nine
         months ended September 30, 1998 and 1997, respectively. Cash paid for
         income taxes during the nine months ended September 30, 1998 and 1997
         was not material.

<TABLE>
<CAPTION>
                                                                                      Nine months ended
                                                                                        September 30,
                                                                            -----------------------------------
                                                                                  1998                1997
                                                                            ----------------   ----------------
                                                                                   amounts in thousands
<S>                                                                         <C>                <C> 
          Cash (paid) received in acquisitions is as follows:
                    Fair value of assets acquired                           $        (18,396)          (324,288)
                    Net liabilities assumed                                            2,930            155,809
                    Debt issued to related parties                                        --            430,169
                    Deferred tax asset recorded in acquisition                            --           (116,837)
                    Minority interests in equity of acquired subsidiaries            (42,126)            70,286
                    Excess of consideration paid over carryover basis of net
                        assets acquired from related party (note 9)                  (18,415)          (244,307)
                    Gain in connection with the issuance of stock by
                        attributed subsidiary                                          2,508                 --
                    Liberty Group Stock issued                                            --             30,000
                                                                            ----------------   ----------------

                    Cash (paid) received in acquisitions                    $        (73,499)               832
                                                                            ================   ================
</TABLE>


         Significant noncash investing and financing activities are as follows:

<TABLE>
<CAPTION>
                                                                                      Nine months ended
                                                                                        September 30,
                                                                            -----------------------------------
                                                                                  1998                1997
                                                                            ----------------   ----------------
                                                                                   amounts in thousands
<S>                                                                         <C>                <C>    
          Issuance of Liberty Group Stock in exchange for common stock
               of affiliate (note 5)                                        $        168,090                 --
                                                                            ================   ================

          Noncash accretion of contingent obligation to purchase shares
               of attributed subsidiary from minority holders               $          5,693              2,235
                                                                            ================   ================

          Common stock received in exchange for option (note 6)             $             --            305,742
                                                                            ================   ================

          Preferred stock received in exchange for common stock and note
               receivable                                                   $             --            370,875
                                                                            ================   ================
</TABLE>


                                                                    (continued)


                                      I-94

<PAGE>   96
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(5)      Investments in Affiliates

         Summarized unaudited results of operations for the periods in which
         Liberty Media Group used the equity method to account for such
         affiliates are as follows:
<TABLE>
<CAPTION>
                                                                                      Nine months ended
                                                                                        September 30,
                                                                            -----------------------------------
                                                                                  1998                1997
                                                                            ----------------   ----------------
                                                                                   amounts in thousands


<S>                                                                         <C>                <C>      
          Combined Operations

             Revenue                                                        $      7,725,883          3,804,597
             Operating selling, general and administrative expenses               (6,389,822)        (3,379,639)
             Depreciation and amortization                                          (881,199)          (209,979)
                                                                            ----------------   ----------------

                Operating income                                                     454,862            214,979

             Interest expense                                                       (574,423)          (104,630)
             Other, net                                                             (151,372)          (128,759)
                                                                            ----------------   ----------------

                Net loss                                                    $       (270,933)           (18,410)
                                                                            ================   ================
</TABLE>

         The following table reflects the carrying value of Liberty Media
         Group's investments, accounted for under the equity method, including
         related receivables:

<TABLE>
<CAPTION>
                                                                              September 30,       December 31,
                                                                                  1998                1997
                                                                            ----------------   -----------------
                                                                                    amounts in thousands

<S>                                                                         <C>                <C>   
               Discovery Communications, Inc. ("Discovery")                 $         47,623              88,251
               QVC, Inc. ("QVC")                                                     172,209             133,920
               BET Holdings, Inc. ("BET")                                             22,416              26,466
               Courtroom Television Network ("Court")                                 32,981              (3,286)
               Fox/Liberty Networks LLC ("Fox Sports")(a)                              4,608             (21,608)
               Liberty/TINTA LLC ("Liberty/TINTA")                                   (16,902)            (14,532)
               Superstar/Netlink Group LLC ("SNG") (b)                                (5,699)            (40,161)
               USA Networks, Inc. ("USAI") formerly HSN, Inc. ("HSNI")
                   and related investments (c)                                     1,023,557             347,175
               United Video Satellite Group, Inc. ("UVSG") (d)                       170,687                  --
               Telemundo Network Group LLC ("Telemundo")                              38,319                  --
               Other                                                                   4,965              21,924
                                                                            ----------------    ----------------
                                                                            $      1,494,764             538,149
                                                                            ================    ================
</TABLE>


                                                                    (continued)


                                      I-95

<PAGE>   97
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         The following table reflects Liberty Media Group's share of earnings
         (losses) of each of the aforementioned affiliates:

<TABLE>
<CAPTION>
                                                                                     Nine months ended
                                                                                       September 30,
                                                                            --------------------------------
                                                                                 1998               1997
                                                                            ----------------   -------------
                                                                                   amounts in thousands

<S>                                                                         <C>                <C>     
                   Discovery                                                $       (40,628)         (17,725)
                   QVC                                                               38,289           18,641
                   ICCP                                                                  --           (2,452)
                   BET                                                               (4,050)           3,539
                   Court                                                                463               --
                   Fox Sports (a)                                                   (75,642)              --
                   Liberty/TINTA                                                     (9,957)              --
                   SNG (b)                                                           14,311           12,795
                   USAI and related investments (c)                                  10,897            4,449
                   UVSG (d)                                                           2,597               --
                   Telemundo                                                         (3,520)              --
                   Other                                                            (35,818)         (14,104)
                                                                             --------------    -------------

                                                                             $     (103,058)           5,143
                                                                             ==============    =============
</TABLE>

         (a)      Prior to the first quarter of 1998, Liberty Media Group had no
                  obligation, nor intention, to fund Fox Sports. During 1998,
                  Liberty Media Group made the determination to provide funding
                  to Fox Sports based on specific transactions consummated by
                  Fox Sports. Consequently, Liberty Media Group's share of
                  losses of Fox Sports for the nine months ended September 30,
                  1998 includes previously unrecognized losses of Fox Sports of
                  approximately $64 million. Losses for Fox Sports were not
                  recognized in prior periods due to the fact that Liberty Media
                  Group's investment in Fox Sports was less than zero.

         (b)      Effective February 1, 1998, Turner-Vision, Inc. contributed
                  the assets, obligations and operations of its retail C-band
                  satellite business to SNG in exchange for an approximate 20%
                  interest in SNG. As a result of this transaction, Liberty
                  Media Group's ownership interest in SNG decreased from 50% to
                  approximately 40%. In connection with the dilution of Liberty
                  Media Group's ownership interest in SNG, Liberty Media Group
                  recognized a gain of $23 million (before deducting deferred
                  income tax expense of $9 million).

         (c)      In February 1998,  pursuant to an Investment  Agreement among
                  Universal Studios, Inc. ("Universal"), HSNI, Home Shopping
                  Network, Inc. ("HSN") and Liberty Media Group, dated as of
                  October 1997 and amended and restated as of December 1997,
                  HSNI consummated a transaction (the "Universal Transaction")
                  through which USA Networks Partners, Inc., a subsidiary of
                  Universal, sold its 50% interest in USAI, a New York general
                  partnership, to HSNI and Universal contributed the remaining
                  50% interest in USAI and its domestic television production
                  and distribution operations to HSNI. Subsequent to these
                  transactions, HSNI was renamed USAI. In connection with the
                  Universal Transaction, Universal, USAI, HSN and Liberty Media
                  Group became parties to a number of other agreements relating
                  to, among other things, (i) the management of USAI, (ii) the
                  purchase and sale or other transfer of voting securities of
                  USAI, including securities convertible or exchangeable for
                  voting securities of USAI, and (iii) the voting of such
                  securities. 


                                                                     (continued)


                                      I-96

<PAGE>   98
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


                  At the closing of the Universal Transaction, Universal was
                  issued approximately 6 million shares of USAI's Class B Common
                  Stock, approximately 7 million shares of USAI's Common Stock
                  and approximately 109 million common equity shares ("LLC
                  Shares") of USANi LLC, a limited liability company formed to
                  hold all of the businesses of USAI and its subsidiaries,
                  except for its broadcasting business and its equity interest
                  in Ticketmaster Group, Inc. and received a cash payment of
                  $1.3 billion. Pursuant to an Exchange Agreement relating to
                  the LLC Shares (the "LLC Exchange Agreement"), approximately
                  74 million of the LLC Shares issued to Universal are each
                  exchangeable for one share of USAI's Class B Common Stock and
                  the remainder of the LLC Shares issued to Universal are each
                  exchangeable for one share of USAI's Common Stock.

                  At the closing of the Universal Transaction, Liberty Media
                  Group was issued approximately 1.2 million shares of USAI's
                  Class B Common Stock, representing all of the remaining shares
                  of USAI's Class B Common Stock issuable pursuant to Liberty
                  Media Group's contractual right to receive shares of Class B
                  common stock of USAI upon the occurrence of certain events. Of
                  such shares, 800,000 shares of Class B Common Stock were
                  contributed to BDTV IV INC. (collectively with BDTV INC., BDTV
                  II INC. and BDTV III INC., "BDTV"), a newly-formed entity
                  having substantially the same terms as BDTV INC., BDTV II INC.
                  and BDTV III INC. (with the exception of certain transfer
                  restrictions) in which Liberty Media Group owns over 99% of
                  the equity and none of the voting power (except for protective
                  rights with respect to certain fundamental corporate actions)
                  and Barry Diller owns less than 1% of the equity and all of
                  the voting power. Liberty Media Group accounts for its
                  investment in BDTV under the equity method. In addition,
                  Liberty Media Group purchased 10 LLC Shares at the closing of
                  the Universal Transaction for an aggregate purchase price of
                  $200.

                  On June 24, 1998, USAI consummated the previously announced
                  agreement to acquire the remaining stock of Ticketmaster
                  Group, Inc. which it did not previously own through a tax-free
                  merger (the "Ticketmaster Transaction"). In connection with
                  the dilution of Liberty Media Group's ownership interest that
                  resulted from the issuance of common stock by USAI in the
                  Universal Transaction and the Ticketmaster Transaction,
                  Liberty Media Group recorded a $64 million increase to
                  combined equity (after deducting a deferred tax liability of
                  $42 million) and an increase to investment in affiliates of
                  $106 million. No gain was recognized in the combined
                  statements of operations due primarily to Liberty Media
                  Group's commitment to purchase additional equity interests in
                  USAI.



                                                                   (continued)


                                      I-97

<PAGE>   99
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


                  In connection with the Universal Transaction, each of
                  Universal and Liberty Media Group was granted a preemptive
                  right with respect to future issuances of USAI's capital
                  stock, subject to certain limitations, to maintain their
                  respective percentage ownership interests in USAI that they
                  had prior to such issuances. In connection with such right, on
                  June 4, 1998, Liberty Media Group purchased approximately 4.7
                  million shares of USAI's capital stock at $20 per share as a
                  result of the conversion by USAI of certain convertible
                  debentures whereby USAI common stock was issued to retire such
                  debentures. Additionally, on June 30, 1998, Liberty Media
                  Group contributed $300 million in cash to USANi LLC in
                  exchange for an aggregate of 15 million LLC Shares. Liberty
                  Media Group's cash purchase price was increased at an annual
                  interest rate of 7.5% beginning from the date of the closing
                  of the Universal Transaction through the date of Liberty Media
                  Group's purchase of such securities. In addition, on July 27,
                  1998, Liberty Media Group purchased approximately 7.9 million
                  LLC Shares at $20 per share as a result of the issuance of
                  common stock by USAI in the Ticketmaster Transaction. Pursuant
                  to the LLC Exchange Agreement, each LLC Share issued or to be
                  issued to Liberty Media Group is exchangeable for one share of
                  USAI's Common Stock.

                  At September 30, 1998, Liberty Media Group held 24.4 million
                  shares of USAI's common stock through BDTV and 5.2 million
                  shares of USAI's common stock directly. Additionally, Liberty
                  Media Group held 22.9 million LLC Shares at September 30,
                  1998, as well as shares of HSN's common stock which are
                  exchangeable for 16.6 million shares of USAI's common stock.
                  Liberty Media Group's direct ownership of USAI is restricted
                  by order of the Federal Communications Commission. Assuming
                  Liberty Media Group had exchanged its shares in HSN and its
                  LLC Shares for USAI common stock, Liberty Media Group would
                  have held at September 30, 1998, 69.1 million shares or 21% of
                  USAI, including shares held through BDTV. USAI's common stock
                  had a closing market value of $19.438 per share on September
                  30, 1998.

         (d)      On January 12, 1998, TCI acquired from a minority stockholder
                  of UVSG 24.8 million shares of UVSG Class A common stock (as
                  adjusted for a two-for-one stock split) in exchange for 12.7
                  million shares of TCI Ventures Group Series A Stock and 7.3
                  million shares of Liberty Group Series A Stock. The aggregate
                  value assigned to the shares issued by TCI was based upon the
                  market value of such shares at the time the transaction was
                  announced. As a result of such transactions, TCI increased its
                  ownership in the equity of UVSG to approximately 74%, of which
                  17% is attributed to Liberty Media Group. UVSG's Class A
                  common stock had a closing market value of $14-13/16 per share
                  on September 30, 1998.

         Certain of Liberty Media Group's affiliates are general partnerships
         and any subsidiary of Liberty Media Group 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-98

<PAGE>   100
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


(6)      Investment in Time Warner

         Liberty Media Group holds 57 million shares of a separate series of
         Time Warner common stock with limited voting rights (the "TW Exchange
         Stock"). Holders of the TW Exchange Stock are entitled to one
         one-hundredth (l/100th) of a vote for each share with respect to the
         election of directors. Holders of the TW Exchange Stock will not have
         any other voting rights, except as required by law or with respect to
         limited matters, including amendments of the terms of the TW Exchange
         Stock adverse to such holders. Subject to the federal communications
         laws, each share of the TW Exchange Stock will be convertible at any
         time at the option of the holder on a one-for-one basis for a share of
         Time Warner common stock. Holders of TW Exchange Stock are entitled to
         receive dividends ratably with the Time Warner common stock and to
         share ratably with the holders of Time Warner common stock in assets
         remaining for common stockholders upon dissolution, liquidation or
         winding up of Time Warner. See note 8.

         On June 24, 1997 Liberty Media Group granted Time Warner an option,
         expiring October 10, 2002, to acquire the business of Southern
         Satellite Systems, Inc. ("Southern") and certain of its subsidiaries
         (together with Southern, the "Southern Business") through a purchase of
         assets (the "Southern Option"). Liberty Media Group received 6.4
         million shares of TW Exchange Stock valued at $306 million in
         consideration for the grant. In September 1997, Time Warner exercised
         the Southern Option. Pursuant to the Southern Option, Time Warner
         acquired the Southern Business, effective January 1, 1998, for $213
         million in cash. Liberty Media Group recognized a $515 million pre-tax
         gain in connection with such transactions in the first quarter of 1998.

(7)      Other Investments

         Other investments and related receivables are summarized as follows:

<TABLE>
<CAPTION>
                                                                             September 30,        December 31,
                                                                                 1998                 1997
                                                                           ----------------    -----------------
                                                                                    amounts in thousands

<S>                                                                        <C>                 <C>    
           Investment in preferred stock, at cost, including premium       $        370,634              370,791

           Marketable equity securities, at fair value                               20,479                   --

           Other investments, at cost, and related receivables                      104,093               31,019
                                                                           ----------------    -----------------

                                                                           $        495,206              401,810
                                                                           ================    =================
</TABLE>


                                                                    (continued)

                                      I-99

<PAGE>   101
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of
         Liberty Media Group, which held non-voting Class C common stock of
         International Family Entertainment, Inc. ("IFE") ("Class C Stock") and
         $23 million of IFE 6% convertible secured notes due 2004, convertible
         into Class C Stock, ("Convertible Notes"), contributed its Class C
         Stock and Convertible Notes to Fox Kids Worldwide, Inc. ("FKW") in
         exchange for a new series of 30 year non-convertible 9% preferred stock
         of FKW with a stated value of $345 million (the "FKW Preferred Stock").
         As a result of the exchange, Liberty Media Group recognized a pre-tax
         gain of approximately $304 million during the third quarter of 1997.

         Management of Liberty Media Group estimates that the market value,
         calculated utilizing a variety of approaches including multiple of cash
         flow, per subscriber value, a value of comparable public or private
         businesses or publicly quoted market prices, of all of Liberty Media
         Group's other investments aggregated $523 million and $458 million at
         September 30, 1998 and December 31, 1997, respectively. No independent
         external appraisals were conducted for those assets.

(8)      Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                  September 30,           December 31,
                                                                      1998                    1997
                                                                 ---------------      ------------------
                                                                          amounts in thousands

<S>                                                              <C>                  <C>   
           Bank credit facilities:
             Communications Capital Corp. (a)                    $       432,000                  292,000
             LMC Capital LLC (b)                                         620,000                       --
             TCI Music, Inc. (c)                                          89,166                   53,200
             Encore Media Group LLC (d)                                  300,000                       --
             Other (e)                                                        --                    3,390
                                                                 ---------------      -------------------

                                                                 $     1,441,166                  348,590
                                                                 ===============      ===================
</TABLE>


         (a)      Payable by Communications Capital Corp. ("CCC")

                  This revolving credit agreement, as amended, provides for
                  borrowings up to $500 million through August of 2000. Interest
                  on borrowings under the agreement is tied to, at CCC's option,
                  the bank's prime rate or the London Interbank Offered Rate
                  ("LIBOR") plus an applicable margin. The revolving credit
                  agreement provides as security for this indebtedness a portion
                  of Liberty Media Group's TW Exchange Stock with an estimated
                  market value of $1.9 billion based upon the market value of
                  the marketable common stock into which it is convertible.
                  Additionally, the agreement provides for a three-month
                  interest reserve to be held by an administrative agent. At
                  September 30, 1998, $6.7 million was held in the interest
                  reserve and is included in restricted cash in the accompanying
                  combined balance sheets. CCC must pay an annual commitment fee
                  of .2% of the unfunded portion of the commitment.


                                                                    (continued)


                                     I-100

<PAGE>   102
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (b)      Payable by LMC Capital LLC ("LMC Capital")

                  This revolving credit agreement, dated June 4, 1998, provides
                  for borrowings up to $640 million through June 2003. Interest
                  on borrowings under the agreement is tied to, at LMC Capital's
                  option, the bank's prime rate or the LIBOR plus an applicable
                  margin. Additionally, the credit agreement provides for a
                  three-month interest reserve to be held by an administrative
                  agent. At September 30, 1998, $10.1 million was held in the
                  interest reserve and is included in restricted cash in the
                  accompanying combined balance sheets. LMC Capital must pay an
                  annual commitment fee of .2% of the unfunded portion of the
                  commitment. The banks lend against collateral designated by
                  LMC Capital ("Designated Assets"). The components of the
                  Designated Assets may be changed from time to time. The
                  aggregate market value of the Designated Assets, as determined
                  by certain criteria in the LMC Capital agreement, must at all
                  times exceed an amount equal to three times the total
                  outstandings under the facility. The Designated Assets at
                  September 30, 1998 were Liberty Media Group's holdings in
                  Discovery, QVC and the FKW Preferred Stock. The carrying value
                  of the Designated Assets as of September 30, 1998 was $590
                  million. Recourse to the banks for payment of LMC Capital's
                  obligations is limited solely to the Designated Assets.

         (c)      Payable by TCI Music, Inc. ("TCI Music")

                  On December 30, 1997 TCI Music entered into a revolving loan
                  agreement (the "TCI Music Revolving Loan Agreement") which
                  provides for borrowings up to $100 million. Interest on
                  borrowings under the agreement is tied to LIBOR plus an
                  applicable margin or at the banks base rate dependent on TCI
                  Music's leverage ratio, as defined, for the preceding quarter.
                  The TCI Music Revolving Loan Agreement matures on June 30,
                  2005 with principal reductions beginning semi-annually on June
                  30, 2000 based on a scheduled percentage of the total
                  commitment. A commitment fee is charged on the unborrowed
                  portion of the TCI Music Revolving Loan Agreement commitment
                  ranging from .25% to .375% based upon the leverage ratio for
                  the preceding quarter.

         (d)      Payable by Encore Media Group LLC ("Encore Media Group")

                  On July 7, 1997, Encore Media Group obtained a $625 million
                  senior, secured facility (the "EMG Senior Facility") in the
                  form of a $225 million reducing revolving line of credit and a
                  $400 million, 364-day revolving credit facility convertible to
                  a term loan. In June, 1998, Encore Media Group converted the
                  364-day facility to a $300 million term loan. Interest on the
                  EMG Senior Facility is tied to, at Encore Media Group's
                  option, the bank's prime rate plus an applicable margin or the
                  LIBOR rate plus an applicable margin. Encore Media Group is
                  required to pay a commitment fee which varies based on a
                  leverage ratio. The credit agreement for the EMG Senior
                  Facility contains certain provisions which limit Encore Media
                  Group as to additional indebtedness, sale of assets, liens,
                  guarantees, and distributions. Additionally, Encore Media
                  Group must maintain certain specified financial ratios.

                                                                    (continued)


                                     I-101

<PAGE>   103
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         (e)      Other

                  Effective September 30, 1998, Liberty Media Corporation
                  ("LMC") and TCI Ventures Group LLC ("Ventures LLC" and
                  collectively "Liberty/Ventures") entered into a revolving
                  credit agreement which provides for borrowings up to $800
                  million (the "Liberty/Ventures Facility") through September
                  29, 1999. LMC and Ventures LLC are jointly and severally
                  responsible for the obligations under the Liberty/Ventures
                  Facility. Interest on borrowings under the Liberty/Ventures
                  Facility is tied to, at Liberty/Ventures option, the bank's
                  prime rate or LIBOR plus an applicable margin. Liberty/
                  Ventures must pay an annual commitment fee of .2% of the
                  unfunded portion of the commitment. Such commitment fees are
                  shared equally between Liberty Media Group and TCI Ventures
                  Group. The Liberty/Ventures facility contains certain
                  provisions which limit LMC and Ventures LLC as to additional
                  indebtedness, sale of assets, liens, guarantees and
                  distributions. At September 30, 1998, $70 million was
                  outstanding under the Liberty/Ventures Facility which was used
                  to fund obligations of TCI Ventures Group and accordingly, is
                  attributed to TCI Ventures Group.

         The fair market value of Liberty Media Group's debt approximated its
         carrying value at September 30, 1998.

(9)      Combined Equity

         In conjunction with a stock repurchase program or similar transaction,
         TCI may elect to sell put options on its own common stock. Proceeds
         from any sales of puts with respect to Liberty Group Stock are
         reflected by Liberty Media Group as an increase to combined equity, and
         an amount equal to the maximum redemption amount under unexpired put
         options with respect to Liberty Group Stock is reflected as an
         obligation to redeem Liberty Group Stock in the accompanying combined
         balance sheets.

         During the nine months ended September 30, 1998, pursuant to the stock
         repurchase program, 766,783 shares of Liberty Group Stock were
         repurchased at an aggregate cost of approximately $26 million. Such
         amount is reflected as a decrease to combined equity in the
         accompanying combined financial statements.

                                                                    (continued)


                                     I-102

<PAGE>   104
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         On July 13, 1998, Liberty Media Group announced that it had made a
         proposal to Tele-Communications International, Inc. ("TINTA"), an
         85%-owned subsidiary of TCI that is attributed to TCI Ventures Group,
         concerning the acquisition by Liberty Media Group of all of the
         outstanding shares of common stock of TINTA not beneficially owned by
         TCI Ventures Group. Under the proposal, Liberty Media Group would
         exchange, in a merger transaction, 0.58 of a share of Liberty Group
         Series A Stock for each share of Tele-Communications International,
         Inc. Series A Common Stock acquired by Liberty Media Group in the
         merger. Liberty Media Group's proposal, and a proposed merger
         agreement, has been approved by TINTA's board of directors. The merger
         agreement provides that if the .58 exchange ratio would yield a value
         to TINTA stockholders (other than TCI Ventures Group) of less than
         $22.00 per TINTA share, then Liberty Media Group would be required to
         either increase the exchange ratio to an amount that would yield a
         value of $22.00 per share or terminate the merger agreement. Such value
         will be based upon the average closing sales price of a share of
         Liberty Group Series A Stock before the closing date of the merger.
         Consummation of the merger, which is expected to occur in November
         1998, is subject to customary closing conditions. No assurance can be
         given that the merger will be consummated.

         Stock Options and Stock Appreciation Rights

         Liberty Media Group records stock compensation expense relating to
         restricted stock awards, options and/or stock appreciation rights
         (collectively, "Awards") granted by TCI to certain TCI employees and/or
         directors who are involved with Liberty Media Group. Estimated
         compensation relating to stock appreciation rights ("SARs") has been
         recorded through September 30, 1998, and is subject to future
         adjustment based upon vesting and market value, and ultimately, on the
         final determination of market value when such rights are exercised. The
         estimated compensation adjustment with respect to TCI SARs resulted in
         increases to Liberty Media Group's share of TCI's stock compensation
         liability of $122 million and $51 million for the nine months ended
         September 30, 1998 and 1997, respectively. In addition, for the nine
         months ended September 30, 1998, Liberty Media Group made cash payments
         relating to its share of TCI's stock compensation obligations of $4
         million.

         Transactions with TCI and Other Related Parties

         Certain TCI corporate general and administrative costs are charged to
         Liberty Media 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 would incur for comparable
         services on a stand-alone basis. During the nine months ended September
         30, 1998 and 1997, Liberty Media Group was allocated $4,315,000 and
         $790,000, respectively, in corporate general and administrative costs
         by TCI. Such amounts are reflected in charges from related parties in
         the accompanying combined statements of operations.

         Entities included in Liberty Media Group lease satellite transponder
         facilities from TCI Ventures Group. Charges by TCI Ventures Group for
         such arrangements and other related operating expenses for the nine
         months ended September 30, 1998 and 1997, aggregated $17,121,000 and
         $8,346,000, respectively. Such amounts are reflected in charges from
         related parties in the accompanying combined statements of operations.

                                                                    (continued)


                                     I-103

<PAGE>   105
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         In connection with the formation of Encore Media Group during 1997, TCI
         Group entered into a 25 year affiliation agreement with Encore Media
         Group (the "EMG Affiliation Agreement") pursuant to which TCI Group
         pays monthly fixed amounts in exchange for unlimited access to all of
         the existing Encore and STARZ! services. Such amounts are included in
         revenue from related parties. Additionally, certain other subsidiaries
         attributed to Liberty Media Group produce and/or distribute programming
         to cable television operators (including TCI Group) and others
         (including TCI Ventures Group). Charges to TCI Group and TCI Ventures
         Group are based upon customary rates charged to others.

         On July 11, 1997, TCI Music merged with DMX, Inc. (the "DMX Merger").
         In connection with the DMX Merger, TCI assumed a contingent obligation
         to purchase from all holders who tender shares and rights in accordance
         with the terms of a Rights Agreement (the "Rights Agreement") up to
         14,896,648 shares (6,812,393 of which were owned by subsidiaries of
         TCI) of TCI Music common stock at a price of $8.00 per share.
         Simultaneously with the DMX Merger, Liberty Media Group acquired the
         TCI Music Series B Common Stock and 2.6 million of the TCI-owned TCI
         Music Series A Common Stock by agreeing to reimburse TCI for any
         amounts required to be paid by TCI pursuant to TCI's contingent
         obligation under the Rights Agreement and issuing an $80 million
         promissory note (the "Music Note") to TCI. Liberty Media Group had
         recorded its contingent obligation to purchase such shares (excluding
         the TCI-owned shares) as a component of minority interest in equity of
         attributed subsidiaries in the accompanying combined financial
         statements. Prior to the July 1998 expiration of the rights under the
         Rights Agreement, Liberty Media Group was notified of the tender of
         7,602,483 shares and associated rights. On August 27, 1998, Liberty
         Media Group paid $61 million (including amounts that were paid to a
         subsidiary of TCI that is not attributed to Liberty Media Group) to
         satisfy TCI's obligation under the Rights Agreement. Due to the related
         party nature, the $18 million excess of the consideration paid to such
         subsidiary of TCI over the carryover basis of the assets transferred
         was reflected as a decrease to combined equity.

         During the first quarter of 1998, TCI Music issued approximately
         382,000 shares of its Series A Common Stock in connection with certain
         acquisitions. In connection with the issuance of such shares, Liberty
         Media Group's ownership interest was diluted to 77.6% (TCI's ownership
         interest was diluted to 80.7%) and Liberty Media Group recorded a $2.5
         million increase to combined equity. No gain was recognized in the
         combined statements of operations due primarily to Liberty Media
         Group's contingent obligation under the Rights Agreement.

                                                                    (continued)


                                     I-104

<PAGE>   106
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Due to Related Parties

<TABLE>
<CAPTION>
                                                                           September 30,        December 31,
                                                                               1998                 1997
                                                                         ----------------   ------------------
                                                                                 amounts in thousands

<S>                                                                      <C>                <C>    
         Note receivable from TCI Ventures Group, including accrued
              interest                                                   $         (8,502)                  --
         Notes payable to TCI Group, including accrued interest                    85,374              378,348
         Intercompany account                                                     394,947              130,244
                                                                         ----------------   ------------------

                                                                         $        471,819              508,592
                                                                         ================   ==================
</TABLE>

         Amounts outstanding under the note receivable from TCI Ventures Group
         bear interest at variable rates based on the cost of borrowing under
         the Liberty/Ventures Facility (see note 8). Principal and interest is
         due and payable as mutually agreed from time to time.

         Amounts outstanding under the notes payable to TCI Group bear interest
         at 6.5%. Payments of principal and interest on notes payable to TCI
         Group during the first nine months of 1998 aggregated approximately
         $296 million. During the second quarter of 1998, TCI issued 153,183
         shares of Liberty Group Series B Stock valued at $5 million to an
         individual who is an officer and director of TCI for the benefit of
         entities attributed to TCI Group, Accordingly, the Music Note was
         reduced by such amount.

         The non-interest bearing intercompany account includes certain income
         tax and stock compensation allocations that are to be settled at some
         future date. All other amounts included in the intercompany account are
         to be settled within thirty days following notification.

         Transactions with Officers and Directors

         On January 5, 1998, TCI announced that a settlement (the "Magness
         Settlement") had been reached in the litigation brought against it and
         other parties in connection with the administration of the Estate of
         Bob Magness (the "Magness Estate"), the late founder and former
         Chairman of the Board of TCI.

         On February 9, 1998, in connection with the Magness Settlement, TCI
         entered into a call agreement (the "Malone Call Agreement") with Dr.
         John C. Malone, TCI's Chairman and Chief Executive Officer, and Dr.
         Malone's wife (together with Dr. Malone, the "Malones"), under which
         the Malones granted to TCI the right to acquire the Malones'
         high-voting shares (the "High-Voting Shares"), currently consisting of
         an aggregate of approximately 60 million shares of Series B Stock, upon
         Dr. Malone's death or upon a contemplated sale of the High-Voting
         Shares (other than a minimal amount) to third persons. In either such
         event, TCI has the right to acquire the shares at a maximum price equal
         to the then relevant market price of shares of "low voting" Series A
         Stock plus a ten percent premium. The Malones also agreed that if TCI
         were ever to be sold to another entity, then the maximum premium that
         the Malones would receive on their High-Voting Shares would be no
         greater than a ten percent premium over the price paid for the relevant
         shares of Series A Stock. TCI paid $150 million to the Malones for
         agreeing to the terms of the Malone Call Agreement.

                                                                    (continued)

                                     I-105

<PAGE>   107
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI for entering into the Magness Call Agreement.
         Additionally, on February 9, 1998, the Magness Family entered into a
         stockholders' agreement (the "Stockholders' Agreement") with the
         Malones and TCI under which (i) the Magness Family and the Malones
         agreed to consult with each other in connection with matters to be
         brought to the vote of TCI's stockholders, subject to the proviso that
         if they cannot mutually agree on how to vote the shares, Dr. Malone has
         an irrevocable proxy to vote the High-Voting Shares owned by the
         Magness Family, (ii) the Magness Family may designate a nominee for the
         Board and Dr. Malone has agreed to vote his High Voting Shares for such
         nominee and (iii) certain "tag along rights" have been created in favor
         of the Magness Family and certain "drag along rights" have been created
         in favor of the Malones.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement (collectively, the "Call Payments") was
         allocated to each of the Groups based upon the number of shares of each
         Group (before giving effect to stock dividends) that are subject to the
         Malone Call Agreement and the Magness Call Agreement. Liberty Media
         Group's share of the Call Payments of $64 million was paid during the
         first quarter of 1998 and is reflected as a reduction of combined
         equity in the accompanying combined financial statements.

(10)     Commitments and Contingencies

         Encore Media Group is obligated to pay fees for the rights to exhibit
         certain films that are released by various producers through 2017 (the
         "Film Licensing Obligations"). Based on customer levels at September
         30, 1998, these agreements require minimum payments aggregating
         approximately $703 million. The aggregate amount of the Film Licensing
         Obligations under these license agreements is not currently estimable
         because such amount is dependent upon the number of qualifying films
         released theatrically by certain motion picture studios as well as the
         domestic theatrical exhibition receipts upon the release of such
         qualifying films. Nevertheless, it is anticipated that the required
         aggregate payments under the Film Licensing Obligations will be
         significant.

         Liberty Media Group leases business offices, has entered into
         transponder lease agreements, and uses certain equipment under lease
         arrangements.

         Estimates of stock compensation granted to employees of an attributed
         subsidiary of Liberty Media Group have been recorded in the
         accompanying combined financial statements, but are subject to future
         adjustment based upon a valuation model derived from such attributed
         subsidiary's cash flow, working capital and debt.

                                                                    (continued)


                                     I-106

<PAGE>   108
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Liberty Media Group has contingent liabilities related to legal
         proceedings and other matters arising in the ordinary course of
         business. Although it is reasonably possible Liberty Media Group 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
         combined financial statements.

(11)     Year 2000

         During the three months ended September 30, 1998, TCI continued its
         enterprise-wide, comprehensive efforts to assess and remediate its
         computer systems and related software and equipment to ensure such
         systems, software and equipment recognize, process and store
         information in the year 2000 and thereafter. TCI's year 2000
         remediation efforts include an assessment of Liberty Media Group's most
         critical systems, equipment, and facilities. TCI also continued its
         efforts to verify the year 2000 readiness of Liberty Media Group's
         significant suppliers and vendors and continued to communicate with
         significant business partners and affiliates to assess such partners
         and affiliates' year 2000 status.

