<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, 1999

                                       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)


             9197 S. Peoria
           Englewood, Colorado                             80112
----------------------------------------                 ----------
(Address of principal executive offices)                 (Zip Code)


       Registrant's telephone number, including area code: (720) 875-4000


         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
                                      ---   ---





<PAGE>   2


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

                           Consolidated Balance Sheets
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                  New TCI           Old TCI
                                                               -------------      ------------
                                                               September 30,      December 31,
                                                                   1999               1998
                                                               -------------      ------------
Assets                                                                amounts in millions
------

<S>                                                            <C>                <C>
Cash and cash equivalents                                       $       --               419

Restricted cash (note 4)                                                19               185

Trade and other receivables, net                                       478               653

Prepaid and committed program rights                                    --               263

Investment in Liberty Media Group and related
    receivables (note 5)                                            35,519                --

Investments in affiliates other than Liberty Media
    Group (the "Other Affiliates"), accounted for under
    the equity method (notes 6 and 12)                              14,393             4,709

Investment in Time Warner, Inc. ("Time Warner")
    (note 2)                                                            34             7,118

Investment in AT&T Corp. ("AT&T") (notes 2 and 11)                      --             3,556

Investment in Sprint Corporation (note 2)                               --             2,446

Property and equipment, at cost:
    Land                                                               119                63
    Distribution systems                                             6,243            10,107
    Support equipment and buildings                                    999             1,769
                                                                ----------        ----------
                                                                     7,361            11,939
    Less accumulated depreciation                                      492             4,786
                                                                ----------        ----------
                                                                     6,869             7,153
                                                                ----------        ----------

Franchise costs and other intangible assets                         32,895            15,782
    Less accumulated amortization                                      508             2,723
                                                                ----------        ----------
                                                                    32,387            13,059
                                                                ----------        ----------

Other assets, net of accumulated amortization                        1,462             2,290
                                                                ----------        ----------

                                                                $   91,161            41,851
                                                                ==========        ==========
</TABLE>

                                                                     (continued)




                                      I-1
<PAGE>   3


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

                     Consolidated Balance Sheets, continued
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                       New TCI            Old TCI
                                                                     -------------      ------------
                                                                     September 30,      December 31,
                                                                         1999               1998
                                                                     -------------      ------------
Liabilities and Stockholders' Equity                                       amounts in millions

<S>                                                                  <C>                <C>
Accounts payable                                                      $      276                229

Accrued interest                                                             136                253

Accrued programming expense                                                  327                471

Other accrued expenses                                                       743              1,128

Debt (notes 2 and 8):
    Due to unaffiliated parties                                            9,449             14,052
    Notes payable to AT&T                                                  8,559                 --

Deferred income taxes                                                     18,277              9,749

Other liabilities                                                          1,032              1,819
                                                                      ----------         ----------

    Total liabilities                                                     38,799             27,701
                                                                      ----------         ----------

Minority interests in equity of consolidated subsidiaries                  2,175              1,460

Redeemable securities (note 2)                                                --                322

Company-obligated mandatorily redeemable preferred securities
    of subsidiary trusts ("Trust Preferred Securities") holding
    solely subordinated debt securities (note 9)                           1,649              1,500

Stockholders' equity (notes 2 and 10):
    Class A Series Preferred Stock, $.01 par value. Authorized
       700,000 shares                                                         --                 --
    Class B 6% Cumulative Redeemable Exchangeable Junior
       Preferred Stock, $.01 par value. Authorized 1,675,096
       shares; issued 1,552,490 shares                                        --                 --
    Common stock, $.01 par value. Authorized 3,550,000,000
       shares; issued 1,327,985,000 shares in 1999                            13                 --
    Common stock, $1 par value:
       Series A TCI Group. Authorized 1,750,000,000 shares;
          issued 610,748,188 shares in 1998                                   --                611
       Series B TCI Group. Authorized 150,000,000 shares;
          issued 73,929,229 shares in 1998                                    --                 74
       Series A Liberty Media Group. Authorized 750,000,000
          shares; issued 367,890,546 shares in 1998                           --                368
       Series B Liberty Media Group. Authorized 75,000,000
          shares; issued 35,198,156 shares in 1998                            --                 35
       Series A TCI Ventures Group. Authorized 750,000,000
          shares; issued 377,253,230 shares in 1998                           --                377
       Series B TCI Ventures Group. Authorized 75,000,000
          shares; issued 45,750,534 shares in 1998                            --                 46
    Additional paid-in capital                                            52,531              5,987
    Accumulated other comprehensive earnings, net of taxes                 2,445              3,749
    Retained earnings (accumulated deficit)                               (2,406)             1,124
                                                                      ----------         ----------
                                                                          52,583             12,371

    Investment in AT&T (notes 2 and 11)                                   (4,045)                --
    Treasury stock and common stock held by subsidiaries, at
       cost                                                                   --             (1,503)
                                                                      ----------         ----------

          Total stockholders' equity                                      48,538             10,868
                                                                      ----------         ----------
Commitments and contingencies (notes 13 and 14)
                                                                      $   91,161             41,851
                                                                      ==========         ==========
</TABLE>

See accompanying notes to consolidated financial statements.




                                      I-2
<PAGE>   4


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

                      Consolidated Statements of Operations
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                     New TCI              Old TCI
                                                               ------------------   ------------------
                                                                  Three months         Three months
                                                                      ended                ended
                                                               September 30, 1999   September 30, 1998
                                                               ------------------   ------------------
                                                                         amounts in millions,
                                                                       except per share amounts

<S>                                                            <C>                  <C>
Revenue (note 11)                                                   $    1,442              1,843

Operating costs and expenses:
   Operating (note 11)                                                     599                754
   Selling, general and administrative (note 11)                           324                412
   Year 2000 costs                                                          16                  5
   AT&T merger and integration costs                                         4                  1
   Stock compensation                                                       (2)                11
   Depreciation and amortization                                           461                421
                                                                    ----------         ----------
                                                                         1,402              1,604
                                                                    ----------         ----------

         Operating income                                                   40                239

Other income (expense):
   Interest expense:
      Unaffiliated parties                                                (142)              (272)
      AT&T (notes 2 and 8)                                                (106)                --
   Interest and dividend income                                              1                 33
   Share of losses of Liberty Media Group (note 5)                        (217)                --
   Share of losses of the Other Affiliates, net (note 6)                  (412)              (397)
   Minority interests in earnings of consolidated
      subsidiaries, net (note 9)                                           (45)               (30)
   Gain on issuance of stock by equity investee
      (note 7)                                                              --                 58
   Gain on issuance of equity interests by subsidiary
      (note 6)                                                              --                 17
   Gains on disposition of assets, net (notes 7 and 11)                     --              2,605
   Other, net                                                                2                 (7)
                                                                    ----------         ----------
                                                                          (919)             2,007
                                                                    ----------         ----------

      Earnings (loss) before income taxes and
           extraordinary items                                            (879)             2,246

Income tax benefit (expense)                                               239               (902)
                                                                    ----------         ----------

      Earnings (loss) before extraordinary items                          (640)             1,344

Extraordinary gain (loss) (net of income taxes of $2
   million and $9 million in 1999 and 1998,
   respectively) (note 8)                                                    4                 (4)
                                                                    ----------         ----------

      Net earnings (loss)                                                 (636)             1,340

Dividend requirements on preferred stocks                                   (2)                (5)
                                                                    ----------         ----------

      Net earnings (loss) attributable to common
           stockholders                                             $     (638)             1,335
                                                                    ==========         ==========
</TABLE>

                                                                     (continued)




                                      I-3
<PAGE>   5

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

                Consolidated Statements of Operations, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                        New TCI              Old TCI
                                                                  ------------------   ------------------
                                                                     Three months         Three months
                                                                         ended                ended
                                                                  September 30, 1999   September 30, 1998
                                                                  ------------------   ------------------
                                                                            amounts in millions,
                                                                          except per share amounts

<S>                                                               <C>                  <C>
Net earnings (loss) attributable to common
   stockholders:
   TCI Group Series A and Series B common stock                       $       --                   47
   Liberty Media Group Series A and Series B common
     stock                                                                    --                  (11)
   TCI Ventures Group Series A and Series B common
     stock                                                                    --                1,299
                                                                      ----------           ----------
                                                                      $       --                1,335
                                                                      ==========           ==========
Basic earnings (loss) attributable to common
   stockholders per common share (note 3):
     TCI Group Series A and Series B common stock                     $       --                  .09
                                                                      ==========           ==========
     Liberty Media Group Series A and Series B
          common stock                                                $       --                 (.03)
                                                                      ==========           ==========
     TCI Ventures Group Series A and Series B common
          stock                                                       $       --                 3.07
                                                                      ==========           ==========

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
                                                                      ==========           ==========
     Liberty Media Group Series A and Series B
          common stock                                                $       --                 (.03)
                                                                      ==========           ==========
     TCI Ventures Group Series A and Series B common
          stock                                                       $       --                 2.88
                                                                      ==========           ==========

Comprehensive earnings (loss)                                         $     (202)               1,425
                                                                      ==========           ==========
</TABLE>


See accompanying notes to consolidated financial statements.

                                                                     (continued)




                                      I-4
<PAGE>   6

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

                Consolidated Statements of Operations, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                             New TCI                         Old TCI
                                                        ------------------   ---------------------------------------
                                                           Seven months          Two months          Nine months
                                                              ended                ended                ended
                                                        September 30, 1999   February 28, 1999    September 30, 1998
                                                        ------------------   -----------------    ------------------
                                                                            amounts in millions,
                                                                          except per share amounts
<S>                                                     <C>                  <C>                  <C>
Revenue (note 11)                                           $    3,344                1,145                5,563

Operating costs and expenses:
   Operating (note 11)                                           1,345                  467                2,202
   Selling, general and administrative (note 11)                   807                  322                1,316
   Year 2000 costs                                                  47                   11                    6
   AT&T merger and integration costs                                31                   65                   11
   Stock compensation                                               72                  366                  423
   Reserve for loss arising from contingent
      obligation (note 13)                                          50                   --                   --
   Write-off of in-process research and
      development costs (note 2)                                   594                   --                   --
   Depreciation and amortization                                 1,143                  277                1,289
                                                            ----------           ----------           ----------
                                                                 4,089                1,508                5,247
                                                            ----------           ----------           ----------

         Operating income (loss)                                  (745)                (363)                 316

Other income (expense):
   Interest expense:
      Unaffiliated parties                                        (346)                (161)                (807)
      AT&T (notes 2 and 8)                                        (212)                  --                   --
   Interest and dividend income                                      7                   13                   72
   Share of losses of Liberty Media Group
      (note 5)                                                    (818)                  --                   --
   Share of losses of the Other Affiliates, net
      (note 6)                                                    (789)                (161)                (986)
   Minority interests in earnings of consolidated
      subsidiaries, net (note 9)                                  (103)                 (26)                 (95)
   Gain on issuance of stock by equity
      investee (note 7)                                             --                   --                  259
   Gains on issuance of equity interests by
      subsidiaries (notes 6 and 7)                                  --                  389                   55
   Gains on disposition of assets, net (notes
      6, 7 and 11)                                                  --                  144                3,704
   Other, net                                                        7                    8                  (25)
                                                            ----------           ----------           ----------
                                                                (2,254)                 206                2,177
                                                            ----------           ----------           ----------

      Earnings (loss) before income taxes and
         extraordinary items                                    (2,999)                (157)               2,493

Income tax benefit (expense)                                       589                 (119)              (1,079)
                                                            ----------           ----------           ----------

      Earnings (loss) before extraordinary items                (2,410)                (276)               1,414

Extraordinary gain (loss) (net of income taxes of
   $2 million and $3 million for the seven and
   two month periods in 1999, respectively, and
   $17 million in 1998) (note 8)                                     4                   (5)                 (27)
                                                            ----------           ----------           ----------

      Net earnings (loss)                                       (2,406)                (281)               1,387

Dividend requirements on preferred stocks                           (5)                  (4)                 (18)
                                                            ----------           ----------           ----------

      Net earnings (loss) attributable to common
         stockholders                                       $   (2,411)                (285)               1,369
                                                            ==========           ==========           ==========
</TABLE>

                                                                     (continued)





                                      I-5
<PAGE>   7

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

                Consolidated Statements of Operations, continued
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                   New TCI                         Old TCI
                                                              ------------------   ---------------------------------------
                                                                 Seven months          Two months          Nine months
                                                                    ended                ended                ended
                                                              September 30, 1999   February 28, 1999    September 30, 1998
                                                              ------------------   -----------------    ------------------
                                                                                  amounts in millions,
                                                                                except per share amounts
<S>                                                           <C>                  <C>                  <C>

Net earnings (loss) attributable to common
   stockholders:
   TCI Group Series A and Series B common
        stock                                                     $       --                (226)                130
   Liberty Media Group Series A and Series B
        common stock                                                      --                 (49)                227
   TCI Ventures Group Series A and Series B
        common stock                                                      --                 (10)              1,012
                                                                  ----------          ----------          ----------
                                                                  $       --                (285)              1,369
                                                                  ==========          ==========          ==========
Basic earnings (loss) attributable to common
   stockholders per common share (note 3):
     TCI Group Series A and Series B common
        stock                                                     $       --                (.42)                .25
                                                                  ==========          ==========          ==========
     Liberty Media Group Series A and Series
        B common stock                                            $       --                (.13)                .64
                                                                  ==========          ==========          ==========
     TCI Ventures Group Series A and Series B
        common stock                                              $       --                (.02)               2.40
                                                                  ==========          ==========          ==========

Diluted earnings (loss) attributable to
   common stockholders per common and
   potential common share (note 3):
     TCI Group Series A and Series B common
        stock                                                     $       --                (.43)                .22
                                                                  ==========          ==========          ==========
     Liberty Media Group Series A and Series
        B common stock                                            $       --                (.13)                .58
                                                                  ==========          ==========          ==========
     TCI Ventures Group Series A and Series B
        common stock                                              $       --                (.09)               2.24
                                                                  ==========          ==========          ==========

Comprehensive earnings                                            $       39                 691               2,330
                                                                  ==========          ==========          ==========
</TABLE>


See accompanying notes to consolidated financial statements.



                                      I-6
<PAGE>   8

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

                 Consolidated Statement of Stockholders' Equity
                                   (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

Old TCI
-------

<S>                                                  <C>         <C>         <C>        <C>         <C>        <C>         <C>
Balance at January 1, 1999                            $     --        611          74        368          35        377          46

    Net loss                                                --         --          --         --          --         --          --
    Reclassification of redeemable common stock
      to equity upon expiration of put
      obligations                                           --         --          --         --          --         --          --
    Proceeds received upon termination of equity
      swap facilities (note 10)                             --         --          --         --          --         --          --
    Settlement of equity swap transaction in
      connection with preferred stock exchange
      (note 10)                                             --         --          --         --          --         --          --
    Gain from contribution of cable television
      systems to joint venture, net of taxes
      (note 7)                                              --         --          --         --          --         --          --
    Issuance of common stock upon exercise of
      stock options                                         --         --          --         --          --         --          --
    Recognition of stock compensation related to
      restricted stock awards                               --         --          --         --          --         --          --
    Issuance of restricted stock granted
      pursuant to stock incentive plan                      --          3          --         --          --         --          --
    Conversion of Series B common stock to
      Series A common stock                                 --         --          --         --          --          1          (1)
    Accreted dividends on all classes of
      preferred stock                                       --         --          --         --          --         --          --
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                               --         --          --         --          --         --          --
    Foreign currency translation adjustment                 --         --          --         --          --         --          --
    Change in unrealized holding gains for
      available-for-sale securities, net of taxes           --         --          --         --          --         --          --
                                                      --------   --------    --------   --------    --------   --------    --------
Balance at February 28, 1999                          $     --        614          74        368          35        378          45
                                                      ========   ========    ========   ========    ========   ========    ========
</TABLE>


<TABLE>
<CAPTION>
                                                                                                 Treasury
                                                                                                stock and
                                                                     Accumulated                  common
                                                                       other                      stock
                                                        Additional  comprehensive                 held by         Total
                                                         paid-in      earnings,     Retained   subsidiaries,  stockholders'
                                                         capital    net of taxes    earnings      at cost        equity
                                                        ----------  -------------   --------   -------------  -------------
                                                                               amounts in millions

Old TCI
-------

<S>                                                     <C>         <C>             <C>        <C>            <C>
Balance at January 1, 1999                                  5,987        3,749        1,124       (1,503)      10,868

    Net loss                                                   --           --         (281)          --         (281)
    Reclassification of redeemable common stock
      to equity upon expiration of put
      obligations                                              10           --           --           --           10
    Proceeds received upon termination of equity
      swap facilities (note 10)                               677           --           --           --          677
    Settlement of equity swap transaction in
      connection with preferred stock exchange
      (note 10)                                               (29)          --           --           --          (29)
    Gain from contribution of cable television
      systems to joint venture, net of taxes
      (note 7)                                                  9           --           --           --            9
    Issuance of common stock upon exercise of
      stock options                                             3           --           --           --            3
    Recognition of stock compensation related to
      restricted stock awards                                  12           --           --           --           12
    Issuance of restricted stock granted
      pursuant to stock incentive plan                         (3)          --           --           --           --
    Conversion of Series B common stock to
      Series A common stock                                    --           --           --           --           --
    Accreted dividends on all classes of
      preferred stock                                          --           --           (4)          --           (4)
    Accreted dividends on all classes of
      preferred stock not subject to mandatory
      redemption requirements                                   2           --           --           --            2
    Foreign currency translation adjustment                    --          (15)          --           --          (15)
    Change in unrealized holding gains for
      available-for-sale securities, net of taxes              --          987           --           --          987
                                                         --------     --------     --------     --------     --------
Balance at February 28, 1999                                6,668        4,721          839       (1,503)      12,239
                                                         ========     ========     ========     ========     ========
</TABLE>



                                                                     (continued)




                                      I-7
<PAGE>   9


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

            Consolidated Statement of Stockholders' Equity, continued
                                   (unaudited)



<TABLE>
<CAPTION>
                                                                                                Accumulated
                                                                                                  other
                                                       Class B                   Additional    comprehensive
                                                      Preferred      Common        paid-in       earnings,    Accumulated
                                                        Stock         Stock        capital     net of taxes    deficit
                                                      ----------    ----------    ----------   -------------  -----------
                                                                              amounts in millions

New TCI
-------

<S>                                                   <C>           <C>          <C>           <C>            <C>
Balance at March 1, 1999 (note 2)                     $       --            13        52,142             --            --
    Net loss                                                  --            --            --             --        (2,406)
    Payment of preferred stock dividends                      --            --           (10)            --            --
    Issuance of AT&T Common Stock upon
      conversion of TCI notes payable (note 8)                --            --            40             --            --
    Issuance of AT&T Liberty Tracking Stock upon
      conversion of Liberty Media Group debt
      (note 5)                                                --            --           354             --            --
    Gain from issuance of common stock by
      subsidiary and affiliate, net of
      taxes (note 6)                                          --            --           484             --            --
    Gain from issuance of common stock by
      attributed subsidiary of Liberty Media
      Group, net of taxes                                     --            --            50             --            --
    Utilization of net operating loss
      carryforwards by AT&T (notes 5 and 11)                  --            --          (580)            --            --
    Reclassification of liability for stock
      options upon exercise and cancellation
      of such options                                         --            --            42             --            --
    Reclassification by Liberty Media Group of
      redeemable common stock to equity upon
      expiration of put obligation                            --            --             9             --            --
    Change in non-interest bearing intercompany
      account with AT&T                                       --            --            --             --            --
    Change in unrealized holding gains for
      available-for-sale securities, net of
      taxes (note 5)                                          --            --            --          2,357            --
    Foreign currency translation adjustments,
      net of taxes (note 5)                                   --            --            --             88            --
                                                      ----------    ----------    ----------     ----------    ----------
Balance at September 30, 1999                         $       --            13        52,531          2,445        (2,406)
                                                      ==========    ==========    ==========     ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                           Total
                                                        Investment      stockholders'
                                                         in AT&T           equity
                                                       -------------   -------------
                                                            amounts in millions

New TCI
-------

<S>                                                    <C>             <C>
Balance at March 1, 1999 (note 2)                             (4,018)        48,137
    Net loss                                                      --         (2,406)
    Payment of preferred stock dividends                          --            (10)
    Issuance of AT&T Common Stock upon
      conversion of TCI notes payable (note 8)                    --             40
    Issuance of AT&T Liberty Tracking Stock upon
      conversion of Liberty Media Group debt
      (note 5)                                                    --            354
    Gain from issuance of common stock by
      subsidiary and affiliate, net of
      taxes (note 6)                                              --            484
    Gain from issuance of common stock by
      attributed subsidiary of Liberty Media
      Group, net of taxes                                         --             50
    Utilization of net operating loss
      carryforwards by AT&T (notes 5 and 11)                      --           (580)
    Reclassification of liability for stock
      options upon exercise and cancellation
      of such options                                             --             42
    Reclassification by Liberty Media Group of
      redeemable common stock to equity upon
      expiration of put obligation                                --              9
    Change in non-interest bearing intercompany
      account with AT&T                                          (27)           (27)
    Change in unrealized holding gains for
      available-for-sale securities, net of
      taxes (note 5)                                              --          2,357
    Foreign currency translation adjustments,
      net of taxes (note 5)                                       --             88
                                                          ----------     ----------
Balance at September 30, 1999                                 (4,045)        48,538
                                                          ==========     ==========
</TABLE>


See accompanying notes to consolidated financial statements.





                                      I-8
<PAGE>   10


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES
                               (see notes 1 and 2)

                      Consolidated Statements of Cash Flows
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                           New TCI                      Old TCI
                                                                     -------------------  -------------------------------------
                                                                        Seven months            Two months       Nine months
                                                                           ended                  ended             ended
                                                                     September 30, 1999   February 28, 1999  September 30, 1998
                                                                     -------------------  -----------------  ------------------
                                                                                         amounts in millions
                                                                                             (see note 4)
<S>                                                                  <C>                  <C>                <C>
Cash flows from operating activities:
   Net earnings (loss) before extraordinary items                         $   (2,410)              (276)             1,414
   Adjustments to reconcile net earnings (loss) before
     extraordinary items to net cash provided by (used in)
     operating activities:
       Depreciation and amortization                                           1,143                277              1,289
       Stock compensation                                                         72                366                423
       Payments of obligation relating to stock
         compensation                                                            (47)              (294)              (161)
       Reserve for loss arising from contingent obligation                        50                 --                 --
       Payment of amounts relating to contingent obligation                     (116)                --                 --
       Share of losses of Liberty Media Group                                    818                 --                 --
       Share of losses of the Other Affiliates, net                              789                161                986
       Minority interests in earnings of consolidated
         subsidiaries, net                                                       103                 26                 95
       Gains on issuance of equity interests by subsidiaries                      --               (389)               (55)
       Gain on issuance of stock by equity investee                               --                 --               (259)
       Gains on disposition of assets, net                                        --               (144)            (3,704)
       Deferred income tax expense (benefit)                                    (377)               116              1,026
       Write-off of in-process research and development
         costs                                                                   594                 --                 --
       Other noncash charges (credits)                                           (53)                 1                 (3)
       Changes in operating assets and liabilities, net of the
         effect of acquisitions and dispositions:
           Change in receivables and prepaids                                     11                (84)              (191)
           Change in non-interest bearing intercompany
               account with AT&T                                                 (27)                --                 --
           Change in other accruals and payables                                 (23)                44               (112)
                                                                          ----------         ----------         ----------

               Net cash provided by (used in) operating activities
                                                                                 527               (196)               748
                                                                          ----------         ----------         ----------

Cash flows from investing activities:
   Cash paid for acquisitions and exchanges, net                                 (75)              (353)              (166)
   Capital expended for property and equipment                                (1,910)              (297)            (1,123)
   Effect on cash and cash equivalents of deconsolidation of
      subsidiaries                                                              (401)               (53)                --
   Investments in and loans to affiliates                                       (101)               (52)            (1,346)
   Collections of loans to affiliates, net                                       127                709              1,675
   Proceeds from disposition of assets                                            38                344                712
   Change in restricted cash                                                      36                112               (335)
   Other investing activities                                                    (28)                65                (73)
                                                                          ----------         ----------         ----------

               Net cash provided by (used in) investing
                  activities                                                  (2,314)               475               (656)
                                                                          ----------         ----------         ----------

Cash flows from financing activities:
   Borrowings of debt                                                          3,584                583              4,645
   Repayments of debt                                                         (2,228)            (1,468)            (4,213)
   Payment of dividends on subsidiary preferred stock and
     Trust Preferred Securities                                                 (124)               (12)              (141)
   Payment of preferred stock dividends                                          (10)                (4)               (27)
   Proceeds received upon termination of equity swap
     facilities                                                                   --                677                 --
   Prepayment penalties                                                           --                 (4)               (39)
   Repurchase of common stock                                                     --                 --                (31)
   Repurchase of subsidiary common and preferred stock                            --                (45)               (15)
   Payments for call agreements                                                   --                 --               (274)
   Proceeds from issuance of subsidiary stock                                     --                 --                 91
   Other financing activities                                                    (10)                 8                (12)
                                                                          ----------         ----------         ----------

               Net cash provided by (used in) financing
                  activities                                                   1,212               (265)               (16)
                                                                          ----------         ----------         ----------

               Net change in cash and cash equivalents                          (575)                14                 76
               Cash and cash equivalents at beginning of
                  period                                                         575                419                244
                                                                          ----------         ----------         ----------

               Cash and cash equivalents at end of period                 $       --                433                320
                                                                          ==========         ==========         ==========
</TABLE>

See accompanying notes to consolidated financial statements.




                                      I-9
<PAGE>   11

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                               September 30, 1999
                                   (unaudited)

(1)      Basis of Presentation

         The accompanying consolidated financial statements include the accounts
         of Tele-Communications, Inc. and those of all of its subsidiaries
         ("TCI" or the "Company"). On March 9, 1999, AT&T acquired TCI in a
         merger transaction (the "AT&T Merger"). For financial reporting
         purposes the AT&T Merger and related restructuring transactions
         described in note 2 are deemed to have occurred on March 1, 1999. The
         consolidated financial statements for periods prior to March 1, 1999
         are referred to herein as "Old TCI", and the consolidated financial
         statements for periods subsequent to February 28, 1999 are referred to
         herein as "New TCI." Due to the March 1, 1999 application of purchase
         accounting in connection with the AT&T Merger, the predecessor
         consolidated financial statements of Old TCI are not comparable to the
         successor consolidated financial statements of New TCI. In the
         following text, "TCI" and "the Company" refer to both Old TCI and New
         TCI. See note 2.

         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, 1998.

         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.

         Prior to the AT&T Merger, TCI generally recognized changes in its
         proportionate share of the underlying equity of a subsidiary or equity
         method investee, which resulted from the issuance of additional equity
         securities by such subsidiary or equity investee, in the consolidated
         statement of operations. Upon consummation of the AT&T Merger, TCI
         began to account for such changes in the underlying equity of its
         subsidiaries and affiliates as equity transactions in order to conform
         with AT&T's accounting policy.

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

                                                                     (continued)




                                      I-10
<PAGE>   12


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Targeted Stock

         Prior to the AT&T Merger, the Company's assets and operations were
         included in three separate groups, each of which was tracked separately
         by public equity securities. These groups were formerly known as the
         "Liberty Media Group" (referred to herein as the "Old Liberty Group"),
         the "TCI Ventures Group" and the "TCI Group."

         Old Liberty Group was intended to reflect the separate performance of
         TCI's assets which produce and distribute programming services.

         The TCI Ventures Group was intended to reflect the separate performance
         of TCI's principal international assets and businesses and
         substantially all of TCI's non-cable and non-programming assets.

         The TCI Group was intended to reflect the separate performance of TCI
         and its subsidiaries and assets not attributed to Old Liberty Group or
         TCI Ventures Group. Such subsidiaries and assets are comprised
         primarily of TCI's domestic cable and communications business.

         TCI Group, Old Liberty Group and TCI Ventures Group individually may be
         referred to herein as a "Group."

         The TCI Group was tracked separately through the Tele-Communications,
         Inc. Series A TCI Group Common Stock (the "TCI Group Series A Stock")
         and Series B TCI Group Common Stock (the "TCI Group Series B Stock,"
         and together with the TCI Group Series A Stock, the "TCI Group Stock").
         The Old Liberty Group was tracked through the Tele-Communications, Inc.
         Series A Liberty Media Group Common Stock ("Liberty Group Series A
         Stock") and Series B Liberty Media Group Common Stock ("Liberty Group
         Series B Stock" and together with the Liberty Group Series A Stock, the
         "Liberty Group Stock"). The TCI Ventures Group was tracked separately
         through the Tele-Communications, Inc. Series A TCI Ventures Group
         Common Stock ("TCI Ventures Group Series A Stock") and Series B TCI
         Ventures Group Common Stock ("TCI Ventures Group Series B Stock" and
         together with the TCI Ventures Group Series A Stock, the "TCI Ventures
         Group Stock").

         Upon consummation of the AT&T Merger, each of the separate series of
         Tele-Communications, Inc. common stock was converted either into shares
         of AT&T common stock, par value $1.00 per share, ("AT&T Common Stock")
         or shares of one of two classes of a new AT&T tracking stock designated
         to track the combined Old Liberty Group and TCI Ventures Group after
         giving effect to certain asset transfers. See note 2.

                                                                     (continued)




                                      I-11
<PAGE>   13


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(2)      Merger with AT&T and Related Accounting

         On March 9, 1999, AT&T acquired TCI in the AT&T Merger, in which Italy
         Merger Corp., a wholly-owned subsidiary of AT&T, merged with and into
         TCI, and TCI thereby became a subsidiary of AT&T. As a result of the
         AT&T Merger, (i) each share of TCI Group Series A Stock was converted
         into 1.16355 shares of AT&T Common Stock, (ii) each share of TCI Group
         Series B Stock was converted into 1.27995 shares of AT&T Common Stock,
         (iii) each share of Liberty Group Series A Stock was converted into 2
         shares of a newly created class of AT&T common stock designated as the
         Class A Liberty Media Group Common Stock, par value $1.00 per share
         (the "AT&T Liberty Class A Tracking Stock"), (iv) each share of Liberty
         Group Series B Stock was converted into 2 shares of a newly created
         class of AT&T common stock designated as the Class B Liberty Media
         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"), (v) each share of TCI
         Ventures Group Series A Stock was converted into 1.04 shares of AT&T
         Liberty Class A Tracking Stock, (vi) each share of TCI Ventures Group
         Series B Stock was converted into 1.04 shares of AT&T Liberty Class B
         Tracking Stock, (vii) each share of TCI's Convertible Preferred Stock,
         Series C-TCI Group (the "Series C-TCI Group Preferred Stock") was
         converted into 154.589253 shares of AT&T Common Stock, (viii) each
         share of TCI's Convertible Preferred Stock Series C-Liberty Media Group
         (the "Series C-Liberty Media Group Preferred Stock") was converted into
         112.50 shares of AT&T Liberty Class A Tracking Stock, (ix) each share
         of TCI's Redeemable Convertible TCI Group Preferred Stock, Series G
         ("Series G Preferred Stock") was converted into 1.3846245 shares of
         AT&T Common Stock and (x) each share of TCI's Redeemable Convertible
         Liberty Media Group Preferred Stock, Series H ("Series H Preferred
         Stock") was converted into 1.18125 shares of AT&T Liberty Class A
         Tracking Stock. Following the AT&T Merger, each share of Class B 6%
         Cumulative Redeemable Exchangeable Junior Preferred Stock ("Class B
         Preferred Stock") continues to be outstanding as the Class B Preferred
         Stock of TCI with the same rights and preferences such stock had prior
         to the AT&T Merger. 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 3/40th of a vote for
         each share of AT&T Liberty Class A Tracking Stock held, 3/4ths of a
         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-12
<PAGE>   14


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger are
         intended to reflect the separate performance of the businesses and
         assets attributed to Old Liberty Group and TCI Ventures Group at the
         time of the AT&T Merger. References herein to "Liberty/Ventures Group"
         refer to the combined assets and businesses of Old Liberty Group and
         TCI Ventures Group for periods prior to the AT&T Merger, and subsequent
         to the AT&T Merger such combined assets and business are referred to as
         "Liberty Media Group." 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"), immediately
         prior to the AT&T Merger, certain assets previously 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. ("WTCI")) were
         transferred to TCI Group in exchange for approximately $5.5 billion in
         cash. Also, upon consummation of the AT&T Merger, through a new tax
         sharing agreement between Liberty Media Group and AT&T, Liberty Media
         Group became entitled to the benefit of approximately $2 billion of net
         operating loss carryforwards attributable to all entities included in
         TCI's consolidated federal income tax return as of the date of the AT&T
         Merger. Such net operating loss carryforwards are subject to adjustment
         by the Internal Revenue Service and are subject to limitations on usage
         which may affect the ultimate amount utilized. Additionally, certain
         warrants to purchase shares of General Instruments Corporation ("GI")
         previously attributed to TCI Group were transferred to Liberty/Ventures
         Group in exchange for approximately $176 million in cash. The transfer
         of certain immaterial assets was also effected.

         Immediately prior to the AT&T Merger, AT&T and Liberty Media
         Corporation entered into an agreement relating to the carriage of
         programming of Liberty Media Group to be distributed over the AT&T
         cable systems. Pursuant to this agreement, Liberty Media Group will be
         granted, among other rights, "preferred vendor status" with respect to
         certain types of new programming services. Liberty Media Group will
         also be entitled to the use of channel capacity equal to one six
         megahertz channel to be used for category specific interactive video
         channels. In addition, such agreement also provided for the extension
         of existing affiliation agreements between TCI and programming
         affiliates of Liberty Media Group to a date not less than 10 years from
         the closing of the AT&T Merger, upon the terms and conditions set forth
         in such agreement.

                                                                     (continued)





                                      I-13
<PAGE>   15


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Pursuant to amended corporate governance documents for the entities
         included in Liberty Media Group and certain agreements among AT&T and
         TCI, the business of Liberty Media Group will continue to be managed by
         certain persons who were members of TCI's management prior to the AT&T
         Merger. AT&T will initially designate one third of the directors of
         such entities and its rights as the sole shareholder of the common
         stock of such entities following the AT&T Merger will, in accordance
         with Delaware law, be limited to actions which will require shareholder
         approval. Therefore, management has concluded that TCI does not have a
         controlling financial interest (as that term is used in Statement of
         Financial Accounting Standards No. 94) in the entities comprising the
         Liberty Media Group following the AT&T Merger, and will account for its
         ownership interests in such entities under the equity method.

         Immediately prior to the AT&T Merger, TCI restructured its ownership of
         certain of its subsidiaries (the "Restructuring"). The Restructuring
         included merging TCI's cable subsidiary, TCI Communications, Inc.
         ("TCIC"), into TCI. As a result of TCIC's merger with TCI, all assets
         and liabilities of TCIC have been assumed by TCI, including TCIC's
         public debt. In connection with TCIC's merger with TCI, each share of
         TCIC's Cumulative Exchangeable Preferred Stock, Series A was converted
         into 2.119 shares of TCI Group Series A Stock, and such shares of TCI
         Group Series A Stock were subsequently converted into AT&T Common Stock
         in connection with the AT&T Merger. All other public securities issued
         by subsidiaries of TCIC (other than TCI Pacific Communications, Inc.
         ("Pacific")) otherwise remained unaffected. Furthermore, as part of the
         Restructuring, (i) AT&T loaned TCI $5.5 billion pursuant to a
         promissory note, (ii) certain asset transfers were made between TCI and
         its subsidiaries, (iii) 123,896 shares of the Company's Convertible
         Redeemable Participating Preferred Stock, Series F ("Series F Preferred
         Stock") which were held by subsidiaries of TCI, were converted into
         185,428,946 shares of TCI Group Series A Stock (which in turn were
         converted into 215,755,850 shares of AT&T Common Stock in the AT&T
         Merger and continue to be held by subsidiaries of TCI), (iv) the
         remaining 154,411 shares of Series F Preferred Stock which were
         formerly held by subsidiaries of TCI were distributed to TCI through a
         series of liquidations and canceled, and (v) 125,728,816 shares of TCI
         Group Series A Stock, 9,154,134 shares of TCI Group Series B Stock,
         6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of
         Liberty Group Series B Stock, and 67,536 shares of Class B Preferred
         Stock, each formerly held by subsidiaries of TCI, were distributed to
         TCI through a series of liquidations and canceled.

         Under the terms of the 5% Class A Senior Cumulative Exchangeable
         Preferred Stock of Pacific (the "Exchangeable Preferred Stock"), each
         share of that preferred stock is exchangeable, from and after August 1,
         2001, for approximately 6.3375 shares of AT&T Common Stock, subject to
         certain anti-dilution adjustments. Additionally, Pacific may elect to
         make any dividend, redemption or liquidation payment on the
         Exchangeable Preferred Stock in cash, by delivery of shares of AT&T
         Common Stock or by a combination of the foregoing forms of
         consideration.

                                                                     (continued)





                                      I-14
<PAGE>   16

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The AT&T Merger has been accounted for using the purchase method of
         accounting and has been deemed to be effective as of March 1, 1999 for
         financial reporting purposes. Accordingly, the preliminary allocation
         of AT&T's purchase price to acquire Old TCI has been reflected in TCI's
         consolidated financial statements as of March 1, 1999. A final
         allocation of such purchase price will be made upon resolution of
         pre-acquisition contingencies and receipt of final third party
         appraisals. Certain transactions occurring between March 1, 1999 and
         March 9, 1999 that affected Old TCI's equity and stock compensation
         have been reflected in the two-month period ended February 28, 1999.
         The $52.2 billion aggregate value assigned to TCI's net assets as a
         result of the application of purchase accounting was comprised of the
         following:


<TABLE>
<CAPTION>
                                                                                           amounts in millions

<S>                                                                                      <C>
                  Issuance of AT&T Common Stock                                          $         26,798
                  Issuance of AT&T Liberty Tracking Stock                                          23,360
                  Assumption of convertible notes                                                   1,593
                  Assumption of Class B Preferred Stock                                               154
                  Estimated merger costs                                                              250
                                                                                         ----------------

                                                                                         $         52,155
                                                                                         ================
</TABLE>

         The value assigned to the AT&T Common Stock was based on the average
         closing price of AT&T Common Stock a few days before and after the AT&T
         Merger was agreed to and announced. The value assigned to the AT&T
         Liberty Tracking Stock was based on the average closing price of
         Liberty Group Stock a few days before and after the AT&T Merger was
         agreed to and announced. The Liberty Group Stock was used to value the
         AT&T Liberty Tracking Stock issued in the AT&T Merger because the fair
         value of Liberty Group Stock was more readily determinable than the
         fair value of the AT&T Liberty Tracking Stock.