         TCI formed a year 2000 Program Management Office (the "PMO") to
         organize and manage its year 2000 remediation efforts. The PMO is
         responsible for overseeing, coordinating and reporting on Liberty Media
         Group's year 2000 remediation efforts. It is comprised of a 90-member
         full-time staff and is accountable to executive management of Liberty
         Media Group.

         The PMO has defined a four-phase approach to determining the year 2000
         readiness of Liberty Media Group's systems, software and equipment.
         Such approach is intended to provide a detailed method for tracking the
         evaluation, repair and testing of Liberty Media Group's systems,
         software and equipment. Phase 1, Assessment, involves the inventory of
         all systems, software and equipment and the identification of any year
         2000 issues. Phase 1 also includes the preparation of the work plans
         needed for remediation. Phase 2, Remediation, involves repairing,
         upgrading and/or replacing any non-compliant equipment and systems.
         Phase 3, Testing, involves testing Liberty Media Group's systems,
         software, and equipment for year 2000 readiness, or in certain cases,
         relying on test results provided to Liberty Media Group. Phase 4,
         Implementation, involves placing compliant systems, software and
         equipment into production or service.


                                                                    (continued)

                                     I-107

<PAGE>   109
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         At September 30, 1998, Liberty Media Group's overall progress by phase
         was as follows:

<TABLE>
<CAPTION>
                                                           Percentage of all
                                                           Equipment/Systems
                               Phase                           In Phase*
                               -----                       -----------------

<S>                                                        <C> 
                      Phase 1-Assessment                         100%
                      Phase 2-Remediation                         96%
                      Phase 3-Testing                              7%
                      Phase 4-Implementation                       0%
</TABLE>

         ---------------------
         *The percentages set forth above do not total 100% because many
         projects have elements in more than one phase. For purposes of this
         table, such projects have been attributed to each applicable phase. In
         addition, the percentages set forth above are based on the number of
         projects in each phase compared to the total number of Year 2000
         projects.

         Liberty Media Group is completing an inventory of its important systems
         with embedded technologies and is currently determining the correct
         remediation approach. During the three months ended September 30, 1998,
         Liberty Media Group continued its survey of significant third-party
         vendors and suppliers whose systems, services or products are important
         to Liberty Media Group's operations. The year 2000 readiness of such
         providers is critical to continued provision of Liberty Media Group's
         programming services. Liberty Media Group has received information that
         the most critical systems, services or products supplied to Liberty
         Media Group by third parties are either year 2000 ready or are expected
         to be year 2000 ready by mid-1999. Liberty Media Group is currently
         developing contingency plans for systems provided by vendors who have
         not responded to Liberty Media Group's surveys.

         In addition to the survey process described above, management of
         Liberty Media Group has identified its most critical supplier/vendor
         relationships and has instituted a verification process to determine
         the vendor's year 2000 readiness. Such verification includes, as deemed
         necessary, reviewing vendors' test and other data and engaging in
         regular conferences with vendors' year 2000 teams. Liberty Media Group
         is also requiring testing to validate the year 2000 compliance of
         certain critical products and services and is contracting with
         independent consultants to conduct such testing.

         Significant market value is associated with Liberty Media Group's
         investments in certain public and private corporations, partnerships
         and other businesses. Accordingly, Liberty Media Group is monitoring
         the public disclosure of such publicly-held business entities to
         determine their year 2000 readiness. In addition, Liberty Media Group
         has surveyed and monitored the year 2000 status of certain
         privately-held business entities in which Liberty Media Group has
         significant investments.
                                                                    (continued)


                                     I-108

<PAGE>   110
                              "LIBERTY MEDIA GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements


         Year 2000 expenses and capital expenditures incurred in the three
         months ended September 30, 1998 were not material. Expenses and capital
         expenditures incurred in the nine months ended September 30, 1998 were
         $139,000 and zero, respectively. Management of Liberty Media Group
         currently estimates the remaining costs to be not less than $2 million,
         bringing the total estimated cost associated with Liberty Media Group's
         year 2000 remediation efforts to be not less than $2 million, including
         Liberty Media Group's pro rata share of the $32 million cost for
         replacement of noncompliant information technology ("IT") systems. Also
         included in this estimate is Liberty Media Group's pro rata share of
         the $9 million in future payments to be made by the PMO pursuant to
         unfulfilled executory contracts or commitments with vendors for year
         2000 remediation services.

         TCI is a widely distributed enterprise in which allocation of certain
         resources, including IT support, is decentralized. Accordingly, neither
         TCI nor Liberty Media Group consolidates an IT budget. Therefore, total
         estimated year 2000 costs as a percentage of an IT budget are not
         available. There are currently no planned IT projects being deferred
         due to year 2000 costs.

         The failure to correct a material year 2000 problem could result in an
         interruption or failure of certain important business operations. There
         can be no assurance that Liberty Media Group's systems or the systems
         of other companies on which Liberty Media Group relies will be
         converted in time or that any such failure to convert by Liberty Media
         Group or other companies will not have a material adverse effect on its
         financial position, results of operations or cash flows.


                                     I-109
<PAGE>   111
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                             Combined Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                             September 30,         December 31,
                                                                                 1998                  1997
                                                                          -----------------     -----------------
                                                                                    amounts in thousands

<S>                                                                       <C>                   <C>    
Assets

Cash and cash equivalents                                                 $         333,398               161,495

Trade and other receivables, net                                                    125,510                86,856

Investment in Telewest Communications plc ("Telewest"), accounted for under the
    equity method (note 5)                                                          432,465               324,417

Investments in Sprint Spectrum Holding Company, L.P., MinorCo, L.P.
    and PhillieCo, L.P. (collectively, the "PCS Ventures"), accounted
    for under the equity method (note 6)                                            258,204               607,333

Investment in Cablevision S.A. ("Cablevision"), accounted for under
    the equity method (note 7)                                                      224,555               239,379

Investments in other affiliates, accounted for under the equity method, and
    related receivables (note 8)                                                    604,333               926,769

Investment in AT&T Corp. ("AT&T") (note 9)                                        2,743,924                    --

Deferred tax asset                                                                       --                85,737

Property and equipment, at cost:
      Land                                                                            7,893                 7,893
      Distribution systems                                                          717,911               851,145
      Support equipment and buildings                                               126,903               116,088
                                                                         ------------------     -----------------
                                                                                    852,707               975,126
      Less accumulated depreciation                                                 312,027               265,945
                                                                         ------------------     -----------------
                                                                                    540,680               709,181
                                                                         ------------------     -----------------

Franchise costs and other intangible assets                                         688,114               333,516
      Less accumulated amortization                                                 112,689                76,507
                                                                         ------------------     -----------------
                                                                                    575,425               257,009
                                                                         ------------------     -----------------

Other assets, net of accumulated amortization                                       756,315               381,726
                                                                         ------------------     -----------------

                                                                         $        6,594,809             3,779,902
                                                                         ==================     =================
</TABLE>

                                                                   (continued)

                                     I-110

<PAGE>   112
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                       Combined Balance Sheets, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                             September 30,        December 31,
                                                                                 1998                 1997
                                                                          -----------------     ----------------
                                                                                    amounts in thousands


<S>                                                                       <C>                   <C>   
Liabilities and Combined Equity

Accounts payable                                                          $          50,739               31,825

Accrued liabilities                                                                  95,722              109,549

Customer prepayments                                                                136,412              133,479

Deferred revenue (note 16)                                                          339,625                   --

Capital lease obligations                                                           191,660              386,808

Debt (note 13)                                                                    1,012,594              408,532

Deferred tax liability                                                              770,634                   --

Other liabilities                                                                    23,362               18,683
                                                                         ------------------     ----------------

        Total liabilities                                                         2,620,748            1,088,876
                                                                         ------------------     ----------------

Minority interests in equity of attributed subsidiaries                             483,073              420,177

Obligation to redeem TCI Ventures Group Stock (note 14)                               2,963                   --

Combined equity (notes 11 and 14):
   Combined equity                                                                3,423,717            2,215,683
   Accumulated other comprehensive earnings, net 
    of taxes (note 1)                                                                44,218               33,661
                                                                         ------------------     ----------------
                                                                                  3,467,935            2,249,344

   Due to related parties                                                            20,090               21,505
                                                                         ------------------     ----------------

        Total combined equity                                                     3,488,025            2,270,849
                                                                         ------------------     ----------------

Commitments and contingencies  (notes 2, 6, 8, 12, 14, 16 and 17)
                                                                          $       6,594,809            3,779,902
                                                                          =================     ================
</TABLE>

See accompanying notes to combined financial statements.


                                     I-111

<PAGE>   113

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                        Combined Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                     Three months ended             Nine months ended
                                                                        September 30,                  September 30,
                                                              ----------------------------    ---------------------------
                                                                  1998             1997            1998           1997
                                                              ------------    ------------    ------------   ------------
                                                                                amounts in thousands,
                                                                              except per share amounts
<S>                                                           <C>             <C>             <C>            <C>  
Revenue:
    Related parties (note 14)                                 $     14,479          11,720          35,928         37,813
    Other                                                          234,276         247,222         648,956        720,269
                                                              ------------    ------------    ------------   ------------
                                                                   248,755         258,942         684,884        758,082
                                                              ------------    ------------    ------------   ------------
Operating costs and expenses:
    Operating:
       Related parties (note 14)                                    11,984          16,321          36,954         46,540
       Other                                                       135,548         132,873         392,978        382,095
    General and administrative:
       Related parties (note 14)                                     1,905           2,212           8,175          6,636
       Other                                                        56,019          61,838         158,250        187,833
    Year 2000 costs (note 16)                                          142              --             480             --
    Cost of distribution agreements (note 12)                           --              --          83,320             --
    Stock compensation (note 14)                                    (4,404)         55,774         122,382         68,699
    Depreciation and amortization                                   37,729          52,985         108,704        138,149
                                                              ------------    ------------    ------------   ------------
                                                                   238,923         322,003         911,243        829,952
                                                              ------------    ------------    ------------   ------------

          Operating  income (loss)                                   9,832         (63,061)       (226,359)       (71,870)

Other income (expense):
    Share of losses of the PCS Ventures (note 6)                  (186,674)       (147,051)       (510,464)      (304,436)
    Share of losses of Telewest (note 5)                           (26,366)        (37,880)        (90,083)      (111,338)
    Share of losses of Cablevision (note 7)                         (6,817)             --         (14,408)            --
    Share of losses of other affiliates (note 8)                   (43,393)        (42,541)       (125,148)      (120,767)
    Interest expense                                               (14,664)        (11,634)        (38,263)       (41,178)
    Dividend and interest income:
       Related parties (note 14)                                        55             588           1,692          4,340
       Other (note 9)                                               17,879             642          22,576          4,543
    Minority interests' share of (earnings) losses                    (649)          1,525          52,676         (6,935)
    Gain on disposition of assets, net (note 9)                  2,303,061          75,881       2,344,958        104,774
    Gain on issuance of stock by affiliates (notes 5 and 8)         57,965              --         259,350         21,251
    Gain on issuance of equity interest by attributed
       subsidiaries (notes 11 and 12)                               16,553          60,233          31,253         60,233
    Other, net                                                      (2,198)         (2,875)         (2,066)         3,375
                                                              ------------    ------------    ------------   ------------
                                                                 2,114,752        (103,112)      1,932,073       (386,138)
                                                              ------------    ------------    ------------   ------------

          Earnings (loss) before income taxes                    2,124,584        (166,173)      1,705,714       (458,008)

Income tax benefit (expense)                                      (821,625)         40,440        (711,652)       143,117
                                                              ------------    ------------    ------------   ------------

          Net earnings (loss)                                 $  1,302,959        (125,733)        994,062       (314,891)
                                                              ============    ============    ============   ============

Basic earnings attributable to common stockholders 
    per common share subsequent to TCI Ventures 
    Exchange (note 3)                                         $       3.08             .07            2.36            .07
                                                              ============    ============   =============   ============

Diluted earnings attributable to common stockholders 
    per common share subsequent to TCI Ventures 
    Exchange (note 3)                                         $       2.89             .07            2.20            .07
                                                              ============    ============    ============    ===========

Comprehensive earnings (loss) (note 1)                        $  1,271,275        (144,317)      1,004,619       (338,352)
                                                              ============    ============    ============   ============
</TABLE>

See accompanying notes to combined financial statements.


                                     I-112

<PAGE>   114
                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                          Statement of Combined Equity

                      Nine months ended September 30, 1998
                                   (unaudited)




<TABLE>
<CAPTION>
                                                                            Accumulated
                                                                               other
                                                                           comprehensive           Due to           Total
                                                        Combined             earnings,             related         combined
                                                         equity             net of taxes           parties         equity
                                                         -----              ------------           -------         ------
                                                                              amounts in thousands

<S>                                                <C>                 <C>                     <C>            <C>      
Balance at January 1, 1998                         $      2,215,683             33,661               21,505       2,270,849
   Net earnings                                             994,062                 --                   --         994,062
   Repurchases of TCI Ventures Group Stock                   (3,857)                --                   --          (3,857)
   Issuance of TCI Ventures Group Stock (note 11)           177,661                 --                   --         177,661
   Payments for call agreements (note 14)                   (75,836)                --                   --         (75,836)
   Transfer of net liabilities to related party
     (note 14)                                               49,528                 --                   --          49,528
   Adjustment to minority interest deficit in
     joint venture (note 11)                                 24,524                 --                   --          24,524
   Excess of consideration received over basis
     of net assets sold to related party (note
     14)                                                     18,415                 --                   --          18,415
   Assignment of option contract from related
     party (note 14)                                         15,854                 --              (15,854)             --
   Excess of earnings over distributions to
     minority interest in joint venture                      10,771                 --                   --          10,771
   Reclassification of redemption amount of TCI
     Ventures Group Stock subject to put
     obligation                                              (2,963)                --                   --          (2,963)
   Premium received in connection with put
     obligation                                                 348                 --                   --             348
   Recognition of fees related to Equity Swap
     Facility (note 14)                                        (473)                --                   --            (473)
   Foreign currency translation adjustment                       --              6,594                   --           6,594
   Change in unrealized holding gains on
     available-for-sale securities                               --              3,963                   --           3,963
   Other transfers from related parties, net                     --                 --               14,439          14,439
                                                   ----------------    ---------------         ------------   -------------

Balance at September 30, 1998                      $      3,423,717             44,218               20,090       3,488,025
                                                   ================    ===============         ============   =============
</TABLE>

See accompanying notes to combined financial statements.



                                     I-113

<PAGE>   115

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                        Combined Statements of Cash Flows
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                                         Nine months ended
                                                                                           September 30,
                                                                                --------------------------------
                                                                                     1998               1997
                                                                               ---------------     -------------
                                                                                       amounts in thousands
                                                                                           (see note 4)

<S>                                                                            <C>                 <C>  
Cash flows from operating activities:
   Net earnings (loss)                                                         $       994,062          (314,891)
   Adjustments to reconcile net earnings (loss) to net cash provided
     by (used in) operating activities:
        Depreciation and amortization                                                  108,704           138,149
        Cost of distribution agreements                                                 83,320                --
        Stock compensation                                                             122,382            68,699
        Payments of stock compensation                                                 (71,551)               --
        Share of losses of affiliates, net                                             740,103           536,541
        Gain on disposition of assets, net                                          (2,344,958)         (104,774)
        Gain on issuance of stock by affiliate                                        (259,350)          (21,251)
        Gain on issuance of equity interest by attributed subsidiary                   (31,253)          (60,233)
        Minority interests' share of losses (earnings), net                            (52,676)            6,935
        Other noncash charges                                                              524             2,335
        Deferred income tax expense                                                    846,163            16,750
        Intergroup tax allocation                                                     (157,154)         (163,694)
        Changes in operating assets and liabilities, net of the effect of
           acquisitions and the deconsolidation of attributed subsidiary:
             Change in receivables                                                     (20,218)             (284)
             Change in film inventory and other prepaid expenses                         1,019            (2,331)
             Change in payables, accruals, customer prepayments and
                other liabilities                                                       (5,070)           31,073
                                                                               ---------------     -------------

                 Net cash provided by (used in) operating activities           $       (45,953)          133,024
                                                                               ---------------     -------------
</TABLE>


                                                                    (continued)

                                     I-114

<PAGE>   116

                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                  Combined Statements of Cash Flows, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                         Nine months ended
                                                                                           September 30,
                                                                               -----------------------------------
                                                                                     1998                1997
                                                                               ---------------     ---------------
                                                                                       amounts in thousands
                                                                                            (see note 4)
<S>                                                                            <C>                 <C>  
Cash flows from investing activities:
   Investments in and loans to affiliates                                      $      (397,726)           (364,752)
   Capital expended for property and equipment                                         (91,643)           (145,186)
   Proceeds from dispositions of assets                                                124,965             199,929
   Collections of loans to affiliates                                                   19,801              72,836
   Cash balance of deconsolidated subsidiary                                                --             (38,142)
   Cash paid for acquisitions, net                                                     (30,855)            (39,558)
   Other, net                                                                           (8,273)             21,039
                                                                               ---------------     ---------------

                 Net cash used in investing activities                                (383,731)           (293,834)
                                                                               ---------------     ---------------

Cash flows from financing activities:
   Borrowings of debt                                                                  544,750             225,780
   Repayments of debt and capital lease obligations                                    (61,834)           (235,128)
   Payments for call agreements                                                        (75,836)                 --
   Repurchase of common stock by attributed subsidiaries                               (15,440)            (42,014)
   Repurchase of TCI Ventures Group Stock                                               (3,857)                 --
   Net proceeds from issuance of stock by attributed subsidiaries                       91,762             148,015
   Collections on note receivable from related party                                    88,707             149,245
   Borrowings from related party                                                        70,000                  --
   Cash transfers (to) from related parties                                            (31,115)            160,373
   Distribution to minority interest owners                                             (3,704)             (8,488)
   Other, net                                                                           (1,846)               (950)
                                                                               ---------------     ---------------

                 Net cash provided by financing activities                             601,587             396,833
                                                                               ---------------     ---------------

                 Net increase in cash and cash equivalents                             171,903             236,023

                 Cash and cash equivalents: Beginning of period                        161,495             105,527
                                                                               ---------------     ---------------

                     End of period                                             $       333,398             341,550
                                                                               ===============     ===============
</TABLE>

See accompanying notes to combined financial statements.


                                     I-115

<PAGE>   117





                              "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

                               September 30, 1998
                                   (unaudited)

(1)      Basis of Presentation

         The accompanying combined financial statements include the accounts of
         the subsidiaries and assets of Tele-Communications, Inc. ("TCI") that
         are attributed to TCI Ventures Group, as defined below. The combined
         financial statements of TCI Ventures Group are presented for purposes
         of additional analysis of the consolidated financial statements of TCI
         and subsidiaries, and should be read in conjunction with such
         consolidated financial statements.

         All significant intercompany accounts and transactions have been
         eliminated. Preferred stock of TCI, which is owned by subsidiaries of
         TCI, eliminates in combination. Common stock of TCI held by
         subsidiaries is included in combined equity.

         The accompanying interim combined 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 of such periods. The results of operations for any interim
         period are not necessarily indicative of results for the full year.
         These unaudited interim combined financial statements should be read in
         conjunction with the TCI Ventures Group's December 31, 1997 audited
         financial statements and notes thereto.

         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.

         Effective January 1, 1998, TCI Ventures Group adopted the provisions of
         Statement of Financial Accounting Standards No. 130, Reporting
         Comprehensive Income ("SFAS 130"). TCI Ventures Group has reclassified
         its prior period combined balance sheet and combined 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. TCI Ventures Group has included cumulative foreign
         currency translation adjustments and unrealized holding gains and
         losses on available-for-sale securities in other comprehensive earnings
         that are recorded directly in combined equity. Pursuant to SFAS 130,
         these items are reflected, net of related tax effects, as components of
         comprehensive losses in TCI Ventures Group's combined statements of
         operations, and are included in accumulated other comprehensive
         earnings in TCI Ventures Group's combined balance sheets and statements
         of combined equity.



                                                                    (continued)


                                     I-116

<PAGE>   118

                             "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         The Financial Accounting Standards Board recently issued Statement of
         Financial Accounting Standards No. 133, "Accounting for Derivative
         Instruments and Hedging Activities," ("SFAS 133"), which is effective
         for all fiscal years beginning after June 15, 1999. SFAS 133
         establishes accounting and reporting standards for derivative
         instruments and hedging activities by requiring that all derivative
         instruments be reported as assets or liabilities and measured at their
         fair values. Under SFAS 133, changes in the fair values of derivative
         instruments are recognized immediately in earnings unless those
         instruments qualify as hedges of the (1) fair values of existing
         assets, liabilities, or firm commitments, (2) variability of cash flows
         of forecasted transactions, or (3) foreign currency exposures of net
         investments in foreign operations. Although management of the Company
         has not completed its assessment of the impact of SFAS 133 on its
         combined results of operations and financial position, management
         estimates that the impact of SFAS 133 will not be material.

         TINTA ceased to consolidate Flextech p.l.c. ("Flextech") and
         Cablevision and began to account for Flextech and Cablevision using the
         equity method of accounting, effective January 1, 1997 and October 1,
         1997, respectively. See notes 7 and 8.

         Unless otherwise indicated, convenience translations of foreign
         currencies into U.S. dollars are calculated using the applicable spot
         rate at September 30, 1998, as published in The Wall Street Journal.

         Targeted Stock

         On August 28, 1997, the stockholders of TCI authorized the Board of
         Directors of TCI (the "Board") to issue the Tele-Communications, Inc.
         Series A TCI Ventures Group Common Stock, par value $1.00 per share
         (the "TCI Ventures Group Series A Stock") and Tele-Communications, Inc.
         Series B TCI Ventures Group Common Stock, par value $1.00 per share
         (the "TCI Ventures Group Series B Stock," and together with TCI
         Ventures Group Series A Stock, the "TCI Ventures Group Stock") The TCI
         Ventures Group Stock is intended to reflect the separate performance of
         the TCI Ventures Group, as defined below.

                                                                    (continued)


                                     I-117

<PAGE>   119
                             "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements
                               
         As of September 30, 1998, the TCI Ventures Group consisted principally
         of the following assets and their related liabilities: (i) TCI's 85%
         equity interest (representing a 92% voting interest) in
         Tele-Communications International, Inc. ("TINTA"), which is TCI's
         primary vehicle for the conduct of its international cable, telephony
         and programming businesses (other than those international programming
         businesses attributed to the Liberty Media Group), (ii) TCI's principal
         interests in the telephony business ("TCI Telephony") consisting
         primarily of TCI's investment in a series of partnerships formed to
         engage in the business of providing wireless communications services,
         using the radio spectrum for broadband personal communications services
         ("PCS"), to residential and business customers nationwide under the
         Sprint(R) brand (a registered trademark of Sprint Communications
         Company, L.P.), TCI's 3% interest in AT&T and Western
         Tele-Communications, Inc. ("WTCI"), a wholly-owned subsidiary of TCI
         that provides long distance transport of video, voice and data traffic
         and other telecommunications services to interexchange carriers on a
         wholesale basis using primarily a digital broadband microwave network
         located throughout a 12 state region, (iii) a 57% equity interest
         (representing a 89% voting interest) in United Video Satellite Group,
         Inc. ("UVSG"), which provides satellite-delivered video, audio, data
         and program promotion services to cable television systems, satellite
         dish owners, radio stations and private network users, primarily
         throughout North America, (iv) TCI's 39% equity interest (representing
         a 72% voting interest) in At Home Corporation ("@Home"), a provider of
         high speed multimedia Internet services, and TCI's interest in other
         Internet-related assets and (v) other assets, including ETC w/tci, Inc.
         ("ETC"), a wholly-owned subsidiary of TCI which is a developer and
         distributor of for-profit education, training and communications
         services and products, and National Digital Television Center, Inc. and
         related companies ("NDTC"), which provide digital compression and
         authorization services to programming suppliers and to video
         distribution outlets. The foregoing subsidiaries and assets are
         collectively referred to as "TCI Ventures Group." The stocks of TINTA,
         AT&T, @Home and UVSG are publicly traded.

         The TCI Ventures Group may also include such other assets and
         liabilities of the TCI Group as the Board may in the future determine
         to attribute or sell to the TCI Ventures Group and such other
         businesses, assets and liabilities that TCI or any of its subsidiaries
         may in the future acquire for the TCI Ventures Group, as determined by
         the Board. It is currently the intention of TCI that any businesses,
         assets and liabilities so attributed to the TCI Ventures Group in the
         future would not include assets and liabilities of TCI's domestic
         programming businesses and investments or its domestic cable operations
         (including its businesses which utilize its cable network to distribute
         telephony and Internet services).

                                                                    (continued)


                                     I-118

<PAGE>   120
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         The "TCI Group" is intended to reflect the performance of those
         businesses of TCI and its subsidiaries not attributed to the "Liberty
         Media Group" (which is intended to reflect the performance of TCI's
         assets which produce and distribute programming services) and TCI
         Ventures Group. Collectively, TCI Group, Liberty Media Group and TCI
         Ventures Group are referred to as the "Groups" and individually may be
         referred to herein as a "Group". The Tele-Communications, Inc. Series A
         TCI Group Common Stock, par value $1.00 per share (the "TCI Group
         Series A Stock"), TCI Ventures Group Series A Stock and the
         Tele-Communications, Inc. Series A Liberty Media Group Common Stock,
         par value $1.00 per share ("Liberty Group Series A Stock") are
         sometimes collectively referred to herein as the "Series A Stock," and
         the Tele-Communications, Inc. Series B TCI Group Common Stock, par
         value $1.00 per share (the "TCI Group Series B Stock"), TCI Ventures
         Group Series B Stock and Tele-Communications, Inc. Series B Liberty
         Media Group Common Stock, par value $1.00 per share ("Liberty Group
         Series B Stock") are sometimes collectively referred to herein as the
         "Series B Stock."

         The common stockholders' equity value of TCI attributable to TCI
         Ventures Group that, at any relevant time, is attributed to TCI Group,
         and accordingly, not represented by outstanding TCI Ventures Group
         Stock is referred to as "Inter-Group Interest". Prior to the issuance
         of shares of TCI Ventures Group Stock, the Inter-Group Interest of TCI
         Group in TCI Ventures Group was 100%. Following consummation of the TCI
         Ventures Exchange, TCI Group no longer has an Inter-Group Interest in
         TCI Ventures Group. Following consummation of the TCI Ventures
         Exchange, an Inter-Group Interest would be created with respect to TCI
         Ventures Group only if a subsequent transfer of cash or other property
         from TCI Group to TCI Ventures Group is specifically designated by the
         Board as being made to create an Inter-Group Interest or if outstanding
         shares of TCI Ventures Stock are purchased with funds attributable to
         TCI Group.

         While the TCI Ventures Group Stock constitutes common stock of TCI,
         issuance of the TCI Ventures Group Stock did not result in any transfer
         of assets or liabilities of TCI or any of its subsidiaries or affect
         the rights of holders of TCI's or any of its subsidiaries' debt.

         Holders of TCI Group Series A Stock and TCI Group Series B Stock
         (collectively, the "TCI Group Stock"), Liberty Group Series A Stock and
         Liberty Group Series B Stock (collectively, the "Liberty Group Stock")
         and TCI Ventures Group Stock are common stockholders of TCI and are
         subject to risks associated with an investment in TCI and all of its
         businesses, assets and liabilities.


                                                                    (continued)


                                     I-119

<PAGE>   121
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         In August 1997, TCI commenced offers (the "Exchange Offers") to
         exchange shares of TCI Ventures Group Series A Stock and TCI Ventures
         Group Series B Stock for up to 188,661,300 shares of TCI Group Series A
         Stock and up to 16,266,400 shares of TCI Group Series B Stock,
         respectively. The exchange ratio for the exchange offers was two shares
         of the applicable series of TCI Ventures Group Stock for each share of
         the corresponding series of TCI Group Stock properly tendered up to the
         indicated maximum numbers. Upon the September 10, 1997 consummation of
         the Exchange Offers, 188,661,300 shares of TCI Group Series A Stock and
         16,266,400 shares of TCI Group Series B Stock were exchanged for
         377,322,600 shares of TCI Ventures Group Series A Stock and 32,532,800
         shares of TCI Ventures Group Series B Stock (as adjusted for a stock
         dividend - see below), (the "TCI Ventures Exchange"). The aggregate
         number of shares of TCI Ventures Group Stock issued in the Exchange
         Offers represented 100% of the common stockholders' equity value of TCI
         attributable to the TCI Ventures Group. Accordingly, the Inter-Group
         Interest of the TCI Group was reduced to zero upon consummation of the
         Exchange Offers.

         Notwithstanding the attribution of assets and liabilities, equity and
         items of income and expense among TCI Group, Liberty Media Group and
         TCI Ventures Group for the purpose of preparing their respective
         combined financial statements, the change in the capital structure of
         TCI resulting from the redesignation of TCI Group Stock and the
         issuance of TCI Ventures Group Stock did not affect the ownership or
         the respective legal title to assets or responsibility for liabilities
         of TCI or any of its subsidiaries. TCI and its subsidiaries each
         continue to be responsible for their respective liabilities. Holders of
         TCI Group Stock, Liberty Media Group Stock and TCI Ventures Group Stock
         are common stockholders of TCI and are subject to risks associated with
         an investment in TCI and all of its businesses, assets and liabilities.
         The redesignation of TCI Group Stock and the issuance of TCI Ventures
         Group Stock did not affect the rights of the creditors of TCI.

         Financial effects arising from any portion of TCI that affect the
         consolidated results of operations or financial condition could affect
         the combined results of operations or financial condition of the TCI
         Ventures Group and the market price of shares of TCI Ventures Group
         Stock. In addition, net losses of any portion of TCI, dividends or
         distributions on, or repurchases of, any series of common stock, and
         dividends on, or certain repurchases of, preferred stock, would reduce
         funds of TCI legally available for dividends on all series of common
         stock. Accordingly, TCI Ventures Group financial information should be
         read in conjunction with the financial information of TCI and the other
         Groups.

         Dividends on TCI Ventures Group Stock will be payable at the sole
         discretion of the Board out of the lesser of the assets of TCI legally
         available for dividends or the available dividend amount with respect
         to the TCI Ventures Group, as defined. Determinations to pay dividends
         on TCI Ventures Group Stock are based primarily upon the financial
         condition, results of operations and business requirements of the TCI
         Ventures Group and TCI as a whole.


                                                                    (continued)


                                     I-120

<PAGE>   122
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         All financial impacts of issuances and purchases of shares of TCI
         Ventures Group Stock which are attributed to TCI Ventures Group will be
         to such extent reflected in the combined financial statements of TCI
         Ventures Group. All financial impacts of issuances of shares of TCI
         Ventures Group Stock the proceeds of which are attributed to TCI Group
         in respect of a reduction in TCI Group's Inter-Group Interest in TCI
         Ventures Group will be to such extent reflected in the combined
         financial statements of TCI Group. Financial impacts of dividends or
         other distributions on TCI Ventures Group Stock will be attributed
         entirely to TCI Ventures Group, except that dividends or other
         distributions on TCI Ventures Group Stock will (if at the time there is
         an Inter-Group Interest in the TCI Ventures Group) result in TCI Group
         being credited, and TCI Ventures Group being charged (in addition to
         the charge for the dividend or other distribution paid), with an amount
         equal to the product of the aggregate amount of such dividend or other
         distribution paid or distributed in respect of outstanding shares of
         TCI Ventures Group Stock and a fraction the numerator of which is the
         "TCI Ventures Group Inter-Group Interest Fraction" and the denominator
         of which is the "TCI Ventures Group Outstanding Interest Fraction"
         (both as defined). Financial impacts of repurchases of TCI Ventures
         Group Stock, the consideration for which is charged to TCI Group will
         be to such extent reflected in the combined financial statements of TCI
         Group and will result in an increase in TCI Group's Inter-Group
         Interest in TCI Ventures Group.

         All debt incurred or preferred stock issued by TCI and its subsidiaries
         following the issuance of TCI Ventures Group Stock is (unless the Board
         otherwise provides) specifically attributed to and reflected in the
         combined financial statements of the Group that includes the entity
         which incurred the debt or issued the preferred stock or, in case the
         entity incurring the debt or issuing the preferred stock is
         Tele-Communications, Inc., the TCI Group. The Board could, however,
         determine from time to time that debt incurred or preferred stock
         issued by entities included in a Group should be specifically
         attributed to and reflected on the combined financial statements of one
         of the other Groups to the extent that the debt is incurred or the
         preferred stock is issued for the benefit of such other Group.

         Although it is management's intention that each Group would normally
         arrange for the external financing required to satisfy its respective
         liquidity requirements, the cash needs of one Group may exceed the
         liquidity sources of such Group. In such circumstances, one of the
         other Groups may transfer funds to such Group. Such transfers of funds
         among the Groups will be reflected as borrowings or, if determined by
         the Board, in the case of a transfer from the TCI Group to either the
         Liberty Media Group or the TCI Ventures Group, reflected as the
         creation of, or increase in, the TCI Group's Inter-Group Interest in
         such Group or, in the case of a transfer from either the Liberty Media
         Group or the TCI Ventures Group to the TCI Group, reflected as a
         reduction in the TCI Group's Inter-Group Interest in such Group. There
         are no specific criteria for determining when a transfer will be
         reflected as a borrowing or as an increase or reduction in an
         Inter-Group Interest. The Board expects to make such determinations,
         either in specific instances or by setting generally applicable
         policies from time to time, after consideration of such factors as it
         deems relevant, including, without limitation, the needs of TCI, the
         financing needs and objectives of the Groups, the investment objectives
         of the Groups, the availability, cost and time associated with
         alternative financing sources, prevailing interest rates and general
         economic conditions.
                                                                    (continued)


                                     I-121

<PAGE>   123
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Loans from one Group to another Group would bear interest at such rates
         and have such repayment schedules and other terms as are established
         from time to time by, or pursuant to procedures established by, the
         Board. The Board expects to make such determinations, either in
         specific instances or by setting generally applicable polices from time
         to time, after consideration of such factors as it deems relevant,
         including, without limitation, the needs of TCI, the use of proceeds by
         and creditworthiness of the recipient Group, the capital expenditure
         plans and investment opportunities available to each Group and the
         availability, cost and time associated with alternative financing
         sources.