                                                                     (continued)




                                      I-15
<PAGE>   17


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The following table reflects the opening summarized balance sheet of
         New TCI as adjusted to give effect to the Restructuring, the
         preliminary allocation of AT&T's purchase price to acquire TCI (as
         adjusted through September 30, 1999), and the deconsolidation of the
         entities comprising Liberty Media Group following the AT&T Merger:

<TABLE>
<CAPTION>
                                                                    amounts in millions

          Assets

<S>                                                                 <C>
              Cash and cash equivalents                                 $    575
              Restricted cash                                                 55
              Receivables and prepaid assets                                 518
              Investment in Liberty Media Group                           33,728
              Investment in the Other Affiliates                          11,919
              Property and equipment                                       5,455
              Intangible assets                                           35,274
              Other assets                                                 2,437
                                                                        --------
                                                                        $ 89,961
                                                                        ========

          Liabilities and Stockholders' Equity

              Accounts payable and accrued expenses                     $  1,742
              Debt                                                        16,844
              Deferred income taxes                                       17,959
              Other liabilities                                            1,053
                                                                        --------
                 Total liabilities                                        37,598
                                                                        --------

              Minority interests in equity of consolidated
                 subsidiaries                                              2,566
              Trust Preferred Securities                                   1,660

              Stockholders' equity                                        52,155
              Investment in AT&T                                          (4,018)
                                                                        --------
                 Total stockholders' equity                               48,137
                                                                        --------
                                                                        $ 89,961
                                                                        ========
</TABLE>

The following table reflects the change in cash and cash equivalents as a result
of the Restructuring and the deconsolidation of Liberty Media Group:


<TABLE>
<CAPTION>
                                                                   amounts in millions
<S>                                                                <C>
              Cash and cash equivalents of
                  Old TCI at February 28,
                    1999                                                $    433
                  Cash received from AT&T in
                    Restructuring                                          5,461
                  Decrease in cash due to
                    deconsolidation of Liberty
                    Media Group                                           (5,319)
                                                                        --------
              Cash and cash equivalents of New TCI
                    at March 1, 1999                                    $    575
                                                                        ========
</TABLE>

                                                                     (continued)





                                      I-16
<PAGE>   18


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         As a result of the application of purchase accounting, New TCI has
         recorded its assets and liabilities at their preliminary fair values on
         March 9, 1999. During the third quarter of 1999, $19 billion of
         goodwill recorded in connection with the preliminary allocation of
         AT&T's purchase price to acquire Old TCI was reclassified to franchise
         costs. Franchise costs represent the value attributable to the
         agreements with local franchise authorities that allow access to homes
         in TCI's service areas. As with goodwill, franchise costs are amortized
         over 40 years. Generally accepted accounting principles require
         deferred income taxes to be recorded on the difference between the
         financial reporting basis and income tax basis of franchise costs,
         whereas no such requirement exists for goodwill. Accordingly, during
         the third quarter of 1999, New TCI recorded an increase to its deferred
         income tax liability of approximately $12 billion, and recorded an
         equal and offsetting increase to franchise costs. This reclassification
         and its related deferred income tax effects were given retroactive
         effect to the March 9, 1999 acquisition date in order to provide for
         meaningful comparisons. Such retroactive treatment had no impact on New
         TCI's net loss since the increased amortization of franchise costs was
         fully offset by the deferred income tax benefit of such amortization.
         During the second and third quarters of 1999, further refinements were
         also made to the preliminary allocation of AT&T's purchase price to
         acquire Old TCI as a result of the appraisal process. Refinements of
         the allocation of AT&T's purchase price to acquire Old TCI are treated
         as changes in estimates and accounted for prospectively. As of
         September 30, 1999, the allocation of AT&T's purchase price to acquire
         Old TCI had not been finalized. Accordingly, the Company may make
         additional refinements to the preliminary allocation of AT&T's purchase
         price to acquire Old TCI in future periods. In addition to the above,
         certain of the more significant effects of purchase accounting are
         described below.

         New TCI's intangible assets in the March 1, 1999 opening consolidated
         balance sheet also include $594 million of in-process research and
         development costs. Such amount reflects the value, as of the
         acquisition date, of the Company's research and development projects
         which had not yet reached technological feasibility and which had no
         alternative future use. Such in-process research and development costs
         were written-off during March 1999.

         As a result of the application of purchase accounting, the amount
         assigned to New TCI's other liabilities includes $237 million which
         represents New TCI's estimated liability for unvested stock
         appreciation rights as of March 9, 1999. Such unvested stock
         appreciation rights will vest over remaining periods ranging from 1 to
         5 years. The amount assigned to New TCI's minority interests in equity
         of consolidated subsidiaries includes $2.1 billion which represents the
         fair value of the redeemable preferred stock of a subsidiary. For
         additional information regarding the effects of purchase accounting on
         New TCI's assets and liabilities, see notes 6, 8, 9 and 13.

                                                                     (continued)




                                      I-17
<PAGE>   19


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The following unaudited condensed results of operations for the nine
         months ended September 30, 1999 and 1998 were prepared assuming the
         AT&T Merger, the Restructuring and the deconsolidation of Liberty Media
         Group occurred on January 1, 1998. These pro forma amounts are not
         necessarily indicative of operating results which would have occurred
         if the AT&T Merger, the Restructuring and the deconsolidation of
         Liberty Media Group had occurred on January 1, 1998.


<TABLE>
<CAPTION>
                                                                           Nine months ended September 30,
                                                                           -------------------------------
                                                                               1999                1998
                                                                           -----------         -----------
                                                                                  amounts in millions

<S>                                                                        <C>                 <C>
             Revenue                                                       $     4,285              4,735
             Net earnings (loss) before extraordinary items                $    (2,958)               885
             Net earnings (loss)                                           $    (2,959)               858
</TABLE>


 (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. Basic and diluted
         EPS are presented only for periods prior to the AT&T Merger. Subsequent
         to the AT&T Merger, all shares of common stock of TCI are held by AT&T.
         See notes 1 and 2.

         (a)      TCI Group Stock

                  The basic earnings (loss) attributable to TCI Group common
                  stockholders per common share for the two months ended
                  February 28, 1999 and the three and nine month periods ended
                  September 30, 1998 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 loss attributable to TCI Group common stockholders
                  per common share for the two months ended February 28, 1999
                  was computed by dividing net loss attributable to TCI Group
                  common stockholders, which is increased by aggregate fees paid
                  on equity swap facilities of $4 million during 1999, 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-18
<PAGE>   20


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  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 Series C-TCI Group Preferred Stock, the
                  Convertible Preferred Stock, Series D ("Series D Preferred
                  Stock"), the Series G Preferred Stock, certain stock rights,
                  preferred stock of subsidiaries, convertible notes payable,
                  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.

                  In connection with the March 9, 1999 AT&T Merger, TCI Group
                  Stock was converted into AT&T Common Stock. See note 2.

                                                                     (continued)




                                      I-19
<PAGE>   21


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

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

<TABLE>
<CAPTION>
                                                                                        Old TCI
                                                                ---------------------------------------------------------
                                                                    Two months        Three months        Nine months
                                                                      ended              ended               ended
                                                                February 28, 1999  September 30, 1998  September 30, 1998
                                                                -----------------  ------------------  ------------------
                                                                      amounts in millions, except per share amounts
<S>                                                             <C>                <C>                 <C>
Basic EPS:
     Earnings (loss) attributable to common
        stockholders                                                $     (226)                47               130
                                                                    ==========         ==========        ==========
     Weighted average common shares                                        539                523               521
                                                                    ==========         ==========        ==========
     Basic earnings (loss) per share
        attributable to common stockholders                         $     (.42)               .09               .25
                                                                    ==========         ==========        ==========

Diluted EPS:
     Earnings (loss) attributable to common
        stockholders                                                $     (226)                47               130
     Add preferred dividend requirements                                    --                 --                --
     Add interest expense                                                   --                 --                --
     Less fees paid on equity swap facilities                               (4)                 1                 2
                                                                    ----------         ----------        ----------
     Adjusted earnings (loss) attributable to common
        stockholders assuming conversion of preferred
        shares                                                      $     (230)                48               132
                                                                    ==========         ==========        ==========
     Weighted average common shares                                        539                523               521
                                                                    ----------         ----------        ----------
     Add dilutive potential common shares:
           Employee and director options and other
                performance awards                                          --                 12                10
           Stock 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                                539                605               600
                                                                    ==========         ==========        ==========
     Diluted earnings (loss) per share attributable to
        common stockholders                                         $     (.43)               .08               .22
                                                                    ==========         ==========        ==========
</TABLE>




                                      I-20
<PAGE>   22


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         (b)      Liberty Group Stock

                  The basic earnings (loss) attributable to Old Liberty Group
                  common stockholders per common share for the two months ended
                  February 28, 1999 and the three and nine month periods ended
                  September 30, 1998 was computed by dividing net earnings
                  (loss) attributable to Old Liberty Group common stockholders
                  by the weighted average number of common shares outstanding of
                  Liberty Group Stock during the period.

                  The diluted loss attributable to Old Liberty Group common
                  stockholders per common share for the two months ended
                  February 28, 1999 and the three months ended September 30,
                  1998 was computed by dividing the net loss attributable to Old
                  Liberty Group 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.

                  The diluted earnings attributable to Old Liberty Group common
                  stockholders per common and potential common share for the
                  nine months ended September 30, 1998 was computed by dividing
                  earnings attributable to Old Liberty 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 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 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. 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 were paid by TCI Group.

                  In connection with the AT&T Merger, Liberty Group Stock was
                  converted into AT&T Liberty Tracking Stock. See note 2.

                                                                     (continued)




                                      I-21
<PAGE>   23


                   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>
                                                                                        Old TCI
                                                              ------------------------------------------------------------
                                                                  Two months          Three months          Nine months
                                                                    ended                ended                 ended
                                                              February 28, 1999   September 30, 1998    September 30, 1998
                                                              -----------------   ------------------    ------------------
                                                                                 amounts in millions,
                                                                               except per share amounts
<S>                                                           <C>                 <C>                   <C>
Basic EPS:
    Earnings (loss) attributable to common
       stockholders                                             $        (49)                 (11)                 227
                                                                ============         ============         ============
    Weighted average common shares                                       367                  357                  357
                                                                ============         ============         ============
    Basic earnings (loss) per share attributable to
       common stockholders                                      $       (.13)                (.03)                 .64
                                                                ============         ============         ============

Diluted EPS:
    Earnings (loss) attributable to common
       stockholders                                             $        (49)                 (11)                 227
                                                                ============         ============         ============
    Weighted average common shares                                       367                  357                  357
                                                                ------------         ------------         ------------
    Add dilutive potential common shares:
       Employee and director options and other
          performance awards                                              --                   --                    8
       Convertible notes payable                                          --                   --                   19
       Series C-Liberty Media Group Preferred Stock                       --                   --                    4
       Series D Preferred Stock                                           --                   --                   --
       Series H Preferred Stock                                           --                   --                    4
                                                                ------------         ------------         ------------
             Dilutive potential common shares                             --                   --                   35
                                                                ------------         ------------         ------------
    Diluted weighted average common shares                               367                  357                  392
                                                                ============         ============         ============
    Diluted earnings (loss) per share attributable to
      common stockholders                                       $       (.13)                (.03)                 .58
                                                                ============         ============         ============
</TABLE>

         (c)      TCI Ventures Group Stock

                  The basic earnings (loss) attributable to TCI Ventures Group
                  common stockholders per common share for the two months ended
                  February 28, 1999 and the three and nine month periods ended
                  September 30, 1998 was computed by dividing net earnings
                  (loss) attributable to TCI Ventures Group common stockholders
                  by the weighted average number of common shares outstanding of
                  TCI Ventures Group Stock during the period.

                  The diluted loss attributable to TCI Ventures Group common
                  stockholders per common share for the two months ended
                  February 28, 1999 was computed by dividing the net loss
                  attributable to TCI Ventures Group stockholders by the
                  weighted average number of common shares outstanding of TCI
                  Ventures Group during the period. In 1999, the net loss
                  attributable to TCI Ventures Group common stockholders is
                  increased by $29 million for charges recorded directly to
                  equity upon settlement of an equity swap transaction. See note
                  10. For purposes of computing diluted EPS such amount is
                  assumed to be charged to earnings. Potential common shares
                  were not included in the computation of weighted average
                  shares outstanding because their inclusion would be
                  anti-dilutive.

                                                                     (continued)




                                      I-22
<PAGE>   24


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  The diluted earnings attributable to TCI Ventures Group common
                  stockholders per common share for the three and nine month
                  periods ended September 30, 1998 was computed by dividing net
                  earnings attributable to TCI Ventures Group common
                  stockholders by the weighted average number of 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 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 was paid by TCI Group.

                  In connection with the March 9, 1999 AT&T Merger, TCI Ventures
                  Group Stock was converted into AT&T Liberty Tracking Stock.
                  See note 2.

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

<TABLE>
<CAPTION>
                                                                                          Old TCI
                                                                 -----------------------------------------------------------
                                                                     Two months         Three months         Nine months
                                                                       ended               ended                ended
                                                                 February 28, 1999   September 30, 1998   September 30, 1998
                                                                 -----------------   ------------------   ------------------
                                                                                    amounts in millions,
                                                                                  except per share amounts
<S>                                                              <C>                 <C>                  <C>
Basic EPS:
    Earnings (loss) attributable to common
       stockholders                                                 $        (10)               1,299               1,012
                                                                    ============         ============        ============
    Weighted average common shares                                           423                  423                 422
                                                                    ============         ============        ============
    Basic earnings (loss) per share attributable to common
       stockholders                                                 $       (.02)                3.07                2.40
                                                                    ============         ============        ============

Diluted EPS:
    Earnings (loss) attributable to common stockholders
                                                                    $        (10)               1,299               1,012
                                                                    ============         ============        ============
    Weighted average common shares                                           423                  423                 422
                                                                    ------------         ------------        ------------
    Add dilutive potential common shares:
       Employee and director options and other performance
          awards                                                              --                    7                   9
       Convertible notes payable                                              --                   21                  21
                                                                    ------------         ------------        ------------
             Dilutive potential common shares                                 --                   28                  30
                                                                    ------------         ------------        ------------
    Diluted weighted average common shares                                   423                  451                 452
                                                                    ============         ============        ============
    Diluted earnings (loss) per share attributable to
      common stockholders                                           $       (.09)                2.88                2.24
                                                                    ============         ============        ============
</TABLE>

(4)      Supplemental Disclosures to Consolidated Statements of Cash Flows

         Cash paid for interest was $395 million, $287 million and $905 million
         for the seven months ended September 30, 1999, the two months ended
         February 28, 1999 and the nine months ended September, 1998,
         respectively. Cash paid for income taxes was not material during such
         periods.

                                                                     (continued)




                                      I-23
<PAGE>   25


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Significant non-cash investing and financing activities and certain
         supplemental disclosures with respect to the statement of cash flows
         are reflected below:

<TABLE>
<CAPTION>
                                                            New TCI                       Old TCI
                                                       ------------------   --------------------------------------
                                                          Seven months          Two months         Nine months
                                                             ended                ended               ended
                                                       September 30, 1999   February 28, 1999   September 30, 1998
                                                       ------------------   -----------------   ------------------
                                                                           amounts in millions
<S>                                                    <C>                  <C>                 <C>
Cash paid for acquisitions:
   Recorded value of assets acquired                      $        (34)                (353)               (906)
   Net liabilities assumed                                          --                   --                  79
   Deferred tax liability recorded in
      acquisitions                                                  --                   --                 105
   Change in minority interests in equity
      of consolidated subsidiaries                                  --                   --                (215)
   Elimination of notes receivable from
      affiliates                                                    --                   --                 350
   Common stock issued in acquisitions                              --                   --                 376
                                                          ------------         ------------        ------------

        Cash paid for acquisitions                        $        (34)                (353)               (211)
                                                          ============         ============        ============

Cash received (paid) in exchanges:
   Recorded value of assets acquired                      $     (2,243)                  --                 (72)
   Historical cost of assets exchanged                           2,202                   --                  87
   Gain recorded on exchange of assets                              --                   --                  30
                                                          ------------         ------------        ------------

     Cash received (paid) in exchanges                    $        (41)                  --                  45
                                                          ============         ============        ============

Capitalized costs of distribution
     agreements for @Home                                 $         79                   --                  83
                                                          ============         ============        ============
</TABLE>

                                                                     (continued)




                                      I-24
<PAGE>   26


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company ceased to include TV Guide, Inc. ("TV Guide") in its
         consolidated financial results and began to account for TV Guide using
         the equity method of accounting effective February 28, 1999 (see note
         7). In addition, during the second quarter of 1999, the Company ceased
         to include @Home in its consolidated financial results and began to
         account for @Home using the equity method of accounting (see note 6).
         The effects of changing the method of accounting for the Company's
         ownership interests in TV Guide and @Home from the consolidation method
         to the equity method are summarized below:

<TABLE>
<CAPTION>
                                                                    Seven months         Two months
                                                                       ended               ended
                                                                September 30, 1999    February 28, 1999
                                                                ------------------    -----------------
                                                                          amounts in millions
<S>                                                             <C>                   <C>
         Assets (other than cash and cash equivalents)
            reclassified to investments in affiliates              $       (918)                (572)
         Liabilities reclassified to investments in
            affiliates                                                      357                  190
         Minority interests in equity of subsidiaries
            reclassified to investments in affiliates                       474                   63
         Gain on issuance of equity by subsidiary, net of
            taxes                                                           488                  372
                                                                   ------------         ------------

               Decrease in cash and cash equivalents               $        401                   53
                                                                   ============         ============
</TABLE>


         For a description of certain additional non-cash transactions, see
         notes 2, 6 and 7.

         The Company's restricted cash of $19 million at September 30, 1999,
         includes amounts held in escrow of $10 million and proceeds received in
         connection with certain asset dispositions. Such proceeds, which
         aggregated $9 million, are designated to be reinvested in certain
         identified assets for income tax purposes.

                                                                     (continued)




                                      I-25
<PAGE>   27


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(5)      Investment in Liberty Media Group

         As described in note 2, immediately following the AT&T Merger, the
         entities comprising the Liberty Media Group were deconsolidated. The
         Company's investment in Liberty Media Group includes non-interest
         bearing receivables from Liberty Media Group. Summarized unaudited
         results of operations for Liberty Media Group for the period in which
         the Company used the equity method to account for Liberty Media Group
         are as follows:

<TABLE>
<CAPTION>
                                                                            Seven months
                                                                               ended
                                                                        September 30, 1999
                                                                        ------------------
                                                                        amounts in millions

<S>                                                                     <C>
         Revenue                                                           $        506
         Operating costs and expenses                                              (408)
         Stock compensation                                                        (432)
         Depreciation and amortization                                             (394)
                                                                           ------------

             Operating loss                                                        (728)

         Interest expense                                                           (87)
         Share of losses of affiliates, net                                        (597)
         Other, net                                                                 189
                                                                           ------------

             Loss before income taxes                                            (1,223)

         Income tax benefit                                                         405
                                                                           ------------
             Net loss                                                      $       (818)
                                                                           ============
</TABLE>


         During March and April 1999, certain convertible debentures of a
         subsidiary attributed to the Liberty Media Group were converted into
         shares of AT&T Liberty Tracking Stock. The $354 million principal
         amount of such converted debentures has been reflected as an increase
         to New TCI's "Additional paid-in capital."

         The accompanying consolidated statement of stockholders' equity for the
         seven months ended September 30, 1999 includes changes in Liberty Media
         Group's unrealized holding gains for available-for-sale securities
         totaling $2,320 million, net of taxes, and Liberty Media Group's
         foreign currency translation adjustments totaling $88 million, net of
         taxes.

         During the third quarter of 1999, AT&T utilized $85 million of Liberty
         Media Group's net operating loss carryforwards to offset AT&T's current
         federal income tax liability. Liberty Media Group did not receive any
         consideration for the utilization of such net operating loss
         carryforwards. Accordingly, AT&T's utilization of Liberty Media Group's
         net operating loss carryforwards has been reflected as a decrease to
         New TCI's "Additional paid-in capital."

                                                                     (continued)




                                      I-26
<PAGE>   28


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(6)      Investments in the Other Affiliates

         The Company has various investments in the Other Affiliates accounted
         for under the equity method. The following table includes the Company's
         carrying value of its more significant investments in the Other
         Affiliates as of the indicated dates:

<TABLE>
<CAPTION>
                                                                             New TCI               Old TCI
                                                                          -------------         ------------
                                                                          September 30,         December 31,
                                                                              1999                  1998
                                                                          -------------         ------------
                                                                                 amounts in millions
<S>                                                                       <C>                   <C>
            Cablevision Systems
                Corporation ("CSC")(a)                                    $      3,130                 945
            @Home(b)                                                             2,866                  --
            Lenfest Communications,
                Inc.                                                             2,196                (138)
            Texas Cable Partners, L.P.                                           1,570                 111
            Bresnan Communications
                Group LLC ("Bresnan")                                              873                  --
            Falcon Communications, L.P.
                ("Falcon")                                                         660                 189
            InterMedia Capital Partners IV,
                L.P. ("InterMedia IV") and
                InterMedia Capital Management IV, L.P.
                ("ICM IV")                                                         641                 201
            USA Networks, Inc. and related
                investments(c)                                                      --               1,042
            Various foreign equity
                investments(c)                                                      --               1,492
            Other                                                                2,457                 867
                                                                          ------------        ------------

                                                                          $     14,393               4,709
                                                                          ============        ============
</TABLE>

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

         (a)      CSC

                  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 (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.

                                                                     (continued)




                                      I-27
<PAGE>   29


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  At September 30, 1999, the Company owned 48,942,172 shares of
                  CSC Class A common stock, which had a closing market price of
                  $72.75 per share on such date. Such shares represented an
                  approximate 32% 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. 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. As
                  a result of the deconsolidation of Liberty Media Group,
                  1,040,400 shares of CSC Class A common stock held by Liberty
                  Media Group are no longer included in the Company's investment
                  in CSC. See note 2.

         (b)      @Home

                  During the second quarter of 1999, the stockholders of @Home
                  approved certain changes in the corporate governance of @Home.
                  As a result of these changes, management concluded that TCI no
                  longer held a controlling financial interest (as that term is
                  used in Statement of Financial Accounting Standards No. 94) in
                  @Home and, accordingly, during the second quarter of 1999, TCI
                  ceased to consolidate @Home and began to account for @Home
                  using the equity method of accounting.

                  On May 28, 1999, @Home consummated a merger agreement with
                  Excite, Inc. ("Excite"), a global Internet media company that
                  offers consumers and advertisers comprehensive Internet
                  navigation services with extensive personalization
                  capabilities. Under the terms of the merger agreement, @Home
                  issued approximately 116 million shares of its common stock
                  for all of the outstanding common stock of Excite based on an
                  exchange ratio of 2.083804 shares of @Home's common stock for
                  each share of Excite's common stock. @Home may issue up to
                  approximately 46 million additional shares of common stock in
                  connection with the assumption of obligations under Excite's
                  stock option and employer stock purchase plans and outstanding
                  warrants. As a result of the merger, TCI's economic interest
                  in @Home decreased from 38% to 26%. Due to the resulting
                  increase in @Home's equity, net of the dilution of TCI's
                  ownership interest in @Home, TCI recorded a $488 million
                  increase to "Additional paid-in capital" and a $312 million
                  increase to "Deferred income tax liability." At September 30,
                  1999, the Company owned 63,720,000 shares of @Home Class A
                  common stock, which had a closing market price of $41.44 per
                  share on such date.

                                                                     (continued)




                                      I-28
<PAGE>   30


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  During the two months ended February 28, 1999, @Home issued
                  2.2 million common shares. Due to the resulting increase in
                  @Home's equity, net of the dilution of TCI's ownership
                  interest in @Home, TCI recognized a gain of $17 million.

         (c)      Liberty Media Group Investments

                  As a result of the deconsolidation of Liberty Media Group, the
                  indicated investments are no longer included in the Company's
                  consolidated investments. See note 2.

         At September 30, 1999, the aggregate carrying value of the Company's
         investments in the Other Affiliates exceeded the Company's aggregate
         proportionate share of the Other Affiliates' underlying equity by $14.0
         billion, of which $8.4 billion, $4.2 billion and $1.4 billion is being
         amortized over 40 years, 25 years and 7 years, respectively.

         TCI has entered into various agreements, which, among other matters,
         contemplate the disposition of certain of its investments in the Other
         Affiliates. See note 7.

         Summarized unaudited combined results of operations for the Other
         Affiliates for the periods in which the Company used the equity method
         to account for the Other Affiliates are as follows:


<TABLE>
<CAPTION>
                                                                       Nine months ended September 30,
                                                                      ---------------------------------
                 Combined Operations                                      1999                 1998
                 -------------------                                  ------------         ------------
                                                                             amounts in millions

<S>                                                                   <C>                  <C>
                  Revenue                                             $      7,282               11,198
                  Operating expenses                                        (5,661)             (10,179)
                  Depreciation and amortization                             (2,110)              (2,177)
                                                                      ------------         ------------

                    Operating loss                                            (489)              (1,158)

                  Interest expense                                          (1,052)              (1,458)
                  Other, net                                                  (149)                 (33)
                                                                      ------------         ------------

                    Net loss                                          $     (1,690)              (2,649)
                                                                      ============         ============
</TABLE>

(7)      Acquisitions and Dispositions

         On May 4, 1999, AT&T and Comcast Corporation ("Comcast") announced that
         they had signed a letter of intent to exchange various cable systems,
         including certain cable systems of TCI. In addition, Comcast will
         receive an option from AT&T to purchase, over the next three years,
         additional cable systems with a total of approximately 1.25 million
         subscribers, which may include cable subscribers of TCI. The foregoing
         letter of intent is subject to completion of definitive agreements,
         consummation of certain other transactions, and regulatory and legal
         approvals.

                                                                     (continued)




                                      I-29
<PAGE>   31


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         On July 6, 1999, AT&T and Cox Communications, Inc. ("Cox") signed an
         agreement whereby AT&T would redeem approximately 50.3 million shares
         of AT&T Common Stock held by Cox in exchange for cable television
         systems of TCI serving approximately 316,000 customers and TCI's
         interest in certain equity method investments. The transaction is
         subject to receipt of necessary government and regulatory approvals. No
         assurance can be given that such transaction will be consummated. See
         note 6.

         TCI has entered into agreements with Century Communications Corp.
         ("Century") whereby TCI will contribute cable television systems
         serving approximately 249,000 customers located in Southern California
         to a newly formed limited partnership in which TCI will have an
         approximate 25% partnership interest. TCI will also exchange with the
         new partnership a cable television system serving approximately 100,000
         customers in Southern California for cable television systems in
         Northern California serving approximately 100,000 customers. The
         transactions are subject to various closing conditions. No assurance
         can be given that such transactions will be consummated. On October 1,
         1999, a merger was consummated in which Century merged with and into
         Adelphia Communications Corporation ("Adelphia"). As a result of such
         merger, Adelphia assumed all of Century's rights and obligations
         relating to the above described transaction.

         On October 1, 1999, TCI, InterMedia IV, and InterMedia Partners, a
         California Limited Partnership and a consolidated subsidiary of the
         Company ("InterMedia Partners"), entered into a series of transactions
         with unaffiliated third parties that resulted in the disposition of
         certain cable television systems, the acquisition by InterMedia IV of
         all of its partnership interests that were not owned by TCI and the
         exchange of certain of InterMedia IV's and InterMedia Partners' cable
         television systems. As a result of such transactions, InterMedia IV
         became a consolidated subsidiary of TCI. See notes 6 and 12.

         During the second quarter of 1999, TCI entered into separate agreements
         to sell the majority of its 50% interest in Bresnan (the "Bresnan
         Transaction") and its 46% interest in Falcon (the "Falcon Transaction")
         to Charter. In accordance with the terms of the Bresnan Transaction,
         TCI would receive consideration of approximately $900 million in the
         form of cash, and an approximate 4.5% interest in a new entity to be
         formed by Charter. In accordance with the terms of the Falcon
         Transaction, TCI would receive cash proceeds of approximately $725
         million for its interest in Falcon Communications, L.P. The
         transactions are subject to various closing conditions. No assurance
         can be given that such transactions will be consummated. See note 6.

                                                                     (continued)




                                      I-30
<PAGE>   32


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         During the second quarter of 1999, the Company paid $41 million in cash
         and traded cable television systems serving approximately 618,000
         customers located in Florida, Hawaii, Maine, New York, Ohio, Texas and
         Wisconsin in exchange for cable television systems serving
         approximately 565,000 customers located in Illinois, New Jersey, Oregon
         and Pennsylvania (the "1999 Exchange"). The 1999 Exchange was
         consummated pursuant to an agreement that was executed in November
         1998. No gain was recognized on the 1999 Exchange due to the Company's
         application of purchase accounting in connection with the AT&T Merger.

         During the two months ended February 28, 1999, the Company completed a
         transaction whereby the Company contributed cable television systems to
         Bresnan, an entity in which the Company had an approximate 80%
         ownership interest. Through a series of transactions, including the
         contribution of cash by a third party in exchange for an ownership
         interest in Bresnan, the Company's ownership interest in Bresnan was
         reduced to a non-controlling 50% ownership interest (the "1999
         Contribution Transaction"). In connection with the associated dilution
         of the Company's ownership interest, the Company deconsolidated assets
         and liabilities related to cable television systems serving
         approximately 614,000 customers. The deconsolidated liabilities
         included $210 million of debt owed to external parties and $709 million
         of intercompany debt owed to the Company. In connection with the 1999
         Contribution Transaction, the Company has agreed to take certain steps
         to support compliance by Bresnan with its payment obligations under
         certain debt instruments. See note 13. As a result of the dilution of
         the Company's ownership interest from 80% to 50%, the Company recorded
         a $9 million increase (net of deferred income taxes of $5 million) to
         additional paid-in capital in connection with the 1999 Contribution
         Transaction. No gain was recognized due to the Company's aforementioned
         commitment to support the entity's payment obligations under certain
         debt instruments.

         During February 1999, the Company sold cable television assets serving
         approximately 145,000 customers to an unaffiliated third party for
         approximately $300 million. The Company recorded a $123 million gain on
         such disposition.

         During the year ended 1998, the Company completed various transactions
         in addition to the CSC Transaction described in note 6, wherein the
         Company contributed cable television systems serving in the aggregate
         approximately 1.9 million customers to several 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 $2,374 million. In
         connection with such transactions, the Company has agreed to take
         certain steps to support compliance by the 1998 Joint Ventures with
         their payment obligations under certain debt instruments. See notes 6
         and 13.

                                                                     (continued)




                                      I-31
<PAGE>   33


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         Effective February 28, 1999, TV Guide (formerly United Video Satellite
         Group, Inc. ("UVSG")) and The News Corporation Limited ("News Corp.")
         completed a transaction whereby News Corp.'s TV Guide properties were
         combined with UVSG to create a platform for offering television guide
         services to consumers and advertising and the resulting company was
         named TV Guide. As part of this combination, a unit of News Corp.
         received consideration consisting of $800 million in cash and 60
         million shares of UVSG's stock, including 22.5 million shares of its
         Class A common stock and 37.5 million shares of its Class B common
         stock. In addition, News Corp. elected to purchase approximately 6.5
         million additional shares of UVSG Class A common stock for $129 million
         in order to equalize its ownership with that of Liberty/Ventures Group.
         Prior to such transactions, UVSG was a subsidiary of TCI. Immediately
         following these transactions, and another transaction completed on the
         same date, News Corp., Liberty/Ventures Group and TV Guide's public
         stockholders owned on an economic basis approximately 44%, 44% and 12%,
         respectively, of TV Guide and News Corp. and Liberty/Ventures Group
         each had approximately 49% of the voting power of TV Guide's
         outstanding stock. Due to the resulting increase in TV Guide's equity,
         net of the dilution of TCI's ownership interest in TV Guide, TCI
         recognized a $372 million gain (before deducting deferred income tax
         expense of $147 million).

         Effective September 1, 1998, Telewest Communications plc ("Telewest")
         and General Cable PLC ("General Cable") consummated a merger in which
         General Cable merged with and into Telewest. As a result of such
         merger, TCI's ownership interest in Telewest decreased to 22%. In
         connection with such dilution, TCI recognized a gain of $58 million
         (before deducting deferred income tax expense of $20 million).

         On July 23, 1998, a merger in which TCG agreed to be acquired by AT&T
         was consummated. See note 11. On April 22, 1998, TCG completed a merger
         transaction with ACC Corp. ("ACC") in which ACC shares were exchanged
         for shares of TCG. As a result of ACC's merger with TCG, Old TCI's
         interest in TCG was reduced to approximately 26%. In connection with
         the dilution of Old TCI's interest in TCG, Old TCI recorded a gain of
         $201 million (before deducting deferred income tax expense of $71
         million).

         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 ("Superstar/Netlink")
         in exchange for an approximate 20% interest in Superstar/Netlink. As a
         result of this transaction, the Company's ownership interest in
         Superstar/Netlink 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
         Superstar/Netlink was accounted for as a purchase, and the $61 million
         excess of the purchase price over the fair value of the assets acquired
         was recorded as goodwill.

                                                                     (continued)




                                      I-32
<PAGE>   34


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

 (8)     Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                          New TCI             Old TCI
                                                                       -------------       ------------
                                                                       September 30,       December 31,
                                                                           1999                1998
                                                                       -------------       ------------
                                                                              amounts in millions
<S>                                                                    <C>                 <C>
         AT&T Notes (a)                                                $      8,559                  --
         Other notes payable (b)                                              9,154               9,412
         Bank credit facilities (c)                                              --               3,773
         Commercial paper                                                        --                 109
         Convertible notes (d)                                                   --                  40
         Capital lease obligations and other debt                               295                 718
                                                                       ------------        ------------

                                                                       $     18,008              14,052
                                                                       ============        ============
</TABLE>

         (a)      Amounts outstanding under the notes payable to AT&T ("AT&T
                  Notes") bear interest at the London Interbank Offered Rate
                  ("LIBOR") plus 15 basis points (6.23% at September 30, 1999)
                  and are due and payable on or before March 9, 2004. Interest
                  on the AT&T Notes is compounded quarterly.

         (b)      During the seven months ended September 30, 1999, the Company
                  redeemed certain notes payable which had an aggregate
                  principal balance of $64.6 million and fixed interest rates
                  ranging from 7.875% to 8.75%. In connection with such
                  redemptions, the Company recognized a pre-tax gain on early
                  extinguishment of debt of $6 million. Such gain related to the
                  excess of the fair value assigned to the debt in purchase
                  accounting over the amount paid to redeem the debt.

                  During the two months ended February 28, 1999, the Company
                  redeemed certain notes payable which had an aggregate
                  principal balance of $21 million and fixed interest rates
                  ranging from 8.75% to 9.25%. In connection with such
                  redemptions, the Company recognized a pre-tax loss on early
                  extinguishment of debt of $4 million. Such loss related to
                  prepayment penalties and the retirement of deferred loan
                  costs.

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

         (c)      During the two months ended February 28, 1999, the Company
                  repaid a bank credit facility. In connection with such
                  repayment, the Company recognized a pre-tax loss on early
                  extinguishment of debt of $4 million. Such loss related to the
                  retirement of deferred loan costs.

                                                                     (continued)




                                      I-33
<PAGE>   35


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                  As security for borrowings under one of Old TCI's credit
                  facilities, Old TCI had pledged a portion of its Time Warner
                  common stock. As a result of the deconsolidation of
                  Liberty/Ventures Group, such borrowings and the associated
                  Time Warner common stock are no longer reflected in the
                  Company's consolidated debt and asset balances.

         (d)      The convertible notes, which were stated net of unamortized
                  discount of $166 million at December 31, 1998, were scheduled
                  to mature on December 12, 2021. The notes required an annual
                  interest payment equal to 1.85% of the face amount of the
                  notes. On March 26, 1999, all of the notes were converted into
                  shares of AT&T Common Stock, AT&T Liberty Class A Tracking
                  Stock and TCI Satellite Entertainment, Inc. Series A common
                  stock, $1.00 par value per share ("Satellite Series A Common
                  Stock") in accordance with the terms of the notes. Following
                  such conversion, none of such notes remain outstanding. Such
                  notes were held by a then director of the Company, as well as
                  several members of his family. In connection with the AT&T
                  Merger, such director resigned. Immediately prior to the AT&T
                  Merger, the notes were convertible, at the option of the
                  holders, into an aggregate of 24,163,259 shares of TCI Group
                  Series A Stock, 19,416,889 shares of Liberty Group Series A
                  Stock, 20,711,364 shares of TCI Ventures Group Series A Stock
                  and 3,451,897 shares of Satellite Series A Common Stock.
                  Pursuant to the terms of the Merger Agreement and a certain
                  stock purchase agreement, dated as of July 9, 1986, among the
                  Company and the holders of such convertible notes, the
                  conversion feature of the convertible notes was adjusted such
                  that as of the March 9, 1999 consummation date of the AT&T
                  Merger, such notes were convertible into an aggregate of
                  28,632,122 shares of AT&T Common Stock, 60,373,632 shares of
                  AT&T Liberty Class A Tracking Stock and 3,451,897 shares of
                  Satellite Series A Common Stock.

         Certain debt instruments of a subsidiary of the Company 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 aggregate fair value assigned in purchase accounting to New TCI's
         debt and related variable and fixed interest rate exchange agreements
         ("Interest Rate Swaps") exceeded the aggregate recorded value at the
         date of the AT&T Merger by $938 million. Such excess is being amortized
         over the respective remaining 1 to 30 year lives of the underlying debt
         obligations and Interest Rate Swaps. See note 2.

         The fair value of the Company's debt, exclusive of the AT&T Notes, 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, 1999, the fair value of the
         Company's debt, exclusive of the AT&T Notes, was $9,007 million, as
         compared to a carrying value of $9,449 million on such date. Due to its
         related party nature, it is not practical to obtain a reasonable
         estimate of the fair value of the AT&T Notes.

                                                                     (continued)




                                      I-34
<PAGE>   36


                   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 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. At December 31, 1998, all of the Company's Fixed Rate Agreements
         had expired. During the nine months ended September 30, 1998, the
         Company's payments pursuant to the Fixed Rate Agreements were less than
         $1 million. During the seven months ended September 30, 1999, the two
         months ended February 28, 1999 and the nine months ended September 30,
         1998, the Company's net receipts pursuant to the Variable Rate
         Agreements were $16 million, $1 million and $8 million, respectively.

         Information concerning the Company's Variable Rate Agreements at
         September 30, 1999 is as follows:


<TABLE>
<CAPTION>
                                                                             Amount to be
                 Expiration           Interest rate         Notional     received (paid) upon
                    date             to be received          amount         termination (a)
                 ----------          --------------         --------     --------------------
                                                 dollar amounts in millions

<S>                                  <C>                   <C>          <C>
         February 2000                  5.8%-6.6%          $      300        $        1
         March 2000                     5.8%-6.0%                 675                --
         September 2000                      5.1%                  75                (1)
         March 2027                          9.7%                 300                 2
         December 2036                       9.7%                 200                (3)
                                                           ----------        ----------

                                                           $    1,550        $       (1)
                                                           ==========        ==========
</TABLE>

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

         (a)      The estimated amount that the Company would receive (pay) to
                  terminate the agreements at September 30, 1999, 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 has entered
         into Interest Rate Swaps pursuant to which it pays a variable rate
         based on LIBOR (6.4% at September 30, 1999) and receives a variable
         rate based on the Constant Maturity Treasury Index ("CMT") (6.1% at
         September 30, 1999) on a notional amount of $400 million through
         September 2000; and pays a variable rate based on LIBOR (6.3% at
         September 30, 1999) and receives a variable rate based on CMT (6.2% at
         September 30, 1999) on notional amounts of $95 million through February
         2000. During each of the seven months ended September 30, 1999, the two
         months ended February 28, 1999 and the nine months ended September 30,
         1998, the Company's net payments pursuant to such agreements were $1
         million. At September 30, 1999, the Company would be required to pay
         less than $1 million to terminate such Interest Rate Swaps.

                                                                     (continued)




                                      I-35
<PAGE>   37


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         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,
         1999.

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

         The Trust Preferred Securities are presented together in a separate
         line item in the accompanying consolidated balance sheets captioned
         "Company-obligated mandatorily redeemable preferred securities of
         subsidiary trusts holding solely subordinated debt securities."
         Dividends accrued on the Trust Preferred Securities aggregated $83
         million, $23 million and $106 million during the seven months ended
         September 30, 1999, the two months ended February 28, 1999 and the nine
         months ended September 30, 1998, respectively, and are included in
         minority interests in earnings of consolidated subsidiaries in the
         accompanying consolidated financial statements.

         The aggregate fair value assigned to the Trust Preferred Securities in
         purchase accounting exceeded the aggregate recorded value at the date
         of the AT&T Merger by $160 million. Such excess is being amortized over
         the remaining 28 to 46 year terms of such securities.

(10)     Stockholders' Equity

         Treasury Stock and Common Stock Held by Subsidiaries, at Cost

         In conjunction with the AT&T Merger, Old TCI shares held in treasury
         and Old TCI shares held by subsidiaries were canceled. See note 2.

         General

         During 1997, Old TCI entered into certain equity swap facilities. Due
         to Old TCI's ability to issue shares to settle periodic price
         fluctuations and fees under the equity swap facilities, Old TCI
         recorded all amounts received or paid under these arrangements as
         increases or decreases, respectively, to equity. From February 1, 1999
         to March 5, 1999, Old TCI terminated all transactions under the equity
         swap facilities and the related swap agreements. In connection with the
         termination of such transactions, the Company received aggregate cash
         payments of $677 million. Such cash payments are reflected in Old TCI's
         consolidated financial statements for the two months ended February 28,
         1999.

                                                                     (continued)


                                      I-36

<PAGE>   38


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         In July 1998, the Company entered into an equity swap transaction with
         a commercial bank, which provided the Company 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. During the
         two months ended February 28, 1999, the Company acquired the 1,084,056
         shares of TCI Group Series A Stock under the agreement. Such shares
         were used to satisfy the exchange requirements of a subsidiary's
         preferred stock. The $29 million excess of the amount paid for the TCI
         Group Series A Stock over the Company's minority interest in such
         subsidiary has been reflected as a decrease to stockholders' equity in
         the accompanying consolidated financial statements for the two months
         ended February 28, 1999.