         The combined balance sheets of a Group reflect its net loans or
         advances to or borrowings from the other Groups. Similarly, the
         respective combined statements of operations of the Groups reflect
         interest income or expense, as the case may be, associated with such
         loans or advances and the respective combined statements of cash flows
         of the Groups reflect changes in the amounts of loans or advances
         deemed outstanding. In the historical financial statements, net loans
         or advances between Groups have been and will continue to be included
         as a component of each respective Group's equity.

         Although any increase in the TCI Group's Inter-Group Interest in the
         TCI Ventures Group resulting from an equity contribution by the TCI
         Group to the TCI Ventures Group or any decrease in such Inter-Group
         Interest resulting from a transfer of funds from the TCI Ventures Group
         to the TCI Group would be determined by reference to the market value
         of the Series A TCI Ventures Group Stock as of the date of such
         transfer, such an increase could occur at a time when such shares could
         be considered undervalued and such a decrease could occur at a time
         when such shares could be considered overvalued.

                                                                    (continued)


                                     I-122

<PAGE>   124
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(2)      Proposed Merger

         TCI and AT&T have agreed to a merger (the "Merger") pursuant to, and
         subject to the terms and conditions set forth in, the Agreement and
         Plan of Restructuring and Merger, dated as of June 23, 1998 (the
         "Merger Agreement"), among TCI, AT&T and an indirect wholly-owned
         subsidiary of AT&T. In the Merger, TCI will become a wholly-owned
         subsidiary of AT&T and (i) each share of TCI Group Series A Stock will
         be converted into .7757 of a share of common stock, par value $1.00 per
         share, of AT&T ("AT&T Common Stock"), (ii) each share of TCI Group
         Series B Stock will be converted into .8533 of a share of AT&T Common
         Stock, (iii) each share of Liberty Group Series A Stock will be
         converted into one share of a newly authorized class of AT&T common
         stock to be designated as the Class A Liberty Group Common Stock, par
         value $1.00 per share (the "AT&T Liberty Class A Tracking Stock") and
         (iv) each share of Liberty Group Series B Stock will be converted into
         one share of a newly authorized class of AT&T common stock to be
         designated as the Class B Liberty Group Common Stock, par value $1.00
         per share (the "AT&T Liberty Class B Tracking Stock" and together with
         the AT&T Liberty Class A Tracking Stock, the "AT&T Liberty Tracking
         Stock"). In addition, TCI has announced its intention, subject to
         stockholder approval, to combine the assets and businesses of Liberty
         Media Group and TCI Ventures Group and reclassify each share of TCI
         Ventures Group Series A Stock as .52 of a share of Liberty Group Series
         A Stock and each share of TCI Ventures Group Series B Stock as .52 of a
         share of Liberty Group Series B Stock. If such combination and
         reclassification does not occur prior to the Merger, then in the Merger
         each share of TCI Ventures Group Series A Stock and TCI Ventures Group
         Series B Stock will be converted into .52 of a share of the
         corresponding series of AT&T Liberty Tracking Stock. In general, the
         holders of shares of AT&T Liberty Class A Tracking Stock and the
         holders of shares of AT&T Liberty Class B Tracking Stock will vote
         together as a single class with the holders of shares of AT&T Common
         Stock on all matters presented to such stockholders, with the holders
         being entitled to one-tenth (1/10th) of a vote for each share of AT&T
         Liberty Class A Tracking Stock held, 1 vote per share of AT&T Liberty
         Class B Tracking Stock held, and 1 vote per share of AT&T Common Stock
         held.


                                                                   (continued)


                                     I-123

<PAGE>   125
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         The shares of AT&T Liberty Tracking Stock to be issued in the Merger
         will be a newly authorized class of common stock of AT&T which will be
         intended to reflect the separate performance of the businesses and
         assets attributed to the "Liberty/Ventures Group", which following the
         Merger, will be made up of the businesses and assets which are
         attributed to Liberty Media Group and TCI Ventures Group at the time of
         the Merger. Pursuant to the Merger Agreement, immediately prior to the
         Merger, certain assets currently attributed to TCI Ventures Group
         (including, among others, the shares of AT&T Common Stock received in
         the merger of AT&T and Teleport Communications Group ("TCG"), the stock
         of @Home attributed to TCI Ventures Group, the assets and business of
         NDTC and TCI Ventures Group's equity interest in WTCI) will be
         transferred to TCI Group in exchange for approximately $5.5 billion in
         cash. Also, upon consummation of the Merger, through a new tax sharing
         agreement between Liberty/Ventures Group and AT&T, Liberty/Ventures
         Group will become entitled to the benefit of all of the net operating
         loss carryforwards available to the entities included in TCI's
         consolidated income tax return as of the date of the Merger.
         Additionally, certain warrants currently attributed to TCI Group will
         be transferred to Liberty/Ventures Group in exchange for up to $176
         million in cash. Certain agreements to be entered into at the time of
         the Merger as contemplated by the Merger Agreement will, among other
         things, provide preferred vendor status to Liberty/Ventures Group for
         digital basic distribution on AT&T's systems of new programming
         services created by Liberty/Ventures Group, provide for a renewal of
         existing affiliation agreements and provide for the business of the
         Liberty/Ventures Group to continue to be managed following the Merger
         by certain members of TCI's management who currently manage the
         businesses of Liberty Media Group and TCI Ventures Group.

         If TCI terminates the Merger Agreement due to (i) the failure of AT&T's
         stockholders to approve the Merger prior to March 31, 1999, (ii) the
         withdrawal or modification by the AT&T Board of Directors of its
         approval of the transaction, or (iii) the failure to obtain necessary
         governmental and regulatory approvals by September 30, 1999, which
         failure occurs as a result of the announcement by AT&T of a significant
         transaction which delays receipt of such governmental approvals, AT&T
         will pay to TCI the sum of $1.75 billion in cash. If AT&T terminates
         the Merger Agreement, under certain circumstances, including the
         failure of TCI stockholders to approve the transaction prior to March
         31, 1999 or the withdrawal or modification by the TCI Board of
         Directors of its approval of the Merger, TCI will pay to AT&T the sum
         of $1.75 billion in cash.

         Consummation of the Merger is subject to the satisfaction or waiver of
         customary conditions to closing, including but not limited to, the
         separate approvals of the stockholders of AT&T and TCI, receipt of all
         necessary governmental consents and approvals, and effectiveness of the
         registration statement registering the AT&T Common Stock and AT&T
         Liberty Tracking Stock to be issued to TCI stockholders in the Merger.
         As a result, there can be no assurance that the Merger will be
         consummated or, if the Merger is consummated, as to the date of such
         consummation.

                                                                    (continued)


                                     I-124

<PAGE>   126
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(3)      Earnings Per Common Share and Potential Common Share

         Basic earnings per share ("EPS") is measured as the income or loss
         attributable to common stockholders divided by the weighted average
         outstanding common shares for the period. Diluted EPS is similar to
         basic EPS but presents the dilutive effect on a per share basis of
         potential common shares as if they had been converted at the beginning
         of the periods presented. Potential common shares that have an
         anti-dilutive effect are excluded from diluted EPS.

         The basic earnings attributable to TCI Ventures Group stockholders per
         common share for the three and nine months ended September 30, 1998 and
         1997 was computed by dividing earnings attributable to TCI Ventures
         Group stockholders by the weighted average number of common shares
         outstanding of TCI Ventures Group Stock during the period.

         The diluted earnings attributable to TCI Ventures Group stockholders
         per common and potential common share for the three and nine months
         ended September 30, 1998 and 1997 was computed by dividing earnings
         attributable to TCI Ventures Group stockholders by the weighted average
         number of common and dilutive potential common shares outstanding of
         TCI Ventures Group Stock during the period. Shares issuable upon
         conversion of convertible notes payable, stock options and other
         performance awards have been included in the computation of weighted
         average shares to the extent the assumed issuance of such shares would
         have been dilutive, as illustrated below. Numerator adjustments for
         interest associated with convertible notes payable were not made to the
         computation of diluted earnings per share as such interest is paid or
         payable by TCI Group.

         No material changes in the weighted average outstanding shares or
         potential common shares occurred after September 30, 1998.


                                                                   (continued)

                                     I-125

<PAGE>   127
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Information concerning the reconciliation of basic EPS to dilutive EPS
         with respect to TCI Ventures Group Stock is presented below:

<TABLE>
<CAPTION>
                                                               Three months ended                  Nine months ended
                                                                  September 30,                      September 30,
                                                        ---------------------------------  ---------------------------------
                                                             1998                1997           1998               1997
                                                        -------------     ---------------  --------------    ---------------
                                                                    amounts in thousands, except per share amounts
<S>                                                     <C>               <C>              <C>               <C> 
           Basic EPS:
                Net earnings (loss)                     $   1,302,959            (125,733)       994,062            (314,891)
                Loss through the date of the TCI
                   Ventures Exchange (note 1)                      --             156,184             --             345,342 
                                                        -------------     ---------------  -------------     ---------------
                Earnings attributable to common
                   stockholders                         $   1,302,959              30,451        994,062              30,451
                                                        =============     ===============  =============     ===============

                Weighted average common shares                422,398             409,855        421,744             409,855
                                                        =============     ===============  =============     ===============
                Basic earnings per share
                   attributable to common stockholders  $        3.08                 .07           2.36                 .07
                                                        =============     ===============  =============     ===============

           Diluted EPS:
                Earnings attributable to common
                   stockholders                         $   1,302,959              30,451        994,062              30,451
                                                        =============     ===============  =============     ===============

                Weighted average common shares                422,398             409,855        421,744             409,855
                                                        -------------     ---------------  -------------     ---------------
                Add dilutive potential common shares:
                   Employee and director options and
                      other performance awards                  7,919               4,590          8,569               4,590
                   Convertible notes payable                   20,711              20,774         20,711              20,774
                                                        -------------     ---------------  -------------     ---------------
                   Dilutive potential common shares            28,630              25,364         29,280              25,364
                                                        -------------     ---------------  -------------     ---------------
                Diluted weighted average common shares        451,028             435,219        451,024             435,219
                                                        =============     ===============  =============     ===============
                Diluted earnings  per share
                   attributable to common stockholders  $        2.89                 .07           2.20                 .07
                                                        =============     ===============  =============     ===============
</TABLE>


                                                                    (continued)


                                     I-126

<PAGE>   128

                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(4)      Supplemental Disclosures to Statements of Cash Flows

         Cash paid for interest was $41 million and $45 million for the nine
         months ended September 30, 1998 and 1997, respectively. Cash paid for
         income taxes was $19 million and $28 million during the nine months
         ended September 30, 1998 and 1997, respectively.

         The net cash paid for acquisitions is as follows:

<TABLE>
<CAPTION>
                                                                                  Nine months ended
                                                                                    September 30,
                                                                   ------------------------------------------
                                                                         1998                       1997
                                                                   ----------------       -------------------
                                                                                amounts in thousands

<S>                                                                <C>                    <C>     
         Fair value of assets acquired                             $       (117,089)                  (79,555)
         Issuance of notes payable                                           65,000                        --
         Net liabilities assumed                                             21,234                    38,482
         Minority interest in equity of acquired entity                          --                     1,515
                                                                   ----------------       -------------------
                 Cash paid for acquisitions                        $        (30,855)                  (39,558)
                                                                   ================       ===================

         Property and equipment purchased under capital
             leases                                                $             --                   168,326
                                                                   ================       ===================
</TABLE>

         The effects of changing the method of accounting for TINTA's ownership
         interest in Flextech from the consolidation method to the equity method
         (see note 8) are summarized below (amounts in thousands):

<TABLE>
<S>                                                                    <C>   
                Assets reclassified to equity investments              $         177,003
                Liabilities reclassified to equity investments                   (72,512)
                Minority interests in equity of attributed
                    subsidiary reclassified to equity investments               (142,633)

                Decrease in cash and cash equivalents                  $         (38,142)
                                                                       =================
</TABLE>

         For information concerning additional non-cash transactions see notes
11 and 14.

(5)      Investment in Telewest

         At September 30, 1998, TINTA indirectly owned through its 50% ownership
         interest in TW Holdings, L.L.C., 463,438,960 or 22% of the issued and
         outstanding Telewest ordinary shares. The reported closing price on the
         London Stock Exchange of Telewest ordinary shares was (pound)1.35
         ($2.30) per share at September 30, 1998.


                                                                    (continued)


                                     I-127

<PAGE>   129
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Effective September 1, 1998, Telewest and General Cable PLC ("General
         Cable") consummated a merger (the "General Cable Merger") in which
         holders of General Cable received 1.243 new Telewest shares and
         (pound)0.65 ($1.11) in cash for each share of General Cable. In
         addition, holders of American Depository shares of General Cable
         ("General Cable ADS") (each representing five General Cable shares)
         received 6.215 new Telewest shares and (pound)3.25 ($5.53) in cash for
         each share of General Cable ADS. Based upon Telewest's closing share
         price of (pound)0.89 ($1.51) on April 14, 1998, the General Cable
         Merger was valued at approximately (pound)649 million ($1.1 billion).

         The cash portion of the General Cable Merger was financed through an
         offer to qualifying Telewest shareholders for the purchase of
         approximately 261 million new Telewest shares at a price of
         (pound)0.925 ($1.57) per share (the "Telewest Offer"). TINTA subscribed
         to 84,688,960 Telewest ordinary shares at an aggregate cost of
         (pound)78.3 million ($133.1 million) in connection with the Telewest
         Offer. Immediately following the Telewest Offer, TINTA owned 28% of the
         issued and outstanding Telewest ordinary shares.

         In connection with the General Cable Merger, TINTA also converted its
         entire holdings of Telewest convertible preference shares (132,638,250
         shares) into Telewest ordinary shares. As a result of the General Cable
         Merger, TINTA's ownership interest in Telewest decreased to 22%. In
         connection with such dilution, TINTA recognized a non-cash gain of
         $58.0 million (excluding related tax expense of $20.3 million) during
         the third quarter of 1998.

         As a result of Telewest's issuance of U.S. dollar denominated
         debentures (the "Telewest Debentures"), changes in the exchange rate
         used to translate the U.S. dollar into the UK pound sterling will cause
         Telewest to experience realized and unrealized foreign currency
         transaction gains and losses throughout the term of the Telewest
         Debentures, which mature in 2006 and 2007, if not redeemed earlier.
         During the nine months ended September 30, 1998 and 1997, Telewest
         experienced foreign currency transaction gains (losses) of (pound)11.1
         million ($18.5 million using the applicable exchange rate) and
         (pound)(32.87 million) ($54.5 million using the applicable exchange
         rate) respectively, resulting from the translation of the Telewest
         Debentures into UK pounds sterling and the adjustment of a related
         foreign currency option contract to market value.

         The functional currency of Telewest is the UK pound sterling. The
         average exchange rate used to translate the TCI Ventures Group's share
         of Telewest's operating results from UK pounds to U.S. dollars was
         1.6584 to 1 and 1.6393 to 1 during the nine months ended September 30,
         1998 and 1997, respectively. The spot rate used to translate the TCI
         Ventures Group's share of Telewest's net assets from UK pounds to U.S.
         dollars was 1.7000 to 1 and 1.6508 to 1 at September 30, 1998 and
         December 31, 1997, respectively.


                                                                    (continued)


                                     I-128

<PAGE>   130
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Summarized unaudited results of operations for Telewest are as follows:

<TABLE>
<CAPTION>
                                                                                       Nine months ended
                                                                                         September 30,
                                                                          --------------------------------------
                                                                                 1998                  1997
                                                                          ---------------       ----------------
          Consolidated Operations                                                   amounts in thousands
          -----------------------

<S>                                                                       <C>                   <C>    
              Revenue                                                     $       604,537                460,646
              Operating, selling, general and administrative expenses            (456,421)              (408,038)
              Depreciation and amortization                                      (281,106)              (239,987)
                                                                          ---------------       ----------------

                   Operating loss                                                (132,990)              (187,379)

              Interest expense, net                                              (209,585)              (154,510)
              Share of losses of affiliates                                       (25,951)               (26,078)
              Foreign currency transaction gain (loss)                             18,511                (54,487)
              Other, net                                                            2,051                    339
                                                                          ---------------       ----------------

                   Net loss                                               $      (347,964)              (422,115)
                                                                          ===============       ================
</TABLE>

(6)      Investments in the PCS Ventures

         TCI Telephony is a partner in a series of partnerships formed to engage
         in the business of providing wireless communications services, using
         the radio spectrum for broadband personal communications services
         ("PCS"), to residential and business customers nationwide, using the
         "Sprint" brand. The PCS Ventures include Sprint Spectrum Holding
         Company, L. P. ("Sprint Spectrum") and MinorCo, L.P. (collectively,
         "Sprint PCS") and PhillieCo, L.P. ("PhillieCo"). The partners of Sprint
         PCS are subsidiaries of Sprint Corporation ("Sprint"), Comcast
         Corporation ("Comcast"), Cox Communications, Inc. ("Cox") and TCI. The
         partners of PhillieCo are subsidiaries of Sprint, Cox and TCI. TCI
         Ventures Group has a 30% partnership interest in Sprint PCS and a 35%
         partnership interest in PhillieCo.

         From inception through September 1998, the four partners have
         contributed $4.6 billion to Sprint PCS (of which TCI Telephony
         contributed an aggregate of $1.4 billion). Sprint PCS's business plan
         will require additional capital financing prior to the end of 1998.
         Sources of funding for Sprint PCS's capital requirements may include
         vendor financing, public offerings or private placements of equity
         and/or debt securities, commercial bank loans and/or capital
         contributions from the Sprint PCS partners. However, there can be no
         assurance that any additional financing can be obtained on a timely
         basis, on terms acceptable to Sprint PCS or the Sprint PCS partners and
         within the limitations contained in the agreements governing Sprint
         PCS's existing debt.


                                                                    (continued)


                                     I-129

<PAGE>   131
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Additionally, the proposed budget for 1998 has not yet been approved by
         the Sprint PCS partnership board, although the board has authorized
         management to operate Sprint PCS in accordance with such budget. The
         Sprint PCS partners may mutually agree to make additional capital
         contributions. However, the Sprint PCS partners have no such obligation
         in the absence of an approved budget, and there can be no assurance the
         Sprint PCS partners will reach such an agreement or approve the 1998
         proposed budget. In addition, the failure by the Sprint PCS partners to
         approve a business plan may impair the ability of Sprint PCS to obtain
         required financing. Failure to obtain any such additional financing or
         capital contributions from the Sprint PCS partners could result in the
         delay or abandonment of Sprint PCS's development and expansion plans
         and expenditures, the failure to meet regulatory requirements or other
         potential adverse consequences.

         Furthermore, the fact that the proposed budget for Sprint PCS for
         fiscal 1998 has not yet been approved by the Sprint PCS partnership
         board has resulted in the occurrence of a "Deadlock Event" under the
         Sprint PCS partnership agreement as of January 1, 1998. Under the
         Sprint PCS partnership agreement, if one of the Sprint PCS partners
         refers the budget issue to the chief executive officers of the
         corporate parents of the Sprint PCS partners for resolution pursuant to
         specified procedures and the issue remains unresolved, buy/sell
         provisions would be triggered, which may result in the purchase by one
         or more of the Sprint PCS partners of the interests of the other Sprint
         PCS partners, or, in certain circumstances, liquidation of Sprint PCS.

         In May 1998 the Sprint PCS partners entered into a series of agreements
         pursuant to which TCI Telephony, Comcast and Cox would exchange their
         respective interests in Sprint PCS and PhillieCo for shares of a new
         class of tracking stock of Sprint which would track the performance of
         Sprint's newly created PCS Group (which would initially consist of
         Sprint PCS, PhillieCo and certain PCS licenses which are separately
         owned by Sprint). The consummation of such transactions is subject to a
         number of conditions, including the approval of such transactions by
         the stockholders of Sprint. If such transactions are consummated, TCI
         Telephony will initially hold shares of Sprint PCS Group stock (as well
         as certain additional securities of Sprint exercisable for or
         convertible into such securities) representing approximately 24% of the
         equity value of Sprint attributable to the PCS Group, subject to
         further dilution as a result of additional expected issuances of shares
         of Sprint PCS stock (including in connection with a proposed initial
         public offering of shares of Sprint PCS stock that may be consummated
         in connection with such transactions). In connection with the execution
         of such agreements, the Sprint PCS partners agreed to make up to $400
         million in additional capital contributions (of which TCI Telephony's
         share is $120 million) to Sprint PCS pending the closing of such
         transactions. As of September 30, 1998, all of such additional capital
         contributions had been made to Sprint PCS. If the above-described
         transactions are consummated, the Company would begin to account for
         its investment in the Sprint PCS stock as an available-for-sale
         security. No assurance can be given that the above-described
         transactions will be consummated.


                                                                    (continued)

                                     I-130

<PAGE>   132
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Summarized unaudited results of operations for the PCS Ventures,
accounted for under the equity method, are as follows:

<TABLE>
<CAPTION>
                                                                                  Nine months ended
                                                                                    September 30,
                                                                    ---------------------------------------
                 Combined Operations                                       1998                    1997
                 -------------------                                -----------------     -----------------
                                                                                amounts in thousands

<S>                                                                 <C>                   <C>    
                     Revenue                                        $         787,953               110,528
                     Operating, selling, general and
                         administrative  expenses                          (1,714,629)             (789,583)
                     Depreciation and amortization                           (529,166)             (189,924)
                                                                    -----------------     -----------------

                       Operating loss                                      (1,455,842)             (868,979)

                     Interest expense                                        (358,321)              (55,568)
                     Other, net                                               122,173               (96,911)
                                                                    -----------------     -----------------

                       Net loss                                     $      (1,691,990)           (1,021,458)
                                                                    =================     =================
</TABLE>

(7)      Cablevision

         On October 9, 1997, TINTA sold a portion of its 51% interest in
         Cablevision to unaffiliated third parties (the "Buyers") for cash
         proceeds of $120 million. In addition, on October 9, 1997, Cablevision
         issued 3,541,829 shares of stock in the aggregate to the Buyers for
         $320 million. The above transactions, (collectively, the "Cablevision
         Sale") reduced TINTA's interest in Cablevision to 26%. TINTA recognized
         a gain of $49 million on the Cablevision Sale (excluding related tax
         expense of $17 million). TINTA continues to manage Cablevision pursuant
         to a renewable five-year management contract that was entered into in
         connection with the Cablevision Sale, and certain material corporate
         transactions of Cablevision will require TINTA's approval, so long as
         TINTA maintains at least a 16% interest in Cablevision. As a result of
         the Cablevision Sale, effective October 1, 1997, TINTA ceased to
         consolidate Cablevision and began to account for Cablevision using the
         equity method of accounting.

         On November 9, 1998, Cablevision and the lenders under its $1.1 billion
         loan facility agreed to an extension of $950 million of outstanding
         borrowings under the facility until December 15, 1998. At that time,
         outstanding borrowings are to be refinanced through (i) $550 million of
         indebtedness, which is expected to be issued under Cablevision's medium
         term note program, and (ii) $400 million of support from Cablevision's
         shareholders, including TINTA. TINTA's portion of such support
         aggregates approximately $84.8 million, and will be made through (i) a
         $42.4 million capital contribution to Cablevision and (ii) the
         guarantee of senior indebtedness of Cablevision and/or subordinated
         loans from TINTA to Cablevision in the aggregate amount of $42.4
         million.

         During the fourth quarter of 1998, one of the Cablevision shareholders
         exercised a put right that, under certain circumstances, could require
         TINTA to purchase a portion of such shareholder's ownership interest
         for cash consideration of up to $36 million, one-third of which would
         be paid on December 15, 1998 and the remaining amount would be paid in
         four semi-annual installments. Additionally, the Cablevision
         shareholders' agreement contains a buy-sell provision that, under
         certain circumstances, could require TINTA to purchase other
         shareholders' ownership interests.

         Summarized unaudited results of operations for Cablevision are as
follows:

<TABLE>
<CAPTION>
                                                                             Nine months ended
                                                                            September 30, 1998
                                                                            ------------------
         Consolidated Operations                                           amounts in thousands
         -----------------------

<S>                                                                         <C>              
                  Revenue                                                   $         337,323
                  Operating, selling, general and
                     administrative expenses                                         (241,977)
                  Depreciation and amortization                                       (54,559)
                                                                            -----------------
                     Operating income                                                  40,787

                  Interest expense, net                                               (66,794)
                  Other, net                                                           (6,731)
                                                                            -----------------
                     Net loss                                               $         (32,738)
                                                                            =================
</TABLE>


                                                                    (continued)

                                     I-131

<PAGE>   133
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(8)      Investments in Other Affiliates

         The TCI Ventures Group's affiliates other than Telewest, the PCS
         Ventures and Cablevision (the "Other Affiliates") generally are engaged
         in the cable and/or programming businesses in the U.S. and in various
         foreign countries.

         The TCI Ventures Group has guaranteed notes payable and other
         obligations of certain of the Other Affiliates (the "Guaranteed
         Obligations"). At September 30, 1998, the U.S. dollar equivalent of the
         amounts borrowed pursuant to the Guaranteed Obligations aggregated
         approximately $123 million.

         Certain of the Other Affiliates are general partnerships and any
         subsidiary of the TCI Ventures Group 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 to
         the extent liabilities of that partnership were to exceed its assets.

         Agreements governing the TCI Ventures Group's investment in certain of
         the Other Affiliates contain (i) buy-sell and other exit arrangements
         whereby the TCI Ventures Group could be required to purchase another
         investor's ownership interest and (ii) performance guarantees whereby
         the TCI Ventures Group has guaranteed the performance of the TCI
         Ventures Group's subsidiary that directly holds the related investment.

         The following table reflects the TCI Ventures Group's carrying value
         (including receivables) of the Other Affiliates:

<TABLE>
<CAPTION>
                                                                       September 30,             December 31,
                                                                          1998                       1997
                                                                   ------------------       --------------------
                                                                          amounts in thousands

<S>                                                                <C>                                   <C>    
          Flextech (a)                                             $          255,606                    261,453
          Liberty/TINTA LLC ("Liberty/TINTA")                                 124,383                    115,720
          MultiThematiques S.A. ("MultiThematiques")                           74,670                     68,335
          Jupiter Telecommunications
               Co., Ltd. ("Jupiter")                                           45,170                     49,197
          United International Investments                                     23,682                     26,966
          Bresnan International Partners (Poland), L.P. 
               ("BIP Poland")                                                  23,726                     26,110
          Jupiter Programming Co., Ltd. ("JPC")                                17,688                     15,582
          Bresnan International Partners (Chile), L.P.                         18,720                     22,863
          TCG (b)                                                                  --                    294,851
          Other                                                                20,688                     45,692
                                                                   ------------------       --------------------
                                                                   $          604,333                    926,769
                                                                   ==================       ====================
</TABLE>

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


                                                                   (continued)


                                     I-132
<PAGE>   134
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         (a)      Flextech

                  TINTA owned, at September 30, 1998, 57,889,032 Flextech
                  ordinary shares ("Flextech Ordinary Shares") representing
                  36.8% of the issued and outstanding Flextech share capital
                  and, when combined with a special voting share owned by TINTA,
                  50% of the aggregate voting interests attributable to such
                  Flextech share capital. Based upon the (pound)5.73 ($9.74) per
                  share closing price of the Flextech Ordinary Shares on the
                  London Stock Exchange, the Flextech Ordinary Shares owned by
                  TINTA had an aggregate market value of (pound)332 million
                  ($564 million) at September 30, 1998.

                  In April 1997, Flextech and BBC Worldwide Limited ("BBC
                  Worldwide") formed two separate joint ventures (the "Principal
                  Joint Venture" and the "Second Joint Venture", collectively
                  the "BBC Joint Ventures"). Flextech has undertaken to finance
                  the working capital requirements of the Principal Joint
                  Venture and is obligated to provide the Principal Joint
                  Venture with a primary credit facility of (pound)88 million
                  ($150 million) and subject to certain restrictions, a standby
                  credit facility of (pound)30 million ($51 million). As of
                  September 30, 1998, the Principal Joint Venture had borrowed
                  (pound)13.6 million ($23.1 million) under the primary credit
                  facility. Flextech has also agreed to make available to the
                  Second Joint Venture, if required, funding of up to (pound)10
                  million ($17 million). As of September 30, 1998, Flextech had
                  funded (pound)7.5 million ($12.8 million) to the Second Joint
                  Venture under such obligation. If Flextech defaults in its
                  funding obligation to the Principal Joint Venture and fails to
                  cure within 42 days after receipt of notice from BBC
                  Worldwide, BBC Worldwide is entitled, within the following 90
                  days, to require that TINTA assume all of Flextech's funding
                  obligations to the Principal Joint Venture (the "Standby
                  Commitment").

                  If BBC Worldwide requires TINTA to perform Flextech's funding
                  obligations pursuant to the Standby Commitment, then TINTA
                  will acquire Flextech's entire equity interest in the
                  Principal Joint Venture for (pound)1.00, and will replace
                  Flextech's directors on the board of the Principal Joint
                  Venture with representatives of TINTA. Flextech will pay
                  commitment and standby fees to TINTA for its undertaking under
                  the Standby Commitment. If Flextech repays to TINTA all loans
                  it makes to the Principal Joint Venture (plus interest at
                  TINTA's marginal cost of funds plus 2% per annum) within 180
                  days after TINTA first becomes obligated to perform Flextech's
                  financial obligations, it may reacquire its interest in the
                  Principal Joint Venture for (pound)1.00. TINTA may also,
                  within the same period, require Flextech to reacquire its
                  interest on the same terms. The Standby Commitment will
                  terminate on the earliest of (i) the date on which Flextech
                  has met all of its required financial obligations to the
                  Principal Joint Venture under the primary and standby credit
                  facilities, or (ii) the date on which Flextech delivers a bank
                  guarantee of all of its funding obligations to the Principal
                  Joint Venture.


                                                                    (continued)

                                     I-133

<PAGE>   135
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

                  So long as TINTA is contingently obligated under the Standby
                  Commitment, it has been agreed that (i) Flextech will not sell
                  any of its direct or indirect interests in the Principal Joint
                  Venture, (ii) Flextech will not conduct its business in such a
                  way as is likely to cause it to be in material breach of any
                  material contracts or to have insufficient working capital to
                  meet its funding obligation to the Principal Joint Venture,
                  and (iii) Flextech will use its available resources to
                  subscribe for any outstanding loan stock of the Principal
                  Joint Venture, if and to the extent required by TINTA at any
                  time after December 31, 2011.

         (b)      On July 23, 1998, a merger, in which TCG agreed to be acquired
                  by AT&T, was consummated. See note 9. On April 22, 1998, TCG
                  completed a merger transaction with ACC Corp. ("ACC") in which
                  ACC shares were exchanged with shares of TCG in the ratio of
                  .90909 of a share of TCG stock for each share of ACC stock.
                  The transaction was valued at approximately $1.1 billion. As a
                  result of ACC's merger with TCG, TCI Ventures Group's interest
                  in TCG was reduced to approximately 26%. In connection with
                  the dilution of TCI Ventures Group's interest in TCG, TCI
                  Ventures Group recorded a non-cash gain of $201.4 million
                  (excluding related tax expense of $70.5 million).

                  During the nine months ended September 30, 1997, TCG issued
                  4,857,083 shares of its Class A common stock for certain
                  acquisitions. The total consideration paid by TCG through the
                  issuance of common stock was approximately $93 million. As a
                  result of such share issuances, TCI Ventures Group's ownership
                  interest in TCG was reduced to approximately 30%. Accordingly,
                  TCI Ventures Group recognized a gain of $21 million (excluding
                  related tax expense of $8 million) as a result of such
                  dilution.

         The following table reflects the TCI Ventures Group's share of losses
         of the Other Affiliates:

<TABLE>
<CAPTION>
                                                                           Nine months ended
                                                                             September 30,
                                                                  ---------------------------------
                                                                       1998               1997
                                                                  -------------     ---------------
                                                                         amounts in thousands

<S>                                                               <C>               <C>   
                            TCG                                   $      32,043              43,417
                            Jupiter                                      17,270              17,173
                            Liberty/TINTA                                15,917              11,364
                            MultiThematiques                             14,690               9,337
                            JPC                                          10,941              12,614
                            BIP Poland                                    7,109               1,507     
                            Other                                        27,178              25,355
                                                                  -------------     ---------------

                                                                  $     125,148             120,767
                                                                  =============     ===============
</TABLE>


                                                                    (continued)


                                     I-134

<PAGE>   136
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Summarized unaudited results of operations of the Other Affiliates for
         the periods in which the TCI Ventures Group used the equity method to
         account for its investments in the Other Affiliates are as follows:

<TABLE>
<CAPTION>
                                                                           Nine months ended September 30,
                                                                         1998                       1997
                                                                   --------------           ----------------
          Combined Operations                                                 amounts in thousands
          -------------------

<S>                                                                <C>                      <C>    
               Revenue                                             $      903,809                    667,590
               Operating expenses                                        (917,933)                  (685,222)
               Depreciation and amortization                             (157,990)                  (135,773)
                                                                   --------------           ----------------

                   Operating loss                                        (172,114)                  (153,405)

               Interest expense, net                                      (68,463)                  (108,734)
               Other, net                                                 (71,774)                   (32,586)
                                                                   --------------           ----------------

                   Net loss                                        $     (312,351)                  (294,725)
                                                                   ==============           ================
</TABLE>

(9)      Investment in AT&T

         On July 23, 1998, a merger, in which TCG agreed to be acquired by AT&T,
         was consummated. As a result of such merger, TCI Ventures Group
         received in exchange for its 26% interest in TCG, approximately 47
         million shares of AT&T Common Stock. TCI Ventures Group recognized a
         gain of $2.3 billion (excluding related tax expense of $883 million) on
         such transaction based on the difference between the carrying value of
         TCI Ventures Group's interest in TCG and the fair value of the AT&T
         Common Stock received. See note 8. TCI Ventures Group accounts for its
         ownership interest in AT&T Common Stock as an available-for-sale
         security. During the third quarter of 1998, TCI Ventures Group
         recognized dividend income of $15.5 million on its AT&T Common Stock.
         See note 2.