(11)     Transactions with Related Parties

         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 all of its interest in TCG, 70,429,248 shares of AT&T Common Stock.
         TCI recognized a $2.3 billion gain on such transaction during the third
         quarter of 1998 based on the difference between the carrying amount of
         TCI's interest in TCG and the fair value of the AT&T Common Stock
         received. Prior to the AT&T Merger, TCI had accounted for its ownership
         interest in AT&T Common Stock as an available-for-sale security. Such
         AT&T Common Stock was transferred from Liberty/Ventures Group to TCI
         Group in connection with the AT&T Merger. See note 2. In addition,
         immediately prior to the AT&T Merger, certain shares of Series F
         Preferred Stock were converted into shares of TCI Group Stock which, in
         turn, were converted into 215,755,850 shares of AT&T Common Stock. Such
         converted shares are recorded at Old TCI's historical cost basis. New
         TCI treats its investment in AT&T Common Stock as an investment in its
         parent. Accordingly, New TCI's investment in AT&T Common Stock is
         reflected as a reduction of TCI's equity. Old TCI recognized dividend
         income of $15.5 million on its AT&T Common Stock during the third
         quarter of 1998. The Company has not received any dividends on its
         investment in AT&T Common Stock subsequent to the AT&T Merger.

         The Company's non-interest bearing intercompany account with AT&T ($27
         million at September 30, 1999) is included in TCI's "Investment in
         AT&T" in the accompanying consolidated balance sheet.

         Certain entities attributed to Liberty Media Group produce and/or
         distribute programming to the Company. Charges to the Company
         aggregated $121 million for the seven months ended September 30, 1999.
         Such amount is included in operating costs and expenses in the
         accompanying consolidated statements of operations.

         AT&T provides long distance service and allocates certain other
         administrative costs to the Company. During the seven months ended
         September 30, 1999, such amounts aggregated $29 million and are
         included in selling, general and administrative expenses in the
         accompanying consolidated statements of operations.

                                                                     (continued)


                                      I-37

<PAGE>   39

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         NDTC leases transponder facilities to entities attributed to Liberty
         Media Group. Charges by NDTC for such arrangements were $14 million for
         the seven months ended September 30, 1999 and are included in revenue
         in the accompanying consolidated statements of operations.

         During the third quarter of 1999, AT&T utilized $495 million of TCI's
         net operating loss carryforwards to offset AT&T's current federal
         income tax liability. TCI did not receive any consideration for the
         utilization of such net operating loss carryforwards. Accordingly, TCI
         has reflected AT&T's utilization of the net operating loss
         carryforwards as a decrease to "Additional paid-in capital" in the
         accompanying consolidated financial statements.

(12)     Transactions with Officers and Directors

         After the Company's stockholders voted to approve the terms of the AT&T
         Merger, on February 17, 1999, TCI's Board of Directors approved the
         payment by Liberty/Ventures Group of $1 million to each of two
         directors of the Company for their services on the Special Committee of
         TCI's Board of Directors in evaluating the AT&T Merger and the
         consideration to be received by the stockholders of the Company. In
         addition, Liberty/Ventures Group paid $10 million to a director and
         executive officer of TCI, immediately prior to the AT&T Merger, for his
         services in negotiating the merger agreement and completing the AT&T
         Merger.

         Prior to the AT&T Merger, a limited liability company owned by Dr.
         Malone, a director of the Company and TCI's former Chairman and Chief
         Executive Officer, acquired, from certain subsidiaries of Old TCI,
         working cattle ranches located in Wyoming in exchange for $17 million.
         The purchase price paid by such limited liability company was in the
         form of a 12-month note in the amount of $17 million having an interest
         rate of 7%. Such note is payable to an entity attributed to Liberty
         Media Group at any time without penalty and is personally guaranteed by
         Dr. Malone. No gain or loss was recognized by TCI on this transaction.

         As described more fully in note 7, the Company, on October 1, 1999,
         became the owner of all of the partnership interests in InterMedia IV.
         An individual who was a director and executive officer of TCI had a
         .001% special limited partnership interest in ICM IV, which in turn has
         a 1.19% limited partnership interest in InterMedia IV. Such
         individual's special limited partnership interest in ICM IV was created
         in August 1997 in connection with TCI's acquisition of all of the
         partnership interests (other than a .002% general partnership interest
         and a .001% special limited partnership interest) in ICM IV. In
         connection with the transaction described in note 7, such individual,
         by virtue of his .001% special limited partnership interest in ICM IV,
         participated in a profit sharing mechanism of InterMedia IV and
         received cash consideration of approximately $11 million based on the
         valuation of InterMedia IV.

         For additional transactions involving the Company's officers and
         directors, see notes 8 and 13.

                                                                     (continued)


                                      I-38

<PAGE>   40

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

(13)     Commitments and Contingencies

         The Cable Television Consumer Protection and Competition Act of 1992
         (the "1992 Cable Act") imposed certain rate regulations on the cable
         television industry. Under the 1992 Cable Act, all cable systems are
         subject to rate regulation, unless they face "effective competition,"
         as defined by the 1992 Cable Act and expanded in the Telecommunications
         act of 1996 (the "1996 Act"), in their local franchise area.

         Although the Federal Communications Commission (the "FCC") has
         established regulations required by the 1992 Cable Act, local
         government units (commonly referred to as local franchising
         authorities) are primarily responsible for administering the regulation
         of a cable system's basic service tier ("BST"). The FCC itself directly
         administered rate regulation of any cable programming service tier
         ("CPST"). The FCC's authority to regulate CPST rates expired on March
         31, 1999. The FCC has taken the position that it will still adjudicate
         CPST complaints filed after this sunset date (but no later than 180
         days after the last CPST rate increase imposed prior to March 31,
         1999), and will strictly limit its review (and possible refund orders)
         to the time period predating the sunset date.

         Under the FCC's rate regulations, most cable systems were required to
         reduce their BST and CPST rates in 1993 and 1994, and have since had
         their rate increases governed by a complicated price structure that
         allows for the recovery of inflation and certain increased costs, as
         well as providing some incentive for expanding channel carriage.
         Operators also have the opportunity to bypass this "benchmark"
         regulatory structure in favor of the traditional "cost-of-service"
         regulation in cases where the latter methodology appears favorable.
         Premium cable services offered on a per-channel or per-program basis
         remain unregulated, as do affirmatively marketed packages consisting
         entirely of new programming product.

         The Company believes that it has complied in all material respects with
         the provisions of the 1992 Cable Act and the 1996 Act, including its
         rate setting provisions. 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 CPST rates would be retroactive to the date of complaint. Any
         refunds of the excess portion of BST or equipment rates would be
         retroactive to one year prior to the implementation of the rate
         reductions.


                                                                     (continued)


                                      I-39

<PAGE>   41


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company is obligated and/or has guaranteed Liberty Media Group's
         obligation 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, 1999, these
         agreements require minimum payments aggregating approximately $440
         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, required aggregate payments under the Film Licensing
         Obligations could prove to 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 a third
         party pursuant to three successive five-year agreements. Pursuant to
         such arrangement, the Company is obligated at September 30, 1999 to
         make minimum payments aggregating approximately $1.5 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 $47 million at September 30, 1999. The Company also has
         agreed to take certain steps to support debt compliance with respect to
         obligations aggregating $1,720 million of certain cable television
         partnerships in which the Company has non-controlling ownership
         interests. See note 7. 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.

         During 1999, a subsidiary of the Company entered into a contribution
         agreement ("Contribution Agreement") with certain shareholders of
         Phoenixstar, Inc. (formerly Primestar, Inc.) ("Phoenixstar") pursuant
         to which the Company would, to the extent it is relieved of $166
         million of contingent liabilities then owed to certain creditors of
         Phoenixstar and its subsidiaries, contribute up to $166 million to
         Phoenixstar to the extent necessary to satisfy liabilities of
         Phoenixstar. During the second quarter of 1999 and the fourth quarter
         of 1998, the Company recorded charges of $50 million and $90 million,
         respectively, to provide for the estimated losses that were expected to
         result from the Contribution Agreement. During 1999, the Company
         contributed approximately $116 million to Phoenixstar in partial
         satisfaction of its obligation. The Company's remaining obligation
         under the Contribution Agreement will expire in 2001. An individual who
         is a director of TCI is also the Chairman of the Board of TCI Satellite
         Entertainment, Inc. ("TSAT"). TSAT has an approximate 37% ownership
         interest in Phoenixstar.

                                                                     (continued)


                                      I-40

<PAGE>   42


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         TCI has agreed to make fixed monthly payments to an entity attributed
         to Liberty Media Group pursuant to an affiliation agreement. The fixed
         annual commitments increase annually from $190 million in 1999 to $267
         million in 2003, and will increase with inflation through 2022. In
         addition, TCI is obligated to make minimum revenue payments through
         2017 and minimum license fee payments through 2007 aggregating $385
         million to an entity attributed to Liberty Media Group. Such minimum
         payments are subject to inflation and other adjustments pursuant to the
         terms of the underlying agreements.

         Effective as of December 16, 1997, NDTC on behalf of the Company and
         other cable operators that may be designated from time to time by NDTC
         ("Approved Purchasers"), entered into an agreement with GI to purchase
         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. The 1998
         purchase commitment of 1.5 million set-top devices was met. The
         agreement with GI was amended in the third quarter of 1999 to change
         the remaining minimum purchase commitment for set-top devices to
         1,880,000 devices in 1999 and 2,500,000 devices in 2000. During the
         nine months ended September 30, 1999, approximately 1.4 million set-top
         devices had been purchased under the 1999 commitment. 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. In connection with the AT&T Merger, such warrants
         were transferred to Liberty/Ventures Group in exchange for
         approximately $176 million in cash. To the extent such warrants do not
         vest because TCI fails to meet its purchase commitments, as amended,
         TCI is required to repay a proportional amount of such cash to Liberty
         Media Group. NDTC has the right to terminate the agreement if, among
         other reasons, GI fails to meet a material milestone designated in the
         agreement with respect to the development, testing and delivery of
         advanced digital set-top devices.

                                                                     (continued)


                                      I-41

<PAGE>   43

                   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 the Company to GI, and
         (iv) a nine-year revenue guarantee from the Company 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. As a result of the deconsolidation of
         Liberty Media Group, the 21.4 million shares of GI common stock are no
         longer included in the Company's consolidated assets. The excess of the
         fair value of GI common stock received in 1998 over (i) the book value
         of certain assets transferred from NDTC to GI, and (ii) the present
         value of the promissory note due from the Company to GI, was deferred
         by the Company. As a result of the application of purchase accounting
         in connection with the AT&T Merger, the deferred amount related to the
         revenue guarantee was reduced to $61 million and the remaining deferred
         amount was reduced to $48 million.

         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.

(14)     Year 2000

         During the nine months ended September 30, 1999, the Company continued
         its enterprise-wide, comprehensive efforts to assess and remediate its
         computer systems and related software and equipment to verify that 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.

                                                                     (continued)


                                      I-42

<PAGE>   44

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         The Company has a year 2000 Program Management Office (the "PMO") to
         organize and manage its year 2000 efforts. The PMO is responsible for
         overseeing the process and standards of the Company's year 2000
         efforts, controlling data, and reporting on the Company's year 2000
         efforts. At September 30, 1999, the PMO was comprised of a 133-member,
         full-time staff, accountable to executive management of the Company.


         During the nine months ended September 30, 1999, the Company continued
         its survey of third-party vendors and suppliers whose systems, services
         or products are important to the Company's operations, and whose year
         2000 readiness is critical to continued provision of the Company's
         cable service. The Company has examined the public disclosures
         regarding the year 2000 readiness status made by vendors of critical
         systems products utilized by the Company (such as addressable
         controllers, accounting systems and other critical hardware and
         software), and the public disclosures regarding the year 2000 readiness
         status made by critical suppliers (such as utilities, banking, and
         similar critical operational services). Verification of the survey
         results may include, as deemed necessary, conducting functionality
         tests, reviewing vendors' and suppliers' test data, scripts and
         certifications, engaging in regular conferences with vendors' and
         suppliers' year 2000 teams, or re-examining public disclosures for
         changes in status. The Company generally has required any new vendors
         to provide assurances that their products and services are year 2000
         ready. For those critical vendors that may not be year 2000 ready by
         year end, contingency plans will be implemented.

         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, including CSC and
         @Home, 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.

         Year 2000 expenses and capital expenditures incurred during the seven
         months ended September 30, 1999 were $47 million and $18 million,
         respectively. Year 2000 expenses and capital expenditures incurred
         during the two months ended February 28, 1999 were $11 million and $2
         million, respectively. Year 2000 expenses and capital expenditures for
         the seven months ended September 30, 1999 are exclusive of costs
         attributable to Liberty Media Group, which was deconsolidated as of
         March 1, 1999. See note 2. Management of the Company currently
         estimates the remaining costs, exclusive of future costs attributable
         to the assessment and remediation of year 2000 issues associated with
         Liberty Media Group, to be not less than $25 million, bringing the
         total estimated cost associated with the Company's year 2000
         remediation efforts to be not less than $117 million (including $36
         million for replacement of noncompliant information technology
         systems). Also included in this estimate is $7 million in future
         payments to be made pursuant to unfulfilled executory contracts or
         commitments with vendors for year 2000 remediation services.

                                                                     (continued)


                                      I-43

<PAGE>   45

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

         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.

(15)     Information about the Company's Operating Segments

         Prior to the AT&T Merger, Old TCI had 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 are
         produced, acquired, and distributed, through all available formats and
         media, branded entertainment and informational programming and
         software, including multimedia products, delivered in both analog and
         digital form. Old TCI's domestic cable and communications services
         business and assets were included in TCI Group, and Old TCI's domestic
         programming business and assets were included in Old Liberty Group. Old
         TCI's principal international businesses and assets and Old TCI's
         remaining non-cable and non-programming domestic businesses and assets
         were included in TCI Ventures Group.

         As described in note 2, immediately prior to the AT&T Merger, Old TCI
         purchased certain assets from Liberty/Ventures Group and the net assets
         attributed to Liberty Media Group were deconsolidated. As a result of
         these transactions, domestic cable and communications services is the
         only reportable segment of New TCI. Accordingly, segment information is
         not provided for New TCI.

         The accounting policies of the segments are the same as those described
         in the summary of significant accounting policies. Old TCI evaluated
         performance based on a measure of "Operating Cash Flow" (defined by the
         Company as operating income before depreciation, amortization, other
         non-cash items, year 2000 costs, AT&T merger and integration costs and
         stock compensation). 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 flow provided by operating
         activities, or a measure of performance prepared in accordance with
         generally accepted accounting principles, and should not be relied upon
         as such.

         Old TCI generally accounted for intersegment sales and transfers as if
         the sales or transfers were to third parties, that is, at current
         market prices.

         Old TCI's reportable segments were strategic business units that
         offered different products and services. They were managed separately
         because each segment required different technology and marketing
         strategies.

                                                                     (continued)


                                      I-44

<PAGE>   46

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         Old TCI utilized 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>
         Two months ended
         February 28, 1999:
         External and intersegment revenue         $        902               128              165            1,195
         Intersegment revenue                      $         --                39               11               50
         Segment Operating Cash Flow               $        301                30               25              356

         Three months ended
         September 30, 1998:
         External and intersegment revenue         $      1,497               176              249            1,922
         Intersegment revenue                      $         (4)               69               14               79
         Segment Operating Cash Flow               $        603                31               43              677

         Nine months ended
         September 30, 1998:
         External and intersegment revenue         $      4,613               498              685            5,796
         Intersegment revenue                      $        (13)              210               36              233
         Segment Operating Cash Flow               $      1,882                75               88            2,045
</TABLE>


                                                                     (continued)


                                      I-45

<PAGE>   47


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


         A reconciliation of reportable segment Operating Cash Flow to Old TCI's
         consolidated earnings (loss) before income taxes and extraordinary
         items is as follows:

<TABLE>
<CAPTION>
                                                                                      Old TCI
                                                                    ------------------------------------------
                                                                        Two months             Nine months
                                                                           ended                  ended
                                                                     February 28, 1999      September 30, 1998
                                                                    ------------------      ------------------
                                                                                amounts in millions
<S>                                                                 <C>                     <C>
Total Operating Cash Flow for reportable segments                                  331                   1,957
  Other Operating Cash Flow                                                         25                      88
Other items excluded from Operating
  Cash Flow:
     Year 2000 costs                                                               (11)                     (6)
     AT&T merger and integration costs                                             (65)                    (11)
     Stock compensation                                                           (366)                   (423)
     Reserve for loss arising from contingent obligation                            --                      --
     Write-off of in-process research and development costs                         --                      --
     Depreciation and amortization                                                (277)                 (1,289)
     Interest expense                                                             (161)                   (807)
     Interest and dividend income                                                   13                      72
     Share of losses of Liberty Media Group                                         --                      --
     Share of losses of the Other Affiliates, net                                 (161)                   (986)
     Minority interest in earnings of consolidated
       subsidiaries, net                                                           (26)                    (95)
     Gains on issuance of equity interests by subsidiaries                         389                      55
     Gain on issuance of stock by equity investee                                   --                     259
     Gains on disposition of assets, net                                           144                   3,704
       Other, net                                                                    8                     (25)
                                                                    ------------------      ------------------
         Earnings (loss) before income taxes and
            extraordinary items                                                   (157)                  2,493
                                                                    ==================      ==================
</TABLE>




                                      I-46
<PAGE>   48
                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES


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

         General

         The following discussion and analysis provides information concerning
the results of operations and financial condition of the Company. Such
discussion should be read in conjunction with the accompanying consolidated
financial statements and notes thereto. 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, 1998. The following discussion focuses on material
trends, risks and uncertainties affecting the results of operations and
financial condition of the Company.

         Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. In particular, some of the statements contained
under this caption are forward-looking. Such forward-looking statements involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of the Company (or
entities in which the Company has interests), or industry results, to differ
materially from future results, performance or achievements expressed or implied
by such forward-looking statements. Such risks, uncertainties and other factors
include, among others: general economic and business conditions and industry
trends; the regulatory and competitive environment of the industries in which
the Company, and the entities in which the Company has interests, operate;
uncertainties inherent in new business strategies; uncertainties inherent in the
changeover to the year 2000, including the Company's projected state of
readiness, the projected costs 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 FCC, and adverse outcomes from
regulatory proceedings; changes in the nature of key strategic relationships
with partners and joint venturers; competitor responses to the Company's
products and services, and the products and services of the entities in which
the Company has interests, and the overall market acceptance of such products
and services; and other factors. These forward-looking statements (and such
risks, uncertainties and other factors) speak only as of the date of this
Report, and the Company expressly disclaims any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in the Company's expectations with regard thereto,
or any other change in events, conditions or circumstances on which any such
statement is based. 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-47
<PAGE>   49

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         Targeted Stock

         The Company, through its subsidiaries and affiliates, is principally
engaged in the construction, acquisition, ownership, and operation of cable
television systems and, through its ownership interests in Liberty Media Group,
the provision of satellite-delivered video entertainment, information and home
shopping programming services to various video distribution media, principally
cable television systems. Liberty Media Group also has investments in cable and
telecommunications operations and television programming in certain
international markets as well as investments in companies and joint ventures
involved in developing and providing programming for new television and
telecommunications technologies.

         Prior to the AT&T Merger, the Company's assets and operations were
included in three separate groups, each of which was tracked separately by
public equity securities. These groups were formerly known as the Liberty Media
Group (referred to herein as the Old Liberty Group), the TCI Ventures Group and
the TCI Group.

         The Old Liberty Group was intended to reflect the separate performance
of TCI's assets which produce and distribute programming services.

         The TCI Ventures Group was intended to reflect the separate performance
of TCI's principal international assets and businesses and substantially all of
TCI's non-cable and non-programming assets.

         The TCI Group was intended to reflect the separate performance of TCI
and its subsidiaries and assets not attributed to the Old Liberty Group or TCI
Ventures Group. Such subsidiaries and assets are comprised primarily of TCI's
domestic cable and communications business. For additional information, see note
1 to the accompanying consolidated financial statements.

         The TCI Group was tracked separately through the TCI Group Series A
Stock and the TCI Group Series B Stock. The Old Liberty Group was tracked
separately through the Liberty Group Series A Stock and Liberty Group Series B
Stock. The TCI Ventures Group was tracked separately through the TCI Ventures
Group Series A Stock and TCI Ventures Group Series B Stock.