(10)     Acquisitions and Dispositions

         On August 21, 1998, TINTA purchased 100% of the issued and outstanding
         common stock of Pramer SCA ("Pramer"), an Argentine programming
         company, for $32 million in cash and the issuance of notes payable in
         the amount of $65 million (the "Pramer Notes"). See note 13. In
         accordance with the purchase method of accounting, the purchase price
         was allocated using the estimated fair values of the net assets
         acquired and Pramer has been included in TCI Ventures Group's combined
         financial statements since the August 21, 1998 acquisition date. The
         $101 million excess of the purchase price over the fair value of the
         tangible net assets acquired is being amortized over ten years.


                                                                    (continued)


                                     I-135

<PAGE>   137
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(11)     UVSG

         On January 12, 1998, TCI acquired from a minority shareholder of UVSG
         24.8 million shares of UVSG Class A common stock (as adjusted for a
         two-for-one stock split) in exchange for 12.7 million shares of TCI
         Ventures Group Series A Stock and 7.3 million shares of Liberty Group
         Series A Stock. The aggregate value assigned to the shares issued by
         TCI was based upon the market value of such shares at the time the
         transaction was announced. As a result of such transaction TCI
         increased its ownership in the equity of UVSG to approximately 74%, of
         which 57% is attributed to the TCI Ventures Group and 17% is attributed
         to Liberty Media Group. In addition, TCI's collective voting power
         increased to 93%. In connection with such transaction, during the first
         quarter of 1998, TCI Ventures Group recorded a $154.2 million increase
         to intangible assets, a $23.5 million decrease to minority interests in
         equity and a $177.7 million increase to combined equity.

         Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
         contributed the assets, obligations and operations of its retail C-band
         satellite business to Superstar/Netlink Group LLC ("SNG") in exchange
         for an approximate 20% interest in SNG. As a result of such
         transaction, each of UVSG's and Liberty Media Group's ownership
         interest in SNG decreased from 50% to approximately 40%. Turner
         Vision's contribution to SNG was accounted for as a purchase and the
         $61.2 million excess of the purchase price over the fair value of the
         net tangible assets acquired was recorded as an intangible asset and is
         being amortized over five years.

         In connection with the dilution of UVSG's ownership interest in SNG,
         UVSG recognized a gain of $14.7 million (excluding related tax expense
         of $5.9 million). The minority interest deficit in SNG attributable to
         Liberty Media Group has been included in combined equity in the
         accompanying combined financial statements. Accordingly, the effect of
         the change in Liberty Media Group's ownership in the underlying equity
         of SNG of $24.5 million has been credited to combined equity in the
         accompanying combined financial statements.

         In February 1998, TCI, Liberty Media Group and UVSG announced an
         agreement in principal for UVSG to acquire Liberty Media Group's 40%
         interest in SNG and its 100% interest in certain businesses conducted
         by Netlink USA in exchange for 12.8 million shares of UVSG's common
         stock (as adjusted for a two-for-one stock split). Consummation of this
         transaction is subject to UVSG stockholder approval and certain
         regulatory approvals. Accordingly, no assurance can be given that this
         transaction will be consummated.


                                                                    (continued)

                                     I-136

<PAGE>   138
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         On June 11, 1998, UVSG and The News Corporation Limited ("News Corp.")
         announced the signing of a definitive agreement whereby News Corp.'s TV
         Guide properties will be combined with UVSG to create a platform for
         offering television guide services to consumers and advertising. As
         part of this combination, a unit of News Corp. will receive
         consideration consisting of $800 million in cash and 60 million shares
         of UVSG's stock (as adjusted for a two-for-one stock split), including
         22,503,412 shares of its Class A common stock and 37,496,588 shares of
         its Class B common stock (as adjusted for a two-for-one stock split).
         As a result of this transaction, and the above-described pending
         transation with Liberty Media Group, News Corp., TCI and UVSG's public
         stockholders will own on an economic basis approximately 40%, 44% (of
         which 34% will be attributable to TCI Ventures Group and 10% will be
         attributable to Liberty Media Group) and 16%, respectively, of UVSG.
         Following such transactions, News Corp. and TCI will each have
         approximately 48% of the voting power of UVSG's outstanding stock. TCI
         will begin to account for its interest in UVSG under the equity method
         of accounting following consummation of this transaction. Consummation
         of this transaction is subject to UVSG shareholder approval and certain
         regulatory approvals. Accordingly, no assurance can be given that this
         transaction will be consummated.

(12)     @Home

         During the third quarter of 1998, @Home completed a public offering
         (the "@Home Offering") in which 2.9 million shares of @Home common
         stock were sold for net cash proceeds of approximately $125 million. In
         connection with the @Home Offering, (i) TCI Ventures Group paid $36.9
         million to purchase 800,000 shares of @Home common stock and (ii) TCI
         Ventures Group's economic interest in @Home decreased to 38.8%. In
         connection with the associated dilution of TCI Ventures Group's
         ownership interest in @Home, TCI Ventures Group recognized a gain of
         $16.6 million during the third quarter of 1998.

         In April 1997, @Home issued 240,000 shares of convertible preferred
         stock, resulting in cash proceeds of $48 million, less issuance costs.
         On July 11, 1997, @Home completed its initial public offering (the
         "@Home IPO"), in which 10,350,000 shares of @Home common stock were
         sold for net cash proceeds of approximately $100 million. As a result
         of the @Home IPO, TCI Ventures Group's economic interest in @Home
         decreased from 43% to 39%, which economic interest represents an
         approximate 72% voting interest. In connection with the associated
         dilution of TCI Ventures Group's ownership interest in @Home, TCI
         Ventures Group recognized a gain of $60 million during the third
         quarter of 1997.

         @Home has entered into exclusive distribution agreements with certain
         cable operators. In connection with the distribution agreements, @Home
         has issued warrants to such cable operators to purchase 17,946,956
         shares of @Home's Series A common stock. Of these warrants, warrants to
         purchase 10,581,298 shares were exercisable as of September 30, 1998.
         During the nine months ended September 30, 1998, @Home recorded
         non-cash charges of $83.3 million to operations based on the fair value
         of 2,705,514 shares which were underlying warrants which became
         exercisable during the period. Such charges are included in "cost of
         distribution agreements" in the accompanying combined statements of
         operations. @Home may issue additional stock, or warrants in connection
         with its efforts to expand its distribution of the @Home service to
         other cable operators. The exercise of warrants or stock issued by
         @Home will reduce TCI Ventures Group's equity interest and voting power
         in @Home.
                                                                    (continued)


                                     I-137

<PAGE>   139
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Pursuant to a shareholder's agreement among certain shareholders of
         @Home, under certain circumstances, TCI Ventures Group could be
         required to sell a portion of its @Home common stock to such
         shareholders.

(13)     Debt

         The components of debt are as follows:

<TABLE>
<CAPTION>
                                                                        September 30,           December 31,
                                                                            1998                    1997
                                                                        --------------      ----------------
                                                                                 amounts in thousands

<S>                                                                     <C>                          <C>    
           Debentures (a)                                               $      345,000               345,000
           Bank Facilities:
              Ventures Group (b)                                               400,000                    --
              Puerto Rico Subsidiary (c)                                        90,000                45,000
              Liberty/Ventures (d)                                              70,000                    --
           Pramer Notes (e)                                                     65,731                    --
           Other                                                                41,863                18,532
                                                                        --------------      ----------------

                                                                        $    1,012,594               408,532
                                                                        ==============      ================
</TABLE>

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

           (a)    On February 8, 1996, TINTA received net cash proceeds of
                  approximately $336 million from the issuance of 4-1/2%
                  Convertible Subordinated Debentures (the "Debentures") due
                  2006 having an aggregate principal amount of $345 million. The
                  Debentures are convertible into shares of TINTA Series A
                  common stock at a price of $27.30 per share of TINTA Series A
                  common stock, subject to anti-dilution adjustments. Interest
                  on the Debentures is payable on February 15 and August 15 of
                  each year. The Debentures may be redeemed by TINTA in whole or
                  in part, at any time on or after February 15, 1999.

           (b)    On March 10, 1998, TCI Ventures Group entered into a bank
                  credit facility with a term of one year which provides for
                  aggregate borrowings of up to $400 million (the "Ventures
                  Group Bank Facility"). Borrowings under the Ventures Group
                  Bank Facility bear interest at variable rates. TCI Ventures
                  Group is required to pay a commitment fee equal to 0.15% on
                  the average daily unused portion of the maximum borrowing
                  commitments. The Ventures Group Bank Facility contains
                  restrictive covenants which require, among other things, the
                  maintenance of certain financial ratios, and includes
                  limitations on indebtedness, liens and encumbrances,
                  acquisitions, dispositions and dividends.


                                                                    (continued)


                                     I-138

<PAGE>   140
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

           (c)    TINTA's Puerto Rico  subsidiary  (the "Puerto Rico  
                  Subsidiary") has a reducing revolving bank facility which is
                  unsecured and provides for maximum borrowing commitments of
                  $100 million (the "Puerto Rico Bank Facility"). The
                  availability of such commitments for borrowing is subject to
                  the Puerto Rico Subsidiary's compliance with applicable
                  financial covenants and other customary conditions. Commencing
                  March 31, 2000, the maximum commitments will be reduced
                  quarterly through March 31, 2006. Borrowings under the Puerto
                  Rico Bank Facility bear interest at variable rates. In
                  addition, the Puerto Rico Subsidiary is required to pay a
                  commitment fee equal to 0.375% on the average daily unused
                  portion of the maximum borrowing commitments, payable
                  quarterly in arrears and at maturity. The Puerto Rico Bank
                  Facility contains restrictive covenants which require, among
                  other things, the maintenance of certain financial ratios
                  (primarily the ratios of cash flow to total debt and cash flow
                  to debt service, as defined), and includes certain limitations
                  on indebtedness, investments, guarantees, acquisitions,
                  dispositions, dividends, liens and encumbrances, and
                  transactions with affiliates. If TCI's ownership interest in
                  TINTA were to fall below 50.1%, borrowings under the Puerto
                  Rico Bank Facility would be secured by the assets of the
                  Puerto Rico Subsidiary and the variable interest rates on such
                  borrowings would be increased.

                  As described more fully in note 16, on September 21, 1998,
                  Hurricane Georges struck Puerto Rico and caused considerable
                  property damage to the area in general, including the Puerto
                  Rico Subsidiary's cable television systems. The Puerto Rico
                  Subsidiary has submitted a claim to its insurance carrier for
                  its damaged property and loss of revenue. The Puerto Rico
                  Subsidiary anticipates that its estimated loss of revenue will
                  exceed its business interruption insurance. Such uncovered
                  losses could cause the Puerto Rico Subsidiary to be in
                  violation of certain financial covenants of the Puerto Rico
                  Bank Facility in the fourth quarter of 1998 and the first
                  quarter of 1999. Violations of certain financial covenants
                  will prevent the Puerto Rico Subsidiary from borrowing any
                  unused borrowing commitments and could result in the
                  acceleration of amounts due under the Puerto Rico Bank
                  Facility. The Puerto Rico Subsidiary is in discussions with
                  the lenders of the Puerto Rico Bank Facility regarding
                  possible remedies of any potential violations of financial
                  covenants.

         (d)      Effective  September 30, 1998,  Liberty Media  Corporation  
                  ("LMC") and TCI Ventures Group LLC ("Ventures LLC" and
                  collectively "Liberty/Ventures") entered into a revolving
                  credit agreement which provides for borrowings of up to $800
                  million through September 29, 1999 (the "Liberty/Ventures
                  Facility"). LMC and Ventures LLC are jointly and severally
                  responsible for the obligations under the Liberty/Ventures
                  Facility. Interest on borrowings under the Liberty/Ventures
                  Facility is tied to, at Liberty/Ventures option, the bank's
                  prime rate or LIBOR plus an applicable margin.
                  Liberty/Ventures must pay an annual commitment fee of .2% of
                  the unfunded portion of the commitment. Such commitment fees
                  are shared equally between Liberty Media Group and TCI
                  Ventures Group. The Liberty/Ventures Facility contains certain
                  provisions which limit LMC and Ventures LLC as to additional
                  indebtedness, sale of assets, liens, guarantees and
                  distributions. Amounts outstanding under the Liberty/Ventures
                  Facility at September 30, 1998 were used to fund requirements
                  of TCI Ventures Group and accordingly, have been attributed to
                  TCI Ventures Group.


                                                                   (continued)

                                     I-139

<PAGE>   141
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         (e)      In connection with TINTA's acquisition of Pramer, TINTA issued
                  $65 million principal amount of secured promissory notes.
                  Interest of $731,000 on such notes has been included in the
                  principal amount at September 30, 1998. TINTA made an $11
                  million payment on the Pramer Notes on October 1, 1998 and the
                  remainder of the Pramer Notes are due in 20 equal monthly
                  installments beginning October 15, 1998 and accrue interest at
                  9.25%.

         With the exception of the Debentures, which had a fair value of $336
         million, TCI Ventures Group believes the carrying value of TCI Ventures
         Group's debt approximates its fair value at September 30, 1998.

(14)     Combined Equity

         General

         During the fourth quarter of 1997, TCI entered into a Total Return
         Equity Swap Facility (the "Equity Swap Facility"). Pursuant to the
         Equity Swap Facility, TCI has the right to direct the counterparty (the
         "Counterparty") to use the Equity Swap Facility to purchase shares
         ("Equity Swap Shares") of TCI Group Series A Stock and TCI Ventures
         Group Series A Stock with an aggregate purchase price of up to $300
         million. TCI has the right, but not the obligation, to purchase Equity
         Swap Shares through the September 30, 2000 termination date of the
         Equity Swap Facility. During such period, TCI is to settle periodically
         any increase or decrease in the market value of the Equity Swap Shares.
         If the market value of the Equity Swap Shares exceeds the
         Counterparty's cost, Equity Swap Shares with a fair value equal to the
         difference between the market value and cost will be segregated from
         the other Equity Swap Shares. If the market value of Equity Swap Shares
         is less than the Counterparty's cost, TCI, at its option, will settle
         such difference with shares of TCI Group Series A Stock or TCI Ventures
         Group Series A Stock or, subject to certain conditions, with cash or
         letters of credit. In addition, TCI is required to periodically pay the
         Counterparty a fee equal to a LIBOR-based rate on the Counterparty's
         cost to acquire the Equity Swap Shares. Due to TCI's ability to issue
         shares to settle periodic price fluctuation and fees under the Equity
         Swap Facility, TCI records all amounts received or paid under this
         arrangement as increases or decreases, respectively, to equity. As of
         September 30, 1998, the Equity Swap Facility had acquired 4,935,780
         shares of TCI Group Series A Stock and 1,171,800 shares of TCI Ventures
         Group Series A Stock at an aggregate cost that was approximately $49
         million less than the fair value of such Equity Swap Shares at
         September 30, 1998. The costs and benefits associated with the TCI
         Ventures Group Series A Stock held by the Equity Swap Facility are
         attributed to TCI Ventures Group.

         On January 5, 1998, TCI announced that a settlement (the "Magness
         Settlement") had been reached in the litigation brought against it and
         other parties in connection with the administration of the Estate of
         Bob Magness (the "Magness Estate"), the late founder and former
         Chairman of the Board of TCI.


                                                                    (continued)


                                     I-140

<PAGE>   142
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         On February 9, 1998, in connection with the Magness Settlement, TCI,
         entered into a call agreement (the "Malone Call Agreement") with Dr.
         John C. Malone, TCI's Chairman and Chief Executive Officer, and Dr.
         Malone's wife (together with Dr. Malone, the "Malones"), under which
         the Malones granted to TCI the right to acquire the Malones'
         high-voting shares (the "High-Voting Shares"), currently consisting of
         an aggregate of approximately 60 million shares of Series B Stock, upon
         Dr. Malone's death or upon a contemplated sale of the High-Voting
         Shares (other than a minimal amount) to third persons. In either such
         event, TCI has the right to acquire the shares at a maximum price equal
         to the then relevant market price of shares of "low-voting" Series A
         Stock plus a ten percent premium. The Malones also agreed that if TCI
         were ever to be sold to another entity, then the maximum premium that
         the Malones would receive on their High-Voting Shares would be no
         greater than a ten percent premium over the price paid for the relevant
         shares of Series A Stock. TCI paid $150 million to the Malones for
         agreeing to the terms of the Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
         certain members of the Magness family, individually and in certain
         cases, on behalf of the Estate of Betsy Magness (the first wife of Bob
         Magness) and the Magness Estate (collectively, the "Magness Family")
         also entered into a call agreement with TCI (with substantially the
         same terms as the one entered into by the Malones, including a call on
         the shares owned by the Magness Family upon Dr. Malone's death) (the
         "Magness Call Agreement") on the Magness Family's aggregate of
         approximately 49 million High-Voting Shares. The Magness Family was
         paid $124 million by TCI for entering into the Magness Call Agreement.
         Additionally, on February 9, 1998, the Magness Family entered into a
         stockholders' agreement with the Malones and TCI under which (i) the
         Magness Family and the Malones agreed to consult with each other in
         connection with matters to be brought to the vote of TCI's
         stockholders, subject to the proviso that if they cannot mutually agree
         on how to vote the shares, Dr. Malone has an irrevocable proxy to vote
         the High-Voting Shares owned by the Magness Family, (ii) the Magness
         Family may designate a nominee for the Board and Dr. Malone has agreed
         to vote his High Voting Shares for such nominee and (iii) certain "tag
         along rights" have been created in favor of the Magness Family and
         certain "drag along rights" have been created in favor of the Malones.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
         and Magness Call Agreement (collectively, the "Call Payments") was
         allocated to each of the Groups based upon the number of shares of each
         Group (before giving effect to stock dividends) that are subject to the
         Malone Call Agreement and the Magness Call Agreement. TCI Ventures
         Group's share of the Call Payments of $76 million was paid during the
         first quarter of 1998 and is reflected as a decrease to combined
         equity.

         Stock Repurchases

         In conjunction with a stock repurchase program or similar transaction,
         TCI may elect to sell put options on its own common stock. Proceeds
         from any sales of puts with respect to TCI Ventures Group Stock are
         reflected by TCI Ventures Group as an increase to combined equity, and
         an amount equal to the maximum redemption amount under unexpired put
         options with respect to TCI Ventures Group Stock is reflected as an
         obligation to redeem TCI Ventures Group Stock in the accompanying
         combined balance sheets.


                                                                    (continued)


                                     I-141

<PAGE>   143
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         During the nine months ended September 30, 1998, pursuant to the stock
         repurchase program, 145,450 shares of TCI Ventures Group Series A Stock
         and 94,000 shares of TCI Ventures Group Series B Stock were repurchased
         at an aggregate cost of $3.9 million. Such amount is reflected as a
         decrease to combined equity in the accompanying combined financial
         statements.

         Transactions with Related Parties

         The components of due to (from) related parties are as follows:

<TABLE>
<CAPTION>
                                                                           September 30,        December 31,
                                                                               1998                 1997
                                                                         ----------------   ------------------
                                                                                 amounts in thousands

<S>                                                                      <C>                <C>               
         Ventures Intergroup Credit Facility (a)                         $         36,900                   --
         Note payable to Liberty Media Group, including accrued
              interest (b)                                                          8,502                   --
         TCI Note Receivable (c)                                                       --              (88,707)
         Intercompany account (d)                                                 (25,312)             110,212
                                                                         ----------------   ------------------

                                                                         $         20,090               21,505
                                                                         ================   ==================
</TABLE>

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

         (a)      TCI Group has provided a revolving  loan  facility (the  
                  "Ventures Intergroup Credit Facility") to TCI Ventures Group
                  for a five-year period commencing on September 10, 1997. Such
                  facility permits aggregate outstanding borrowings at any one
                  time of up to $500 million (subject to reduction as provided
                  below), which borrowings bear interest at a rate per annum
                  equal to The Bank of New York's prime rate (as in effect from
                  time to time) plus 1% per annum, payable quarterly. A
                  commitment fee equal to 3/8% per annum of the average
                  unborrowed availability under the Ventures Intergroup Credit
                  Facility is payable by TCI Ventures Group to TCI Group on a
                  quarterly basis. Such commitment fee was $1.4 million and not
                  material for the nine months ended September 30, 1998 and
                  1997, respectively.

         (b)      Amounts outstanding under the note payable to Liberty Media
                  Group bear interest at variable rates based on the cost of
                  borrowing under the Liberty/Ventures Facility (see note 13).
                  Principal and interest is due and payable as mutually agreed
                  from time to time.

         (c)      Amounts outstanding under a note agreement between TCI
                  Ventures Group and TCI (the "TCI Note Receivable") were repaid
                  in their entirety during the third quarter of 1998. During the
                  nine months ended September 30, 1998 and 1997, interest income
                  related to the TCI Note Receivable aggregated $1.7 million and
                  $4.3 million, respectively.

         (d)      The non-interest bearing intercompany account includes certain
                  income tax and stock compensation allocations that are to be
                  settled at some future date. All other amounts included in the
                  intercompany account are to be settled within thirty days
                  following notification. Through September 10, 1997, the date
                  of the TCI Ventures Exchange, the effects of all transactions
                  with TCI Group, except those related to the TCI Note
                  Receivable, were reflected as adjustments to TCI Ventures
                  Group's combined equity.

                                                                    (continued)


                                     I-142

<PAGE>   144
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         In 1996, a subsidiary attributed to TCI Ventures Group (i) issued
         preferred stock in connection with a previous acquisition, which is
         convertible at the option of the holders into 1,084,056 of TCI Group
         Series A Common Stock beginning in April 1999 or sooner in the event of
         a change in control of TCI and (ii) acquired an option contract from
         TCI Group in exchange for a $14 million increase in the intercompany
         amount due to TCI Group. Such option contract provided TCI Ventures
         Group with the right to acquire 1,084,056 shares of TCI Group Series A
         Stock at a price equivalent to the fair value at the time of exercise
         less $14.625 per share. During September 1998, TCI Group assigned its
         obligation under the option contract to TCI Ventures Group. As a result
         of such assignment, TCI Ventures Group recorded a $15.9 million
         reduction to the intercompany amount due to TCI Group and a
         corresponding increase to combined equity. In July 1998, TCI Ventures
         Group entered into an equity swap transaction with a commercial bank,
         which provides TCI Ventures Group with the right but not the obligation
         to acquire 1,084,056 shares of TCI Group Series A Stock for
         approximately $45 million on or before April 19, 1999. In the event TCI
         Ventures Group does not exercise its right to acquire such shares, any
         difference between the counterparty's cost and the market value of the
         shares on the settlement date will be settled in cash or shares of TCI
         Ventures Group Series A Stock at TCI Ventures Group's option. Such
         shares could be used to satisfy the exchange requirements of the
         aforementioned preferred stock.

         During 1996, TCI Group 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 TCI Group to TCI Ventures
         Group in connection with the September 10, 1997 consummation of the
         Exchange Offers. The distribution equipment was subsequently leased
         back to TCI Group 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 TCI Group and the related lease and
         the TVG LLC Promissory Note were canceled. During the nine months ended
         September 30, 1997, (i) the U.S. dollar equivalent of interest expense
         with respect to the TVG LLC Promissory Note was $1 million, (ii) the
         U.S. dollar equivalent of the lease revenue under the above-described
         lease agreement aggregated $3 million and (iii) TINTA experienced
         foreign currency transaction losses of $1 million, with respect to the
         TVG LLC Promissory Note.

         Certain TCI corporate general and administrative costs are charged to
         TCI Ventures Group at rates set at the beginning of the year based on
         projected utilization for that year. TCI Ventures Group was allocated
         $8.2 million and $6.6 million in corporate general and administrative
         costs by the TCI Group during the nine months ended September 30, 1998
         and 1997, respectively.

         During the nine months ended September 30, 1998 and 1997, programming
         revenue earned by UVSG from TCI Group was $6.9 million and $7.0
         million, respectively. UVSG purchases programming from Liberty Media
         Group and, during the nine months ended September 30, 1997, also
         purchased programming from TCI Group. These purchases totaled $33.2
         million and $27.5 million for the nine months ended September 30, 1998
         and 1997, respectively, and are included in operating costs in the
         accompanying combined statements of operations.


                                                                    (continued)

                                     I-143

<PAGE>   145
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Amounts included in revenue for services provided to the other Groups
         by WTCI and NDTC are $26.8 million and $27.6 million for the nine
         months ended September 30, 1998 and 1997, respectively.

         During the third quarter of 1998, TINTA exercised its right to require
         Liberty Media Group to purchase from TINTA 2,710,406 shares of TCI
         Music, Inc. Series A common stock for $8.00 per share. Due to the
         related party nature of the transaction, TCI Ventures Group has
         reflected its share of the excess consideration received over the basis
         of net assets sold of $18.4 million as an increase to combined equity
         in the accompanying combined financial statements.

         A subsidiary of TCI that was attributed to TCI Ventures Group leases
         certain equipment under a capital lease. During 1997, such equipment
         was subleased to TCI Group under an operating lease. In January 1998,
         TCI Group paid $7 million to TCI Ventures Group in exchange for TCI
         Ventures Group's assignment of its ownership interest in such
         subsidiary to TCI Group. Due to the related party nature of the
         transaction, the $49.5 million total of the cash payment and the
         historical cost of the net liabilities assumed by TCI Group (including
         capital lease obligations aggregating $175.8 million) has been
         reflected as an increase to TCI Ventures Group's combined equity.

         The Puerto Rico Subsidiary purchases programming services from the TCI
         Group. The charges, which approximate the TCI Group's cost and are
         based on the aggregate number of subscribers served by the Puerto Rico
         Subsidiary, aggregated $3.8 million and $4.9 million during the nine
         months ended September 30, 1998 and 1997, respectively. The
         above-described programming fee charges are included in operating costs
         in the accompanying combined statements of operations.

         As further described in note 5, effective October 1, 1997, TINTA ceased
         to consolidate Cablevision and began to account for Cablevision under
         the equity method of accounting. Cablevision purchases programming
         services from certain affiliates. The related charges generally are
         based upon the number of Cablevision's subscribers that receive the
         respective services. During the nine months ended September 30, 1997,
         such charges aggregated $11.8 million. Additionally, certain of
         Cablevision's general and administrative functions are provided by
         affiliates. The related charges, which generally are based upon the
         respective affiliate's cost of providing such functions, aggregated
         $2.3 million during the nine months ended September 30, 1997. The
         above-described programming and general and administrative charges are
         included in operating costs in the accompanying combined statements of
         operations.

(15)     Income Taxes

         At December 31, 1997, the TCI Ventures Group had federal net operating
         loss carryforwards for income tax purposes aggregating approximately
         $504 million which, if not utilized to reduce taxable income in future
         periods, will begin to expire at various dates beginning in the year
         2004. Pursuant to certain tax sharing agreements, TCI Ventures Group
         has already received benefit for approximately $37 million of such net
         operating loss carryforwards. TCI Ventures Group is responsible to TCI
         to the extent this amount of net operating loss carryforwards is
         utilized by TCI in future periods.


                                                                    (continued)



                                     I-144
<PAGE>   146
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(16)     Commitments and Contingencies

         In addition to the commitments and contingent obligations described
         below, TCI Ventures Group has significant commitments and contingent
         obligations with respect to certain of its affiliates and other
         matters. See notes 2, 6, 8, 12, 14 and 17.

         TINTA has guaranteed the obligation of an affiliate ("The Premium Movie
         Partnership") to pay fees for the license to exhibit certain films
         through 2000. Although the aggregate amount of The Premium Movie
         Partnership's license fee obligations is not currently estimable, TINTA
         believes that the aggregate payments pursuant to such obligations could
         be significant. If TINTA were to fail to fulfill its obligations under
         the guarantee, the beneficiaries have the right to demand an aggregate
         payment from TINTA of approximately $32 million. Although TINTA has not
         had to perform under such guarantee to date, TINTA cannot be certain
         that it will not be required to perform under such guarantee in the
         future.

         TINTA has formed strategic partnerships with News Corp., Organizacoes
         Globo and Grupo Televisa S.A. to develop and operate a direct-to-home
         satellite service for Latin America, Mexico, and various Central and
         South American countries (collectively, the "DTH Ventures"). Through
         September 30, 1998, TINTA had contributed $52.9 million to the DTH
         Ventures. It is anticipated that TINTA could be required to make
         additional cash contributions in connection with the DTH Ventures. In
         addition, as of September 30, 1998, TINTA had guaranteed approximately
         $174 million of the DTH Ventures' financial obligations.

         TCI Ventures Group records stock compensation expense relating to
         restricted stock awards, options and/or stock appreciation rights
         (collectively, "Awards") granted (i) by TCI to certain TCI employees
         and/or directors who are involved with the TCI Ventures Group and (ii)
         by TINTA, UVSG, and @Home to employees and/or directors of such
         entities. Stock compensation with respect to Awards granted by TCI
         includes amounts related to TCI common stock and to common stock of
         certain non-public subsidiaries of TCI and is allocated to TCI Ventures
         Group based on the Awards held by TCI employees and/or directors who
         are involved with TCI Ventures Group. Estimated compensation relating
         to the Awards has been recorded in the accompanying combined financial
         statements through September 30, 1998. Such estimate is subject to
         future adjustment based upon vesting and market value, and ultimately,
         on the final determination of market value when such rights are
         exercised. The estimated compensation adjustment with respect to TCI
         Awards resulted in increases to TCI Ventures Group's share of TCI's
         stock compensation liability of $115.5 million and $68.0 million for
         the nine months ended September 30, 1998 and 1997, respectively. In
         addition, for the nine months ended September 30, 1998, TCI Ventures
         Group made cash payments relating to its share of TCI's stock
         compensation obligations of $71.3 million. The payable arising from the
         compensation related to the Awards granted by TCI is included in the
         amount due to related parties.


                                                                    (continued)

                                     I-145

<PAGE>   147
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
         cable operators that may be designated from time to time by NDTC
         ("Approved Purchasers"), entered into an agreement (the "Digital
         Terminal Purchase Agreement") with General Instrument Corporation
         ("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 set-top device. Through
         September 30, 1998, approximately 1 million set-top devices had been
         purchased pursuant to this commitment. 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). Such warrants vest as annual purchase commitments are met. The
         value associated with such equity interest will be attributed to TCI
         Group upon purchase and deployment of the digital set-top devices. See
         note 2. NDTC has the right to terminate the Digital Terminal Purchase
         Agreement if, among other reasons, GI fails to meet a material
         milestone designated in the Digital Terminal Purchase Agreement with
         respect to the development, testing and delivery of advanced digital
         set-top devices.


                                                                    (continued)

                                     I-146

<PAGE>   148
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         On July 17, 1998, NDTC acquired 21.4 million shares of stock of GI in
         exchange for (i) certain of the assets of NDTC's set-top authorization
         business, (ii) the license of certain related software to GI, (iii) a
         $50 million promissory note from TCI Ventures Group to GI and (iv) a
         nine year revenue guarantee from TCI Ventures Group in favor of GI. In
         connection therewith, NDTC also entered into a service agreement
         pursuant to which it will provide certain postcontract services to GI's
         set-top authorization business. The 21.4 million shares of GI common
         stock are, in addition to other transfer restrictions, restricted as to
         their sale by NDTC for a three year period, and represent approximately
         13% of the outstanding common stock of GI at September 30, 1998. TCI
         Ventures Group recorded its investment in such shares at fair value
         which included a discount attributable to the above-described liquidity
         restriction. TCI Ventures Group will account for its investment in such
         shares using the cost method of accounting. The $346 million excess of
         the recorded value of GI common stock received over (i) the book value
         of certain assets transferred from NDTC to GI, and (ii) the $42 million
         present value of the promissory note due from TCI Ventures Group to GI,
         has been deferred by NDTC in the accompanying September 30, 1998
         combined balance sheet. A portion of such excess equal to the $160
         million present value of the annual amounts specified by the revenue
         guarantee will be amortized to revenue over nine years in proportion to
         such annual guaranteed amounts. The remaining $186 million excess will
         be amortized to revenue on a straight-line basis over the nine-year
         period that NDTC is required to perform postcontract services.

         On September 21, 1998, Hurricane Georges struck Puerto Rico and caused
         considerable property damage to the area in general, including the
         Puerto Rico Subsidiary's cable television systems. The Puerto Rico
         Subsidiary's cable television systems represent $35.9 million of TCI
         Ventures Group's revenue for the nine months ended September 30, 1998.
         The Puerto Rico Subsidiary has property and business interruption
         insurance aggregating $15 million that is subject to a deductible of $1
         million. The Puerto Rico Subsidiary has submitted a property damage
         claim to its insurance carrier for approximately $12 million which
         represents the estimated replacement cost of its damaged property. As a
         result of the damage caused by Hurricane Georges, the Puerto Rico
         Subsidiary, at September 30, 1998, recorded an impairment to reduce the
         net book value of the damaged property and equipment by $8.3 million
         and recorded a receivable in the same amount for a portion of the
         estimated proceeds under its property insurance coverage. Subsequent to
         September 30, 1998, the Puerto Rico Subsidiary received a $2 million
         advance on its insurance coverage from the insurance carrier. TCI
         Ventures Group has applied $1 million of such advance to property
         losses and $1 million to business interruption losses. The balance of
         the receivable is deemed probable of collection.


                                                                   (continued)

                                     I-147

<PAGE>   149
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Although there can be no assurance, the Puerto Rico Subsidiary
         currently estimates that 85% of its cable distribution systems and
         related support equipment will be restored by the end of 1998 and fully
         restored by the end of the first quarter of 1999. In addition to
         property damage caused by Hurricane Georges, the Puerto Rico Subsidiary
         will also suffer a loss in revenue from its pre-hurricane customers. As
         of September 30, 1998, approximately 23% of the Puerto Rico
         Subsidiary's pre-hurricane basic customers were receiving cable
         television services. Although there can be no assurance, the Puerto
         Rico Subsidiary estimates that it will regain 80% and 100% of its
         pre-hurricane customer base by December 31, 1998 and June 30, 1999,
         respectively. The loss of revenue from September 21, 1998 through
         December 31, 1998 has been preliminarily estimated at $7 million, of
         which $1 million relates to the period from September 21, 1998 through
         September 30, 1998. In addition, the estimated loss of revenue for the
         first quarter of 1999 is approximately $3 million. The Puerto Rico
         Subsidiary's business interruption insurance will cover the first $3
         million in lost revenue. The Puerto Rico Subsidiary currently estimates
         that lost revenue of approximately $7 million will not be covered under
         its business interruption insurance. However, no assurance can be given
         that the Puerto Rico Subsidiary will not incur losses in excess of
         current estimates. In addition, all insurance claims are subject to
         approval by the Puerto Rico Subsidiary's insurance carrier.
         Accordingly, no assurance can be given that amounts claimed under the
         Puerto Rico Subsidiary's insurance coverage will be paid in their
         entirety.

         TCI Ventures Group has contingent liabilities related to legal
         proceedings and other matters arising in the ordinary course of
         business. Although it is reasonably possible TCI Ventures Group 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
         combined financial statements.

         On January 1, 1999, eleven of the fifteen European Union countries (the
         "Participating Countries") will adopt a new currency, the "euro". The
         other members of the European Union countries (Denmark, Greece, the
         United Kingdom and Sweden) have elected not to adopt the euro at this
         time. In connection with the adoption of the euro, (i) a fixed
         conversion rate will be established between the existing currencies of
         the Participating Countries (the "legacy currencies") and the euro,
         (ii) the legacy currencies will trade on currency exchanges and will
         remain legal tender in the Participating Countries through January 1,
         2002 and (iii) the Participating Countries will no longer control their
         own monetary policies. Instead, the new European Central Bank will
         direct monetary policy, including money supply and official interest
         rates of the euro. Certain of TINTA's affiliates (primarily
         MultiThematiques and UII) have operations in the Participating
         Countries. Management of TINTA has had communications with such
         affiliates to assess the impact of the euro conversion on TINTA.
         Although there can be no assurance, TINTA anticipates that the euro
         conversion will not have an adverse material effect on it's financial
         position, results of operations or cash flows.



                                                                    (continued)

                                     I-148

<PAGE>   150
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

(17)     Year 2000

         During the three months ended September 30, 1998, TCI continued its
         enterprise-wide, comprehensive efforts to assess and remediate its
         computer systems and related software and equipment to ensure such
         systems, software and equipment recognize, process and store
         information in the year 2000 and thereafter. TCI's year 2000
         remediation efforts include an assessment of TCI Ventures Group's most
         critical systems, equipment, and facilities. TCI also continued its
         efforts to verify the year 2000 readiness of TCI Ventures Group's
         significant suppliers and vendors and continued to communicate with
         significant business partners and affiliates to assess such partners
         and affiliates' year 2000 status.

         TCI formed a year 2000 Program Management Office (the "PMO") to
         organize and manage its year 2000 remediation efforts. The PMO is
         responsible for overseeing, coordinating and reporting on TCI Ventures
         Group's year 2000 remediation efforts. It is comprised of a 90-member
         full-time staff and is accountable to executive management of TCI
         Ventures Group.

         The PMO has defined a four-phase approach to determining the year 2000
         readiness of TCI Ventures Group's systems, software and equipment. Such
         approach is intended to provide a detailed method for tracking the
         evaluation, repair and testing of TCI Ventures Group's systems,
         software and equipment. Phase 1, Assessment, involves the inventory of
         all systems, software and equipment and the identification of any year
         2000 issues. Phase 1 also includes the preparation of the work plans
         needed for remediation. Phase 2, Remediation, involves repairing,
         upgrading and/or replacing any non-compliant equipment and systems.
         Phase 3, Testing, involves testing TCI Ventures Group's systems,
         software, and equipment for year 2000 readiness, or in certain cases,
         relying on test results provided to TCI Ventures Group. Phase 4,
         Implementation, involves placing compliant systems, software and
         equipment into production or service.

         At September 30, 1998, TCI Ventures Group's overall progress by phase
         was as follows:

<TABLE>
<CAPTION>
                                                               Percentage of all
                                                               Equipment/Systems
                               Phase                                In Phase*
                               -----                           -----------------

<S>                                                             <C>
                      Phase 1-Assessment                             87%
                      Phase 2-Remediation                            29%
                      Phase 3-Testing                                16%
                      Phase 4-Implementation                          3%
</TABLE>

         ---------------------
         *The percentages set forth above do not total 100% because many
         projects have elements in more than one phase. For purposes of this
         table, such projects have been attributed to each applicable phase. In
         addition, the percentages set forth above are based on the number of
         projects in each phase compared to the total number of Year 2000
         projects.


                                                                  (continued)


                                     I-149

<PAGE>   151
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         TCI Ventures Group is completing an inventory of its important systems
         with embedded technologies and is currently determining the correct
         remediation approach. During the three months ended September 30, 1998,
         TCI Ventures Group continued its survey of significant third-party
         vendors and suppliers whose systems, services or products are important
         to TCI Ventures Group's operations (e.g., suppliers of addressable
         controllers and set-top boxes, and the provider of billing services).
         The year 2000 readiness of such providers is critical to continued
         provision of TCI Ventures Group's cable and programming services. TCI
         Ventures Group has received information that the most critical systems,
         services or products supplied to TCI Ventures Group by third parties
         are either year 2000 ready or are expected to be year 2000 ready by
         mid-1999. TCI Ventures Group is currently developing contingency plans
         for systems provided by vendors who have not responded to TCI Ventures
         Group's surveys.

         In addition to the survey process described above, management of TCI
         Ventures Group has identified its most critical supplier/vendor
         relationships and has instituted a verification process to determine
         the vendor's year 2000 readiness. Such verification includes, as deemed
         necessary, reviewing vendors' test and other data and engaging in
         regular conferences with vendors' year 2000 teams. TCI Ventures Group
         is also requiring testing to validate the year 2000 compliance of
         certain critical products and services and is contracting with
         independent consultants to conduct such testing.

         Significant market value is associated with TCI Ventures Group's
         investments in certain public and private corporations, partnerships
         and other businesses. Accordingly, TCI Ventures Group is monitoring the
         public disclosure of such publicly-held business entities to determine
         their year 2000 readiness. In addition, TCI Ventures Group has surveyed
         and monitored the year 2000 status of certain privately-held business
         entities in which TCI Ventures Group has significant investments.


                                                                    (continued)


                                     I-150

<PAGE>   152
                            "TCI VENTURES GROUP"
             (a combination of certain assets, as defined in note 1)

                     Notes to Combined Financial Statements

         Year 2000 expenses and capital expenditures incurred in the three
         months ended September 30, 1998 were approximately $200,000 and zero,
         respectively. Expenses and capital expenditures incurred in the nine
         months ended September 30, 1998 were approximately $500,000 and zero,
         respectively. Management of TCI Ventures Group currently estimates the
         remaining costs to be not less than $10.5 million, bringing the total
         estimated cost associated with TCI Ventures Group's year 2000
         remediation efforts to be not less than $11 million, including TCI
         Ventures Group's pro rata share of the $32 million cost for replacement
         of noncompliant information technology ("IT") systems. Also included in
         this estimate is TCI Ventures Group's pro rata share of the $9 million
         in future payments to be made by the PMO pursuant to unfulfilled
         executory contracts or commitments with vendors for year 2000
         remediation services.

         TCI is a widely distributed enterprise in which allocation of certain
         resources, including IT support, is decentralized. Accordingly, neither
         TCI nor TCI Ventures Group consolidates an IT budget. Therefore, total
         estimated year 2000 costs as a percentage of an IT budget are not
         available. There are currently no planned IT projects being deferred
         due to year 2000 costs.

         The failure to correct a material year 2000 problem could result in an
         interruption or failure of certain important business operations. There
         can be no assurance that TCI Ventures Group's systems or the systems of
         other companies on which TCI Ventures Group relies will be converted in
         time or that any such failure to convert by TCI Ventures Group or other
         companies will not have a material adverse effect on its financial
         position, results of operations or cash flows.


                                     I-151
<PAGE>   153
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, TCI Group,
Liberty Media Group and TCI Ventures Group. Such discussion should be read in
conjunction with the accompanying consolidated financial statements and notes
thereto of the Company and the accompanying combined financial statements and
notes thereto of each of the TCI Group, Liberty Media Group and TCI Ventures
Group. 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 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, TCI
Group, Liberty Media Group and TCI Ventures Group.

         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; uncertainties inherent in the
changeover to the year 2000, including the Company's projected state of
readiness, the projected cost of remediation, the expected date of completion of
each program or phase, the projected worst case scenarios, and the expected
contingency plans associated with such worst case scenarios; 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 Federal Communications
Commission, 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. Any statement
contained within Management's Discussion and Analysis of Financial Condition and
Results of Operations on this Form 10-Q related to year 2000 are hereby
denominated as "Year 2000 Statements" within the meaning of the Year 2000
Information and Readiness Disclosure Act.


                                     I-152

<PAGE>   154



         Targeted Stock

         TCI targeted common stock is comprised of six series: TCI Group Series
A Stock, TCI Group Series B Stock, Liberty Group Series A Stock, Liberty Group
Series B Stock, TCI Ventures Group Series A Stock and TCI Ventures Group Series
B 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. TCI Group is comprised
primarily of TCI's domestic cable and communications business. For additional
information concerning targeted stock, see note 1 to the accompanying
consolidated financial statements of TCI.

         Proposed Merger

         TCI and AT&T have agreed to a Merger pursuant to, and subject to the
terms and conditions set forth in, the Merger Agreement dated as of June 23,
1998. In the Merger, TCI will become a wholly-owned subsidiary of AT&T. In
addition, TCI has announced its intention, subject to stockholder approval, to
combine the assets and businesses of Liberty Media Group and TCI Ventures Group.
Consummation of the Merger is subject to the satisfaction or waiver of customary
conditions to closing, including but not limited to, the separate approvals of
the stockholders of AT&T and TCI, receipt of all necessary governmental consents
and approvals, and effectiveness of the registration statement registering the
AT&T Common Stock and AT&T Liberty Tracking Stock to be issued to TCI
stockholders in the Merger. As a result, there can be no assurance that the
Merger will be consummated or, if the Merger is consummated, as to the date of
such consummation. For additional information concerning the Merger, see note 2
to the accompanying consolidated financial statements of TCI.


                                     I-153

<PAGE>   155



         Magness Settlement

         On June 16, 1997, the Company exchanged (the "Exchange") 30,545,864
shares of TCI Group Series A Stock for the same number of shares of TCI Group
Series B Stock owned by the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI. Subsequent to the
Exchange, the Magness Estate sold (the "Sale") the shares of TCI Group Series A
Stock received in the Exchange, together with approximately 1.5 million shares
of TCI Group Series A Stock that the Magness Estate previously owned
(collectively, the "Option Shares"), to two investment banking firms (the
"Investment Bankers") for approximately $530 million (the "Sale Price").
Subsequent to the Sale, TCI entered into an agreement with the Investment
Bankers whereby TCI has the option, but not the obligation, to purchase the
Option Shares at any time within two years (the "Option Period") from the date
of the Sale. During the Option Period, the Company and the Investment Bankers
are to settle quarterly any increase or decrease in the market value of the
Option Shares. If the market value of the Option Shares exceeds the Investment
Bankers' cost, Option Shares with a fair value equal to the difference between
the market value and cost will be segregated from the other Option Shares in an
account at the Investment Bankers. If the market value of the Option Shares is
less than the Investment Bankers' cost, the Company, at its option, will settle
such difference with shares of TCI Group Series A Stock or TCI Ventures Group
Series A Stock or, subject to certain conditions, with cash or letters of
credit. In addition, the Company is required to pay the Investment Bankers a
quarterly fee equal to the LIBOR plus 1% on the Sale Price, as adjusted for
payments made by the Company pursuant to any quarterly settlement with the
Investment Bankers. Due to the Company's ability to settle quarterly price
fluctuations and fees with shares of TCI Group Series A Stock or TCI Ventures
Group Series A Stock, the Company records all amounts received or paid under
this arrangement as increases or decreases, respectively, to equity. During the
fourth quarter of 1997, the Company repurchased 4,000,000 shares of TCI Group
Series A Stock from one of the Investment Bankers for an aggregate cash purchase
price of $66 million. Additionally, as a result of the Exchange Offers and
certain open market transactions, the Investment Bankers disposed of 4,210,308
shares of TCI Group Series A Stock and acquired 23,407,118 shares of TCI
Ventures Group Series A Stock during the last half of 1997. As a result of the
foregoing transactions and certain transactions related to the January 5, 1998
settlement of litigation involving the Magness Estate, as described below, the
Option Shares were comprised of 6,201,042 shares of TCI Group Series A Stock and
11,740,610 shares of TCI Ventures Group Series A Stock at September 30, 1998. At
September 30, 1998, the market value of the Option Shares exceeded the
Investment Bankers' cost by $254 million. The costs and benefits associated with
the Option Shares are attributed to TCI Group.

         In connection with the Exchange and Sale, Dr. John C. Malone, TCI's
Chairman and Chief Executive Officer, agreed to forgo the exercise of certain
option rights and in consideration, TCI granted to Dr. Malone the right (the
"Malone Right") to acquire 30,545,864 shares of TCI Group Series B Stock.

         On January 5, 1998, the Company announced that a settlement (the
"Magness Settlement") had been reached in the litigation brought against it and
other parties in connection with the administration of the Magness Estate.

         In connection with the Magness Settlement, portions of the Exchange and
Sale were unwound such that 10,201,041 shares of TCI Group Series A Stock and
11,666,506 shares of TCI Ventures Group Series A Stock were returned to TCI as
authorized but unissued shares, and the Magness Estate paid $11 million to TCI
representing a reimbursement of the Exchange fees incurred by TCI from June 16,
1997 through February 9, 1998 with respect to such returned shares. TCI then
issued to the Magness Estate 10,017,145 shares of TCI Group Series B Stock and
12,034,298 shares of TCI Ventures Series B Stock.


                                     I-154

<PAGE>   156



         On February 9, 1998, in connection with the Magness Settlement, TCI
entered into a call agreement (the "Malone Call Agreement") with Dr. Malone and
Dr. Malone's wife (together with Dr. Malone, the "Malones"), under which the
Malones granted to TCI the right to acquire the Malones' high-voting shares,
currently consisting of an aggregate of approximately 60 million shares of
Series B Stock (the "High-Voting Shares"), upon Dr. Malone's death or upon a
contemplated sale of the High-Voting Shares (other than a minimal amount) to
third persons. In either such event, TCI has the right to acquire the shares at
a maximum price equal to the then relevant market price of shares of
"low-voting" Series A Stock plus a ten percent premium. The Malones also agreed
that if TCI were ever to be sold to another entity, then the maximum premium
that the Malones would receive on their High-Voting Shares would be no greater
than a ten percent premium over the price paid for the relevant shares of Series
A Stock. TCI paid $150 million to the Malones for agreeing to the terms of the
Malone Call Agreement.

         Also on February 9, 1998, in connection with the Magness Settlement,
certain members of the Magness family, individually and in certain cases, on
behalf of the Estate of Betsy Magness (the first wife of Bob Magness) and the
Magness Estate (collectively, the "Magness Family") also entered into a call
agreement with TCI (with substantially the same terms as the one entered into by
the Malones, including a call on the shares owned by the Magness Family upon Dr.
Malone's death) (the "Magness Call Agreement") on the Magness Family's aggregate
of approximately 49 million High-Voting Shares (as adjusted for stock
dividends). The Magness Family was paid $124 million by TCI for entering into
the Magness Call Agreement.

         The aggregate amount paid by TCI pursuant to the Malone Call Agreement
and Magness Call Agreement (collectively, the "Call Payments") was reflected as
a $274 million reduction of additional paid-in capital. The Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, $134 million, $64 million
and $76 million of the Call Payments were allocated to TCI Group, Liberty Media
Group and TCI Ventures Group, respectively.


                                     I-155

<PAGE>   157



         Additionally, on February 9, 1998, the Magness Family entered into a
Stockholders' Agreement with the Malones and TCI under which (i) the Magness
Family and the Malones agreed to consult with each other in connection with
matters to be brought to the vote of TCI's stockholders, subject to the proviso
that if they cannot mutually agree on how to vote the shares, Dr. Malone has an
irrevocable proxy to vote the High-Voting Shares owned by the Magness Family,
(ii) the Magness Family may designate a nominee for the Board and Dr. Malone has
agreed to vote his High-Voting Shares for such nominee and (iii) certain "tag
along rights" have been created in favor of the Magness Family and certain "drag
along rights" have been created in favor of the Malones. In addition, the Malone
Right granted by TCI to Dr. Malone to acquire 30,545,864 shares of TCI Group
Series B Stock was reduced to an option to acquire 14,511,570 shares of TCI
Group Series B Stock. Pursuant to the terms of the Stockholders' Agreement, the
Magness Family has the right to participate in the reduced Malone Right on a
proportionate basis with respect to 12,406,238 shares of the 14,511,570 shares
subject to the Malone Right. On June 24, 1998, Dr. Malone delivered notice to
TCI Group exercising his right to purchase (subject to the Magness Family
proportionate right) up to 14,511,570 shares of TCI Group Series B Stock at a
per share price of $35.5875 pursuant to the Malone Right. In addition, a
representative of the Magness Family advised Dr. Malone that the Magness Family
would participate in such purchase up to the Magness Family's proportionate
right. On October 14, 1998, 8,718,770 shares of TCI Group Series B Stock were
issued to Dr. Malone upon payment of cash consideration totaling $310 million.
On October 16, 1998, 5,792,800 shares of TCI Group Series B Stock were issued to
the Magness Family upon payment of cash consideration totaling $206 million. In
connection with the acquisition of the TCI Group Series B Stock by Dr. Malone,
TCI executed certain waivers to the Stockholders' Agreement and TCI and the
Magness Family executed a waiver to the Malone Call Agreement to, among other
things, permit the pledge of TCI Group Series B Stock owned by Dr. Malone as
collateral to the lenders who provided the proceeds for the purchase of the
shares of TCI Group Series B Stock.

         Year 2000

         During the three months ended September 30, 1998, the Company continued
its enterprise-wide, comprehensive efforts to assess and remediate its computer
systems and related software and equipment to ensure such systems, software and
equipment recognize, process and store information in the year 2000 and
thereafter. The Company's year 2000 remediation efforts include an assessment of
its most critical systems, such as customer service and billing systems,
headends and other cable plant, systems that support the Company's programming
services, business support operations, and other equipment and facilities. The
Company also continued its efforts to verify the year 2000 readiness of its
significant suppliers and vendors and continued to communicate with significant
business partners and affiliates to assess such partners and affiliates' year
2000 status.

         The Company formed a year 2000 Program Management Office (the "PMO") to
organize and manage its year 2000 remediation efforts. The PMO is responsible
for overseeing, coordinating and reporting on the Company's year 2000
remediation efforts. It is comprised of a 90 member full-time staff and is
accountable to executive management of the Company.


                                     I-156

<PAGE>   158



         The PMO has defined a four-phase approach to determining the year 2000
readiness of the Company's systems, software and equipment. Such approach is
intended to provide a detailed method for tracking the evaluation, repair and
testing of the Company's systems, software and equipment. Phase 1, Assessment,
involves the inventory of all systems, software and equipment and the
identification of any year 2000 issues. Phase 1 also includes the preparation of
the workplans needed for remediation. Phase 2, Remediation, involves repairing,
upgrading and/or replacing any non-compliant equipment and systems. Phase 3,
Testing, involves testing the Company's systems, software, and equipment for
year 2000 readiness, or in certain cases, relying on test results provided to
the Company. Phase 4, Implementation, involves placing compliant systems,
software and equipment into production or service.

         At September 30, 1998, the Company's overall progress by phase was as
follows:

<TABLE>
<CAPTION>
                                  Percentage of all
                                  Equipment/Systems                    Expected
         Phase                        In Phase *                    Completion Date
         -----                    -----------------                 ---------------
<S>                               <C>                               <C> 
Phase 1-Assessment                      92%                           April 1999
Phase 2-Remediation                     54%                           July 1999
Phase 3-Testing                         10%                           July 1999
Phase 4-Implementation                   5%                           July 1999
</TABLE>

---------------------
         *The percentages set forth above do not total 100% because many
projects have elements in more than one phase. For purposes of this table, such
projects have been attributed to each applicable phase. In addition, the
percentages set forth above are based on the number of projects in each phase
compared to the total number of year 2000 projects.

         The completion dates set forth above are based on the Company's current
expectations. However, due to the uncertainties inherent in year 2000
remediation, no assurances can be given as to whether such projects will be
completed on such dates.

         The Company is completing an inventory of its important systems with
embedded technologies and is currently determining the correct remediation
approach. The embedded technologies assessments are expected to be complete by
December of 1998.

         During the three months ended September 30, 1998, the Company continued
its survey of significant third-party vendors and suppliers whose systems,
services or products are important to the Company's operations (e.g., suppliers
of addressable controllers and set-top boxes, and the provider of the Company's
billing services). The year 2000 readiness of such providers is critical to
continued provision of the Company's cable service. The Company has received
information that the most critical systems, services or products supplied to the
Company by third parties are either year 2000 ready or are expected to be year
2000 ready by mid-1999. The Company is currently developing contingency plans
for systems provided by vendors who have not responded to the Company's surveys.

         In addition to the survey process described above, management of the
Company has identified its most critical supplier/vendor relationships and has
instituted a verification process to determine the vendor's year 2000 readiness.
Such verification includes, as deemed necessary, reviewing vendors' test and
other data and engaging in regular conferences with vendors' year 2000 teams.
The Company is also requiring testing to validate the year 2000 compliance of
certain critical products and services and is contracting with independent
consultants to conduct such testing.


                                     I-157

<PAGE>   159



         Significant market value is associated with the Company's investments
in certain public and private corporations, partnerships and other businesses.
Accordingly, the Company is monitoring the public disclosure of such
publicly-held business entities to determine their year 2000 readiness,
including CSC, Time Warner, and AT&T. In addition, the Company has surveyed and
monitored the year 2000 status of certain privately-held business entities in
which the Company has significant investments.

         The Company was informed by CSC that, at September 30, 1998, the
remediation and testing of CSC's critical systems was underway and a target
date of June 1999 had been established for completion of all remediation and
testing of year 2000 compliance of all such systems. The Company was informed
by AT&T that, at September 30, 1998, AT&T had completed 99% of its assessments
and was remediating its noncompliant systems. The Company has been informed
that AT&T has set a target date of December 1998 for completion of the
assessment, remedation and testing of all customer-affecting systems. A target
date of mid-year 1999 has been established for enterprise-wide year 2000
compliance. For updated information related to CSC, Time Warner, and AT&T's
year 2000 programs, please refer to CSC, Time Warner, and AT&T's most recent
periodic filings with the Securities and Exchange Commission.

         Year 2000 expenses and capital expenditures incurred in the three
months ended September 30, 1998 were $4 million and less than $1 million,
respectively. Expenses and capital expenditures incurred in the nine months
ended September 30, 1998 were $6 million and less than $1 million, respectively.
Management of the Company currently estimates the remaining costs to be not less
than $71 million, bringing the total estimated cost associated with the
Company's year 2000 remediation efforts to be not less than $77 million
(including $32 million for replacement of noncompliant IT Systems). Also
included in this estimate is $9 million in future payments to be made pursuant
to unfulfilled executory contracts or commitments with vendors for year 2000
remediation services. Although no assurances can be given, management currently
expects that (i) cash flow from operations will fund the costs associated with
year 2000 compliance and (ii) the total projected cost associated with the
Company's year 2000 program will not be material to the Company's financial
position, results of operations or cash flows.

         The Company is a widely distributed enterprise in which allocation of
certain resources, including IT support is decentralized. Accordingly, the
Company does not consolidate an IT budget. Therefore, total estimated year 2000
costs as a percentage of an IT budget are not available. There are currently no
planned IT projects being deferred due to year 2000 costs.

         The failure to correct a material year 2000 problem could result in an
interruption or failure of certain important business operations. Management
believes that its year 2000 program will significantly reduce the Company's
risks associated with the changeover to the year 2000 and has implemented
certain contingency plans to minimize the effect of any potential year 2000
related disruptions. The risks and the uncertainties discussed below and the
associated contingency plans relate to systems, software, equipment, and
services that the Company has deemed critical in regard to customer service,
business operations, financial impact or safety.


                                     I-158

<PAGE>   160



         The failure of addressable controllers contained in the cable system
headends could disrupt the delivery of premium services to customers and could
necessitate crediting customers for failure to receive such premium services. In
this unlikely event, management expects that it will identify and transmit the
lowest cost programming tier. Unless other contingency plans are developed with
the programmers, premium and adult content channels would not likely be
transmitted until the addressable controller had been repaired.

         Customer service networks and/or automated voice response systems
failure could prevent access to customer account information, hamper
installation scheduling and disable the processing of pay-per-view requests. The
Company plans to have its customer service representatives answer telephone
calls from customers in the event of outages and expects to retrieve needed
customer information manually from the billing service provider.

         A failure of the services provided by billing systems service providers
could result in a loss of customer records which could disrupt the ability to
bill customers for a protracted period. The Company plans to prepare electronic
backup records of its customer billing information prior to the year 2000 to
allow for data recovery. In addition, the Company continues to monitor the year
2000 readiness of its key customer-billing suppliers.

         Advertising revenue could be adversely affected by the failure of
certain equipment which could impede or prevent the insertion of advertising
spots in the Company's programming. The Company anticipates that it can minimize
such effect by manually resetting the dates each day until the equipment is
repaired.

         The Company owns investments in numerous cable programming operators
and other businesses. The market value of the Company's investment in these
entities could be adversely impacted by material failures of such entities to
address year 2000 remediation issues (including supplier and vendor issues)
related to their programming services and businesses. Further, due to tax and
strategic considerations, the Company has a limited ability to dispose of these
investments if year 2000 issues develop. Therefore, as a contingency plan, the
Company has undertaken an extensive effort to verify and in certain cases assist
in the year 2000 remediation efforts of companies in which it has significant
investments.

         Security and fire protection systems failure could leave facilities
vulnerable to intrusion and fire. The Company expects to return such systems to
normal functioning by turning the power off and then on again ("power off/on").
The Company also plans to have additional security staff on site and plans to
implement a backup plan for communicating with local fire and police
departments. Also, certain personal computers interface and control elevators,
escalators, wireless systems, public access systems and certain telephony
systems. In the event such computers cease operating, conducting a power off/on
is expected to resume normal functioning. If a power off/on does not resume
normal functioning, management expects to resolve the problem by resetting the
computer to a pre-designated date which precedes the year 2000.

         In the event that the local public utility cannot supply power, the
Company expects to supply power for a limited time to the Company's cable
headends, the NDTC and office sites through backup generators.

         The financial impact of any or all of the above worst-case scenarios
has not been and cannot be estimated by the Company due to the numerous
uncertainties and variables associated with such scenarios.


                                     I-159

<PAGE>   161



         If critical systems related to the Company's cable TV and programming
services are not successfully remediated, the Company could face claims of
breach of contract from customers of the NDTC, from parties to cable system sale
or exchange agreements, from certain programming providers and from other cable
TV businesses that rely on the Company's programming services. The Company has
not determined the possible losses from any such claims of breach of contract.

         MATERIAL CHANGES IN RESULTS OF OPERATIONS

         GENERAL

         Summarized operating data with respect to TCI is presented below for
the indicated periods:

<TABLE>
<CAPTION>
                                                    Three months ended        Nine months ended
                                                       September 30,            September 30,
                                                   --------------------      --------------------
                                                    1998         1997         1998         1997
                                                   -------      -------      -------      -------
                                                               amounts in millions

<S>                                                <C>          <C>          <C>          <C>  
Revenue                                            $ 1,825        1,934        5,510        5,637

Operating, selling, general and administrative
    expenses                                         1,147        1,156        3,458        3,405
Year 2000 costs                                          4           --            6           --
AT&T merger costs                                        1           --           11           --
Stock compensation                                      11          160          423          231
Cost of distribution agreements                         --           --           83           --
Depreciation and amortization                          407          396        1,250        1,177
                                                   -------      -------      -------      -------

     Operating income                                  255          222          279          824

Interest expense                                      (272)        (300)        (808)        (883)
Share of losses of affiliates, net                    (397)        (253)        (986)        (591)
Minority interests in earnings of consolidated
    subsidiaries, net                                  (39)         (35)         (68)        (129)
Gain on dispositions of assets                       2,680          398        4,018          481
Other, net                                              21           24            3           46
                                                   -------      -------      -------      -------
                                                     1,993         (166)       2,159       (1,076)
                                                   -------      -------      -------      -------
    Earnings (loss) before income taxes              2,248           56        2,438         (252)

Income tax benefit (expense)                          (903)         (78)      (1,068)          18
                                                   -------      -------      -------      -------

     Net earnings (loss)                           $ 1,345          (22)       1,370         (234)
                                                   =======      =======      =======      =======
</TABLE>


         The operating results of each of the TCI Group, Liberty Media Group and
TCI Ventures Group are separately discussed below.


                                     I-160

<PAGE>   162



         TCI GROUP

         TCI Group operates principally in the domestic cable and communications
industry. The table below sets forth, for the periods presented, the percentage
relationship that certain items bear to revenue. This summary provides trend
data relating to the normal recurring operations of TCI Group. Other items of
significance are discussed under separate captions below.

<TABLE>
<CAPTION>
                                              Three months ended                              Nine months ended
                                                 September 30,                                   September 30,
                                  -------------------------------------------    ----------------------------------------------
                                         1998                    1997                    1998                      1997
                                  -----------------      --------------------    --------------------      --------------------
                                                                 dollar amounts in millions
<S>                               <C>       <C>          <C>          <C>        <C>          <C>          <C>           <C>    
Revenue                               100%  $ 1,479          100%     $ 1,618       100%      $ 4,560          100%      $ 4,779

Operating expenses                    (37)     (546)         (36)        (580)      (37)       (1,685)         (37)       (1,792)
Selling, general and
    administrative expenses           (22)     (329)         (20)        (330)      (22)         (986)         (20)         (952)
Year 2000 costs                        --        (3)          --           --        --            (5)          --            --
AT&T merger costs                      --        (1)          --           --        --           (11)          --            --
Stock compensation                     (1)      (13)          (4)         (61)       (4)         (160)          (2)          (99)
Depreciation and amortization         (25)     (362)         (21)        (338)      (24)       (1,111)         (22)       (1,032)
                                  -------   -------      -------      -------   -------       -------      -------       -------

      Operating income                 15%  $   225           19%     $   309        13%      $   602           19%      $   904
                                  =======   =======      =======      =======   =======       =======      =======       =======
</TABLE>

         The operation of TCI Group'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 (the "Cable
Acts") established rules under which Regulated Services are regulated if a
complaint is filed by a customer or if the appropriate franchise authority is
certified by the Federal Communications Commission to regulate rates. At
September 30, 1998, approximately 68% of TCI Group's basic customers were served
by cable television systems that were subject to such rate regulation.

         During the nine months ended September 30, 1998, 74% of TCI Group'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 TCI Group's ability to increase its service rates.

         During the first nine months of 1998, TCI Group consummated the 1998
Contribution Transactions. Since January 1, 1997, TCI Group has also consummated
certain other acquisitions and dispositions. Such transactions affect the
comparability of TCI Group's results of operations for the three and nine months
ended September 30, 1998 and 1997. For additional information see note 7 to the
accompanying combined financial statements of TCI Group.


                                     I-161

<PAGE>   163



         TCI Group's revenue decreased $139 million or 9% for the three months
ended September 30, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the 1998 Contribution Transactions and
other dispositions, revenue increased 3%. Revenue from TCI Group's customers
accounted for 3% of such increase in revenue, primarily due to the net effect of
a 5% increase in basic revenue, an increase in revenue from digital products and
an 8% decrease in traditional premium revenue. TCI Group experienced a 3%
increase in its average basic rate, an increase in the number of average basic
customers of 2%, an 8% decrease in its average rate for traditional premium
services and a decrease of less than 1% in the number of average traditional
premium subscriptions. Additionally, the December 31, 1997 termination of an
agreement pursuant to which TCI Group provided fulfillment services to a third
party resulted in a 1% decrease in revenue. Advertising sales and other revenue
accounted for the remaining 1% increase in revenue. A significant portion of the
increase in advertising sales is attributable to arrangements with programming
suppliers that may not continue at current levels in future periods.

         TCI Group's revenue decreased $219 million or 5% for the nine months
ended September 30, 1998, as compared to the corresponding prior year period.
Exclusive of the effects of acquisitions, the 1998 Contribution Transactions and
other dispositions, revenue increased 2%. Revenue from TCI Group's customers
accounted for 2% of such increase in revenue, primarily due to the net effect of
a 5% increase in basic revenue, an increase in revenue from digital products and
an 11% decrease in traditional premium revenue. TCI Group experienced a 5%
increase in its average basic rate, an increase in the number of average basic
customers of less than 1%, a 5% decrease in its average rate for traditional
premium services and a 6% decrease in the number of average traditional premium
subscriptions. Additionally, the December 31, 1997 termination of an agreement
pursuant to which TCI Group provided fulfillment services to a third party
resulted in a 1% decrease in revenue. Advertising sales and other revenue
accounted for the remaining 1% increase in revenue. A significant portion of the
increase in advertising sales is attributable to arrangements with programming
suppliers that may not continue at current levels in future periods.

         Operating expenses decreased $34 million or 6% and $107 million or 6%
for the three and nine months ended September 30, 1998, respectively, as
compared to the corresponding prior year period. Exclusive of the effects of
acquisitions, the 1998 Contribution Transactions and other dispositions, such
expenses increased 5% and 1%, respectively. Such increases relate primarily to
higher programming and labor costs, which were partially offset by reductions
attributable to higher capitalized labor and overhead resulting primarily from
increased installation and construction activities. It is anticipated that TCI
Group's programming costs will increase in future periods.

         Selling, general and administrative expenses decreased $1 million or
less than 1% and increased $34 million or 4% for the three and nine months ended
September 30, 1998, respectively, as compared to the corresponding prior year
period. Exclusive of the effects of acquisitions, the 1998 Contribution
Transactions and other dispositions, such expenses increased 12% and 16%,
respectively. Such increases are due primarily to general increases in expenses
relating to the launch of digital products and other initiatives, and other
individually insignificant increases in general and administrative expenses in
1998, which increases were partially offset by increases in marketing incentives
received from programming suppliers. The majority of such marketing incentives
are associated with the Company's launch of digital services and accordingly may
not continue at current levels in future periods.


                                     I-162


<PAGE>   164



         Year 2000 costs include fees and other expenses incurred directly in
connection with TCI's comprehensive efforts to review and correct computer
systems, equipment and related software to ensure readiness for the year 2000.
See detailed discussion above.

         AT&T merger costs were incurred in the second and third quarters of
1998, as a result of a Merger Agreement dated June 23, 1998, between TCI and
AT&T. Such costs include investment advisory, legal and accounting fees, and
other incremental pre-closing costs directly related to the Merger. See note 2
to the accompanying combined financial statements of TCI Group.