                                      I-48
<PAGE>   50

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         AT&T Merger and Restructuring

         On March 9, 1999, AT&T acquired TCI in the AT&T Merger in which Italy
Merger Corp., a wholly-owned subsidiary of AT&T, merged with and into TCI, and
TCI thereby became a subsidiary of AT&T. As a result of the AT&T Merger, (i)
each share of TCI Group Series A Stock was converted into 1.16355 shares of AT&T
Common Stock, (ii) each share of TCI Group Series B Stock was converted into
1.27995 shares of AT&T Common Stock, (iii) each share of Liberty Group Series A
Stock was converted into 2 shares of a newly created class of AT&T common stock
designated as the AT&T Liberty Class A Tracking Stock, (iv) each share of
Liberty Group Series B Stock was converted into 2 shares of a newly created
class of AT&T common stock designated as the AT&T Liberty Class B Tracking
Stock, (v) each share of TCI Ventures Group Series A Stock was converted into
1.04 shares of AT&T Liberty Class A Tracking Stock, (vi) each share of TCI
Ventures Group Series B Stock was converted into 1.04 shares of AT&T Liberty
Class B Tracking Stock, (vii) each share of Series C-TCI Group Preferred Stock
was converted into 154.589253 shares of AT&T Common Stock, (viii) each share of
Series C-Liberty Media Group Preferred Stock was converted into 12.5 shares of
AT&T Liberty Class A Tracking Stock, (ix) each share of Series G Preferred Stock
was converted into 1.3846245 shares of AT&T Common Stock and (x) each share of
Series H Preferred Stock was converted into 1.18125 shares of AT&T Liberty Class
A Tracking Stock. Following the AT&T Merger, each share of Class B Preferred
Stock continues to be outstanding with the same rights and preferences such
stock had prior to the AT&T Merger. 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 3/40th of a vote for each share of AT&T Liberty Class
A Tracking Stock held, 3/4ths of a vote per share of AT&T Liberty Class B
Tracking Stock held and 1 vote per share of AT&T Common Stock held.

                                      I-49
<PAGE>   51

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         The shares of AT&T Liberty Tracking Stock issued in the AT&T Merger are
intended to reflect the separate performance of the businesses and assets
attributed to Old Liberty Group and TCI Ventures Group at the time of the AT&T
Merger. References herein to Liberty/Ventures Group refer to the combined assets
and businesses of Old Liberty Group and TCI Ventures Group for periods prior to
the AT&T Merger, and subsequent to the AT&T Merger such combined assets and
businesses are referred to as Liberty Media Group. Pursuant to, and subject to
the terms and conditions set forth in the Merger Agreement, immediately prior to
the AT&T Merger, certain assets previously attributed to TCI Ventures Group
(including, among others, the shares of AT&T Common Stock received in the merger
of AT&T and 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 were
transferred to TCI Group in exchange for approximately $5.5 billion in cash.
Also, upon consummation of the AT&T Merger, through a new tax sharing agreement
between Liberty Media Group and AT&T, Liberty Media Group became entitled to the
benefit of approximately $2.0 billion of net operating loss carryforwards
attributable to all entities included in TCI's consolidated federal income tax
return as of the date of the AT&T Merger. Such net operating loss carryforwards
are subject to adjustment by the Internal Revenue Service and are subject to
limitations on usage which may affect the ultimate amount utilized.
Additionally, certain warrants to purchase shares of GI previously attributed to
TCI Group were transferred to Liberty/Ventures Group in exchange for
approximately $176 million in cash. The transfer of certain immaterial assets
was also effected.

         Immediately prior to the AT&T Merger, AT&T and Liberty Media
Corporation entered into an agreement relating to the carriage of programming of
Liberty Media Corporation and its affiliates to be distributed over the AT&T
cable systems. Pursuant to this agreement, Liberty Media Corporation will be
granted, among other rights, "preferred vendor status" with respect to certain
types of new programming services. Liberty Media Corporation will also be
entitled to the use of channel capacity equal to one six megahertz channel to be
used for category specific interactive video channels. In addition, such
agreement also provided for the extension of existing affiliation agreements
between TCI and programming affiliates of Liberty Media Corporation to a date
not less than 10 years from the closing of the AT&T Merger, upon the terms and
conditions set forth in such agreement.

         Pursuant to amended corporate governance documents for the entities
included in Liberty Media Group and certain agreements among AT&T and TCI, the
business of Liberty Media Group will continue to be managed by certain persons
who were members of TCI's management prior to the AT&T Merger. AT&T will
initially designate one third of the directors of such entities and its rights
as the sole shareholder of the common stock of such entities following the AT&T
Merger will, in accordance with Delaware law, be limited to actions which will
require shareholder approval. Therefore, management has concluded that TCI does
not have a controlling financial interest (as that term is used in Statement of
Financial Accounting Standards No. 94) in the entities comprising the Liberty
Media Group following the AT&T Merger, and will account for its ownership
interests in such entities under the equity method.

                                      I-50
<PAGE>   52

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         Accordingly, effective with the AT&T Merger, the results of operations
of the entities attributed to Liberty/Ventures Group (exclusive of @Home, NDTC
and WTCI which were transferred to TCI Group immediately prior to the AT&T
Merger) will no longer be consolidated in the TCI consolidated financial
statements. The results of operations for such deconsolidated entities prior to
the date of the deconsolidation is discussed further below under the caption
"Material Changes in Results of Operations - Adjusted Liberty/Ventures Group."

         Immediately prior to the AT&T Merger, TCI consummated the
Restructuring. The Restructuring included merging TCI's cable subsidiary, TCIC,
into TCI. As a result of TCIC's merger with TCI, all assets and liabilities of
TCIC have been assumed by TCI, including TCIC's public debt. In connection with
TCIC's merger with TCI, each share of TCIC's Cumulative Exchangeable Preferred
Stock, Series A was converted into 2.119 shares of TCI Group Series A Stock, and
such shares of TCI Group Series A Stock were subsequently converted into AT&T
Common Stock in connection with the AT&T Merger. All other public securities
issued by subsidiaries of TCIC (other than Pacific) otherwise remained
unaffected. Furthermore, as part of the Restructuring, (i) AT&T loaned TCI $5.5
billion pursuant to a promissory note, (ii) certain asset transfers were made
between TCI and its subsidiaries, (iii) 123,896 shares of the Series F Preferred
Stock, which were held by subsidiaries of TCI, were converted into 185,428,946
shares of TCI Group Series A Stock (which in turn were converted into
215,755,850 shares of AT&T Common Stock in the AT&T Merger and continue to be
held by subsidiaries of TCI), (iv) the remaining 154,411 shares of Series F
Preferred Stock which were formerly held by subsidiaries of TCI were distributed
to TCI through a series of liquidations and canceled, and (v) 125,728,816 shares
of TCI Group Series A Stock, 9,154,134 shares of TCI Group Series B Stock,
6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of Liberty
Group Series B Stock, and 67,536 shares of Class B Preferred Stock, each
formerly held by subsidiaries of TCI, were distributed to TCI through a series
of liquidations and canceled.

         Under the terms of the Exchangeable Preferred Stock, each share of that
preferred stock is exchangeable, from and after August 1, 2001, for
approximately 6.3375 shares of AT&T Common Stock, subject to certain
anti-dilution adjustments. Additionally, Pacific may elect to make any dividend,
redemption or liquidation payment on the Exchangeable Preferred Stock in cash,
by delivery of shares of AT&T Common Stock or by a combination of the foregoing
forms of consideration.

         For information concerning the accounting treatment of the AT&T Merger,
see note 2 to the accompanying consolidated financial statements.


                                      I-51
<PAGE>   53

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         Year 2000

         During the nine months ended September 30, 1999, the Company continued
its enterprise-wide, comprehensive efforts to assess and remediate its computer
systems and related software and equipment to verify that 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 has a year 2000 Program Management Office to organize and
manage its year 2000 efforts. The PMO is responsible for overseeing the process
and standards of the Company's year 2000 efforts, controlling data and reporting
on the Company's year 2000 efforts. At September 30, 1999, the PMO was comprised
of a 133-member, full-time staff, 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 critical systems, software and equipment. Phase 1,
Assessment, involved the inventory of all critical systems, software and
equipment and the identification of any year 2000 issues. Phase 1 also included
the preparation of the workplans needed for remediation. Phase 2, Remediation,
involved repairing, upgrading and/or replacing any non-compliant critical
equipment and systems. Phase 3, Testing, involved testing the Company's critical
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 remediated systems, software and equipment into production or
service.

     At September 30, 1999, TCI's overall progress by phase was as follows:

<TABLE>
<CAPTION>

                                         Percentage of Year 2000                     Expected Completion Date --
Phase                                  Projects Completed by Phase*                   All Year 2000 Projects
-----                                  ----------------------------               -----------------------------

<S>                                     <C>                                       <C>
Phase 1-Assessment                                 100%                                      Completed
Phase 2-Remediation                                100%                                      Completed
Phase 3-Testing                                    100%                                      Completed
Phase 4-Implementation                              98%                                    November 1999
</TABLE>

---------------------
*The percentages set forth above were calculated by dividing the number of year
2000 projects that have completed a given phase by the total number of year 2000
projects. Such calculations do not reflect any systems or businesses that may be
acquired subsequent to September 30, 1999. See related discussion below.


                                      I-52
<PAGE>   54

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         The completion information set forth above is based on the Company's
current expectations and information, and could be subject to change if
circumstances arise which impact the year 2000 readiness of a critical product
or service. The information could be subject to change in the event of
unforeseen changes in the Company's inventory of products or systems, or
unforeseen changes in status information provided by the Company's critical
vendors. The information also could change as a result of continuing efforts to
verify, validate and audit the program processes and procedures. Further, due to
the uncertainties inherent in any year 2000 program, no assurances can be given
as to whether Phase 4 will be completed by the date indicated above. The Company
has attempted to plan for unforeseen circumstances by implementing (i)
contingency plans as described below, (ii) audit and other controls and (iii)
processes to monitor the year 2000 readiness status of critical outside parties.

         The Company has completed the inventory, assessment, testing and
implementation of critical systems with embedded technologies that impact its
operations. The progress by phase of year 2000 compliance work on such systems
is included in the table above.

         During the nine months ended September 30, 1999, the Company continued
its survey of third-party vendors and suppliers whose systems, services or
products are important to the Company's operations, and whose year 2000
readiness is critical to continued provision of the Company's cable service. The
Company has examined the public disclosures regarding the year 2000 readiness
status made by vendors of critical systems products utilized by the Company
(such as addressable controllers, accounting systems and other critical hardware
and software), and the public disclosures regarding the year 2000 readiness
status made by critical suppliers (such as utilities, banking, and similar
critical operational services). Verification of the survey results may include,
as deemed necessary, conducting functionality tests, reviewing vendors' and
suppliers' test data, scripts and certifications, engaging in regular
conferences with vendors' and suppliers' year 2000 teams, or re-examining public
disclosures for changes in status. The majority of the Company's current vendors
are either year 2000 ready, or are expected to be year 2000 ready by year end.
The Company generally has required any new vendors to provide assurances that
their products and services are year 2000 ready. For those critical vendors that
may not be year 2000 ready by year end, contingency plans will be implemented.

         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, including CSC and @Home, to determine their
year 2000 readiness. For updated information related to the year 2000 programs
of CSC and @Home, please refer to their most recent periodic filings with the
Securities and Exchange Commission. 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.


                                      I-53
<PAGE>   55

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         Year 2000 expenses and capital expenditures incurred during the seven
months ended September 30, 1999 were $47 million and $18 million, respectively.
Year 2000 expenses and capital expenditures incurred during the two months ended
February 28, 1999 were $11 million and $2 million, respectively. Year 2000
expenses and capital expenditures for the seven months ended September 30, 1999
are exclusive of costs attributable to Liberty Media Group, which was
deconsolidated as of March 1, 1999. See "AT&T Merger and Restructuring," above.
Management of the Company currently estimates the remaining costs, exclusive of
future costs attributable to the assessment and remediation of year 2000 issues
associated with Liberty Media Group, to be not less than $25 million, bringing
the total estimated cost associated with the Company's year 2000 remediation
efforts to be not less than $117 million (including $36 million for replacement
of noncompliant information technology ("IT") systems). Also included in this
estimate is $7 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 or advances from AT&T 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.

         During 1999, the Company has continued to enter into certain strategic
acquisition transactions wherein the Company has acquired or will acquire in the
future cable systems and other businesses from third parties. To adequately
address any year 2000 impact from these acquisitions, the PMO has instituted a
mergers and acquisition program whereby members of the PMO evaluate the year
2000 readiness of any cable systems or other businesses which have been or will
be acquired in the future to determine the year 2000 readiness of such systems
or businesses. The PMO monitors such systems'/businesses' year 2000 readiness
from the signing of the letters of intent or definitive agreements through the
closing of the proposed transactions.

         Please note that the information set forth in this section concerning
progress by phase and other matters applies only to systems or businesses owned
and operated by the Company or its affiliates as of September 30, 1999 and does
not include information for systems or equipment acquired after September 30,
1999.

                                      I-54
<PAGE>   56

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         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. As part of its year 2000
readiness efforts, the Company 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.

         Satellite system failures could prevent the delivery of programming to
cable headends and disrupt service to customers. The Company is in the process
of securing transponder space on alternate satellites for transmitting
programming that originates from the Company in the event of such failures. In
addition, the Company has made arrangements for alternative programming that
will be broadcast on channels where signal disruption has occurred.

         The failure of addressable controllers contained in the cable system
headends could disrupt the delivery of premium and pay-per-view services to
customers and could necessitate crediting customers for failure to receive such
services. In this unlikely event, the Company has secured the right to broadcast
alternative programming from the NDTC for 48 hours. All alternative programming
will be rated "G" for general audience viewing.

         Customer service networks failure could prevent access to customer
account information, hamper installation and service call scheduling and disable
the processing of pay-per-view billings. In the event of such failure, the
Company would manually schedule service calls and correct billing omissions as
soon as the networks are restored. In the event of automated voice response
systems failure, the Company plans to have its customer service representatives
on hand to answer telephone calls from customers directly.

         A failure of the services provided by billing systems service providers
could disrupt the ability to provide service to and bill customers for a
protracted period. The Company's billing system service provider has contingency
plans in place to protect customer information and provide for continuation of
service to the Company. The Company has set up arrangements to have its billing
system service provider on site as part of its PMO during the rollover to the
year 2000. The billing system service provider has developed staffing and
operations plans that will provide for continuous support to the Company during
and subsequent to the rollover to the year 2000.

                                      I-55
<PAGE>   57


                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         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 the manual operation of insertion systems for indefinite periods
of time, if necessary.

         The Company owns investments in numerous cable 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
issues (including supplier and vendor issues) related to their 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. The Company has assisted such
entities to varying degrees, including sharing program information and results
to improve their year 2000 programs.

         Security and fire protection systems failures could leave facilities
vulnerable to intrusion and destruction. 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 where
needed and plans to implement a backup plan for communicating with local fire
and police departments. Also, certain personal computers interface with and
control elevators, escalators, wireless systems, public access systems and
certain telephony systems. In the event such computers do not operate properly,
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. Because the Company leases certain of its facilities, it may need to
implement the previously mentioned contingency plan with the cooperation and
assistance of the lessor of the site.

         In the event that the local public utilities cannot supply power, the
Company expects to supply power for a limited time to the Company's cable
headends, the NDTC and select office sites through backup generators.

         If critical systems related to the Company's cable TV and programming
services experience year 2000 problems, the Company could face claims of breach
of contract from customers of NDTC, from parties to cable system sale or
exchange agreements, from certain programming providers, from advertisers and
from other cable TV businesses that rely on the Company's programming services.

                                      I-56
<PAGE>   58

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         General (continued)

         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.

         Estimated costs of the Company's year 2000 program and projected
completion dates are based on management's best estimates of future events and
are forward-looking statements which may be updated as additional information
becomes available.

         The Year 2000 statements set forth herein are Year 2000 Readiness
Disclosures, pursuant to the Year 2000 Information and Readiness Disclosure Act,
15 U.S.C. section 1 note. Please note that, for purposes of any action brought
under the securities laws, as that term is defined in section 3(a)(47) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), the Year 2000
Information and Readiness and Disclosure Act does not apply to any statements
contained in any documents or materials filed with the Securities and Exchange
Commission, or with Federal banking regulators, pursuant to section 12(i) of the
Securities Exchange Act of 1934 (15 U.S.C. 78l(i)), or disclosures or writing
that when made accompanied the solicitation of an offer or sale of securities.

         MATERIAL CHANGES IN RESULTS OF OPERATIONS

         GENERAL

         As described in notes 1 and 2 to the accompanying consolidated
financial statements, for financial reporting purposes the AT&T Merger and the
related Restructuring are deemed to have occurred on March 1, 1999. Accordingly,
the financial statements for periods prior to March 1, 1999 are referred to
herein as Old TCI, and the financial statements for periods subsequent to
February 28, 1999 are referred to herein as New TCI. Due to the March 1, 1999
application of purchase accounting in connection with the AT&T Merger, the
predecessor consolidated financial statements of Old TCI are not comparable to
the successor consolidated financial statements of New TCI.

                                      I-57
<PAGE>   59

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         Summarized operating data with respect to New TCI and Old TCI is
presented below for the indicated periods:

<TABLE>
<CAPTION>

                                                              New TCI                   Old TCI
                                                           ------------      ------------------------------
                                                           Seven months      Two months        Nine months
                                                               ended           ended              ended
                                                           September 30,     February 28,     September 30,
                                                               1999             1999               1998
                                                          -------------     -------------     -------------
                                                                         amounts in millions

<S>                                                      <C>                 <C>                 <C>
Revenue                                                   $       3,344             1,145             5,563

Operating expenses                                                1,345               467             2,202
Selling, general and administrative expenses                        807               322             1,316
Year 2000 costs                                                      47                11                 6
AT&T merger costs                                                    31                65                11
Stock compensation                                                   72               366               423
Reserve for loss arising from contingent obligation                  50                --                --
Write-off of in-process research and development costs              594                --                --
Depreciation and amortization                                     1,143               277             1,289
                                                          -------------     -------------     -------------
                                                                  4,089             1,508             5,247
                                                          -------------     -------------     -------------
     Operating income (loss)                                       (745)             (363)              316

Interest expense                                                   (558)             (161)             (807)
Interest and dividend income                                          7                13                72
Share of losses of Liberty Media Group                             (818)               --                --
Share of losses of the Other Affiliates, net                       (789)             (161)             (986)
Minority interests in earnings of consolidated
    subsidiaries, net                                              (103)              (26)              (95)
Gains on issuance of equity interests by subsidiaries                --               389                55
Gain on issuance of stock by equity investee                         --                --               259
Gains on disposition of assets, net                                  --               144             3,704
Other, net                                                            7                 8               (25)
                                                          -------------     -------------     -------------
                                                                 (2,254)              206             2,177
                                                          -------------     -------------     -------------
    Earnings (loss) before income taxes and
       extraordinary items                                       (2,999)             (157)            2,493
Income tax benefit (expense)                                        589              (119)           (1,079)
                                                          -------------     -------------     -------------
    Earnings (loss) before extraordinary items                   (2,410)             (276)            1,414
Extraordinary gain (loss), net of income taxes                        4                (5)              (27)
                                                          -------------     -------------     -------------
     Net earnings (loss)                                  $      (2,406)             (281)            1,387
                                                          =============     =============     =============
</TABLE>

                                      I-58

<PAGE>   60

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         Due to the consummation of the AT&T Merger, the Company's 1999
statement of operations includes information reflecting the seven-month period
ended September 30, 1999 and the two-month period ended February 28, 1999. Prior
to March 1, 1999 the Company consolidated the operations of Liberty/Ventures
Group, and subsequent to February 28, 1999 the Company accounted for its
ownership interests in Liberty Media Group under the equity method. The
following discussion of the Company's results of operations includes a section
that addresses the combined operating results of the former TCI Group, @Home
(under the consolidated method prior to the second quarter of 1999 and under the
equity method thereafter, see note 6 to the accompanying consolidated financial
statements), NDTC and WTCI (collectively, the "Adjusted TCI Group") and a
section that addresses the combined operating results of Liberty/Ventures Group,
exclusive of @Home, NDTC and WTCI (the "Adjusted Liberty/Ventures Group").