         TCI Group records stock compensation relating to restricted stock
awards, options and/or stock appreciation rights granted by TCI to certain TCI
Group employees and directors who are involved with TCI Group. The estimated
compensation liability relating to stock appreciation rights has been recorded
as of September 30, 1998, and is subject to future adjustment based upon vesting
and market values and, ultimately, on the final determination of market values
when such rights are exercised.

         Depreciation and amortization expense increased $24 million or 7% and
$79 million or 8% for the three and nine months ended September 30, 1998,
respectively, as compared to the corresponding prior year periods. Such
increases represent the net effect of (i) increases attributable to
acquisitions, capital expenditures and differences in the composition of TCI
Group's depreciable property and equipment and (ii) decreases attributable to
the 1998 Contribution Transactions and other dispositions.

         Other Income and Expenses

         TCI Group's interest expense decreased $56 million or 19% and $107
million or 13% for the three and nine months ended September 30, 1998,
respectively, as compared to the corresponding prior year periods. Such
decreases are primarily the result of debt reductions attributable to the 1998
Contribution Transactions.

         TCI Group's share of CSC's losses, including amortization of the
difference between the recorded value of TCI Group's investment in CSC and TCI
Group's proportionate share of CSC's net deficiency, aggregated $76 million and
$156 million for the three months ended September 30, 1998 and for the period
from March 4, 1998 through September 30, 1998, respectively. As described in
note 5 to the accompanying combined financial statements of TCI Group, TCI Group
acquired an equity interest in CSC on March 4, 1998.

         TCI Group'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. TCI Group's share of net earnings (losses)
of other affiliates aggregated $(17 million) and $30 million for the three and
nine months ended September 30, 1998, respectively, as compared to $(16 million)
and $(50 million) for the corresponding prior year periods. A significant
portion of the change from the nine months ended September 30, 1997 to the nine
months ended September 30, 1998 is attributable to TCI Group's share of 1998
gains recognized by two affiliates on the sale of certain assets.


                                     I-163

<PAGE>   165



         During the nine months ended September 30, 1998 and 1997, TCI Group
purchased notes payable which had aggregate principle balances of $352 million
and $190 million, respectively. In connection with such purchases, TCI Group
recognized losses on early extinguishment of debt of $44 million and $11 million
for the nine months ended September 30, 1998 and 1997, respectively. Such losses
relate to prepayment penalties and the retirement of deferred loan costs.

         Minority interests in earnings of attributed subsidiaries aggregated
$48 million and $143 million for the three and nine months ended September 30,
1998, respectively, as compared to $42 million and $125 million for the
corresponding prior year periods. 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 1996 by a
TCI subsidiary that is attributed to TCI Group. See note 10 to the accompanying
combined financial statements of TCI Group.

         Gain on disposition of assets of $842 million for the nine months ended
September 30, 1998 relates primarily to the March 4, 1998 contribution of cable
television systems by TCI Group to CSC and certain of the 1998 Joint Ventures.
See notes 5 and 7 to the accompanying combined financial statements of TCI
Group.

         Net Earnings

         As a result of the above-described fluctuations in the Company's
results of operations, (i) TCI Group's net earnings (before preferred stock
dividend requirements) of $52 million for the three months ended September 30,
1998 changed by $110 million, as compared to TCI Group's net loss (before loss
of TCI Ventures Group and preferred stock dividend requirements) of $58 million
for the three months ended September 30, 1997, and (ii) TCI Group's net earnings
(before preferred stock dividend requirements) of $148 million for the nine
months ended September 30, 1998 changed by $251 million, as compared to TCI
Group's net loss (before loss of TCI Ventures Group and preferred stock dividend
requirements) of $103 million for the nine months ended September 30, 1997.


                                     I-164

<PAGE>   166



         LIBERTY MEDIA GROUP

         Liberty Media Group's assets include businesses which provide
programming services including production, acquisition and distribution through
all available formats and media of branded entertainment, educational and
informational programming and software, including multimedia products. Liberty
Media Group's assets also include businesses engaged in electronic retailing,
direct marketing, advertising sales relating to programming services,
infomercials and transaction processing. A significant portion of Liberty Media
Group's operations are conducted through corporations and partnerships in which
Liberty Media Group holds a 20%-50% ownership interest. As Liberty Media Group
generally accounts for such ownership interests using the equity method of
accounting, the financial condition and results of operations of such entities
are not reflected on a combined basis within Liberty Media Group's combined
financial statements.

         On June 24, 1997 Liberty Media Group granted Time Warner the Southern
Option. Liberty Media Group received 6.4 million shares of TW Exchange Stock
valued at $306 million in consideration for the grant. In September 1997, Time
Warner exercised the Southern Option. Pursuant to the Southern Option, Time
Warner acquired the Southern Business, effective January 1, 1998, for $213
million, which was paid in cash, together with the assumption of certain
liabilities on January 2, 1998. Effective January 1, 1998, the Southern Business
is no longer included in the combined financial statements of Liberty Media
Group.

         Subsequent to June 30, 1997, Liberty Media Group and TCI Group entered
into a series of transactions pursuant to which the businesses of "Encore," a
movie premium programming service, and "STARZ!," a first-run movie premium
programming service, were contributed to Encore Media Group, a subsidiary of TCI
that is attributed to the Liberty Media Group. Upon the July 1997 formation of
Encore Media Group, the operations of STARZ! were included in the combined
financial statements of Liberty Media Group.

         Simultaneously with the July 1997 DMX Merger, substantially all of
TCI's controlling ownership interest in TCI Music was transferred to Liberty
Media Group in exchange for the Music Note and the assumption of the obligation
under the Rights Agreement. Accordingly, TCI Music has been included in the
combined financial statements of Liberty Media Group since the date of the DMX
Merger.

         Effective November 1, 1997, Liberty Media Group acquired the remaining
50% interest in International Cable Channels Partnership, Ltd. ("ICCP") for
$1.75 million. Upon consummation of such transaction the operations of ICCP were
included in the combined financial statements of Liberty Media Group.


                                     I-165

<PAGE>   167



         Summary of Operations

         Liberty Media Group's programming services include production,
acquisition and distribution through all available formats and media of branded
entertainment, educational and informational programming and software, including
multimedia products ("Entertainment and Information Programming Services"). The
table below sets forth, for the periods indicated, certain financial information
and the percentage relationship that certain items bear to revenue. This summary
provides trend data related to the normal recurring operations of Liberty Media
Group. Corporate expenses have been reflected separately in the following table.
Liberty Media Group holds significant equity investments, the results of which
are not a component of operating income, but are discussed below under "Other
Income and Expense." Other items of significance are discussed separately below.

<TABLE>
<CAPTION>
                                                         Three months ended September 30,
                                                       ----------------------------------
                                                             1998              1997
                                                       ---------------   ----------------
                                                            dollar amounts in thousands
<S>                                                    <C>    <C>        <C>    <C>      
Entertainment and Information
Programming Services

    Revenue                                             100%  $ 176,265  100%   $ 124,505
    Operating, selling, general and administrative       81%   (142,321)  80%     (99,362)
    Stock compensation                                    2%     (4,489)   6%      (7,406)
    Depreciation and amortization                         5%     (8,936)   4%      (4,988)
                                                       ----   ---------  ---    ---------

       Operating income                                  12%  $  20,519   10%   $  12,749
                                                       ====   =========  ===    =========

Corporate expenses

    Selling, general and administrative                       $  (3,300)        $  (1,398)
    Stock compensation                                            2,021           (35,492)
    Depreciation and amortization                                   (31)              (30)
                                                              ---------         ---------

       Operating loss                                         $  (1,310)        $ (36,920)
                                                              =========         =========
</TABLE>

<TABLE>
<CAPTION>
                                                         Nine months ended September 30,
                                                       ----------------------------------
                                                             1998              1997
                                                       ---------------   ----------------
                                                            dollar amounts in thousands
<S>                                                    <C>    <C>        <C>    <C>      
Entertainment and Information
Programming Services

    Revenue                                             100%  $ 497,960  100%   $ 243,536
    Operating, selling, general and administrative       83%   (414,741)  73%    (177,657)
    Stock compensation                                    4%    (18,518)   5%     (11,982)
    Depreciation and amortization                         5%    (24,784)   3%      (6,486)
                                                       ----   ---------  ---    ---------

       Operating income                                   8%  $  39,917   19%   $  47,411
                                                       ====   =========  ===    =========

Corporate expenses

    Selling, general and administrative                       $  (8,609)        $  (4,197)
    Stock compensation                                         (122,386)          (50,956)
    Depreciation and amortization                                   (90)              (87)
                                                              ---------         ---------

       Operating loss                                         $(131,085)        $ (55,240)
                                                              =========         =========
</TABLE>


                                     I-166

<PAGE>   168



         Entertainment and Information Programming Services

         As discussed above, certain acquisitions and dispositions have affected
the comparability of Liberty Media Group's operating results for the nine months
and three months ended September 30, 1998 and 1997. The following table presents
adjustments to remove the effects of such acquisitions and dispositions.

<TABLE>
<CAPTION>
                                       Three months ended September 30, 1998
                                    --------------------------------------------
                                                      Effect of
                                                    acquisitions
                                    Historical    and dispositions   As adjusted
                                    ----------   ------------------ ------------
                                               amounts in thousands

<S>                                 <C>          <C>                <C>    
Revenue                              $ 176,265        (24,674)        151,591

Operating, selling, general and
     administrative expenses          (142,321)        24,317        (118,004)

Stock compensation                      (4,489)           128          (4,361)

Depreciation and amortization           (8,936)         6,905          (2,031)
                                     ---------      ---------       ---------

     Operating income                $  20,519          6,676          27,195
                                     =========      =========       =========
</TABLE>



<TABLE>
<CAPTION>
                                       Three months ended September 30, 1997
                                    --------------------------------------------
                                                      Effect of
                                                    acquisitions
                                    Historical    and dispositions   As adjusted
                                    ----------   ------------------ ------------
                                               amounts in thousands
<S>                                 <C>          <C>                <C>    
Revenue                              $ 124,505         (17,978)        106,527

Operating, selling, general and
     administrative expenses           (99,362)          6,893         (92,469)

Stock compensation                      (7,406)            581          (6,825)

Depreciation and amortization           (4,988)          3,140          (1,848)
                                     ---------       ---------       ---------

     Operating income                $  12,749          (7,364)          5,385
                                     =========       =========       =========
</TABLE>


                                     I-167

<PAGE>   169


<TABLE>
<CAPTION>
                                        Nine months ended September 30, 1998
                                    --------------------------------------------
                                                      Effect of
                                                    acquisitions
                                    Historical    and dispositions   As adjusted
                                    ----------   ------------------ ------------
                                               amounts in thousands
<S>                                 <C>          <C>                <C>    
Revenue                             $  497,960        (287,468)        210,492

Operating, selling, general and
     administrative expenses          (414,741)        277,489        (137,252)

Stock compensation                     (18,518)            369         (18,149)

Depreciation and amortization          (24,784)         19,410          (5,374)
                                    ----------        --------        --------

     Operating income               $   39,917           9,800          49,717
                                    ==========        ========        ========
</TABLE>


<TABLE>
<CAPTION>
                                        Nine months ended September 30, 1997
                                    --------------------------------------------
                                                      Effect of
                                                    acquisitions
                                    Historical    and dispositions   As adjusted
                                    ----------   ------------------ ------------
                                               amounts in thousands
<S>                                 <C>          <C>                <C>    

Revenue                             $  243,536         (83,423)         160,113

Operating, selling, general and
     administrative expenses          (177,657)         72,519         (105,138)

Stock compensation                     (11,982)            581          (11,401)

Depreciation and amortization           (6,486)          3,583           (2,903)
                                    ----------       ---------         --------

     Operating income               $   47,411          (6,740)          40,671
                                    ==========       =========         ========
</TABLE>

         Excluding the effect of acquisitions and dispositions, revenue from
Entertainment and Information Programming Services increased 42% or $45 million
for the quarter ended September 30, 1998, as compared to the quarter ended
September 30, 1997. The increase is primarily attributable to higher revenue
from the distribution of Encore services to cable operators, including TCI
Group. In connection with the formation of Encore Media Group, TCI Group entered
into the EMG Affiliation Agreement pursuant to which TCI Group pays monthly
fixed amounts in exchange for unlimited access to all of the existing Encore and
STARZ! services. During the three months ended September 30, 1998, revenue from
Encore services distributed to TCI Group increased due to the EMG Affiliation
Agreement, when compared to the three months ended September 30, 1997.
Additionally, Netlink had increased revenue during the third quarter of 1998
compared to the same period in 1997 of approximately $1 million, primarily due
to increased rates as a result of increased copyright fees.


                                     I-168

<PAGE>   170



         Operating, selling, general and administrative expenses from
Entertainment and Information Programming Services, as adjusted for the effect
of acquisitions and dispositions, increased 28% or $26 million for the quarter
ended September 30, 1998 compared to the quarter ended September 30, 1997.
Operating, selling, general and administrative expenses related to Encore
services increased by $22 million during the third quarter of 1998 compared to
the third quarter of 1997 primarily due to a $14 million increase in first run
program license fees, $1 million increase in music rights costs and $1 million
due to increased transponder costs from the acquisition of an additional
transponder. The remainder of the increase from Encore Services is due to a $6
million increase in marketing support costs. Operating, selling, general and
administrative expenses at Netlink increased by approximately $2 million which
is primarily attributable to an increase in the copyright fee rate from
approximately $.06 per subscriber to $.27 per subscriber. Additionally, Liberty
Media Group incurred start up costs of approximately $1 million during the
second quarter of 1998 for a new package of Spanish language channels (the
"Spanish Plex").

         Revenue from TCI Music contributed $22 million and $10 million to
revenue from Entertainment and Information Programming Services for the quarter
ended September 30, 1998 and 1997, respectively. Operating, selling, general and
administrative expenses for the three months ended September 30, 1998 and 1997
included $22 million and $5 million, respectively, from the operations of TCI
Music, As discussed above, operations for TCI Music were not included in the
combined financial results of Liberty Media Group prior to the date of the DMX
Merger. Additionally, revenue from ICCP contributed $2 million to revenue for
the three months ended September 30, 1998. Operating, selling, general and
administrative expenses for Entertainment and Information Programming Services
for the quarter ended September 30, 1998 included $3 million from the operations
of ICCP. Operations for ICCP were not included in the combined financial results
of Liberty Media Group for the nine months ended September 30, 1997.

         Excluding the effect of acquisitions and dispositions, revenue from
Entertainment and Information Programming Services increased 31% or $50 million
during the nine months ended September 30, 1998 compared to the nine months
ended September 30, 1997. The increase is primarily attributable to higher
subscription revenue from the distribution of Encore services to cable
operators, including TCI Group. Additionally, Netlink had increased revenue
during the first nine months of 1998 compared to the same period in 1997 of
approximately $5 million primarily due to increased rates as a result of
increased copyright fees.

         Operating, selling, general and administrative expenses from
Entertainment and Information Programming Services, as adjusted for the effect
of acquisitions and dispositions, increased 31% or $32 million for the nine
months ended September 30, 1998 compared to the same period of 1997. Increased
first run program license fees related to the Encore services accounted for $16
million of the increase. Additionally, operating, selling, general and
administrative costs for the Encore services increased by $3 million due to
increased music rights costs and $3 million due to increased marketing support
costs. Operating, selling, general and administrative expenses at Netlink
increased $7 million for the nine months ended September 30, 1998 compared to
1997 primarily due to the increase in the copyright fee rate. Additionally,
Liberty Media Group incurred start up costs of approximately $2 million during
the nine months ended September 30, 1998 for the Spanish Plex.

         The increase in stock compensation of Entertainment and Information
Programming Services for the nine months ended September 30, 1998 as compared to
the corresponding period in 1997 is due to an increase in Encore Media Group's
stock compensation. See note 10 to the accompanying combined financial
statements of Liberty Media Group.


                                     I-169


<PAGE>   171



         Revenue from TCI Music contributed $63 million and $10 million to
revenue from Entertainment and Information Programming Services for the nine
months ended September 30, 1998 and 1997, respectively. Additionally, revenue
from STARZ! contributed $218 million and $50 million for the nine month periods
in 1998 and 1997, respectively, and ICCP contributed $7 million to revenue for
the nine months ended September 30, 1998. As discussed above, the operations for
STARZ! were not included in the combined financial results of Liberty Media
Group for the six months ended June 30, 1997. Operating, selling, general and
administrative expenses for Entertainment and Information Programming Services
for the nine months ended September 30, 1998 and 1997 included $59 million and
$5 million, respectively, from the operations of TCI Music and $208 million and
$62 million, respectively, from the operations of STARZ!. Operating, selling,
general and administrative expenses for the nine months ended September 30, 1998
included $10 million from the operations of ICCP.

         Corporate Expenses

         The amount of expense associated with stock compensation is based on
the vesting of the related stock options and stock appreciation rights and the
market price of the underlying common stock as of the date of the financial
statements. The expense is subject to future adjustment based on vesting and
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised. See note 9 to the accompanying combined
financial statements of Liberty Media Group.

         Other Income and Expense

         Interest expense was $42 million and $8 million during the nine months
ended September 30, 1998 and 1997, respectively. Increased interest expense is
directly related to increased outstanding debt at Encore Media Group, TCI Music,
CCC and LMC Capital as well as an increase in interest-bearing amounts due to
TCI Group during the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1997.

         Dividend and interest income was $41 million and $34 million during the
nine months ended September 30, 1998 and 1997, respectively. Such amounts are
primarily comprised of dividends received on the FKW Preferred Stock and the
Time Warner Exchange Stock.

         Liberty Media Group's share of losses of affiliates for the quarters
ended September 30, 1998 and 1997 was $32 million and $8 million, respectively.
Liberty Media Group's share of losses of affiliates was $103 million for the
nine months ended September 30, 1998 compared to earnings of $5 million for the
corresponding period in 1997.

         Liberty Media Group's share of earnings of affiliates attributable to
its interest in Discovery decreased $4 million and $23 million during the
quarter and nine months ended September 30, 1998 compared to the quarter and
nine months ended September 30, 1997, respectively. While Discovery's revenue
increased by 32% and 27% during the third quarter and nine months of 1998,
respectively, its earnings before interest, taxes, depreciation and amortization
decreased by 70% and 44%, principally because of costs associated with launching
new digital services, continuing investments in the retail business as well as
new joint ventures including the joint venture with the British Broadcasting
Corporation. Interest expense for Discovery was 98% and 113% higher in the third
quarter and nine months of 1998, respectively, compared to the same periods in
1997 mainly due to increased debt caused by significant cash payments made to
distributors in support of the launch of "Animal Planet" and its new digital
services.


                                     I-170

<PAGE>   172




         Liberty Media Group's share of earnings of affiliates attributable to
its interest in QVC increased approximately $11 million and $20 million during
the quarter and nine months ended September 30, 1998, respectively, compared to
the same period in 1997. QVC's revenue increased by 17% and 15% for the quarter
and nine months ended September 30, 1998, respectively, contributing to a 34%
and 26% increase in earnings before interest, taxes, depreciation and
amortization over the corresponding periods in 1997. In the aggregate, interest
expense, interest income, taxes, depreciation and amortization for QVC increased
by 1% and 8% for the third quarter and first nine months of 1998, respectively,
resulting in a 181% and 106% increase in net income for QVC for the quarter and
nine months ended September 30, 1998, respectively, compared to the quarter and
nine months ended September 30, 1997.

         The share of losses of Fox Sports was responsible for approximately $76
million of the decrease in share of earnings of affiliates for the first nine
months of 1998 compared to 1997. Prior to the first quarter of 1998, Liberty
Media Group had no obligation, nor intention, to fund Fox Sports. During 1998,
Liberty Media Group made the determination to provide funding to Fox Sports
based on specific transactions consummated by Fox Sports. Consequently, Liberty
Media Group's share of losses of Fox Sports for the nine months ended September
30, 1998 includes previously unrecognized losses of Fox Sports of approximately
$64 million. Losses for Fox Sports were not recognized in prior periods due to
the fact that Liberty Media Group's investment in Fox Sports was less than zero.

         During 1997, Liberty Media Group granted Time Warner the Southern
Option and received 6.4 million shares of Time Warner Exchange Stock valued at
$306 million in consideration for the grant. Such amount had been reflected as a
deferred option premium in the accompanying combined financial statements of
Liberty Media Group. Pursuant to the Southern Option, Time Warner acquired the
Southern Business, effective January 1, 1998 for $213 million in cash. Liberty
Media Group recognized a $515 million pre-tax gain in connection with these
transactions in the first quarter of 1998. See note 6 to the accompanying
combined financial statements of Liberty Media Group.

         Effective February 1, 1998, Turner-Vision, Inc. contributed the assets,
obligations and operations of its retail C-band Satellite business to SNG in
exchange for an approximate 20% interest in SNG. As a result of this
transaction, Liberty Media Group's ownership interest in SNG decreased from 50%
to approximately 40%. In connection with such dilution, Liberty Media Group
recognized a $23 million gain (before deducting deferred income tax expense of
$9 million). See note 5 to the accompanying combined financial statements of
Liberty Media Group.

         On August 1, 1997, Liberty IFE Inc., a wholly owned subsidiary of
Liberty Media Group which holds the Class C Stock and the Convertible Notes,
contributed its Class C Stock and Convertible Notes to FKW in exchange for the
FKW Preferred Stock. As a result of the exchange, Liberty Media Group recognized
a pre-tax gain of approximately $304 million.


                                     I-171

<PAGE>   173



         TCI VENTURES GROUP

         The following table sets forth certain financial information for the
TCI Ventures Group and the businesses attributed to it during the nine months
ended September 30, 1998 and 1997:

<TABLE>
<CAPTION>
                                               Nine months ended September 30,
                                           --------------------------------------
                                                   1998                1997
                                           -------------------   ----------------
                                                   dollar amounts in thousands
<S>                                        <C>          <C>      <C>         <C>
         Revenue:
             UVSG                          $  443,177       65%  $  376,882    50%
             NDTC (1)                          76,080       11       69,750      9
             ETC                               63,222        9       65,245      9
             TINTA (2)                         43,557        6      206,621     27
             WTCI                              27,044        4       25,984      3
             @Home                             28,808        4        3,737      1
             Corporate and other                2,996        1        9,863      1
                                           ----------   ------   ----------  -----
                                           $  684,884      100%  $  758,082    100%
                                           ==========   ======   ==========  =====

         Operating, selling, general,
           administrative:
                UVSG                       $  350,428      59%   $  302,237     48%
                NDTC                           54,172        9       41,838      7
                ETC                            67,497       11       78,858     13
                TINTA (2)                      33,468        6      132,447     21
                WTCI                           19,908        3       17,058      3
                @Home                          55,004        9       34,804      6
                Corporate and other            15,880        3       15,862      2
                                           ----------   ------   ----------  -----
                                           $  596,357     100%   $  623,104    100%
                                           ==========   ======   ==========  =====
         Depreciation, amortization,
           other non-cash charges,
           stock compensation and
           year 2000 costs:
                UVSG                       $   44,850      14%   $   26,839     13%
                NDTC                           28,862        9       23,204     11
                ETC                             4,921        1        4,663      2
                TINTA (2)                      21,179        7       56,950     28
                WTCI                            9,126        3        6,416      3
                @Home                          93,082       30        5,311      3
                Corporate and other (3)       112,866       36       83,465     40
                                           ----------   ------   ----------  -----
                                           $  314,886     100%   $  206,848    100%
                                           ==========   ======   ==========  =====
         Operating income (loss):
                UVSG                       $   47,899       (4)  $   47,806     (4)
                NDTC                           (6,954)                4,708
                ETC                            (9,196)              (18,276)
                TINTA (2)                     (11,090)               17,224
                WTCI                           (1,990)                2,510
                @Home                        (119,278)              (36,378)
                Corporate and other (3)      (125,750)              (89,464)
                                           ----------            ----------
                                           $ (226,359)           $  (71,870)
                                           ==========            ==========
</TABLE>

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


                                     I-172

<PAGE>   174



         (1)      A significant number of NDTC's major customers are affiliates
                  of TCI, and NDTC derives a substantial portion of its revenue
                  from such affiliated companies. For the nine months ended
                  September 30, 1998 and 1997 revenue from services provided to
                  TCI and its consolidated subsidiaries accounted for 35% and
                  38%, respectively, of NDTC's total revenue.

         (2)      As described in note 7 to the accompanying combined financial
                  statements of TCI Ventures Group, effective October 1, 1997,
                  TINTA ceased to consolidate Cablevision and began to account
                  for Cablevision using the equity method of accounting. As a
                  result, effective October 1, 1997, TINTA's results of
                  operations no longer include Cablevision's results of
                  operations on a consolidated basis. The following table sets
                  forth summary information with respect to the operating
                  results of Cablevision that were included in TINTA's results
                  of operations for the nine months ended September 30, 1997
                  (amounts in thousands):



<TABLE>
                         <S>                               <C>      
                         Revenue                           $ 173,517
                         Operating costs and expenses       (105,351)
                         Depreciation and amortization       (40,882)
                                                           ---------
 
                         Operating income                  $  27,284
                                                           =========
</TABLE>


         (3)      Amount includes stock compensation expense of $109.9 million
                  and $61.3 million for the nine months ended September 30, 1998
                  and 1997, respectively.

         (4)      Not meaningful.

         On September 21, 1998, Hurricane Georges struck Puerto Rico and caused
considerable property damage to the area in general, including the Puerto Rico
Subsidiary's cable television systems. The Puerto Rico Subsidiary's cable
television systems represent $35.9 million of TCI Ventures Group's revenue for
the nine months ended September 30, 1998. The Puerto Rico Subsidiary has
property and business interruption insurance aggregating $15 million that is
subject to a deductible of $1 million. The Puerto Rico Subsidiary has submitted
a property damage claim to its insurance carrier for approximately $12 million
which represents the estimated replacement cost of its damaged property. As a
result of the damage caused by Hurricane Georges, the Puerto Rico Subsidiary, at
September 30, 1998, recorded an impairment by reducing the net book value of the
damaged property and equipment by $8.3 million and recorded a receivable in the
same amount for a portion of the estimated proceeds under its property insurance
coverage. Subsequent to September 30, 1998, the Puerto Rico Subsidiary received
a $2 million advance on its insurance coverage from the insurance carrier. TCI
Ventures Group has applied $1 million of such advance to property losses and $1
million to business interruption losses. The balance of the receivable is deemed
probable of collection.


                                     I-173

<PAGE>   175



         Although there can be no assurance, the Puerto Rico Subsidiary
currently estimates that 85% of its cable distribution systems and related
support equipment will be restored by the end of 1998 and fully restored by the
end of the first quarter of 1999. In addition to property damage caused by
Hurricane Georges, the Puerto Rico Subsidiary will also suffer a loss in revenue
from its pre-hurricane customers. As of September 30, 1998, approximately 23% of
the Puerto Rico Subsidiary's pre-hurricane basic customers were receiving cable
television services. Although there can be no assurance, the Puerto Rico
Subsidiary estimates that it will regain 80% and 100% of its pre-hurricane
customer base by December 31, 1998 and June 30, 1999, respectively. The loss of
revenue from September 21, 1998 through December 31, 1998 has been preliminarily
estimated at $7 million, of which $1 million relates to the period from
September 21, 1998 through September 30, 1998. In addition, the estimated loss
of revenue for the first quarter of 1999 is approximately $3 million. The Puerto
Rico Subsidiary's business interruption insurance will cover the first $3
million in lost revenue. The Puerto Rico Subsidiary currently estimates that
lost revenue of approximately $7 million will not be covered under its business
interruption insurance. However, no assurance can be given that the Puerto Rico
Subsidiary will not incur losses in excess of current estimates. In addition,
all insurance claims are subject to approval by the Puerto Rico Subsidiary's
insurance carrier. Accordingly, no assurance can be given that amounts claimed
under the Puerto Rico Subsidiary's insurance coverage will be paid in their
entirety.

         Revenue

         Revenue decreased by $10.2 million or 4% and $73.2 million or 10%
during the three and nine month periods ended September 30, 1998, respectively,
as compared to the corresponding prior year periods. Such decreases are largely
attributable to TINTA's deconsolidation of Cablevision which was partially
offset by increased revenue of UVSG.

         Revenue from UVSG increased $27.7 million or 22% and $66.3 million or
18% during the three and nine month periods ended September 30, 1998,
respectively, as compared to the corresponding prior year periods. Such
increases are due primarily to Turner Vision's retail C-band operations which
were combined with SNG effective February 1, 1998.

         Operating Costs and Expenses

         Operating costs and expenses, excluding depreciation, amortization,
stock compensation, other non-cash charges and year 2000 costs decreased by $7.6
million or 4% and $26.7 million or 4% during the three and nine month periods
ended September 30, 1998, respectively, as compared to the corresponding prior
year periods. Such decreases are attributable to TINTA's deconsolidation of
Cablevision which was partially offset by increased costs attributable to UVSG.

         Operating costs and expenses, excluding depreciation, amortization,
stock compensation and other non-cash charges from UVSG increased $18.7 million
or 19% and $48.2 million or 16% during the three and nine month periods ended
September 30, 1998, respectively, as compared to the corresponding prior year
periods. Such increases are primarily attributable to Turner Vision's retail
C-band operations which were combined with SNG effective February 1, 1998.


                                     I-174

<PAGE>   176



         Certain TCI corporate general and administrative costs are charged to
the TCI Ventures Group at rates set at the beginning of the year based on
projected utilization for that year. During the three months ended September 30,
1998 and 1997, TCI Ventures Group was allocated $1.9 million and $2.2 million,
respectively, in corporate general and administrative costs by TCI Group. During
the nine months ended September 30, 1998 and 1997, TCI Ventures Group was
allocated $8.2 million and $6.6 million, respectively, in corporate general and
administrative costs by TCI Group.

         During the first quarter of 1998, @Home recorded non-cash costs of
distribution agreements of $83.3 million based on the fair value of 2,705,514
shares of @Home's Series A common stock which were underlying certain warrants
which became exercisable during the period. For additional information
concerning such warrants, see note 12 to the accompanying combined financial
statements of TCI Ventures Group.

         Stock compensation expense increased (decreased) $(60.2 million) and
$53.7 million during the three and nine month periods ended September 30, 1998,
respectively, as compared to the corresponding prior year periods. Such amounts
represent changes in TCI Ventures Group's stock compensation liability. TCI
Ventures Group records stock compensation expense relating to Awards granted by
(i) TCI to certain TCI employees and/or directors who are involved with the TCI
Ventures Group and (ii) TINTA, UVSG, and @Home to employees and/or directors of
such entities. Stock compensation with respect to Awards granted by TCI includes
amounts related to TCI common stock and to common stock of certain non-public
subsidiaries of TCI and is allocated to TCI Ventures Group based on the Awards
held by TCI employees and/or directors who are involved with TCI Ventures Group.
Estimated compensation relating to stock appreciation rights has been recorded
through September 30, 1998. Such estimate is subject to future adjustment based
upon vesting and market value, and ultimately, on the final determination of
market value when such rights are exercised. See note 16 to the accompanying
combined financial statements of TCI Ventures Group.

         The $15.3 million or 29% and $29.4 million or 21% decreases in
depreciation and amortization expense during the three and nine month periods
ended September 30, 1998, respectively, as compared to the corresponding prior
year periods, are primarily the result of the net effects of the deconsolidation
of Cablevision and increases in depreciation and amortization attributable to
UVSG. Depreciation and amortization attributable to UVSG increased in 1998 as a
result of amortization of goodwill resulting from (i) TCI's acquisition of UVSG
common stock from a minority shareholder of UVSG and (ii) UVSG's Turner Vision
acquisition.


                                     I-175

<PAGE>   177



         Other Income and Expense

         The TCI Ventures Group's share of losses from its investment in the PCS
Ventures increased $39.6 million and $206.0 million during the three and nine
month periods ended September 30, 1998, respectively, as compared to the
corresponding prior year periods. The increases in the share of losses are
attributed primarily to increases in (i) selling, general and administrative
costs associated with Sprint Spectrum's efforts to increase its customer base,
(ii) depreciation expense resulting from capital expenditures made to expand its
PCS network and (iii) interest expense associated with higher amounts of
outstanding debt. It is expected that Sprint PCS will continue to incur
significant operating losses and significant negative cash flow from operating
activities during the next several years while it continues to expand its PCS
network and build its customer base. Sprint PCS's operating profitability will
depend upon many factors, including, among others, its ability to (i) market its
products and services successfully, (ii) achieve its projected market
penetration, (iii) manage customer turnover rates effectively and (iv) price its
products and services competitively. There can be no assurance that Sprint PCS
will achieve or sustain operating profitability or positive cash flow from
operating activities in the future. If Sprint PCS does not achieve and maintain
operating profitability and positive cash flow from operating activities on a
timely basis, it may not be able to meet its debt service requirements.

         The TCI Ventures Group's share of Telewest's net losses decreased $11.5
million and $21.3 million during the three and nine month periods ended
September 30, 1998, respectively, as compared to the corresponding prior year
periods. Such changes are primarily attributable to the net effects of (i)
changes in foreign currency transaction losses, (ii) an increase in operating
cash flow resulting from revenue growth and (iii) an increase in interest
expense. In connection with a previous merger transaction, Telewest issued the
Telewest Debentures. Changes in the exchange rate used to translate the Telewest
Debentures into U.K. pounds sterling and the adjustment of a foreign currency
option contract to market value caused Telewest to experience foreign currency
transaction gains (losses) of (i) $20.9 million and $(14.5 million) during the
three months ended September 30, 1998 and 1997, respectively, and (ii) $18.5
million and $(54.5 million) during the nine months ended September 30, 1998 and
1997, respectively. It is anticipated that Telewest will continue to experience
realized and unrealized foreign currency transaction gains and losses throughout
the term of the Telewest Debentures, which mature in 2006 and 2007, if not
redeemed earlier.

         As described above, effective October 1, 1997, TINTA ceased to
consolidate Cablevision and began to account for Cablevision using the equity
method of accounting. The TCI Ventures Group's share of losses from Cablevision
was $6.8 million and $14.4 million for the three and nine month periods ended
September 30, 1998, respectively.

         TCI Ventures Group's share of losses from the Other Affiliates remained
relatively constant during the three and nine month periods ended September 30,
1998, as compared to the corresponding prior year periods. Increased losses of
MultiThematiques, Liberty/TINTA and BIP Poland were partially offset by a
decrease in TCG's share of losses. As described below, on July 23, 1998, a
merger in which TCG agreed to be acquired by AT&T was consummated. As a result
of such merger, TCI Ventures Group received in exchange for its 26% interest in
TCG, shares of AT&T Common Stock. TCI Ventures Group accounts for its ownership
interest in AT&T Common Stock as an available-for-sale security. TCI Ventures
Group expects that the Other Affiliates will continue to incur losses as they
continue to expand their operations and/or launch new services. For additional
information, see note 8 to the accompanying combined financial statements of TCI
Ventures Group.


                                     I-176

<PAGE>   178



         Interest expense increased (decreased) $3.0 million and $(2.9 million)
during the three and nine month periods ended September 30, 1998, respectively,
as compared to the corresponding prior year periods. Such changes are primarily
the result of the net effects of increased borrowings during the second and
third quarters of 1998, the October 1997 deconsolidation of Cablevision and the
January 1998 assignment of certain capital lease obligations to TCI Group.

         Dividend and interest income increased $16.7 million and $15.4 million
during the three and nine month periods ended September 30, 1998, respectively,
as compared to the corresponding prior year periods. Such changes are primarily
the result of dividends received on TCI Ventures Group's investment in AT&T
Common Stock.

         During the nine months ended September 30, 1998 and 1997, TCI Ventures
Group recognized $2.3 billion and $104.8 million, respectively, in gains from
the disposition of assets. The most significant of such gains are described
below.

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T
was consummated. As a result of such merger, TCI Ventures Group received in
exchange for its 26% interest in TCG, approximately 47 million shares of AT&T
Common Stock. TCI Ventures Group recognized a gain of $2.3 billion (excluding
related tax expense of $883 million) on such transaction based on the difference
between the carrying value of TCI Ventures Group's interest in TCG and the fair
value of the AT&T Common Stock received.

         On February 12, 1998, TCI Ventures Group sold its (i) 79% interest in
New Jersey Fiber Technologies, L.P., (ii) 40% interest in NHT Partnership and
(iii) 50% interest in Louisville Lightwave for aggregate cash proceeds of $44.1
million. TCI Ventures Group recognized a gain of $28.6 million on such
transactions.

         In July 1998, TCI and the other partner of Kansas City Fiber Network,
L.P. ("KC Fiber") sold the assets of KC Fiber to TCG for cash proceeds of
approximately $55 million. TCI Ventures Group held a 50% interest in KC Fiber.
TCI Ventures Group received proceeds of $20.3 million and recognized a gain of
$14.6 million in connection with such sale.

         On September 26, 1997, TINTA sold its interest in Sky Network
Television New Zealand, Ltd. for cash proceeds of $53.0 million. TINTA
recognized a gain on such sale of $58.4 million.

         In February 1997, TSX Corporation ("TSX"), an equity affiliate of the
TCI Ventures Group, and Antec Corporation ("Antec") entered into a business
combination with Antec being the surviving entity. In connection with this
transaction, the TCI Ventures Group recognized a $29 million gain representing
the difference between the fair value of the Antec shares received and the
carrying value of its investment in TSX at the date of the transaction. The TCI
Ventures Group accounts for its investment in Antec as an available-for-sale
security.

         During the first quarter of 1998, UVSG recognized a gain of $14.7
million from the dilution of its interest in SNG. In addition, during the third
quarter of 1998, TCI Ventures Group recognized a gain of $16.6 million from the
dilution of its interest in @Home. For additional information regarding such
transactions, see notes 11 and 12 to the accompanying combined financial
statements of TCI Ventures Group.


                                     I-177

<PAGE>   179



         On April 22, 1998, TCG completed a merger transaction with ACC in which
ACC shares were exchanged with shares of TCG. As a result of such merger
transaction, TCI Ventures Group's interest in TCG was reduced to approximately
26%. In connection with the dilution of TCI Ventures Group's interest in TCG,
TCI Ventures Group recorded a non-cash gain of $201.4 million (excluding related
tax expense of $70.5 million). In addition, effective September 1, 1998,
Telewest and General Cable consummated the General Cable Merger. As a result of
the General Cable Merger, TINTA's ownership interest in Telewest was reduced to
22%. In connection with such dilution, TINTA recorded a non-cash gain of $58.0
million (excluding related tax expense of $20.3 million). For additional
information regarding such transactions, see notes 5 and 8 to the accompanying
combined financial statements of TCI Ventures Group.

         During 1997, TCG issued 4,857,083 shares of its Class A common stock
for certain acquisitions. The total consideration paid by TCG through the
issuance of common stock was approximately $93 million. As a result of such
share issuances, TCI Ventures Group's ownership interest in TCG was reduced to
approximately 30%. Accordingly, TCI Ventures Group recognized a gain of $21
million (excluding related tax expense of $8 million) as a result of such
dilution.

         The minority interests' share of net losses increased (decreased) $(2.2
million) and $59.6 million during the three and nine month periods ended
September 30, 1998, respectively, as compared to the corresponding prior year
periods. The increase for the nine month period is primarily attributable to
certain non-cash charges recorded by @Home during the first quarter of 1998, as
described above.

         Net Losses

         The TCI Ventures Group reported net earnings of $1,303.0 million and
$994.1 million during the three and nine month periods ended September 30, 1998,
respectively, as compared to net losses of $125.7 million and $314.9 million for
the three and nine month periods ended September 30, 1997, respectively.
Included in such amounts was the recognition of certain non-operating gains
aggregating (i) $2,377.6 million and $136.1 million during the three months
ended September 30, 1998 and 1997, respectively, and (ii) $2,635.6 million and
$186.3 million during the nine months ended September 30, 1998 and 1997,
respectively. With the exception of UVSG, WTCI and the Puerto Rico Subsidiary,
the entities included in the TCI Ventures Group's combined financial statements
generally have sustained losses since their respective inception dates. Any
improvements in such entities' results of operations are largely dependent upon
the ability of such entities to increase their respective customer bases while
maintaining pricing structures and controlling costs. There can be no assurance
that any such improvements will occur.


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         MATERIAL CHANGES IN FINANCIAL CONDITION

         TCI GROUP

         On March 4, 1998, TCI Group contributed to CSC certain of its cable
television systems serving approximately 830,000 customers in exchange for
approximately 48.9 million newly issued CSC Class A common shares (as adjusted
for a two-for-one stock split) (the "CSC Transaction"). CSC also assumed and
repaid approximately $574 million of debt owed by TCI Group to external parties
and $95 million of debt owed to TCI Group. TCI Group has also entered into
letters of intent with CSC which provide for TCI Group 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 TCI Group's debt. The ability of TCI Group to
sell or increase its investment in CSC is subject to certain restrictions and
limitations set forth in a stockholders agreement with CSC. For additional
information concerning the CSC Transaction, see note 5 to the accompanying
combined financial statements of TCI Group.

         In addition to the CSC Transaction, TCI also completed, during the
first nine months of 1998, six transactions whereby TCI Group contributed cable
television systems serving in the aggregate approximately 1,224,000 customers to
six separate joint ventures (collectively, the "1998 Joint Ventures") in
exchange for non-controlling ownership interests in each of the 1998 Joint
Ventures, and the assumption and repayment by the 1998 Joint Ventures of debt
owed by TCI Group to external parties aggregating $323 million and intercompany
debt owed to TCI Group aggregating $1,533 million. TCI Group has agreed to take
certain steps to support compliance by certain of the 1998 Joint Ventures with
their payment obligations under certain debt instruments, up to an aggregate
contingent commitment of $980 million. In light of such contingent commitments,
TCI Group has deferred any gains on the formation of such 1998 Joint Ventures.
Accordingly, TCI Group has recorded deferred gains aggregating $163 million and
recognized net gains aggregating $263 million in connection with the formation
of the 1998 Joint Ventures. The deferred gains will not be recognized until such
time as TCI Group's contingent commitments are eliminated. TCI Group uses the
equity method of accounting to account for its investments in CSC and the 1998
Joint Ventures. The CSC Transaction and the formation of the 1998 Joint Ventures
are collectively referred to herein as the "1998 Contribution Transactions."


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         Including the 1998 Contribution Transactions, TCI Group, as of
September 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 3.9 million basic customers to joint ventures in which TCI Group
will retain non-controlling ownership interests (the "Contribution
Transactions"). Following the completion of the Contribution Transactions, the
Contributed Cable Systems will no longer be included in TCI Group's combined
financial statements. 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 1998
Contribution Transactions and currently contemplated amounts with respect to the
pending Contribution Transactions) to TCI Group's debt of $4.8 billion and
aggregate estimated reductions (based on 1997 amounts) to TCI Group's annual
revenue and annual operating income before depreciation, amortization, other
non-cash items and stock compensation of $1.8 billion and $815 million,
respectively. No assurance can be given that any of the pending Contribution
Transactions will be consummated.

         During the nine months ended September 30, 1998, pursuant to a stock
repurchase program approved by the Board, TCI Group repurchased 66,041 shares of
TCI Group Series A Stock at an aggregate cost of $2 million.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, TCI Group paid $134
million during the first quarter of 1998 for its allocated share of the Call
Payments. For additional information see note 13 to the accompanying combined
financial statements of TCI Group.

         During the fourth quarter of 1997, TCI Group entered into an Equity
Swap Facility. Pursuant to the Equity Swap Facility, TCI Group has the right to
direct the Counterparty to use the Equity Swap Facility to purchase Equity Swap
Shares of TCI Group Series A Stock and TCI Ventures Group Series A Stock with an
aggregate purchase price of up to $300 million. TCI Group has the right, but not
the obligation, to purchase Equity Swap Shares through the September 30, 2000
termination date of the Equity Swap Facility. During such period, TCI Group is
to settle periodically any increase or decrease in the market value of the
Equity Swap Shares. If the market value of the Equity Swap Shares exceeds the
Counterparty's cost, Equity Swap Shares with a fair value equal to the
difference between the market value and cost will be segregated from the other
Equity Swap Shares. If the market value of the Equity Swap Shares is less than
the Counterparty's cost, TCI Group, at its option, will settle such difference
with shares of TCI Group Series A Stock or TCI Ventures Group Series A Stock or,
subject to certain conditions, with cash or letters of credit. In addition, TCI
Group is required to periodically pay the Counterparty a fee equal to a
LIBOR-based rate on the Counterparty's cost to acquire the Equity Swap Shares.
Due to TCI Group's ability to issue shares to settle periodic price fluctuations
and fees under the Equity Swap Facility, TCI Group records all amounts received
or paid under this arrangement as increases or decreases, respectively, to
equity. As of September 30, 1998, the Equity Swap Facility had acquired
4,935,780 shares of TCI Group Series A Stock and 1,171,800 shares of TCI
Ventures Group Series A Stock at an aggregate cost that was approximately $49
million less than the fair value of such Equity Swap Shares at September 30,
1998. The costs and benefits associated with the TCI Group Series A Stock held
by the Equity Swap Facility are attributed to TCI Group.


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         TCI Group'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 thereafter through 2022.

         In 1996, a subsidiary attributed to TCI Ventures Group (i) issued
preferred stock in connection with a previous acquisition, which is convertible
at the option of the holders into 1,084,056 of TCI Group Series A Common Stock
beginning in April 1999 or sooner in the event of a change in control of TCI
and (ii) acquired an option contract from TCI Group in exchange for a $14
million increase in the intercompany amount due to TCI Group. Such option
contract provided TCI Ventures Group with the right to acquire 1,084,056 shares
of TCI Group Series A Stock at a price equivalent to the fair value at the time
of exercise less $14.625 per share. During September 1998, TCI Group assigned
its obligation under the option contract to TCI Ventures Group. As a result of
such assignment, TCI Group recorded a $16 million reduction in due from related
parties and a corresponding adjustment of combined equity (deficit).

         On July 11, 1997, TCI Music merged with DMX. Simultaneously with the
DMX Merger, substantially all of TCI's controlling ownership interest in TCI
Music was transferred from TCI Group to Liberty Media Group in exchange for an
$80 million promissory note and an agreement to reimburse TCI for any amounts
required to be paid by TCI pursuant to its contingent obligation under a Rights
Agreement (the "Rights Agreement") to purchase up to 14,896,648 shares
(6,812,393 of which were owned by subsidiaries of TCI) of TCI Music common stock
at a price of $8.00 per share. Prior to the July 1998 expiration of the rights
under the Rights Agreement, TCI was notified of the tender of 7,602,483 shares
and associated rights. On August 27, 1998, Liberty Media Group paid $61 million
to satisfy TCI's obligation to purchase such tendered shares, including $22
million paid to acquire shares that were tendered by a majority-owned subsidiary
of TCI that is attributed to TCI Ventures Group. The Music Note may be reduced
by the payment of cash or the issuance by TCI of shares of Liberty Group Stock
for the benefit of entities attributed to TCI Group. Additionally, Liberty Media
Group may elect to pay $50 million of the Music Note by delivery of a Stock
Appreciation Rights Agreement that will give TCI Group the right to receive 20%
of the appreciation in value of Liberty Media Group's investment in TCI Music,
to be determined at July 11, 2002.

         A subsidiary of TCI that was attributed to TCI Ventures Group leases
certain equipment under a capital lease. During 1997, such equipment was
subleased to TCI Group under an operating lease. In January 1998, TCI Group paid
$7 million to TCI Ventures Group in exchange for TCI Ventures Group's assignment
of its ownership interest in such subsidiary to TCI Group. 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 TCI Group (including
capital lease obligations aggregating $176 million) has been reflected as an
increase to TCI Group's combined deficit.

         At September 30, 1998, TCI Group had approximately $2.1 billion of
availability in unused lines of credit, excluding amounts related to lines of
credit which provide availability to support commercial paper. Although TCI
Group was in compliance with the restrictive covenants contained in its credit
facilities at said date, additional borrowings under the credit facilities are
subject to TCI Group's continuing compliance with the 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 8 to the accompanying combined financial statements
of TCI Group for additional information regarding TCI Group's debt.


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         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, other non-cash items,
year 2000 costs, AT&T merger costs and stock compensation) ($1,889 million and
$2,035 million during the nine months ended September 30, 1998 and 1997,
respectively) to interest expense ($736 million and $843 million during the nine
months ended September 30, 1998 and 1997, respectively), is determined by
reference to the combined statements of operations. TCI Group's interest
coverage ratio was 257% and 241% during the nine months ended September 30, 1998
and 1997, respectively. Management of TCI Group believes that the foregoing
interest coverage ratio is adequate in light of the relative predictability of
its cable television operations and interest expense. However, TCI Group'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 TCI
Group will be able to achieve such objective. In the event TCI Group is unable
to achieve such objective, management believes that net cash provided by
operating activities, the ability of TCI Group to obtain additional financing
(including the available lines of credit and access to public debt markets),
issuances and sales of TCI's equity or equity of its subsidiaries, attributable
to TCI Group, and proceeds from disposition of assets will provide adequate
sources of short-term and long-term liquidity in the future. See TCI Group's
combined statements of cash flows included in the accompanying combined
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 combined statements of cash flows.
Net cash provided by operating activities ($793 million and $1,047 million
during the nine months ended September 30, 1998 and 1997, respectively)
generally reflects net cash from the operations of TCI Group available for TCI
Group'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 TCI Group for property and equipment
was $1,017 million, $273 million and $538 million during the nine months ended
September 30, 1998 and 1997, and the year ended December 31, 1997, respectively.
In light of TCI Group'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, TCI Group anticipates that its annual capital
expenditures during the next several years will significantly exceed the amount
expended during 1997. In this regard, TCI Group 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. TCI Group 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, TCI Group 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.

         TCI Group's restricted cash is primarily comprised of proceeds received
in connection with certain asset dispositions. Such proceeds, which aggregated
$353 million and $34 million at September 30, 1998 and December 31, 1997,
respectively, are designated to be reinvested in certain identified assets for
income tax purposes.


                                     1-182

<PAGE>   184



         TCI Group has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $191
million at September 30, 1998. With respect to TCI Group's guarantees of $166
million of such obligations, TCI Group has been indemnified for any loss, claim
or liability that TCI Group may incur, by reason of such guarantees. As
described in note 7 to the accompanying combined financial statements of TCI
Group, TCI Group also has provided certain credit enhancements with respect to
the 1998 Joint Ventures. TCI Group 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 TCI
Group 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 TCI Group.

         TCI Group has provided a revolving loan facility to TCI Ventures Group
for a five-year period commencing on September 10, 1997. Such facility permits
aggregate outstanding borrowings at any one time of up to $500 million (subject
to reduction as provided below), which borrowings bear interest at a rate per
annum equal to The Bank of New York's prime rate (as in effect from time to
time) plus 1% per annum, payable quarterly. A commitment fee equal to 3/8% per
annum of the average unborrowed availability under the Ventures Intergroup
Credit Facility is payable by TCI Ventures Group to TCI Group on a quarterly
basis. Such commitment fee was $1 million for the nine months ended September
30, 1998. Borrowings outstanding pursuant to the Ventures Intergroup Credit
Facility were $37 million at September 30, 1998.

         TCI Group is a party to affiliation agreements with programming
suppliers. Pursuant to certain of such agreements, TCI Group is committed to
carry such suppliers' programming on its cable systems. Additionally, certain of
such agreements provide for penalties and charges in the event the programming
is not carried or not delivered to a contractually specific number of customers.

         TCI Group is committed to purchase billing services pursuant to three
successive five year agreements. Pursuant to such arrangement, TCI Group is
obligated at September 30, 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, TCI Group is
obligated at September 30, 1998 to make minimum revenue payments through 2017
and minimum license fee payments through 2007 aggregating approximately $412
million to TCI Music. Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.

         TCI Group 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 September 30, 1998, the amount of such obligations or
guarantees was approximately $273 million. The future obligations of TCI Group
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.


                                     I-183

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         Effective as of December 16, 1997, NDTC, on behalf of TCI Group and
other cable operators 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 set-top device. Through September 30, 1998,
approximately 1 million set-top devices had been purchased pursuant to this
commitment. 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).
Such warrants vest as annual purchase commitments are met. The value associated
with such equity interest will be attributed to TCI Group upon purchase and
deployment of the digital set-top devices. See note 2 to the accompanying
combined financial statements of TCI Group. NDTC has the right to terminate the
Digital Terminal Purchase Agreement if, among other reasons, GI fails to meet a
material milestone designated in the Digital Terminal Purchase Agreement with
respect to the development, testing and delivery of advanced digital set-top
devices.

         On June 30, 1998, TCI Group entered into an Operating Lease Agreement
(the "Lease") with an unaffiliated third party (the "Lessor"). Under the Lease,
TCI Group agreed to sell to, and lease back from, the Lessor advanced digital
set-top devices with an initial aggregate net cost of up to $200 million. The
initial term of the Lease is two years, and it provides for renewal, at TCI
Group's option, for up to five additional consecutive one-year terms. Rent under
the lease is payable quarterly. At the end of the originally scheduled or
renewed lease term, TCI Group is required to either (i) purchase the equipment
at the Termination Value (as defined in the Lease), or (ii) arrange for the sale
of the leased equipment to a third party and pay the Lessor the difference
between the sale price and a predetermined guaranteed value, which in all cases
is less than the Termination Value. As of September 30, 1998, TCI Group has sold
and leased back advanced digital set-top devices under the Lease with an
aggregate cost of $109 million. Current annual lease payments with respect to
such leased equipment are $16 million. TCI Group has treated the Lease as an
operating lease in the accompanying combined financial statements.

         TCI Group'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 TCI Group), 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, TCI Group may enter into Interest Rate Swaps pursuant to which it
(i) pays fixed interest rates and receives variable interest rates and (ii) pays
variable interest rates and receives fixed interest rates. During the nine
months ended September 30, 1998 and 1997, TCI Group's net payments pursuant to
the Fixed Rate Agreements were less than $1 million for each period; and TCI
Group's net receipts pursuant to the Variable Rate Agreements were $8 million
and $1 million, respectively. At September 30, 1998, all of TCI Group's Fixed
Rate Agreements had expired. At September 30, 1998, TCI Group would be entitled
to receive $78 million upon termination of the Variable Rate Agreements.


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         In addition to the Variable Rate Agreements, TCI Group entered into
Interest Rate Swaps pursuant to which it pays a variable rate based on LIBOR
(5.8% at September 30, 1998) and receives a variable rate based on CMT (4.7% at
September 30, 1998) on a notional amount of $400 million through September 2000;
and pays a variable rate based on LIBOR (5.7% at September 30, 1998) and
receives a variable rate based on CMT (4.8% at September 30, 1998) on notional
amounts of $95 million through February 2000. During the nine months ended
September 30, 1998, TCI Group's net payments pursuant to such agreements were $1
million. At September 30, 1998, TCI Group would be required to pay an estimated
$4 million to terminate such Interest Rate Swaps.

         TCI Group 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, TCI Group does not anticipate that it
will incur any material credit losses because it does not anticipate
nonperformance by the counterparties. Further, as of September 30, 1998, TCI
Group does not anticipate material near-term losses in future earnings, fair
values or cash flows resulting from derivative financial instruments. See note 8
to the accompanying combined financial statements for additional information
regarding Interest Rate Swaps.

         At September 30, 1998, after considering the net effect of the
aforementioned Interest Rate Swaps, TCI Group had $7,081 million (or 58%) of
fixed rate debt and $5,169 million (or 42%) of variable-rate debt. Accordingly,
in an environment of rising interest rates, TCI Group expects that it would
experience an increase in interest expense.

         LIBERTY MEDIA GROUP

         Liberty Media Group's sources of funds include its available cash
balances, net cash provided by operating activities, cash distributions from
affiliates, dividend and interest receipts, proceeds from asset sales,
availability under certain credit facilities, and loans from TCI Group. To the
extent cash needs of Liberty Media Group exceed cash provided by Liberty Media
Group, TCI Group may transfer funds to Liberty Media Group. Conversely, to the
extent cash provided by Liberty Media Group exceeds cash needs of Liberty Media
Group, Liberty Media Group may transfer funds to TCI Group.

         On January 12, 1998, TCI acquired from a minority stockholder of UVSG
24.8 million shares of UVSG Class A common stock (as adjusted for a two-for-one
stock split) in exchange for 12.7 million shares of TCI Ventures Group Series A
Stock and 7.3 million shares of Liberty Group Series A Stock. The aggregate
value assigned to the shares issued by TCI was based upon the market value of
such shares at the time the transaction was announced. As a result of such
transaction TCI increased its ownership in the equity of UVSG to approximately
74%, of which 17% is attributed to Liberty Media Group.

         In February 1998, TCI, Liberty Media Group and UVSG announced their
agreement in principal for UVSG to acquire Liberty Media Group's 40% interest in
SNG and its 100% interest in certain businesses conducted by Netlink USA
("Netlink") (the "Netlink Business") in exchange for 12.8 million shares of
UVSG's common stock (as adjusted for a two-for-one stock split). Consummation of
such transaction is subject to UVSG stockholder approval and certain regulatory
approvals.


                                     I-185

<PAGE>   187



         Encore Media Group's loan agreement contains restrictions regarding
transfers of funds to other members of Liberty Media Group in the form of loans,
advances or cash dividends. In addition, subsequent to the exercise of the
Southern Option, cash provided by operating activities of Southern was no longer
available as a source of cash for Liberty Media Group. Additionally, subsequent
to the sale of the Netlink Business to UVSG, cash provided by operating
activities of the Netlink Business will no longer be available as a source of
cash for Liberty Media Group. Cash provided by operating activities of Southern
and the Netlink Business has been a significant source of cash for Liberty Media
Group. Although no assurance can be given, cash generated by Liberty Media
Group's remaining operating activities, distributions from affiliates, dividend
and interest payments, availability under its credit facilities and available
cash balances should provide adequate cash to meet its obligations. For
additional information concerning Liberty Media Group's cash flows see the
combined statements of cash flows included in the accompanying combined
financial statements of Liberty Media Group.

         As of September 30, 1998, Liberty Media Group holds approximately 57
million shares of the TW Exchange Stock. During the nine months ended September
30, 1998, the unrealized appreciation, net of taxes, of the fair value of such
shares of TW Exchange Stock was $882 million based upon the market value of the
common stock into which the TW Exchange Stock is convertible. Holders of TW
Exchange Stock are entitled to receive dividends ratably with Time Warner common
stock. Liberty Media Group received approximately $15 million and $14 million in
cash dividends for the first nine months of 1998 and 1997, respectively. It is
anticipated that Time Warner will continue to pay dividends on its common stock
and consequently that Liberty Media Group will receive dividends on the TW
Exchange Stock it holds. However, there can be no assurance that such dividends
will continue to be paid.

         Liberty Media Group received approximately $23 million and $5 million
in cash dividends on a 30 year non-convertible 9% preferred stock, with a stated
value of $345 million, during the nine months ended September 30, 1998 and 1997,
respectively.

         Liberty Media Group has a revolving line of credit which provides for
borrowings of up to $500 million and another which provides up to $640 million.
Borrowings of $432 million and $620 million, respectively, were outstanding at
September 30, 1998. Certain assets of Liberty Media Group serve as collateral
for borrowings under these two bank credit facilities. Encore Media Group has a
$525 million senior, secured facility. The credit agreement for the EMG Senior
Facility contains certain provisions which limit Encore Media Group as to
additional indebtedness, sale of assets, liens, guarantees, and distributions.
Additionally, Encore Media Group must maintain certain specified financial
ratios. Borrowings of $300 million were outstanding on the EMG Senior Facility
at September 30, 1998. TCI Music has a revolving loan agreement which provides
for borrowings of up to $100 million. Borrowings of $89 million were outstanding
at September 30, 1998. Additionally, Liberty Media Group is a party to an $800
million credit facility. Liberty Media Group and TCI Ventures Group are jointly
and severally responsible for the borrowings under such facility. The
outstanding borrowings of $70 million were attributed to TCI Ventures Group at
September 30, 1998. See note 8 to the accompanying combined financial statements
of Liberty Media Group.


                                     I-186

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         The Music Note may be reduced by the payment of cash or the issuance by
TCI of shares of Liberty Media Group Stock for the benefit of entities included
within the TCI Group. During the second quarter of 1998, TCI issued 153,183
shares of Liberty Group Series B Stock valued at $5 million to an individual who
is an officer and director of TCI for the benefit of entities included within
the TCI Group. Accordingly, the Music Note was reduced by such amount.
Additionally, Liberty Media Group may elect to pay $50 million of the Music Note
by delivery of a Stock Appreciation Rights Agreement that would give TCI Group
the right to receive 20% of the appreciation in value of Liberty Media Group's
investment in TCI Music, to be determined at July 11, 2002.

         Including rights exercised by a subsidiary of TCI that is not a member
of Liberty Media Group, the obligation under the Rights Agreement was paid by
Liberty Media Group in August of 1998. Such payment aggregated $61 million. See
note 9 to the accompanying combined financial statements of Liberty Media Group.

         Various partnerships and other affiliates of Liberty Media Group
accounted for under the equity method finance a substantial portion of their
acquisitions and capital expenditures through borrowings under their own credit
facilities and net cash provided by their operating activities.

         As of September 30, 1998, Liberty Media Group was not exposed to
material near-term losses in future earnings, fair values, or cash flows
resulting from derivative financial instruments.

         Liberty Media Group intends to continue to develop its entertainment
and information programming services and has made certain financial commitments
related to the acquisition of programming. As of September 30, 1998, Encore
Media Group's future minimum obligation related to certain film licensing
agreements was $703 million. The amount of the total obligation is not currently
estimable because such amount is dependent upon the number of qualifying films
released theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Continued development may require additional financing and it cannot be
predicted whether Liberty Media Group will obtain such financing. If additional
financing cannot be obtained, Liberty Media Group could attempt to sell assets
but there can be no assurance that asset sales, if any, can be consummated at a
price and on terms acceptable to Liberty Media Group. Further, Liberty Media
Group and/or TCI could attempt to sell equity securities, however, there can be
no certainty that such a sale could be accomplished on acceptable terms.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
(before giving effect to stock dividends) that were subject to the Malone Call
Agreement and the Magness Call Agreement. Accordingly, Liberty Media Group paid
$64 million during the first quarter of 1998 for its allocated share of the Call
Payments. See note 9 to the accompanying combined financial statements of
Liberty Media Group.

         On June 30, 1998, Liberty Media Group contributed $300 million in cash
to USANi LLC in exchange for an aggregate of 15 million LLC Shares. Liberty
Media Group's cash purchase price was increased at an annual interest rate of
7.5% beginning from the date of the closing of the Universal Transaction through
the date of Liberty Media Group's purchase of such securities. Subject to
certain restrictions, each LLC Share issued or to be issued to Liberty Media
Group is exchangeable for one share of USAI's Common Stock pursuant to the LLC
Exchange Agreement.


                                     I-187

<PAGE>   189



         In connection with the Universal Transaction, each of Universal and
Liberty Media Group was granted a preemptive right with respect to future
issuances of USAI's capital stock, subject to certain limitations, to maintain
their respective percentage ownership interests in USAI that they had
immediately prior to such issuances. On June 24, 1998, Liberty Media Group
purchased approximately 4.7 million USAI shares of common stock pursuant to a
preemptive right of $20 per share in cash. In addition, on July 27, 1998,
Liberty Media Group purchased 7.9 million LLC Shares at $20 per share as a
result of the issuance of common stock by USAI in the Ticketmaster Transaction.

         During the nine months ended September 30, 1998, pursuant to the stock
repurchase program, 766,783 shares of Liberty Group Stock were repurchased at an
aggregate cost of approximately $26 million. Such amount is reflected as a
decrease to combined equity in the accompanying combined financial statements.

         On July 13, 1998, Liberty Media Group announced that it had made a
proposal to TINTA concerning the acquisition by Liberty Media Group of all of
the outstanding shares of common stock of TINTA not beneficially owned by TCI
Ventures Group. Under the proposal, Liberty Media Group would exchange, in a
merger transaction, 0.58 of a share of Liberty Group Series A Stock for each
share of Tele-Communications International, Inc. Series A Common Stock acquired
by Liberty Media Group in the merger. Liberty Media Group's proposal, and a
proposed merger agreement, has been approved by TINTA's board of directors. The
merger agreement provides that if the .58 exchange ratio would yield a value to
TINTA stockholders (other than TCI Ventures Group) of less than $22.00 per TINTA
share, then TCI would be required to either increase the exchange ratio to an
amount that would yield a value of $22.00 per share or terminate the merger
agreement. Consummation of the merger, which is expected to occur in November
1998, is subject to customary closing conditions. No assurance can be given that
the merger will be consummated.

         TCI VENTURES GROUP

         The following table sets forth total assets and debt and capital lease
obligations for the TCI Ventures Group and each of the businesses attributed to
it:

<TABLE>
<CAPTION>
                                                      September 30,
                                                          1998
                                                   --------------------
                                                   amounts in thousands
               <S>                                 <C>       
               Total assets
                 TCI Telephony                         $3,017,860
                 TINTA                                  1,657,563
                 @Home                                    266,596
                 UVSG                                     672,815
                 NDTC                                     350,275
                 ETC                                       81,006
                 WTCI                                      79,370
                 Other                                    469,324
                                                       ----------
                                                       $6,594,809
                                                       ==========
               Debt and capital lease obligations (1)
                 Corporate and other                   $  511,581
                 TINTA (2)                                501,026
                 NDTC                                     148,113
                 UVSG                                      17,838
                 @Home                                     25,696
                                                       ----------
                                                       $1,204,254
                                                       ==========
</TABLE>


      (1)   For additional information concerning the terms of TCI Ventures
            Group's debt, see note 13 to the accompanying combined financial
            statements of the TCI Ventures Group.

      (2)   Excludes amounts due to TCI Ventures Group of $145.0 million.

                                     I-188

<PAGE>   190


         The TCI Ventures Group's combined operating activities provided (used)
cash of $(46.0 million) and $133.0 million during the nine months ended
September 30, 1998 and 1997, respectively. As discussed above, effective October
1, 1997, Cablevision's cash flows are no longer included in the TCI Ventures
Group's combined statements of cash flows. Cablevision's operating activities
provided cash of $40.0 million during the nine months ended September 30, 1997.
At September 30, 1998, @Home and UVSG held cash and cash equivalents of $203.7
million and $104.8 million, respectively. The cash balances of such entities are
generally intended to be applied towards the respective liquidity requirements
of such entities. It is not presently anticipated that any significant portion
of such cash balances will be distributed or otherwise made available to other
members of the TCI Ventures Group.

         During the nine months ended September 30, 1998 and 1997, cash used by
TCI Ventures Group's investing activities aggregated $383.7 million and $293.8
million, respectively. The 1998 amount includes cash proceeds of $125.0 million
received upon the disposition of assets. Additionally, the 1998 and 1997 amounts
include $397.7 million and $364.8 million, respectively, that were used by the
TCI Ventures Group to fund investments in, and loans to, affiliates. For
additional information concerning the TCI Ventures Group's cash flows, see the
combined statements of cash flows included in the accompanying combined
financial statements of TCI Ventures Group.

         Substantially all of the entities the ownership of which, or the
investment in which, has been attributed to the TCI Ventures Group will require
significant additional capital in order to develop their respective businesses
and assets, to fund future operating losses and to fund future growth. In
certain cases, the TCI Ventures Group has contractual commitments pursuant to
which (subject to certain conditions) it may be required to make significant
additional capital contributions to the entities in which it has investments.
TINTA and its consolidated subsidiaries also have commitments under various
partnership and other funding agreements to contribute capital or loan money to
fund capital expenditures and other capital requirements of certain affiliates.
There can be no assurance that any of the TCI Ventures Group's entities will be
successful in generating sufficient cash flow from operating activities or
raising debt or equity capital in sufficient amounts or on terms acceptable to
them to be able to meet their respective capital requirements. There is also no
assurance that the anticipated capital requirements of TCI Ventures Group's
entities and/or affiliates will not significantly increase due to changing
circumstances, such as unanticipated opportunities, technological or marketing
hurdles, unanticipated expenses, and the like. The failure to generate
sufficient cash flow from operating activities or to raise sufficient funds may
require such entity to delay or abandon some or all of its development and
expansion plans or in certain instances, could result in the failure to meet
certain regulatory requirements, any and all of which could have a material
adverse effect on such entity's growth, its ability to compete in its industry
and its ability to service its debt.