                                      I-59
<PAGE>   61

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         ADJUSTED TCI GROUP

         For purposes of the following table and discussion, the combined
operating results of Adjusted TCI Group for the seven months ended September 30,
1999 have been combined with the combined operating results of Adjusted
TCI Group for the two months ended February 28, 1999 in order to provide a
meaningful basis for comparing the nine months ended September 30, 1999 and
1998. Depreciation, amortization and certain other line items included in the
operating results of Adjusted TCI Group are not necessarily comparable between
periods as the three-month and seven-month successor periods ended September 30,
1999 include the effects of purchase accounting adjustments related to the AT&T
Merger, and prior predecessor periods do not. The combining of predecessor and
successor accounting periods is not acceptable under generally accepted
accounting principles. See note 2 to the accompanying consolidated financial
statements. The unaudited combined results of operations for Adjusted TCI Group
are as follows:


<TABLE>
<CAPTION>

                                                                           Adjusted TCI Group
                                                 ----------------------------------------------------------------------
                                                Three months ended September 30,        Nine months ended September 30,
                                                --------------------------------        -------------------------------
                                                   1999                1998                1999                 1998
                                                -----------         -----------         -----------         -----------
                                                                            amounts in millions

<S>                                             <C>                       <C>                 <C>                 <C>
Revenue                                         $     1,442               1,549               4,285               4,735

Operating expenses                                     (599)               (617)             (1,732)             (1,802)
Selling, general and administrative
    expenses                                           (324)               (322)             (1,053)             (1,048)
Year 2000 costs                                         (16)                 (4)                (58)                 (5)
AT&T merger and integration costs                        (4)                 (1)                (96)                (11)
Stock compensation                                        2                 (13)               (255)               (160)
Reserve for loss arising from contingent
    obligation                                           --                  --                 (50)                 --
Write-off of in-process research and
    development costs                                    --                  --                (594)                 --
Depreciation and amortization                          (461)               (392)             (1,398)             (1,198)
                                                -----------         -----------         -----------         -----------

     Operating income (loss)                             40                 200                (951)                511

Interest expense                                       (248)               (239)               (694)               (745)
Share of losses of the Other Affiliates,
     net                                               (412)                (93)               (883)               (158)
Minority interests in earnings of
    attributed subsidiaries, net                        (45)                (33)               (123)                (99)
Gain on issuance of equity interests by
    attributed subsidiary                                --                  17                  17                  17
Gain on issuance of stock by equity
    investee                                             --                  --                  --                 201
Gains on disposition of assets, net                      --               2,589                 129               3,130
Other, net                                                3                  12                  28                  10
                                                -----------         -----------         -----------         -----------

    Earnings (loss) before income taxes
       and extraordinary items                         (662)              2,453              (2,477)              2,867

Income tax benefit (expense)                            239                (955)                677              (1,178)
                                                -----------         -----------         -----------         -----------

    Earnings (loss) before extraordinary
       items                                           (423)              1,498              (1,800)              1,689

Extraordinary gain (loss), net of income
     taxes                                                4                  (4)                 (1)                (27)
                                                -----------         -----------         -----------         -----------

     Net earnings (loss)                        $      (419)              1,494              (1,801)              1,662
                                                ===========         ===========         ===========         ===========
</TABLE>

                                      I-60
<PAGE>   62

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         Acquisitions and Dispositions

         Since January 1, 1998, Adjusted TCI Group has contributed cable
television systems serving approximately 3,368,000 customers to a number of
joint ventures in which Adjusted TCI Group has retained non-controlling
ownership interests. Contribution transactions during the nine months ended
September 30, 1999 accounted for approximately 614,000 of such contributed
customers. In addition, during the second quarter of 1999, the Company
discontinued using the consolidation method to account for its ownership
interest in @Home and began to account for its ownership interest in @Home under
the equity method. Adjusted TCI Group also has completed certain other
acquisitions and dispositions since January 1, 1998. The above-described
transactions adversely affect the comparability of operating results between
periods. Accordingly, in the following discussion, the collective effects of
such acquisitions and dispositions are sometimes excluded in order to provide a
more meaningful basis of comparison.

         Revenue and Expenses

         Adjusted TCI Group's revenue decreased $107 million or 7% for the three
months ended September 30, 1999, as compared to the corresponding prior year
period. Exclusive of the effects of acquisitions and dispositions, revenue
increased $90 million or 7%. Revenue from domestic cable customers accounted for
a 6% increase in revenue, primarily due to the net effect of a 6% increase in
basic revenue, an increase in revenue from digital products, an increase in
pay-per-view revenue and a 7% decrease in traditional premium revenue. The
Company experienced a 5% increase in its average basic rate, an increase of 1%
in the number of average basic customers, a 14% decrease in its average rate for
traditional premium services and an 8% increase in the number of average
traditional premium subscriptions.

         Adjusted TCI Group's revenue decreased $450 million or 10% for the nine
months ended September 30, 1999, as compared to the corresponding prior year
period. Exclusive of the effects of acquisitions and dispositions, revenue
increased $280 million or 7%. Revenue from domestic cable customers accounted
for a 6% increase in revenue, primarily due to the net effect of a 5% increase
in basic revenue, an increase in revenue from digital products, an increase in
pay-per-view revenue and a 5% decrease in traditional premium revenue. The
Company experienced a 3% increase in its average basic rate, an increase of 1%
in the number of average basic customers, a 10% decrease in its average rate for
traditional premium services and a 6% increase in the number of average
traditional premium subscriptions.

         Adjusted TCI Group's operating expenses decreased $18 million or 3% and
$70 million or 4% for the three and nine month periods ended September 30, 1999,
respectively, as compared to the corresponding prior year periods. Exclusive of
the effects of acquisitions and dispositions, operating expenses increased $81
million or 16% and $268 million or 19% for the three and nine month periods,
respectively. Higher programming costs accounted for over one-half of such
increases. It is anticipated that Adjusted TCI Group's programming costs will
continue to increase in future periods. The remaining increases relate primarily
to higher labor costs associated with increased levels of customer service, and
increased launch and development costs related to the roll-out of Adjusted TCI
Group's digital video products and other new service offerings.

                                      I-61
<PAGE>   63

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         Adjusted TCI Group's selling, general and administrative expenses
increased $2 million or 1% and $5 million or less than 1% for the three and nine
month periods ended September 30, 1999, respectively, as compared to the
corresponding prior year periods. Exclusive of the effects of acquisitions and
dispositions, the expenses increased $25 million or 8% and $83 million or 9%,
for the three and nine month periods, respectively. The increases are due
primarily to higher salaries and benefits associated with increased levels of
customer service, and increased launch and development costs related to the
roll-out of Adjusted TCI Group's digital video products and other new service
offerings.

         Adjusted TCI Group's year 2000 costs include fees and other expenses
incurred directly in connection with Adjusted TCI Group'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 and integration costs incurred by Adjusted TCI Group
include investment advisory, legal and accounting fees, and other incremental
costs directly related to the AT&T Merger. See note 2 to the accompanying
consolidated financial statements

         Adjusted TCI Group records stock compensation relating to restricted
stock awards, options and/or stock appreciation rights granted by the Company to
certain employees and directors. The amount of expense associated with stock
compensation for Adjusted TCI Group is based on the vesting of the related stock
options and stock appreciation rights and the market price of the underlying
common stock as of the date of the accompanying consolidated financial
statements. The estimated compensation liability relating to vested stock
appreciation rights has been recorded as of September 30, 1999, and is subject
to future adjustment based primarily upon the market value of AT&T Liberty
Tracking Stock and, ultimately, on the final determination of market value when
such rights are exercised. See note 2 to the accompanying consolidated financial
statements.

         During the second quarter of 1999, the Company recorded a charge of $50
million to provide for additional estimated losses that were expected to result
from the Contribution Agreement. See note 13 to the accompanying consolidated
financial statements.

                                      I-62
<PAGE>   64

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         The write-off of in-process research and development costs of $594
million during March 1999 reflects the value, as of the date of the AT&T Merger,
of New TCI's research and development projects which have not yet reached
technological feasibility and which have no alternative for future use. Such
costs included @Home's in-process research and development projects. During the
second quarter of 1999, the Company ceased to consolidate @Home and began to
account for its investment in @Home under the equity method of accounting.
Accordingly, the Company will no longer report on the in-process research and
development projects of @Home. The projects identified for New TCI related to
the Company's efforts to offer voice over Internet protocol, cost savings
efforts for cable telephony implementation and product integration efforts for
advanced set-top devices that would enable the Company to offer next-generation
digital services. Although there are significant technological issues to
overcome in order to successfully complete the acquired in-process research and
development, the Company expects successful completion. The Company currently
anticipates that (i) it will deploy equipment to offer voice over Internet
protocol to two cities in the year 2001, (ii) field deployable devices will be
available by the end of the year with respect to the Company's cost savings
efforts for cable telephony implementation, and (iii) field trials will begin in
mid-year 2000 for next-generation digital services. If, however, the Company is
unable to establish technological feasibility and produce a commercially viable
product/service, then anticipated incremental future cash flows attributable to
expected profits from such new product/service may not be realized. See note 2
to the accompanying consolidated financial statements.

         Adjusted TCI Group's depreciation and amortization expense increased
$69 million or 18% and $200 million or 17% for the three and nine months ended
September 30, 1999, respectively, as compared to the corresponding prior year
periods. Such changes include $123 million and $312 million increases in
amortization expense and $54 million and $112 million decreases in depreciation
expense for the three and nine month periods, respectively. The increase in
amortization expense is primarily attributable to the effects of purchase
accounting during the three and seven months ended September 30, 1999. Such
increase in amortization expense is partially offset by the effects of
dispositions. The decrease in depreciation expense includes the net effect of
(i) decreases attributable to dispositions and purchase accounting, and (ii)
increases attributable to capital expenditures and acquisitions. See note 2 to
the accompanying consolidated financial statements.

         Other Income and Expenses

         Adjusted TCI Group's interest expense increased $9 million or 4% and
decreased $51 million or 7% for the three and nine months ended September 30,
1999, respectively, as compared to the corresponding prior year periods. The
increase for the three months ended September 30, 1999 is due to an increase in
the average outstanding debt balance which was partially offset by a decrease in
the weighted average interest rate. See note 8 to the accompanying consolidated
financial statements. The decrease for the nine months ended September 30, 1999
is primarily the result of a decrease in the weighted average interest rate
which was partially offset by an increase in the average outstanding debt
balance.

                                      I-63
<PAGE>   65

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         Adjusted TCI Group's investments in the Other Affiliates are comprised
of limited partnerships and other entities that are primarily engaged in the
domestic cable television business or other communications services businesses.
Adjusted TCI Group's share of losses of the Other Affiliates was $412 million
and $883 million for the three and nine months ended September 30, 1999,
respectively, as compared to $93 million and $158 million for the corresponding
prior year periods. Such increases are primarily attributable to (i) increases
of $193 million and $363 million during the three and nine months ended
September 30, 1999, respectively, in the Company's share of losses of CSC, @Home
and certain of the Other Affiliates (exclusive of the effects of purchase
accounting) that were formed or otherwise acquired during the twenty-one-month
period ended September 30, 1999, (ii) increases of $113 million and $267 million
during the three and nine months ended September 30, 1999 in the amortization of
the excess carrying value of the Company's investments in the Other Affiliates
due to the application of purchase accounting and (iii) increases in the
Company's share of losses of certain of the Other Affiliates. For additional
information, see notes 2, 6 and 7 to the accompanying consolidated financial
statements. Additionally, Adjusted TCI Group's share of the Other Affiliates'
losses during the nine months ended September 30, 1998 includes Adjusted TCI
Group's share of gains recognized by two affiliates in connection with certain
transactions.

         Minority interests in earnings of consolidated subsidiaries aggregated
$45 million and $123 million for the three and nine months ended September 30,
1999, respectively, as compared to $33 million and $99 million in the
corresponding prior year periods. Such amounts include dividends on the Trust
Preferred Securities and other preferred securities of TCI subsidiaries
attributed to Adjusted TCI Group of $45 million during each of the three month
periods ended September 30, 1999 and 1998, respectively, and $134 million during
each of the nine month periods ended September 30, 1999 and 1998, respectively.
See note 9 to the accompanying consolidated financial statements. Through the
first quarter of 1999, such dividends were offset in part by the minority
interests share of the losses of @Home. As described in note 6 to the
accompanying consolidated financial statements, during the second quarter of
1999, the Company ceased to consolidate @Home and began to account for @Home
under the equity method of accounting.

         During the two months ended February 28, 1999, @Home issued 1.1 million
common shares. Due to the resulting increase in @Home's equity, net of the
dilution of Adjusted TCI Group's ownership interest in @Home, Adjusted TCI Group
recognized a gain of $17 million.

         On April 22, 1998, TCG completed a merger transaction with ACC in which
ACC's shares were exchanged for shares of TCG. In connection with the dilution
of Adjusted TCI Group's interest in TCG, Adjusted TCI Group recorded a gain of
$201 million. See note 7 to the accompanying consolidated financial statements.

         Gains on disposition of assets during the nine months ended September
30, 1999 includes a $123 million gain related to the February 1999 sale of
certain cable television systems serving approximately 145,000 customers.
Adjusted TCI Group's gains on disposition of assets of $3,130 million during the
nine months ended September 30, 1998 are primarily attributable to TCG's merger
with AT&T and the March 4, 1998 contribution of cable television systems to CSC.
For additional information, see notes 6, 7 and 11 to the accompanying
consolidated financial statements.

                                      I-64
<PAGE>   66

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         Adjusted TCI Group recognized extraordinary gains (losses) on early
extinguishment of debt of $4 million and $(1 million) for the three and nine
months ended September 30, 1999, respectively, as compared to $(4 million) and
$(27 million) in the corresponding prior year periods. Such amounts are net of
taxes and relate to (i) prepayment penalties and the retirement of deferred loan
costs prior to the AT&T Merger and (ii) the excess of the fair value assigned to
the debt in purchase accounting over the amount paid to redeem the debt during
the three months ended September 30, 1999.

         Net Earnings (Loss)

         As a result of the above-described fluctuations in Adjusted TCI Group's
results of operations, Adjusted TCI Group's net loss of $419 million for the
three months ended September 30, 1999 changed by $1,913 million, as compared to
Adjusted TCI Group's net earnings of $1,494 million for the three months ended
September 30, 1998. Adjusted TCI Group's net loss of $1,801 million for the nine
months ended September 30, 1999 changed by $3,463 million, as compared to
Adjusted TCI Group's net earnings of $1,662 million for the nine months ended
September 30, 1998.

                                      I-65
<PAGE>   67

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         ADJUSTED LIBERTY/VENTURES GROUP

         The consolidated operating results of the Company for the two months
ended February 28, 1999 and the three and nine months ended September 30, 1998
include the operations of entities attributed to the Liberty/Ventures Group
during such periods. For the three and seven months ended September 30, 1999,
the Company's investment in Liberty Media Group was accounted for under the
equity method. The following table presents certain combined operating
information of Adjusted Liberty/Ventures Group (Liberty/Ventures Group exclusive
of @Home, NDTC and WTCI) for the periods in which such information was included
in the Company's consolidated financial statements:

<TABLE>
<CAPTION>

                                                                      Adjusted Liberty/Ventures Group
                                                     -----------------------------------------------------------------------
                                                         Two months                Three months              Nine months
                                                            ended                    ended                       ended
                                                      February 28, 1999         September 30, 1998         September 30, 1998
                                                     ------------------         ------------------         ------------------
                                                                               amounts in millions

<S>                                                  <C>                       <C>                          <C>
Revenue                                              $              240                        362                      1,022

Operating costs and expenses:
    Operating, selling, general and
       administrative                                               192                        296                        863
    Stock compensation                                              183                         (2)                       263
    Depreciation and amortization                                    22                         31                         86
                                                     ------------------         ------------------         ------------------
                                                                    397                        325                      1,212
                                                     ------------------         ------------------         ------------------
         Operating income (loss)                                   (157)                        37                       (190)

Other income (expense):
    Interest expense                                                (25)                       (34)                       (71)
    Dividend and interest income                                     10                         18                         50
    Share of losses of affiliates, net                              (67)                      (307)                      (829)
    Minority interests in losses (gains) of
       attributed subsidiaries                                       (6)                         5                         (2)
    Gains on dispositions, net                                       15                         17                        574
    Gains on issuance of equity by affiliates
       and attributed subsidiaries                                  372                         58                         96
    Other, net                                                       (4)                        (4)                        (4)
                                                     ------------------         ------------------         ------------------
                                                                    295                       (247)                      (186)
                                                     ------------------         ------------------         ------------------

       Earnings (loss) before income taxes                          138                       (210)                      (376)

Income tax benefit (expense)                                       (206)                        54                        100
                                                     ------------------         ------------------         ------------------
       Net loss                                      $              (68)                      (156)                      (276)
                                                     ==================         ==================         ==================
</TABLE>



                                      I-66
<PAGE>   68

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         The foregoing results of operations of Adjusted Liberty/Ventures Group
are not comparable in that the 1999 year-to-date period includes two months of
operations and the 1998 year-to-date period includes nine months of operations.
In addition to fluctuations that are attributable to the different lengths of
the 1999 and 1998 periods, other factors have contributed to changes between
such periods. Such changes are discussed in relative terms below.

         The combined revenue of Adjusted Liberty/Ventures Group includes
programming revenue derived from Adjusted TCI Group and non-affiliates. The
relative increase in revenue relates primarily to higher revenue from the
distribution of "Encore" premium movie services to cable operators, including
Adjusted TCI Group.

         Changes in Adjusted Liberty/Ventures Group's operating, selling,
general and administrative expenses relate primarily to the net effect of
decreases in costs due to certain dispositions and increases in costs due to
relatively higher costs to acquire programming content from suppliers. Higher
costs to acquire programming content are primarily due to an increase in first
run movie content as a percent of Encore's total movie content. Such first run
movies are generally obtained at higher costs than movies which are not first
run. Other miscellaneous increases include higher music rights costs, copyright
fees and marketing costs.

         Adjusted Liberty/Ventures Group recorded stock compensation relating to
restricted stock awards, options and/or stock appreciation rights granted by the
Company to certain employees and directors of Adjusted Liberty/Ventures Group.
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 end of the periods presented.

         Adjusted Liberty/Ventures Group's interest and dividend income
consisted primarily of (i) dividends received on a series of Time Warner common
stock with limited voting rights, (ii) dividends received on preferred stock of
Fox Kids Worldwide, Inc. ("FKW Preferred Stock"), and (iii) interest income from
cash balances and other interest-earning assets. Dividends received on the Time
Warner common stock aggregated $3 million and $15 million, and dividends
received on the FKW Preferred Stock aggregated $5 million and $23 million,
during the two months ended February 28, 1999 and the nine months ended
September 30, 1998, respectively.

         Investments in affiliates are comprise of limited partnerships and
other entities that are primarily engaged in programming and communications
services businesses. Adjusted Liberty/Ventures Group's share of losses of
affiliates were $67 million and $829 million during the two months ended
February 28, 1999 and the nine months ended September 30, 1998, respectively.

                                      I-67
<PAGE>   69

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Results of Operations (continued)

         Adjusted Liberty/Ventures Group's share of losses for the two months
ended February 28, 1999 included its (i) share of losses of Telewest
Communications plc, which aggregated $38 million during the period, and (ii)
share of losses of other foreign affiliates, which aggregated $27 million during
the period.

         Adjusted Liberty/Ventures Group's share of losses for the nine months
ended September 30, 1998 included its (i) $510 million share of the losses of
Sprint Spectrum Holding Company, L.L.P., MinorCo, L.P. and PhillieCo Partnership
I, L.P. (the "PCS Ventures"), (ii) $184 million share of the losses of various
foreign affiliates and (iii) $76 million share of the losses of Fox/Liberty
Networks ("Fox Sports"). As a result of a November 1998 transaction, Adjusted
Liberty/Ventures Group no longer accounts for its investment in the PCS Ventures
under the equity method. Prior to the first quarter of 1998, Adjusted
Liberty/Ventures Group had no obligation, nor intention, to fund Fox Sports.
During 1998, Adjusted Liberty/Ventures Group made the determination to provide
funding to Fox Sports based on specific transactions consummated by Fox Sports.
Consequently, Adjusted Liberty/Ventures Group's share of losses of Fox Sports
for 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 Adjusted Liberty/Ventures Group's investment in Fox Sports was
less than zero.