                                     I-189

<PAGE>   191



         The ability of one of the TCI Ventures Group entities to fund the cash
flow deficits of other TCI Ventures Group entities is limited not only by the
structural separation of such businesses in separate corporations and
partnerships, but also by the presence of other investors, both debt and equity,
in many of the TCI Ventures Group entities. In addition, TINTA and certain of
the other TCI Ventures Group entities, such as Sprint PCS, are holding
companies, the assets of which consist solely or primarily of investments in
their subsidiaries and affiliates. As such, the ability of such holding
companies to meet their respective financial obligations and their funding and
other commitments to their respective subsidiaries and affiliates, is dependent
upon external financing and/or of dividends, loans or other payments from their
respective subsidiaries and affiliates, or repayment of loans and advances from
such holding companies. Accordingly, such holding companies' ability to meet
their respective liquidity requirements, including debt service, is limited as a
result of their dependence upon external financing and funds received from their
respective subsidiaries and affiliates. The payment of dividends or the making
of loans or advances to such holding companies by their respective subsidiaries
and affiliates may be subject, among other things, to statutory, regulatory or
contractual restrictions, are contingent upon the earnings of those subsidiaries
and affiliates, and are subject to various business considerations.

         From inception through September 1998, the Sprint PCS partners have
contributed $4.6 billion to Sprint PCS (of which TCI Telephony contributed an
aggregate of $1.4 billion). Sprint PCS's business plan will require additional
capital financing prior to the end of 1998. Sources of funding for Sprint PCS's
capital requirements may include vendor financing, public offerings or private
placements of equity and/or debt securities, commercial bank loans and/or
capital contributions from the Sprint PCS Partners. However, there can be no
assurance that any additional financing can be obtained on a timely basis, on
terms acceptable to Sprint PCS or the Sprint PCS Partners and within the
limitations contained in the agreements governing Sprint PCS's existing debt.

         Additionally, the proposed budget for 1998 has not yet been approved by
the Sprint PCS partnership board, although the board has authorized management
to operate Sprint PCS in accordance with such budget. The Sprint PCS partners
may mutually agree to make additional capital contributions. However, the Sprint
PCS partners have no such obligation in the absence of an approved budget, and
there can be no assurance the Sprint PCS partners will reach such an agreement
or approve the 1998 proposed budget. In addition, the failure by the Sprint PCS
partners to approve a business plan may impair the ability of Sprint PCS to
obtain required financing. Failure to obtain any such additional financing or
capital contributions from the Sprint PCS partners could result in the delay or
abandonment of Sprint PCS's development and expansion plans and expenditures,
the failure to meet regulatory requirements or other potential adverse
consequences.

         Furthermore, the fact that the proposed budget for Sprint PCS for
fiscal 1998 has not yet been approved by the Sprint PCS partnership board has
resulted in the occurrence of a "Deadlock Event" under the Sprint PCS
partnership agreement as of January 1, 1998. Under the Sprint PCS partnership
agreement, if one of the Sprint PCS partners refers the budget issue to the
chief executive officers of the corporate parents of the Sprint PCS partners for
resolution pursuant to specified procedures and the issue remains unresolved,
buy/sell provisions would be triggered, which may result in the purchase by one
or more of the Sprint PCS partners of the interests of the other Sprint PCS
partners, or, in certain circumstances, liquidation of Sprint PCS.


                                     I-190

<PAGE>   192



         In May 1998 the Sprint PCS partners entered into a series of agreements
pursuant to which TCI Telephony, Comcast and Cox would exchange their respective
interests in Sprint PCS and PhillieCo for shares of a new class of tracking
stock of Sprint which would track the performance of Sprint's newly created PCS
Group (which would initially consist of Sprint PCS, PhillieCo and certain PCS
licenses which are separately owned by Sprint). The consummation of such
transactions is subject to a number of conditions, including the approval of
such transactions by the stockholders of Sprint. If such transactions are
consummated, TCI Telephony will initially hold shares of Sprint PCS Group stock
(as well as certain additional securities of Sprint exercisable for or
convertible into such securities) representing approximately 24% of the equity
value of Sprint attributable to the PCS Group, subject to further dilution as a
result of additional expected issuances of shares of Sprint PCS stock (including
in connection with a proposed initial public offering of shares of Sprint PCS
stock that may be consummated in connection with such transactions). In
connection with the execution of such agreements, the Sprint PCS partners agreed
to make up to $400 million in additional capital contributions (of which TCI
Telephony's share is $120 million) to Sprint PCS pending the closing of such
transactions. As of September 30, 1998, all of such additional capital
contributions had been made to Sprint PCS. If the above-described transactions
are consummated, the Company would begin to account for its investment in the
Sprint PCS stock as an available-for-sale security. No assurance can be given
that the above-described transactions will be consummated.


                                     I-191

<PAGE>   193



         Historically, the TCI Ventures Group's combined operating activities
have not provided sufficient funds to meet all of the TCI Ventures Group's
capital requirements. The TCI Ventures Group's ability to obtain sufficient
capital resources to make its expected additional capital contributions to the
Sprint PCS Partnerships and other entities in which it has investments are
limited. WTCI and NDTC are the only wholly-owned subsidiaries attributed to the
TCI Ventures Group that are operating companies and such entities are currently
the TCI Ventures Group's only source of cash provided by operating activities.
As a result, the TCI Ventures Group has limited ability to generate funds
internally to fund capital requirements and limited cash flow from operating
activities to support external financings. The other operating companies
attributed to the TCI Ventures Group have other investors, public or private,
and the payment of dividends, or the making of loans or advances by any one of
such TCI Ventures Group entities to any other of such TCI Ventures Group
entities would be subject to various business considerations, as well as any
legal restrictions, including pursuant to agreements among the investors. At
September 30, 1998, TCI Ventures Group had the Ventures Intergroup Credit
Facility with TCI Group which has a five-year term commencing on September 10,
1997 and which permits aggregate borrowings at any one time outstanding of up to
$500 million (subject to reduction as provided below). At September 30, 1998,
borrowings of $37 million were outstanding pursuant to the Ventures Intergroup
Credit Facility. In March 1998, TCI Ventures Group entered into the Ventures
Group Bank Facility with a term of one year which provides for aggregate
borrowings of up to $400 million. At September 30, 1998, borrowings of $400
million were outstanding under the Ventures Group Bank Facility. In addition,
effective September 30, 1998, LMC and Ventures LLC entered into the
Liberty/Ventures Facility which provides for borrowings of up to $800 million.
LMC and Ventures LLC are jointly and severally responsible for the obligations
under the Liberty/Ventures Facility. At September 30, 1998, borrowings of $70
million, which have been attributed to TCI Ventures Group, were outstanding
under the Liberty/Ventures Facility. If the available borrowings under the
Liberty/Ventures Group Facility and the Ventures Intergroup Credit Facility are
not sufficient to fund the TCI Ventures Group's capital requirements, no
assurance can be given that the TCI Ventures Group will be able to obtain any
required additional financing on terms acceptable to it, or at all. Additional
capital could be raised for the TCI Ventures Group by, among other things,
engaging in public offerings or private placements of TCI Ventures Group common
stock or through issuance of debt securities or preferred equity securities
attributed to the TCI Ventures Group. If TCI Ventures Group is unable to obtain
sufficient financing from outside sources, the TCI Ventures Group may continue
to be dependent upon funding from the TCI Group. The TCI Ventures Group's
failure to meet its contractual and other capital requirements could have
significant adverse consequences to a particular operating company or affiliate
and to the TCI Ventures Group.


                                     I-192

<PAGE>   194



         TINTA's business strategy requires that it have the ability to access
or raise sufficient funds to allow it to take advantage of new acquisition and
joint venture opportunities as they arise, which management of TINTA believes
may require substantial additional funds. Although TINTA has, at September 30,
1998, (i) available borrowings of $55.8 million under a credit facility with TCI
Ventures Group and (ii) the ability to access any excess cash and borrowing
availability from the Puerto Rico Subsidiary, TINTA's ability to otherwise
obtain debt financing to assist its operating companies and to meet its capital
obligations at other than the subsidiary level will be limited because TINTA
does not conduct any operations directly. (As described below, TINTA will use
$42.4 million of the availability under its credit facility with TCI Ventures
Group to fund a capital contribution to Cablevision.) Furthermore, because
TINTA's assets consist primarily of ownership interests in foreign subsidiaries
and affiliates, the repatriation of any cash provided by such subsidiaries' and
affiliates' operating activities in the form of dividends, loans or other
payments is subject to, among other things, exchange rate fluctuations, tax laws
and other economic considerations, as well as applicable statutory and
contractual restrictions. Moreover, the liquidity sources of TINTA's foreign
subsidiaries and affiliates are generally intended to be applied towards the
respective liquidity requirements of such foreign subsidiaries and affiliates,
and accordingly, do not represent a direct source of liquidity to TINTA.
Accordingly, with the exception of any liquidity that may be provided to TINTA
by the Puerto Rico Subsidiary, no assurance can be given that TINTA will have
access to any cash generated by its foreign operating subsidiaries and
affiliates.

         On November 9, 1998, Cablevision and the lenders under its $1.1 billion
loan facility agreed to an extension of $950 million of outstanding borrowings
under the facility until December 15, 1998. At that time, outstanding borrowings
are to be refinanced through (i) $550 million of indebtedness, which is expected
to be issued under Cablevision's medium term note program, and (ii) $400 million
of support from Cablevision's shareholders, including TINTA. TINTA's portion of
such support aggregates approximately $84.8 million, and will be made through
(i) a $42.4 million capital contribution to Cablevision and (ii) the guarantee
of senior indebtedness of Cablevision and/or subordinated loans from TINTA to
Cablevision in the aggregate amount of $42.4 million.

         During the fourth quarter of 1998, one of the Cablevision shareholders 
exercised a put right that, under certain circumstances, could require TINTA to
purchase a portion of such shareholder's ownership interest for cash
consideration of up to $36 million, one-third of which would be paid on December
15, 1998 and the remaining amount would be paid in four semi-annual
installments. Additionally, the Cablevision shareholders' agreement contains a
buy-sell provision that, under certain circumstances, could require TINTA to
purchase other shareholders' ownership interests.

         Effective September 1, 1998, Telewest and General Cable consummated the
General Cable Merger in which holders of General Cable received 1.243 new
Telewest shares and (pound)0.65 ($1.11) in cash for each share of General Cable.
In addition, holders of General Cable ADS (each representing five General Cable
shares) received 6.215 new Telewest shares and (pound)3.25 ($5.53) in cash for
each share of General Cable ADS. Based upon Telewest's closing share price of
(pound)0.89 ($1.51) on April 14, 1998, the General Cable Merger was valued at
approximately (pound)649 million ($1.1 billion).

         The cash portion of the General Cable Merger was financed through an
offer to qualifying Telewest shareholders for the purchase of 261 million new
Telewest shares at a price of (pound)0.925 ($1.57) per share. TINTA subscribed
to 84,688,960 Telewest ordinary shares at an aggregate cost of (pound)78.3
million ($133.1 million) in connection with the Telewest Offer. Immediately
following the Telewest Offer, TINTA owned 28% of the issued and outstanding
Telewest ordinary shares.

         In connection with the General Cable Merger, TINTA also converted its
entire holdings of Telewest convertible preference shares (132,638,250 shares)
into Telewest ordinary shares. As a result of the General Cable Merger, TINTA's
ownership interest in Telewest decreased to 22%. In connection with such
dilution, TINTA recognized a non-cash gain of $58.0 million (excluding related
tax expense of $20.3 million) during the third quarter of 1998.

         On August 21, 1998, TINTA purchased 100% of the issued and outstanding
common stock of Pramer, an Argentine programming company, for $32 million in
cash and the issuance of the Pramer Notes in the amount of $65 million. TINTA
made an $11 million payment on the Pramer Notes on October 1, 1998 and the
remainder of the Pramer Notes are due in 20 equal monthly installments beginning
October 15, 1998. For additional information concerning TINTA's acquisition of
Pramer, see note 10 to the accompanying combined financial statements of TCI
Ventures Group.


                                     I-193

<PAGE>   195



         On November 6, 1998, United International Investments ("UII")
distributed to TINTA a 45% interest in Princes Holding Limited ("PHL").
Immediately following the distribution, TINTA sold its interest in UII to United
International Holdings, Inc. for $68 million plus an additional 5% interest in
PHL.

         During the third quarter of 1997, Fox Sports International distributed
its 35% interest in Torneos y Competencias S.A. ("Torneos") to Liberty/TINTA. On
October 2, 1997, TINTA purchased a 5% direct interest in Torneos for $12
million. As of September 30, 1998, TINTA had made cash contributions to Torneos
on the behalf of Liberty/TINTA of $56.5 million.

         @Home is investing significantly in the development of its network
infrastructure. @Home believes that the net cash proceeds from its public
offering, together with existing cash, cash equivalents and capital lease
financing, will be sufficient to meet its working capital and capital
expenditure requirements for at least the next 12 months. @Home may, however,
require additional funds if its estimates of working capital and/or capital
expenditure and/or lease financing requirements change or prove inaccurate or in
order for @Home to respond to unforeseen technological or marketing hurdles or
to take advantage of unanticipated opportunities. Over the longer term, it is
likely that @Home will require substantial additional funds to continue to fund
its infrastructure investment, product development, marketing, sales and
customer support needs. There can be no assurance that any such funds will be
available at the time or times needed, or available on terms acceptable to
@Home. If adequate funds are not available, or are not available on acceptable
terms, @Home may not be able to continue its network implementation, to develop
new products and services or otherwise to respond to competitive pressures. Such
inability could have a material adverse effect on @Home's business, operating
results and financial condition.

         During the third quarter of 1998, @Home completed a public offering
(the "@Home Offering") in which 2.9 million shares of @Home common stock were
sold for net cash proceeds of approximately $125 million. In connection with the
@Home Offering (i) TCI Ventures Group paid $36.9 million to purchase 800,000
shares of @Home common stock and (ii) TCI Ventures Group's economic interest in
@Home decreased to 38.8%. In connection with the associated dilution of TCI
Ventures Group's ownership interest in @Home, TCI Ventures Group recognized a
gain of $16.6 million during the third quarter of 1998.

         @Home has entered into exclusive distribution agreements with certain
cable operators. In connection with the distribution agreements, @Home has
issued warrants to such cable operators to purchase 17,946,956 shares of @Home's
Series A common stock. Of these warrants, warrants to purchase 10,581,298 shares
were exercisable as of September 30, 1998. During the first quarter of 1998,
@Home recorded a non-cash charges of $83.3 million to operations based on the
fair value of 2,705,514 shares which were underlying warrants which became
exercisable during the period. @Home may issue additional stock, or warrants in
connection with its efforts to expand its distribution of the @Home service to
other cable operators. The exercise of warrants or stock issued by @Home will
reduce TCI Ventures Group's equity interest and voting power in @Home.


                                     I-194

<PAGE>   196



         During the period in which each of TCI, Cox, Comcast and Cablevision
Systems Corporation ("CSC") have agreed (subject to certain exceptions and
limitations) to use @Home as its exclusive provider of high speed residential
consumer Internet access services, a stockholders agreement among such parties
and @Home provides that in the event the number of exclusive homes passed
attributable to TCI decreases below 80% of the number of homes passed of TCI and
its controlled affiliates as of June 1996, then TCI will be required to offer to
sell a proportionate amount of its equity in @Home to certain other stockholders
of @Home at fair market value. Since June 1996, TCI has sold or transferred
certain cable systems that reduce TCI's number of base homes passed. In
addition, TCI has announced the proposed sale or transfer of additional cable
systems that would further reduce TCI's number of base homes passed. In the
event that such cable systems continue to be exclusive to @Home, such cable
systems and their homes passed would continue to be included in TCI's homes
passed for purposes of determining whether or not TCI is obligated to offer a
portion of its equity interest in @Home to Cox, Comcast and CSC, even though
such cable systems are no longer owned or controlled by TCI. If TCI does not
require that such cable systems remain exclusive to @Home, the TCI Ventures
Group could be required to sell shares to Cox, Comcast, CSC and certain other
stockholders of @Home, at fair market value. There can be no assurance that, if
the TCI Ventures Group is required to sell shares of @Home, the price paid to
the TCI Ventures Group would represent adequate consideration to the TCI
Ventures Group because such fair market value may not adequately reflect the TCI
Ventures Group's expectation of the long term value of such investments in
@Home. In addition to the exceptions to the general exclusivity obligations, Cox
and Comcast have the right to terminate the exclusivity provisions with respect
to TCI, Cox, Comcast and CSC in the event TCI does not attain certain customer
penetration levels for the @Home service relative to the customer penetration
levels of Cox and Comcast, as of June 4, 1999, and each anniversary thereafter
until 2002. Such termination could have a material adverse effect on @Home and
the value of the TCI Ventures Group's interest in @Home.

         In addition, although TCI, Cox, Comcast and CSC are subject to certain
exclusivity obligations to carry @Home's residential consumer Internet service
over their cable systems, such exclusivity obligations are subject to a number
of exceptions which allow them to compete with @Home in certain circumstances.

         Because TINTA generally views its foreign operating subsidiaries and
affiliates as long-term investments, TINTA generally does not attempt to hedge
existing investments in its foreign affiliates and subsidiaries. Although TINTA
monitors foreign currency exchange rates with the objective of mitigating its
exposure to unfavorable fluctuations in such rates, TINTA believes that, given
the nature of its business, it is not possible or practical to eliminate TINTA's
exposure to unfavorable fluctuations in foreign currency exchange rates. As of
September 30, 1998, TINTA was not exposed to material near-term losses in future
earnings, fair values or cash flows resulting from derivative financial
instruments.

         TINTA has significant commitments and contingent obligations with
respect to certain affiliates. For additional information see notes 8 and 16 to
the accompanying combined financial statements of TCI Ventures Group.

         In connection with the Magness Settlement, the Call Payments were
allocated to each of the Groups based upon the number of shares of each Group
that were subject to the Malone Call Agreement and the Magness Call Agreement.
Accordingly, TCI Ventures Group paid $76 million during the first quarter of
1998 for its allocated share of the Call Payments. For additional information
see note 14 to the accompanying combined financial statements of TCI Ventures
Group.

                                     I-195

<PAGE>   197



         During the fourth quarter of 1997, TCI entered into the Equity Swap
Facility. Pursuant to the Equity Swap Facility, TCI has the right to direct the
Counterparty to use the Equity Swap Facility to purchase Equity Swap Shares of
TCI Group Series A Stock and TCI Ventures Group Series A Stock with an aggregate
purchase price of up to $300 million. TCI has the right, but not the obligation,
to purchase Equity Swap Shares through the September 30, 2000 termination date
of the Equity Swap Facility. During such period, TCI is to settle periodically
any increase or decrease in the market value of the Equity Swap Shares. If the
market value of the Equity Swap Shares exceeds the Counterparty's cost, Equity
Swap Shares with a fair value equal to the difference between the market value
and cost will be segregated from the other Equity Swap Shares. If the market or
value of Equity Swap Shares is less than the Counterparty's cost, TCI, at its
option, will settle such difference with shares of TCI Group Series A Stock or
TCI Ventures Group Series A Stock or, subject to certain conditions, with cash
or letters of credit. In addition, TCI is required to periodically pay the
Counterparty a fee equal to a LIBOR-based rate on the Counterparty's cost to
acquire the Equity Swap Shares. Due to TCI's ability to issue shares to settle
periodic price fluctuation and fees under the Equity Swap Facility, TCI records
all amounts received or paid under this arrangement as increases or decreases to
equity. As of September 30, 1998, the Equity Swap Facility has acquired
4,935,780 shares of TCI Group Series A Stock and 1,171,800 shares of TCI
Ventures Group Series A Stock at an aggregate cost that was approximately $49
million less than the fair value of such Equity Swap Shares at September 30,
1998. The costs and benefits associated with the TCI Ventures Group Series A
Stock held by the Equity Swap Facility are attributed to TCI Ventures Group.

         In 1996, a subsidiary attributed to TCI Ventures Group (i) issued
preferred stock in connection with a previous acquisition, which is convertible
at the option of the holders into 1,084,056 of TCI Group Series A Common Stock
beginning in April 1999 or sooner in the event of a change in control of TCI and
(ii) acquired an option contract from TCI Group in exchange for a $14 million
increase in the intercompany amount due to TCI Group. Such option contract
provided TCI Ventures Group with the right to acquire 1,084,056 shares of TCI
Group Series A Stock at a price equivalent to the fair value at the time of
exercise less $14.625 per share. During September 1998, TCI Group assigned its
obligation under the option contract to TCI Ventures Group. As a result of such
assignment, TCI Ventures Group recorded a $15.9 million reduction to the
intercompany amount due to TCI Group and a corresponding increase to combined
equity. In July 1998, TCI Ventures Group entered into an equity swap transaction
with a commercial bank, which provides TCI Ventures Group with the right but not
the obligation to acquire 1,084,056 shares of TCI Group Series A Stock for
approximately $45 million on or before April 19, 1999. In the event TCI Ventures
Group does not exercise its right to acquire such shares, any difference between
the counterparty's cost and the market value of the shares on the settlement
date will be settled in cash or shares of TCI Ventures Group Series A Stock at
TCI Ventures Group's option. Such shares will be used to satisfy the exchange
requirements of the aforementioned preferred stock. 

         During the nine months ended September 30, 1998, pursuant to the stock
repurchase program, 145,450 shares of TCI Ventures Group Series A Stock and
94,000 shares of TCI Ventures Group Series B Stock were repurchased at an
aggregate cost of $3.9 million. Such amount is reflected as a decrease to
combined equity in the accompanying combined financial statements.

         The board of directors of UVSG has authorized UVSG to repurchase from
time to time up to an aggregate of 2,000,000 shares of UVSG's Class A common
stock. During the nine months ended September 30, 1998, UVSG repurchased
approximately 900,000 shares of stock for a total of $15.2 million.


                                     I-196

<PAGE>   198



         In February 1998, TCI, Liberty Media Group and UVSG announced an
agreement in principal for UVSG to acquire Liberty Media Group's 40% interest in
SNG and its 100% interest in certain businesses conducted by Netlink USA in
exchange for 12.8 million shares of UVSG's common stock (as adjusted for a
two-for-one stock split). Consummation of such transaction is subject to UVSG
stockholder approval and certain regulatory approvals.

         On June 11, 1998, UVSG and News Corp. announced the signing of a
definitive agreement whereby News Corp.'s TV Guide properties will be combined
with UVSG to create a platform for offering television guide services to
consumers and advertising. As part of this combination, a unit of News Corp.
will receive consideration consisting of $800 million in cash and 60 million
shares of UVSG's stock (as adjusted for a two-for-one stock split), including
22,503,412 shares of its Class A common stock and 37,496,588 shares of its Class
B common stock (as adjusted for a two-for-one stock split). As a result of this
transaction, and the above-described pending transaction with Liberty Media
Group, News Corp., TCI and UVSG's public stockholders will own on an economic
basis approximately 40%, 44% (of which 34% will be attributable to TCI Ventures
Group and 10% will be attributable to Liberty Media Group) and 16%,
respectively, of UVSG. Following such transactions, News Corp. and TCI will each
have approximately 48% of the voting power of UVSG's outstanding stock. TCI will
begin to account for its interest in UVSG under the equity method of accounting
following consummation of this transaction. Consummation of this transaction is
subject to UVSG stockholder approval and certain regulatory approvals.
Accordingly, no assurance can be given that this transaction will be
consummated.

         On January 12, 1998, TCI acquired from a minority shareholder of UVSG
24.8 million shares of UVSG Class A common stock (as adjusted for a two-for-one
stock split) in exchange for 12.7 million shares of TCI Ventures Group Series A
Stock and 7.3 million shares of Liberty Group Series A Stock. The aggregate
value assigned to the shares issued by TCI was based upon the market value of
such shares at the time the transaction was announced. As a result of such
transaction TCI increased its ownership in the equity of UVSG to approximately
74%, of which 57% is attributed to TCI Ventures Group and 17% is attributed to
Liberty Media Group. In addition, TCI's collective voting power increased to
93%. In connection with such transaction, during the first quarter of 1998, TCI
Ventures Group recorded a $154.2 million increase to intangible assets, a $23.5
million decrease to minority interest in equity of attributed subsidiaries and a
$177.7 million increase to combined equity.

         A subsidiary of TCI that was a member of TCI Ventures Group leases
certain equipment under a capital lease. During 1997, such equipment was
subleased to TCI Group under an operating lease. In January 1998, TCI Group paid
$7 million to TCI Ventures Group in exchange for TCI Ventures Group's assignment
of its ownership interest in such subsidiary to TCI Group. Due to the related
party nature of the transaction, the $49.5 million total of the cash payment and
the historical cost of the net liabilities assumed by TCI Group (including
capital lease obligations aggregating $175.8 million) has been reflected as an
addition to TCI Ventures Group's combined equity.

         On February 12, 1998, TCI Ventures Group sold its (i) 40% interest in
NHT Partnership, (ii) 50% interest in Louisville Lightwave and (iii) 79%
interest in New Jersey Fiber Technologies, L.P. for aggregate cash proceeds of
$44.1 million.

         In July 1998, TCI and the other partners of KC Fiber sold the assets of
KC Fiber to TCG for cash proceeds of $55 million. TCI Ventures Group holds a 50%
interest in KC Fiber. TCI Ventures Group received proceeds of $20.3 million in
connection with such sale.


                                     I-197

<PAGE>   199



         During the third quarter of 1998, TINTA exercised its right to require
Liberty Media Group to purchase from TINTA 2,710,406 shares of TCI Music, Inc.
Series A common stock for $8.00 per share. Due to the related party nature of
the transaction, TCI Ventures Group has reflected its share of excess
consideration received over the basis of net assets sold of $18.4 million as an
increase to combined equity in the accompanying combined financial statements of
TCI Ventures Group.

         During the third quarter of 1998, TCI Ventures Group recognized
dividend income of $15.5 million on its AT&T Common Stock. No assurance can be
given that future dividends will be paid at such rate or at all. See notes 2 and
9 to the accompanying combined financial statements of TCI Ventures Group.

         Effective as of December 16, 1997, NDTC, on behalf of TCIC and other
cable operators that may be designated from time to time by NDTC, entered into
an 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 over the next three years at an average price of $318 per set-top
device. Through September 30, 1998, approximately 1 million set-top devices had
been purchased pursuant to this commitment. 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). Such warrants vest as annual purchase commitments are met.
The value associated with such equity interest will be attributed to TCI Group
upon purchase and deployment of the digital set-top devices. See note 2 to the
accompanying combined financial statements of TCI Ventures Group. NDTC has the
right to terminate the Digital Terminal Purchase Agreement if, among other
reasons, GI fails to meet a material milestone designated in the Digital
Terminal Purchase Agreement with respect to the development, testing and
delivery of advanced digital set-top devices.

         On July 17, 1998, TCI Ventures Group acquired 21.4 million shares of
stock of GI in exchange for (i) certain of the assets of NDTC's set-top
authorization business, (ii) the license of certain related software to GI,
(iii) a $50 million promissory note from TCI Ventures Group to GI and (iv) a
nine year revenue guarantee from TCI Ventures Group in favor of GI. In
connection therewith, NDTC also entered into a service agreement pursuant to
which it will provide certain postcontract services to GI's set-top
authorization business. The 21.4 million shares of GI common stock are, in
addition to other transfer restrictions, restricted as to their sale by NDTC for
a three year period, and represent approximately 13% of the outstanding common
stock of GI at September 30, 1998. TCI Ventures Group recorded its investment in
such shares at fair value which included a discount attributable to the
above-described liquidity restriction. TCI Ventures Group will account for its
investment in such shares using the cost method of accounting. The $346 million
excess of the recorded value of GI common stock received over (i) the book value
of certain assets transferred from NDTC to GI, and (ii) the $42 million present
value of the promissory note due from TCI Ventures Group to GI, has been
deferred by TCI Ventures Group in the accompanying September 30, 1998 combined
balance sheet. A portion of such excess equal to the $160 million present value
of the annual amounts specified by the revenue guarantee will be amortized to
revenue over nine years in proportion to such annual guaranteed amounts. The
remaining $186 million excess will be amortized to revenue on a straight-line
basis over the nine-year period that NDTC is required to perform postcontract
services.


                                     I-198

<PAGE>   200



         As described more fully in note 16 to the accompanying combined
financial statements of TCI Ventures Group, on September 21, 1998, Hurricane
Georges struck Puerto Rico and caused considerable property damage to the area
in general, including the Puerto Rico Subsidiary's cable television systems. The
Puerto Rico Subsidiary has submitted a claim to its insurance carrier for its
damaged property and loss of revenue. The Puerto Rico Subsidiary anticipates
that its estimated loss of revenue will exceed its business interruption
insurance. Such uncovered losses could cause the Puerto Rico Subsidiary to be in
violation of certain financial covenants of the Puerto Rico Bank Facility in the
fourth quarter of 1998 and the first quarter of 1999. Violations of certain
financial covenants will prevent the Puerto Rico Subsidiary from borrowing any
unused borrowing commitments and could result in the acceleration of amounts due
under the Puerto Rico Bank Facility. The Puerto Rico Subsidiary is in
discussions with the lenders of the Puerto Rico Bank Facility regarding possible
remedies of any potential violations of financial covenants.


                                     I-199
<PAGE>   201

                           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
         September 30, 1998 to which TCI or any of its consolidated
         subsidiaries is a party or of which any of its property is the
         subject, except as follows:

         New Litigation

         Gemstar Development Corporation, Superguide, Inc. and StarSight
         Telecast, Inc. vs. Prevue Networks, Inc. and TCI. On July 24, 1998,
         Gemstar Development Corporation and StarSight Telecast, Inc. filed a
         complaint against Prevue Networks, Inc. alleging infringement of two
         United States patents by the Prevue Interactive system. On September
         30, 1998, the plaintiffs amended their complaint to add an additional
         plaintiff and to add TCI as a defendant. Plaintiffs seek preliminary
         and permanent injunctive relief, as well as damages, treble damages,
         attorneys' fees and costs. TCI has only recently been served in this
         matter and has not yet answered. Based upon the facts available,
         management believes that, although no assurance can be given as to the
         outcome of these actions, the ultimate disposition should not have a
         material adverse effect on the financial condition of the Company.

         New Developments in Previously Reported Litigation

         As previously reported, on February 24, 1997, James Dalton, et al.
         filed suit in District Court for Arapahoe County, Colorado, Case No.
         97-CV421, against TCI and certain current and former officers of TCI
         and its subsidiary, TCIC (John C. Malone, Brendan R. Clouston, Barry P.
         Marshall, Camille K. Jayne, Sadie N. Decker, Bruce W. Ravenel, Gerald
         W. Gaines, Bernard W. Schotters, II) and Daniel L. Ritchie and Donne F.
         Fisher, in their capacity as co-personal representatives of the Estate
         of Bob Magness. Plaintiffs filed this action under the Colorado
         Securities Act and Colorado common law on behalf of all persons who
         purchased TCI securities from January 10, 1996 through October 24, 1996
         ("the class period"). On September 3, 1997, defendants motion to
         dismiss was denied. Defendants answered the Complaint on October 3,
         1997. Discovery is proceeding. Based upon the facts available,
         management believes that, although no assurances can be given as to the
         outcome of this action, the ultimate disposition should not have a
         material adverse effect upon the financial condition of the Company.


                                     II-1
<PAGE>   202


         On July 13, 1998, two putative class action complaints were filed by
         certain stockholders of TINTA in the Court of Chancery of the State of
         Delaware. The actions, which have identical claims and allegations,
         are styled as Berkowitz v. Hindery, et al., C.A. No. 16533, and
         Chetkov v. Hindery, et al., C.A. No. 16534, respectively. The
         complaints were filed following the announcement of a proposed
         business combination in which Liberty Media Group would acquire all
         outstanding public shares of TINTA not already owned by TCI Ventures
         Group. The defendants named in both complaints are TCI, TINTA, and the
         Board of Directors of TINTA: Leo J. Hindery, John C. Malone, Gary S.
         Howard, David J. Evans, Pierre Lescure, Paul A. Gould, Fred A. Vierra,
         and Jerome H. Kern. The gravamen of both complaints is that the TINTA
         directors will breach their fiduciary duties by approving the merger
         and undervaluing the proposed merger consideration to the detriment of
         the TINTA public stockholders. Plaintiffs in both actions seek to
         enjoin the consummation or closing of the proposed merger, or the
         rescission of the merger in the event it is consummated, and
         unspecified compensatory damages, fees and costs. The Company and the
         plaintiffs have reached an agreement in principle to settle the class
         action litigation in exchange for TCI's willingness to include a
         $22.00 per TINTA share pricing provision in the merger agreement with
         Liberty Media Group. The tentative settlement is subject to numerous
         conditions, including the execution of definitive settlement
         documents, court approval of the settlement and consummation of the
         merger. Based on the facts available, management believes that
         although no assurance can be given as to the outcome of this action,
         the ultimate disposition of this matter should not have a material
         adverse effect upon the financial condition of the Company.


                                     II-2
<PAGE>   203


                           TELE-COMMUNICATIONS, INC.


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

         (a)   Exhibits -

               (27) Tele-Communications, Inc. Financial Data Schedule

         (b)   Reports on Form 8-K filed during the quarter ended September 30,
               1998:


                  Date of               Items
                  Report               Reported     Financial Statements Filed
                  -------              --------     --------------------------
               July 1, 1998             Item 5                  None


                                     II-3
<PAGE>   204


                                   SIGNATURES


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

                                            TELE-COMMUNICATIONS, INC.




Date:      November 12, 1998                By: /s/ Leo J. Hindery, Jr.
                                               ----------------------------
                                               Leo J. Hindery, Jr.
                                               President and Chief
                                               Operating Officer




Date:      November 12, 1998                By: /s/ Stephen M. Brett
                                               ----------------------------
                                               Stephen M. Brett
                                               Executive Vice President,
                                               General Counsel and Secretary



Date:      November 12, 1998                By: /s/ Bernard W. Schotters
                                               ----------------------------
                                               Bernard W. Schotters
                                               Senior Vice President
                                               (Principal Financial Officer)




Date:      November 12, 1998                By: /s/ Ann M. Koets
                                               ----------------------------
                                               Ann M. Koets
                                               Executive Vice President
                                               TCI Communications, Inc.
                                               (Principal Accounting Officer)


                                     II-4
<PAGE>   205


                                 EXHIBIT INDEX


The following exhibit is filed herewith (according to the number assigned to it
in Item 601 of Regulation S-K) as noted:


         (27)  Tele-Communications, Inc. Financial Data Schedule