         Adjusted Liberty/Ventures Group's gain on disposition of $574 million
during the nine months ended September 30, 1998 is primarily the result of
Adjusted Liberty/Ventures Group's sale to Time Warner of the business of
Southern Satellite Systems, Inc. and certain of its subsidiaries.

         Gains on issuance of equity interests by attributed subsidiaries were
$372 million and $96 million during the two months ended February 28, 1999 and
the nine months ended September 30, 1998, respectively. The 1999 gains relate
primarily to the issuance of common stock by UVSG, in connection with its
acquisition of the business of TV Guide. The 1998 gains primarily relate to
General Cable's merger with and into Telewest and the February 1998 equity
issuance by Liberty/Ventures Group's then subsidiary, Superstar/Netlink Group
LLC. See note 7 to the accompanying consolidated financial statements.

         The Company's share of the losses of Liberty Media Group was $818
million for the seven months ended September 30, 1999. If Adjusted
Liberty/Ventures Group had been deconsolidated January 1, 1998, the Company's
share of Adjusted Liberty/Ventures Group's net losses would have been $886
million and $276 million for the nine months ended September 30, 1999 and 1998,
respectively. The increase in such Liberty Media Group losses is primarily
attributable to a $352 million increase in Liberty Media Group's stock
compensation and higher depreciation and amortization due primarily to the
application of purchase accounting in connection with the AT&T Merger.


                                      I-68
<PAGE>   70

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         MATERIAL CHANGES IN FINANCIAL CONDITION

         As described in greater detail in note 2 to the accompanying
consolidated financial statements, on March 9, 1999, TCI was acquired by AT&T in
a merger and TCI thereby became a subsidiary of AT&T. The AT&T Merger also
resulted in the deconsolidation of the businesses and assets attributed to
Liberty Media Group at the time of the AT&T Merger.

         Pursuant to the Merger Agreement, immediately prior to the AT&T Merger,
certain assets previously attributed to TCI Ventures Group (including, among
others, the shares of AT&T Common Stock received in the merger of AT&T and 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) were transferred to TCI
Group in exchange for approximately $5.5 billion in cash. Also, upon
consummation of the AT&T Merger, through a new tax sharing agreement between
Liberty Media Group and AT&T, Liberty Media Group became entitled to the benefit
of approximately $2 billion of net operating loss carryforwards attributable to
all entities included in TCI's consolidated federal income tax return as of the
date of the AT&T Merger. Such net operating loss carryforwards are subject to
adjustment by the Internal Revenue Service and are subject to limitations on
usage which may affect the ultimate amount utilized. Additionally, certain
warrants to purchase shares of GI previously attributed to TCI Group were
transferred to Liberty/Ventures Group in exchange for approximately $176 million
in cash. The transfer of certain immaterial assets was also effected. TCI funded
the $5.5 billion payment to Liberty/Ventures Group through borrowings from AT&T.
Such borrowings are evidenced by a $5.5 billion promissory note. Such promissory
note accrues interest at LIBOR, plus 15 basis points, and is due and payable on
demand on or before March 9, 2004.

         Immediately prior to the AT&T Merger, TCI consummated the
Restructuring. The Restructuring included merging TCI's cable subsidiary, TCIC,
into TCI. As a result of TCIC's merger with TCI, all assets and liabilities of
TCIC have been assumed by TCI, including TCIC's public debt. In connection with
TCIC's merger with TCI, each share of TCIC's Cumulative Exchangeable Preferred
Stock, Series A, was converted into 2.119 shares of TCI Group Series A Stock,
and such shares of TCI Group Series A Stock were subsequently converted into
AT&T Common Stock in connection with the AT&T Merger. All other public
securities issued by subsidiaries of TCIC (other than Pacific) otherwise
remained unaffected. Furthermore, as part of the Restructuring, (I) AT&T loaned
TCI $5.5 billion pursuant to a promissory note, (ii) certain asset transfers
were made between TCI and its subsidiaries, (iii) 123,896 shares of Series F
Preferred Stock, which were held by subsidiaries of TCI, were converted into
185,428,946 shares of TCI Group Series A Stock (which in turn were converted
into 215,755,850 shares of AT&T Common Stock in the AT&T Merger and continue to
be held by subsidiaries of TCI), (iv) the remaining 154,411 shares of Series F
Preferred Stock which were formerly held by subsidiaries of TCI were distributed
to TCI through a series of liquidations and canceled, and (v) 125,728,816 shares
of TCI Group Series A Stock, 9,154,134 shares of TCI Group Series B Stock,
6,654,367 shares of Liberty Group Series A Stock, 3,417,187 shares of Liberty
Group Series B Stock, and 67,536 shares of Class B Preferred Stock, each
formerly held by subsidiaries of TCI, were distributed to TCI through a series
of liquidations and canceled.

                                      I-69
<PAGE>   71

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Financial Condition (continued)

         Under the terms of the Exchangeable Preferred Stock of Pacific, each
share of that preferred stock is exchangeable, from and after August 1, 2001,
for approximately 6.3375 shares of AT&T Common Stock, subject to certain
anti-dilution adjustments. Additionally, after the AT&T Merger, Pacific may
elect to make any dividend, redemption or liquidation payment on the
Exchangeable Preferred Stock in cash, by delivery of shares of AT&T Common Stock
or by a combination of the foregoing forms of consideration.

         As a result of the deconsolidation of Liberty Media Group in connection
with the AT&T Merger, Liberty Media Group's liquidity sources (including the
$5.5 billion payment from TCI) will be used towards the liquidity requirements
of Liberty Media Group and will not represent a source of liquidity to TCI.
Conversely, TCI anticipates that Liberty Media Group will not require funds from
TCI to satisfy Liberty Media Group's liquidity requirements.

         The Company's lines of credit were terminated in March 1999 and,
accordingly, such lines of credit no longer represent a source of liquidity for
the Company. To the extent that funds generated by the Company's operating
activities are not sufficient to meet its liquidity needs, the Company
anticipates that it would obtain additional financing from AT&T or external
sources. No assurance can be given that any such additional financing could be
obtained on terms acceptable to the Company.

         TCI's restricted cash of $19 million at September 30, 1999, includes
amounts held in escrow of $10 million and proceeds received in connection with
certain asset dispositions. Such proceeds, which aggregated $9 million at
September 30, 1999, are designated to be reinvested in certain identified assets
for income tax purposes.

         During the seven months ended September 30, 1999, the two months ended
February 28, 1999, and the nine months ended September 30, 1998 the Company had
Operating Cash Flow of $1,192 million, $356 million and $2,045 million,
respectively. 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.

         The Company's operating activities provided (used) cash of $527
million, $(196 million) and $748 million during the seven months ended September
30, 1999, the two months ended February 28, 1999, and the nine months ended
September 30, 1998, respectively. Net cash provided by operating activities
generally reflects net cash from operations of TCI available for TCI's liquidity
needs after taking into consideration the aforementioned additional substantial
costs of doing business not reflected in Operating Cash Flow. Following the
deconsolidation of Liberty Media Group in connection with the AT&T Merger and
the deconsolidation of @Home during the second quarter of 1999, Liberty Media
Group's and @Home's operating activities are no longer included in the Company's
consolidated statements of cash flows.

                                      I-70
<PAGE>   72

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Financial Condition (continued)

         Cash provided by (used in) the Company's investing activities
aggregated $(2,314 million), $475 million and $(656 million) during the seven
months ended September 30, 1999, the two months ended February 28, 1999, and the
nine months ended September 30, 1998, respectively. Following the
deconsolidation of Liberty Media Group in connection with the AT&T Merger and
the deconsolidation of @Home during the second quarter of 1999, Liberty Media
Group's and @Home's investing activities are no longer included in the Company's
consolidated statements of cash flows. The Company's investing activities
include a reduction in the Company's cash and cash equivalents of $401 million
during the seven months ended September 30, 1999 resulting from the
deconsolidation of @Home.

         The amount of capital expended by TCI for property and equipment was
$1,910 million, $297 million and $1,123 million during the seven months ended
September 30, 1999, the two months ended February 28, 1999, and the nine months
ended September 30, 1998, respectively. Such expenditures relate primarily to
TCI's cable distribution systems. TCI estimates that total capital expenditures
will be approximately $3.5 billion and $2.4 billion in 1999 and 2000,
respectively. No assurance can be given that actual capital costs will not
exceed such estimated capital costs. Additionally, the foregoing estimate does
not include customer specific capital costs required to deliver local telephony
services. TCI cannot reasonably estimate such costs since the actual capital
costs will be largely dependent upon the extent of customer penetration and the
average per-unit-cost to install customer premise equipment.

         During the two months ended February 28, 1999, the Company completed a
transaction whereby the Company contributed cable television systems to Bresnan,
an entity in which the Company had an approximate 80% ownership interest.
Through a series of transactions, including the contribution of cash by a third
party in exchange for an ownership interest, the Company's ownership interest in
Bresnan was diluted to a non-controlling 50% ownership interest. In connection
with the associated dilution of the Company's ownership interest, the Company
deconsolidated assets and liabilities related to cable television systems
serving approximately 614,000 customers. The deconsolidated liabilities included
$210 million of debt owed to external parties and $709 million of intercompany
debt owed to the Company. In connection with such transaction, the Company has
agreed to take certain steps to support compliance by such entity with its
payment obligations under certain debt instruments. See note 7 to the
accompanying consolidated financial statements.

         During February 1999, the Company sold cable television assets serving
approximately 145,000 customers to an unaffiliated third party for approximately
$300 million.

         Several agreements have been announced which may result in the
acquisition and disposition of cable television systems by TCI. In addition, the
Company has entered into agreements to sell certain of its investments in the
Other Affiliates. See notes 6 and 7 to the accompanying consolidated financial
statements.

                                      I-71
<PAGE>   73

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Financial Condition (continued)

         During the second quarter of 1999, @Home consummated a merger agreement
with Excite. Under the terms of the merger agreement, @Home issued approximately
116 million shares of its common stock for all of the outstanding common stock
of Excite. As a result of the merger, the Company's economic interest in @Home
decreased from 38% to 26%. Due to the resulting increase in @Home's equity, net
of the dilution of the Company's ownership interest in @Home, the Company
recorded a $488 million increase to "Additional paid-in capital" and a $312
million increase to "Deferred income tax liability." For additional information
see note 6 to the accompanying consolidated financial statements.

         During February and March, 1999, Old TCI terminated certain equity swap
facilities. In connection with the termination of such transactions, Old TCI
received aggregate cash payments of $677 million. For additional information see
note 10 to the accompanying consolidated financial statements.

         Many of the Company's subsidiaries operate in the telecommunications
industry which has experienced and is expected to continue to experience (i)
rapid and significant changes in technology, (ii) ongoing improvements in the
capacity and quality of such services, (iii) frequent and new product and
service introductions, and (iv) enhancements and changes in end-user
requirements and preferences. The degree to which these changes will affect such
entities and the ability of such entities to compete in their respective
businesses cannot be predicted. If markets fail to develop, develop more slowly
than expected, or become highly competitive, the Company's operating results and
financial condition may be materially adversely affected.

         TCI is committed to purchase billing services from a third party
pursuant to three successive five year agreements. Pursuant to such arrangement,
TCI is obligated at September 30, 1999 to make minimum payments aggregating
approximately $1.5 billion through 2012. Such minimum payments are subject to
inflation and other adjustments pursuant to the terms of the underlying
agreements.

         TCI has agreed to make fixed monthly payments to an entity attributed
to Liberty Media Group pursuant to an affiliation agreement. The fixed annual
commitments increase annually from $190 million in 1999 to $267 million in 2003,
and will increase with inflation through 2022. In addition, pursuant to certain
agreements between TCI and an entity attributed to Liberty Media Group, TCI is
obligated at September 30, 1999 to make minimum revenue payments through 2017
license fee payments through 2007 aggregating approximately $385 million to such
attributed entity. Such minimum payments are subject to inflation and other
adjustments pursuant to the terms of the underlying agreements.

                                      I-72
<PAGE>   74

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Financial Condition (continued)

         The Company has guaranteed notes payable and other obligations of
affiliated and other companies with outstanding balances of approximately $47
million at September 30, 1999. The Company also has agreed to take certain steps
to support debt compliance with respect to obligations aggregating $1,720
million of certain cable television partnerships in which the Company has
non-controlling ownership interests. See notes 7 and 13 to the accompanying
consolidated financial statements. 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. Following the
deconsolidation of Liberty Media Group in connection with the AT&T Merger, notes
payable and other obligations guaranteed by entities attributed to Liberty Media
Group are no longer included with those of TCI.

         During 1999, a subsidiary of the Company entered into a Contribution
Agreement with certain shareholders of Phoenixstar pursuant to which the Company
would, to the extent it is relieved of $166 million of contingent liabilities
currently owed to certain creditors of Phoenixstar and its subsidiaries,
contribute up to $166 million to Phoenixstar to the extent necessary to satisfy
liabilities of Phoenixstar. During the second quarter of 1999 and the fourth
quarter of 1998, the Company recorded charges of $50 million and $90 million,
respectively, to provide for the estimated losses that were expected to result
from the Contribution Agreement. During 1999, the Company contributed
approximately $116 million to Phoenixstar as partial satisfaction of this
obligation. The Company's remaining obligation under the Contribution Agreement
will expire in 2001.

         The Company is obligated and/or has guaranteed Liberty Media Group's
obligation to pay fees for the rights to exhibit certain films that are released
by various producers through 2017. Based on customer levels at September 30,
1999, these agreements require minimum payments aggregating approximately $440
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, required aggregate payments
under the Film Licensing Obligations could prove to be significant.

         TCI is a party to affiliation agreements with programming suppliers.
Pursuant to certain of such agreements, TCI 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.

                                      I-73
<PAGE>   75

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Financial Condition (continued)

         Effective as of December 16, 1997, NDTC, on behalf of the Company and
other cable operators that may be designated from time to time by NDTC, entered
into an agreement with GI to purchase 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. The 1998 purchase commitment of 1.5 million set-top devices was
met. The agreement with GI was amended in the third quarter of 1999 to change
the remaining purchase commitment for set-top devices to 1,880,000 devices in
1999 and 2,500,000 devices in 2000. During the nine months ended September 30,
1999, approximately 1.4 million set-top devices had been purchased under the
1999 commitment. 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. In connection with the AT&T Merger, such
warrants were transferred to Liberty/Ventures Group in exchange for
approximately $176 million in cash. To the extent that such warrants do not vest
because TCI fails to meet its purchase commitments, as amended, TCI is required
to repay a proportional amount of such cash to Liberty Media Group. NDTC has the
right to terminate the agreement if, among other reasons, GI fails to meet a
material milestone designated in the agreement with respect to the development,
testing and delivery of advanced digital set-top devices.

         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 the Company to GI, and (iv) a nine-year
revenue guarantee from the Company 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. As a result of the
deconsolidation of Liberty Media Group, the 21.4 million shares of GI common
stock are no longer included in the Company's consolidated assets. The excess of
the fair value of GI common stock received in 1998 over (i) the book value of
certain assets transferred from NDTC to GI, and (ii) the present value of the
promissory note due from the Company to GI, was deferred by the Company. As a
result of the application of purchase accounting in connection with the AT&T
Merger, the deferred amount related to the revenue guarantee was reduced to $61
million and the remaining deferred amount was reduced to $48 million.

         The Company leases business offices, has entered into converter lease
agreements, pole rental agreements, transponder lease agreements and uses
certain equipment under lease arrangements.

         The Company's various partnerships and other affiliates accounted for
by the equity method generally fund their acquisitions, required debt repayments
and capital expenditures through borrowings under and refinancing of their own
credit facilities, through net cash provided by their own operating activities
and, in certain circumstances, through required capital contributions from their
partners.

                                      I-74
<PAGE>   76

                   TELE-COMMUNICATIONS, INC. AND SUBSIDIARIES

         Material Changes in Financial Condition (continued)

         In order to achieve the desired balance between variable and fixed rate
indebtedness, the Company 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. At December 31,
1998, all of the Company's Fixed Rate Agreements had expired. During the nine
months ended September 30, 1998, the Company's net payments pursuant to the
Fixed Rate Agreements were less than $1 million. The Company's net receipts
pursuant to the Variable Rate Agreements during the seven months ended September
30, 1999, the two months ended February 28, 1999 and the nine months ended
September 30, 1998, were $16 million, $1 million and $8 million, respectively.
At September 30, 1999, the Company would have had to pay $1 million to terminate
the Variable Rate Agreements.

         In addition to the Variable Rate Agreements, the Company entered into
fixed Interest Rate Swaps pursuant to which it pays a variable rate based on
LIBOR (6.4% at September 30, 1999) and receives a variable rate based on CMT
(6.1% at September 30, 1999) on a notional amount of $400 million through
September 2000; and pays a variable rate based on LIBOR (6.3% at September 30,
1999) and receives a variable rate based on CMT (6.2% at September 30, 1999) on
notional amounts of $95 million through February 2000. During each of the four
months ended September 30, 1999, the two months ended February 28, 1999 and the
nine months ended September 30, 1998, the Company's net payments pursuant to
such agreements were $1 million. At September 30, 1999, the Company would be
required to pay less than $1 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, as of September 30, 1999, the
Company 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 consolidated financial statements for additional information
regarding Interest Rate Swaps.

         At September 30, 1999, after considering the net effect of the
aforementioned Interest Rate Swaps, the Company had $7.6 billion (or 80%) of
fixed rate debt due to non-affiliates and $1.8 billion (or 20%) of variable-rate
debt due to non-affiliates. In addition, at September 30, 1999, the Company had
outstanding variable rate indebtedness under the AT&T Notes of $8.6 billion.
TCI's interest rate exposure is primarily to changes in LIBOR rates.


                                      I-75
<PAGE>   77
                            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, 1999 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:

         James Dalton, et al. V. Tele-Communications, Inc., et al.
         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. This case was settled in August 1999 for an amount that
         will not have a material adverse effect upon the financial condition of
         the Company. This case will not be reported on in the future.

         Tele-Communications International, Inc. Stockholder Litigation.
         As previously reported, on July 13, 1998, two putative class action
         complaints were filed by certain stockholders of Tele-Communications
         International, Inc. in the Delaware Chancery Court. The actions, which
         have identical claims and allegations, are styled as Berkowitz v.
         Tele-Communications, Inc., et al., C.A. No. 16533, and Chetkov v.
         Tele-Communications, Inc., et al., C.A. No. 16534, respectively. This
         case was settled and dismissed in July 1999. The settlement did not
         have a material adverse effect upon the financial condition of the
         Company. This case will not be reported on in the future.


<PAGE>   78


                            TELE-COMMUNICATIONS, INC.


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

         (a)      Exhibits

                  10 - Material Contracts

                           10.1     Amendment to Employment Agreement, effective
                                    as of March 9, 1999, between Liberty Media
                                    Corporation and John C. Malone

                           10.2     Employment Agreement between
                                    Tele-Communications, Inc. and Marvin Jones,
                                    dated as of July 14, 1999.

                           10.3     Employment Agreement between AT&T Corp. and
                                    Stephen M. Brett, dated as of April 1, 1999.

                  27 - Tele-Communications, Inc. Financial Data Schedule

         (b)      Reports on Form 8-K filed during the quarter ended September
                  30, 1999:

                  None.



<PAGE>   79


                                   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, 1999                  By: /s/ Daniel E. Somers
                                             ----------------------------------
                                                 Daniel E. Somers
                                                  President and Chief
                                                   Executive Officer




Date: November 12, 1999                  By: /s/ Stephen M. Brett
                                             ----------------------------------
                                                 Stephen M. Brett
                                                  Senior Executive Vice
                                                   President




Date: November 12, 1999                  By: /s/ Ann M. Koets
                                             ----------------------------------
                                                 Ann M. Koets
                                                  Executive Vice President
                                                   and Chief Financial Officer
                                                   (Chief Accounting Officer)





<PAGE>   80



                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER        DESCRIPTION
-------       -----------
<S>           <C>
 10.1     - Amendment to Employment Agreement, effective as of March 9, 1999,
            between Liberty Media Corporation and John C. Malone

 10.2     - Employment Agreement between Tele-Communications, Inc. and Marvin
            Jones, dated as of July 14, 1999.

 10.3     - Employment Agreement between AT&T Corp. and Stephen M. Brett, dated
            as of April 1, 1999.

 27       - Tele-Communications, Inc. Financial Data Schedule
</TABLE>